Impact Of Covid-19 on Textile Industry in India

When the battle is with an invisible enemy, winning becomes very challenging. Almost half of the countries in the world are fighting one of the worst periods in known history. Most of the major economies of the globe are reeling from the pandemic created by the virus Covid-19. 

India, too, has been shaken by the wrath of the virus. The complete lockdown initially and then the partial closure of business and normal life in some states in the country has shaken the core of the economy. 

Various industries, including the textile industry, have seen unimaginable days, and this has made the future of the textile industry a major concern from an economic point of view. 

The Indian Textiles and apparel (T&A) industry are one of the most vital sectors in the Indian economy in terms of employment generation, output, and foreign exchange earnings.

It contributes approximately 15% to the country’s export earnings, 7% to industrial output, and 2% to the GDP. (Source: The Ministry of Textiles, www.pib.gov.in). With the complete and partial lockdown of trains and flights, the domestic operation of the industry has been hit really hard.

The virus has also disrupted the global supply chain for over six months now, and its implications can be felt in the Indian economy. Indian Textiles and Apparels (T&A) industry holds approximately 4% of the global textile market. (Source: The Ministry of Textiles, www.pib.gov.in) 

The areas that are facing the impact of the pandemic are:

Employment and Labour force:

The Textile and apparel industry provides employment to over 40 million people. The countrywide lockdown has led to a temporary closure of the factories, and lay-offs have already started increasing among the low-wage laborers.

Cash flow:

The industry has been bugged by profitability issues since there has been a sharp decline in cheaper imports, yarn exports, and other related factors. This has led to a severe cash crunch, and the situation doesn’t look bright in the near future.

Disruption in the supply chain:

With the decline in the global supply chain, the textile industry is under a lot of pressure. Textile Manufacturing Companies in India need to diversify the domestic sourcing opportunities because of the impact of the pandemic on imports and export.

Import and Export of readymade garments and raw materials:

Globally, in terms of value, the United States and the European Union comprise 60% of the total apparel export from India. However, the pandemic has led to the cancellation or deferral of orders leading to inventory piling and a slower realization of export receivables. This has led to higher working capital requirements.

Textile exports have dried during the last quarter of FY2020. With a working capital shortage and lack of information on duties and incentives, and the exporters from Bangladesh, Sri Lanka, and Vietnam receiving preferential access, the T&A industry would need some time to recover the enormous loss.

To add to that, domestic consumption has also not picked up. New stores have not come up and the existing stores are facing inventory build-up issues. Whatmore, it could adversely impact domestic pricing if the exporter starts dumping their inventories in the domestic market. This would result in reduced margins, leading to reduced employment of casual laborers.

The covid-19 pandemic has adversely impacted imports and exports, which had a second-order impact on domestic markets resulting in domestic sales falling.

Consumer sensibility:

The countrywide lockdown and followed by partial lockdowns in a few states have had a major impact on the consumer thought process. The biggest setback has been faced by mall owners. The closure of retail outlets for days and the social distancing factors have made consumers avoid shops and stores resulting in the fall of retail business.

The Silver Lining

The government of India has introduced various policies to help the textile and apparel industry grow in the long term. Allowance of 100% FDI in the said sector under automatic route is expected to attract INR 10, 485 billion in the coming years. 

High investments are also expected to be carried out in the coming years under multiple schemes Integrated Textile Parks (SITP) and Technology Upgradation Fund Scheme (TUFS) to train the domestic workforce and encourage the flow of more private equity

To speed up the growth further, the Ministry of Textiles has assigned INR 6,900 million for the setup of 21 readymade garment manufacturing factories in seven Indian states. India has also become the second-largest PPE manufacturing country in the world, with over 600 companies having the license to produce PPE’s.  

The immediate impact of Covid-19 has left the Textile sector in deep turmoil. The sector was projected to grow at a CAGR of 12% to reach INR 16,337 billion by FY 2025 -26  has shrunk and is now expected to reach INR 4,163 billion in the same time frame. Having said that, the government of India is taking enough initiatives to pull the industry from the sudden slumber and make it running.

The Confederation of Indian Textile Industry (CITI), states that the recovery of the Indian textile domestic market is expected to be steep post the pandemic and shall reach an estimated INR 9,074 by FY 2024.

The government measures to combat the impact of Covid-19, include INR 3,000 billion collateral-free automatic loans for businesses including MSMEs. It should be able to rejuvenate the important sectors, including many small textile and apparel units. 

The Covid-19 pandemic will result in lower growth and market value in the coming two financial quarters as compared to historical averages.

However Indian textile industry still has the potential to achieve a much higher share in the global market by FY 2025.

( All figures and estimates have been sourced from The Ministry of Textiles, www.pib.gov.in).

We at Omsakthi-A-Overseas, being one of the leading textile manufacturers in India are following all the government guidelines and looking forward to everything settling down soon.