By, Munish Tyagi, International consultant, to the Textile & Apparel Industry, worldwide
OVERVIEW
The ongoing COVID19 has started played havoc with India s teeming millions, making it to 9 the worst affected country. India s textile and clothing industry, its output, and prospects, even though India has now taken a severe and devastating nose dive especially in wake of the `reverse` migration of its industrial workers of which at least 10 million were working in the T&C sectors. Indian economy, now the 5th largest in the world of size $2.5 Trillion, is losing out at a rate of $1 Billion per day alone in domestic markets; and may close the current FY 2020 with `zero growth` versus 5% that was just pre COVID.
India’s economy had slowed down in March, but it was then projected to have managed a gross domestic product (GDP) growth of about $3,000 billion at the end of FY20. Private consumption accounts for about 58 percent of GDP (around $1,700 billion). Of such consumption, about 48 percent (or about $825 billion) is consumer spending on merchandise (the size of India’s retail sector) and the remaining $875 billion is spent on a range of services (and small savings). The ongoing sharp fall in growth due to static and declining consumer demand will have a significant impact on what India consumes in the next six or eight quarters as purchasing power has significantly diminished. Accordingly, this will influence and negatively impact the fortunes of the retail sector across all types of channels and formats with max. the decline in earnings of the textile/clothing/and fashion segments.A sharp fall in `consumer demand` will have a significant impact on what India consumes in the next six or eight quarters as purchasing power drastically feel during the Covid19 and will continue the same trends din postCovid due to millions of `job losses` and migrant workers going back to the rural homes. Accordingly, this will influence the fortunes of the retail sector across all types, including E-commerce
While the neighboring B.Desh has already lost $ 2 to 2.5 Bln revenues for its garment export orders which service almost 80% foreign exchange earnings for the country; It is estimated that India s textile/clothing industry will take a hit of 30-35% on its total overall income and turnover of approx. USD 100 Billion mainly due to the drastic cut down in both, the domestic and export demand. The export and retail `demand recession` outlined above will lead to an overall reduction in manufacturing capacity utilisations as a domino effect on the fabric making, Yarn spinning, and eventually last-mile segment of Cotton and its farming.
India s textile and apparel sectors will continue facing the headwinds from both, the reduced export demand as also `loss of consumer confidence` to shore up the domestic retail consumption. It is very important to understand that the initial impact of COVID 19 was mainly for `Supply-side ` disruptions due to the closure of manufacturing plants in China, followed by Turkey, and then India, Vietnam, and others. Today, after 3months of Covid119 beginning, while the supply side has started its restoration process with China to begin/relaunch first and others to follow; It is the Demand side which is standing still with limited active retail and export buyers to help restart production of T &C.
With huge closure of retail esp. in western Europe and the USA, and the continued closure of shopping malls, high street retail outlets, and the absence of export orders; the tailwinds for countries like India are too strong when there is no back up domestic demand to support the above-market losses. The Indian govt. under the circumstances has tried to provide a multi-billion dollar package to revive the core industries, the SME industry which encompasses the majority of small to medium textile and apparel exporting units. However, its impact is neither seen nor future visible demand due to much-reduced consumption which is now shifted out for more essential daily life products.
COTTON AND COTTON YARN SECTORIAL IMPACT
1.COTTON
Quintals of cotton remain unsold in the largest cotton-producing states of Maharashtra and Gujarat which are also the most affected COVID hit states. Cotton growers in Maharashtra and Gujarat are yet to offload their produce due to movement restrictions. According to government estimates, growers in both states have at least 3.2 Mln quintals of unsold kapas (raw unginned seed cotton), and) textile mills still working at 25-35% capacity levels and, monsoon approaching, farmers will be unable to sell their 2019 produce.
In this forlorn scenario for cotton growers, it has been a great relief that the Govt s Cotton Corporation has already bought 10.5 million bales of Cotton directly, as part of the center’s Relief package
YARN SPINNING SECTOR
Indian spinners stare at $3-billion loss BY FY21.
As per Icra, the Covid-19 pandemic is hitting the domestic cotton yarn spinning sector hard, with its performance in FY21 likely to be at multi-year lows. Also, amid severe demand disruptions, pressure on realizations as well as contribution margins, the operating income of cotton spinners is expected to decline 15-20% on a year-on-year basis, while the operating margins are estimated to correct by 200-400 bps for the full year hopefully by FY21, compared to the FY20 levels, subject to and very conditional to some revival in new export demand form Nov.2020 onwards
