Indian Textile SMEs Face Headwinds as Global Demand Declines

 10 April 2023, Mumbai 

Inconsistent/unpredictable government policies and fast-changing market/trade dynamics result in India's textile industry facing challenging times as international consumers reduce spending on non-essential items, leading to a contraction in import orders for textiles and garments worldwide.

This has left the sector vulnerable, and reports suggest that the industry, which is worth $200 billion and employs over 45 million people, is facing a crisis.

Despite India's relatively strong overall economy that is outperforming major economies, the textile sector is struggling, and orders indicate that the downturn is expected to continue into 2023, increasing the risk of layoffs/Lack of skilled workforce.

What all you need to know

Typical Challenges & obstacle SMEs Face in India

Likely to have restricted access to finance & credit facilities leading to restricted market reach and difficulty in expanding business, again may be slow in technology adoption/embracing digitalization.

Lack of general wherewithals to take on organized sector/larger corporations and face difficulties in expanding footprints on account of limited networking and collaboration opportunities at their disposal.

Weighed in by compliance/regulatory burden owing to insufficient/commensurate infrastructure grappling with the difficulty in attracting and retaining talent.

Small and Mighty

Textile sector SMEs principally refer to small and medium-sized enterprises (SMEs) that run & operate within the textile sector, spanning the whole gamut of activities related to the manufacturing, processing, and trade of textiles, apparel/garments, and related products.

We have to state here, that these businesses typically have low/limited resources/limited resilience, smaller-scale operations, and lower annual turnovers Vs larger textile industry/mighty players to weather the difficult times/business conditions.

Indian Government special measures to Help Textile SMEs Meet the Present-day Challenge

Make in India campaign; Special financial assistance/aid through schemes like the Technology Upgradation Fund Scheme/ the Amended Technology Upgradation Fund Scheme (ATUFS) & Credit Linked Capital Subsidy Scheme.

The Market Access Initiative (MAI) and the Market Development Assistance (MDA) scheme rev up exports, incentivizing for promotion of sustainable/eco-friendly practices in the trade.

The Integrated Skill Development Scheme (ISDS) addresses the workforce challenges in the earnest for sector-skill development ecosystem.

The Scheme for Integrated Textile Parks/common facilities centers and testing laboratories for early tech adoption/Digitisation to enhance overall competitiveness and efficiency in the business approach of networking and knowledge sharing/pooling.

Simplification/rationalization of regulatory processes for ease of doing business/lessening compliance burden.

Focus on promoting domestic consumption and exploring new markets through initiatives like the National Handloom Development Programme (NHDP).

India's Textile Industry Struggles

Exports, which constitute about 22% of the textile industry, have declined significantly in recent months, with a year-on-year decline of over 15% in November 2022, totaling $3.1 billion.

A McKinsey report has also highlighted concerns about the outlook for textile and garment exports in 2023. The production of textiles, as measured by the Index of Industrial Production (IIP), has consistently declined since March 2022, with the cumulative index value for April to October 2022 being lower than the corresponding period in 2021.

Meanwhile, what does not serve anyone's purpose is rising imports of textiles, data raises serious concerns given that it is already worth Rs 433 billion from April to November 2022, Vs. Rs 313 billion during the corresponding period of the previous year, adding woes to the worsening situation which does not augur well for the sector.

Imports Surge Due to Cost-Attractive Deals

One of the factors contributing to the challenges faced by the Indian textile industry is the surge in cost-attractive imports. According to CRISIL SME Tracker, cotton yarn prices are projected to fall by almost 15% in FY24 due to a high base and subdued export demand, affecting price realization.

As export demand slows down in the US and Europe, which usually accounts for a significant portion of the market, the revenue growth of the textiles sector is expected to moderate in FY23-24.

This is particularly concerning for small and medium enterprises (SMEs) that make up around 75% of the textile value chain and have seen robust revenue and profit growth in FY22 due to the post-pandemic surge in exports.

In addition to the decline in production, there has been an increase in imports of textiles in recent months. Imports of textiles from April to November 2022 were valued at Rs 433 billion, compared to Rs 313 billion in the same period the previous year, according to findings by The Print.

This trend of rising textile imports is not recent and can be attributed to past policies, such as the duty-free import of readymade garments from Bangladesh under the South Asian Free Trade Agreement (SAFTA) in 2006.

This has resulted in an increase in imports of garments made with Chinese fabrics and yarns from Bangladesh, without paying import duties, indirectly facilitating the entry of Chinese textiles into India.

Textile Exports Plummet, Imports Surge in India

Indian textile SMEs are struggling to cope with headwinds as global demand for textiles and garments is softening. The trend is bearish as exports fell over 15% YoY in November 2022, while imports of textiles show an increasing trend adding to woes.

Can Increased Domestic Consumption Save India's Struggling Textile Sector?

Despite these challenges, there is hope for the Indian textile industry in the form of domestic consumption.

CRISIL SME Tracker predicts a boost in the textile sector in FY24 driven by domestic consumption, as Indian consumers increase spending on readymade garments, festive wear, and occasion wear. This is expected to positively impact the production of textiles, particularly in domestic production hubs like Kolkata, Kanchipuram, and Ludhiana, which are likely to outperform the export-centric clusters.

The proliferation of local labels for mass and high fashion, thanks to e-commerce, has also led to greater demand for domestic textiles.

If this trend of increased domestic consumption continues, it may help the Indian textile sector weather the challenges of 2023 and pave the way for better times in the coming year.

However, it is crucial for the industry to address the issues of declining exports, rising imports, and other challenges to ensure sustainable growth and resilience in the face of global uncertainties.

Quick Summary

Textile SMEs Navigate Challenges in the Industry; The article takes a deep dive into analyzing technical aspects providing valuable insights into how the situation is panning out currently in the overall Indian textile space witnessing global economic headwinds led to heightened SMEs day to day challenges as there is a greater co-relation between global demand, export orders, and revenue growth all trending in negative territory for the moment.

Whilst on the other hand imports of textiles have increased, while there is a secular unanimity amongst trade experts here that domestic consumption may provide a boost to the sector in the future.

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