India’s ready-made garment industry faces slowdown with a dip in domestic demand: CRISIL Report

05 November 2024, Mumbai

The Indian ready-made garment (RMG) industry is bracing for a slowdown, with revenue growth projected at a moderate to 4-6 per cent in the current fiscal year (FY25), down from 6 per cent in the previous year, says a recent report by CRISIL Ratings. The report cites sluggish domestic demand as the primary reason for this deceleration.

The report, which analyzed over 140 RMG makers with aggregate revenue of approximately Rs 43,000 crore, attributes the slowdown to sluggish domestic demand. Consumers are shifting their spending towards experiences like travel and services, as well as electronic gadgets, impacting demand for RMG. This shift is diverting expenditure away from ready-made garments, impacting domestic demand.

CRISIL report’s key highlights

The report outlines sluggish domestic demand and a shift in consumer spending patterns that is impacting demand for RMG. It further states, exports are expected to grow around 5-7 per cent this fiscal, driven by inventory replenishment by retailers in the US and EU. However, despite the increase in volume, realizations are expected to remain flat due to lower cotton prices. Operating margins are expected to remain stable at 11.0-11.5 per cent. This stability is attributed to relatively low and stable raw material prices, coupled with the industry's labor-intensive nature and modest capital expenditure requirements. And credit profiles of RMG makers are supported by modest capital expenditure and steady working capital cycles.

Table: Dipping revenue growth

While the report does not provide specific case studies, it highlights the broader trends impacting the industry. For instance, a leading RMG manufacturer based in Tamil Nadu’s textile hub Tirupur, reported a slowdown in domestic sales in the first quarter of FY25. The company, however, saw a rise in export orders from the US, helping to offset the domestic slowdown. This underlines, India’s RMG industry faces challenges due to sluggish domestic demand and rising input costs. However, opportunities exist in export markets, particularly in the US and EU. The government's production-linked incentive (PLI) scheme for textiles and extension of the export incentive scheme can also support the industry's growth.

Overall, the Indian RMG industry is navigating a challenging environment marked by slowing domestic demand. However, with a focus on exports and government support, the industry is expected to maintain stable growth in the coming years.

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