Textile Exports Plunge, Hindering India

23 June 2023, Mumbai

In May, India's textile and apparel industry encountered a significant setback as its exports witnessed a year-on-year decline of 12.2%. The industry continued to be plagued by low demand in crucial overseas markets, especially the United States.

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Textile exports contracted by 11.8%, while apparel exports experienced a decline of 12.7%. Other sectors also suffered, with jute products slumping by 29.3% and handicrafts and handmade carpets falling by 21.1%. 

May 2023 Figures Plummet

In May 2023, the total value of India's textile and apparel exports amounted to $2,816 million, compared to $3,206 million in May 2022.

The decline in exports was primarily attributed to sluggish demand in major importing countries such as the United States, Germany, and the United Kingdom, influenced by inflation and inventory accumulation. However, there are positive indications of improvement as exporters gradually secure new orders.

Turning point

The reopening of China after the COVID-19 pandemic also presents opportunities for business growth, particularly in the yarn and fabrics segment. Additionally, the moderation of domestic cotton prices offers hope for increased sales starting from July/August. Despite signs of recovery in the U.S. market, exports to the European Union have not met expectations.

Concerns Arise as Textile Imports Surpass Exports in India

Industry analysts are concerned as the country’s textile exports surpassed imports. Recently, there has been a growth in textile imports, driven not just by massive purchases of raw materials such as raw cotton, fabrics, and man-made textiles but surprisingly also of finished products. 

India, traditionally a major exporter saw its textile and garment imports grow almost t48.8 percent until November this fiscal from a year ago to $7.2 billion. At the same time, outbound shipments of such products dropped 13.4 percent to $23.1 billion. And officials say, these imports are likely to be over $10 billion in the current fiscal and that’s a record.

PLI, trade deals hope to decrease import dependence

As per a Financial Express report, apparel imports increased 53 percent to $1.2 billion in the first eight months of last year. 

This includes around 40 percent of garment imports from Bangladesh where many Indian companies have set up units over the past 15 years to take advantage of its duty-free access to large markets of the US and EU while another 20 percent has come from China.

However, experts feel once early investments made under the production-linked incentive (PLI) scheme for textiles bear fruit, the situation will change for the better this fiscal. 

Supportive trade pacts 

Moreover, recent trade deals with the UAE and Australia will further improve the situation and the government’s efforts to improve cotton production will also reduce imports of basic raw material cotton in 2023. 

Supply chain

The current shortage of cotton in the domestic market has not only hiked up the fiber import percentage but harmed the production capacity of several units in the value chain. 

The increase in cotton prices also drove up the import value of both inputs and finished products along with Indian companies getting more garment supplies to India from their manufacturing units in Bangladesh.

Man-made fibers and other causes for export slump

With global consumption patterns currently focussed more on man-made fibers and technical textiles products, many factors such as the dominance of smaller businesses with limited scale manufacturing capacity and inflexible labor rules have affected this segment. 

Along with this, high logistics costs as well as stiffer competition from Bangladesh and Vietnam in the last decade have been detrimental to this segment.

Datapoint

As per a CCF Group study, in India where the main exports are textiles followed by apparel, there has been a slump for five consecutive months leading up to December 2022. 

Textile products such as cotton and yarn products which account for nearly one-third of the total were down 3.6 percentage points compared with the proportion of the same period last year which was down 12.2 percent over the same period last year.

From the volume of Indian cotton in the current markets, the 2022-23 Indian cotton yield is lower than expected in the previous period, which is a support for Indian cotton prices.

Although downstream demand is relatively weak, it will be further affected by the present high cotton prices and the year ahead doesn’t look too optimistic. 

Cotton trade dynamics

With cotton prices remaining high, there is not much significant improvement among its domestic midstream and upstream spinning and weaving mills where the operating rate remains at a low level and also lowers the actual international competitiveness of Indian textiles.

As per the CCF Group study, India’s low textile and apparel exports in 2022 were mainly due to a fall in exports in the second half of the year. What’s more, December stats do not show much improvement either. And the situation may not improve too much in the first quarter of 2023.

Opportunities for Growth

Urgent Need for Free Trade Agreement; Competing countries that enjoy duty-free access have an 11% cost advantage. Therefore, the industry strongly feels the need to expedite the free trade agreement with the United Kingdom.

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