COVID-19 Disruption on Indian Apparel & Textile Industry

Article by Kapil Pathare, Director, VIP Clothing’s Ltd

Indian Textiles and Apparels (T&A) industry, accounts for approximately 4% of the global T&A market. The T&A industry is one of the largest and the most important sectors for the Indian economy in terms of output, foreign exchange earnings and employment. The industry contributes approximately 7% to industrial output in value terms, 2% to the GDP and 15% to the country’s export earnings. 

The Indian economy has been hit hard by Covid-19. Due to the countrywide lockdown various transport facilities including trains and flights are suspended which is expected to hurt domestic operations in India.  

With the virus now also affecting and disrupting global supply chains and economy for almost 3 to 6 months now, the situation is having a severe implication on the Indian economy as well.

The areas that would face the crisis created by Covid19 pandemic are:

Labour force and employment:

T&A provides direct employment to over 45 million people but the nationwide lockdown has led to temporary closure of factories and lay-offs have already begun among low wage worker.

Import & Exports of raw material and readymade garment:

The Covid-19 pandemic is primarily expected to adversely impact exports and with second order impact on the domestic markets with both exports as well as domestic sales falling. 

The pandemic has affected the majority of India’s export market (the US and EU together constitute for approximately, 60% of the total apparel exports from India in value terms), causing order cancellations/deferral of order leading to inventory build-up and expectation of slower realization of export receivables leading to higher working capital requirements.

Apparel exports are expected to fall due to drying up of order in the last quarter of FY20, working capital issues and lack of clarity on the duties and incentives especially when exporters from Bangladesh, Sri Lanka and Vietnam receive preferential access. 

Additionally, domestic consumption is also getting impacted due to all India closure. New store openings have stopped and even domestic stores are facing an inventory build-up due to apparel sources for the upcoming summer season, Further, domestic prices could be negatively impacted if exporters dump their inventories in the domestic market leading to even reduced margins. This could lead to short term blips such as reduced employment of casual labour (factory closures and people moving back to their home towns) and reduced consumption.

Cash flow constraints: 

The sector has been grappling with profitability issue due to a sharp decline in yarn exports, cheaper imports etc. these issues only look to get aggravated further with the current crisis. 

Supply chain disruption:

The Garment manufacturers need to look at local sourcing opportunities, due impact on import and export.

Consumer sentiment:

If nationwide lockdown continues and situation persists, will impact consumer sentiment on higher side, due to closure of market and mall also to maintaining the social distancing, safety and health.

The extent of the outbreak and lockdown would directly impact the length of the recovery cycle. However, to minimize the impact the Confederation of Indian Textile Industry (CITI) has requested the government to immediately announce a relief package for the textile and apparel sector to mitigate the crisis being faced by the capital and labour-intensive textile Industry, post the corona virus spread.