That brands may eventually not scrap orders is not necessarily good news since it comes with a rider. Even if orders already placed are not cancelled or postponed, the holding cost involved would greatly impact apparel manufacturers and exporters. The holding cost is the interest incurred on the value of the goods till the order is finally executed.
Apparel manufacturers are highly dependent on the US and Europe, the major destinations for Indian exports. “Even if buyers don’t cancel the orders now, it all depends on how Europe and America recover from COVID-19. Unless they recover and even if India re-opens, exporters will find it difficult to start their factories,” points out Mumbai-based Creative Garments chairman Vijay Kumar Agarwal.
“Most buyers have not cancelled orders, but they are postponing them. But this has no meaning. For example, an order might be postponed to be shipped in May. In May, they might say ‘sorry’; ship it in July. In July, they can say there is no footfall in the store. So, the problem will not end until a cure is found to the COVID-19 disease,” he told Fibre2Fashion.
Seeing the situation from buyers’ standpoint, Ashok Rajani, founder-chairman of Midas Touch Export Pvt Ltd and a former chairman of Apparel Exporters Promotion Council (AEPC), says, “If the lockdown continues for one more month in the US, then retailers there would not be able to pay salaries, rents and may need to shut down their shops. Then, how are they going to honour the orders?” Suggesting a way to tackle the situation, he adds, “We have to keep persuading our brand’s appeal to them, co-ordinate with them, and negotiate the discount.”
The Indian government has urged all factories to not to cut wages of workers, but there is no capital flow at all. He cites an example, “Shahi Exports employs over 1.5 lakh people, and their combined salary would be ₹150 crore per month. How is it possible to pay such a huge amount when banks are not getting any payments?”
According to TR Vijayakumar of CBC Fashions (Asia) Pvt Ltd, who is also the secretary of Tiruppur Exporters’ Association (TEA), 50 per cent of the brands have cancelled the orders, because they cannot take the summer goods and sell them in fall/winter season once they resume their operations.
On the holding cost involved, Vijayakumar says, “We do not know whether the buyers will take the goods next season or next summer. So, till that period we have to incur an interest on the goods that we hold at present—this will have a very big impact on manufacturers.”
TEA, he mentions, has requested all brands not to cancel orders, but postpone and take the delivery later. “It is because cancellation will not let us sell the goods at the price we had fixed with the customers (we will have to sell them in the market at 30-40 per cent less price). We have requested our members to communicate the same to all buyers.”
Premal Udani, managing director of Kaytee Corporation suggests, “The only step we can take is to engage with our buyers. And also understand their problems and issues. This is something that is to be worked out with close co-ordination of the buyers. Nobody else can do anything about it.”
“We are talking to our buyers, but not getting satisfactory reverts on cancellation,” complains Anil Peshawari, MD of Noida-based Meenu Creation, but quickly adds, “because even they don’t know when they are going to open, i.e. if they are not generating revenue, how will they pay us?”
Raising the problem of labour that might crop up when the factories reopen, Rakesh Vaid, director of Gurgaon-based Usha Fabs Pvt Ltd says, “The workers who have gone back to their villages are not going to come back easily. The way they faced hardships while running away from the metros or production centres, our feedback is that they will not come back.”
Rajani concurs, “I really don’t know how many people will come back to work because most of the workers are migrants from Bihar, Uttar Pradesh, Jharkhand and other places who have gone away. And even if they come back and we start, I don’t know what to produce.”
In the current crisis situation, these apparel exporters are urging the government to come out with a stimulus package which will enable them to pay wages to their workers for the next 2-3 months.
The textiles-apparel industry employees 45 million people directly or indirectly. “The government should look into this factor very seriously, otherwise there will be huge unemployment. For the next 3 months wages, the government should either compensate or should extend an equivalent amount as loan, so employees can get wages,” said Agarwal.
Making a similar pitch, Udani said: “We expect our factory to remain closed for a substantial period of time. We hope that the government understands the plight of the apparel industry and comes up with a stimulus package which will ensure that we are able to pay our workers for the next 2-3 months.”
“We are a labour-intensive industry and if this industry is destroyed, then there would be huge amount of unemployment in the country,” says Peshawari. “So, the government has to think about it and come out with a package where it should pay at least 50 per cent of the salaries and wages of the sector as most governments of other countries are doing, till the time the situation doesn’t get stable. Elsewhere, governments have declared stimulus packages where majority of the money is going towards payment of the wages of the people.”
The government should have come up with some kind of reassurance package that won’t allow the industry to die, feels Vaid. “As of now we have no assurance from the government, only the dates of returns and other statutory have been extended.”
Making an estimate of the amount of the package, Vaid said, “The US is a $22 trillion economy. The government there has come out with a package of 10 per cent of its GDP, i.e. approx $2 trillion. Similarly, we can also take 10 per cent of our GDP and over a period of 7-8 years slowly recover our deficits as every country is doing now. In that case, we will need a package of $300+ billion.”