New Delhi: India’s $52 billion (Rs2.28 trillion) textile industry, the biggest source of employment in the country after agriculture, is showing signs of fatigue.
Textile makers, hit by soaring raw material costs and more expensive credit, are cutting jobs and putting expansions on hold as they brace for an export slowdown, the result of a downturn in the global economy.
At least 1.5 million people employed in textile units have been thrown out of work since last year, according to an industry association, while new job creation is way behind target.
As troubles pile up, the sector, which employs 35 million people, may end fiscal 2009 with growth that is a third the pace it has targeted.
HARD HIT (Graphic)
This year’s troubles follow the steep appreciation of the rupee in 2007 that hurt the overseas earnings of an industry that makes up about 17% of the country’s exports.
While exports rose 9.3% in the year ended March 2008 to $20.5 billion, they were $4.5 billion, or 18%, short of the industry’s target.
The rupee’s depreciation against the dollar this year should have pleased exporters, but the benefits of a weaker currency have been offset by the surge in costs and the global economic slowdown.
“Half of the country’s entire textile chain—from yarn to garments—are exported. But today almost all companies are reflecting a downhill trend as the industry becomes uncompetitive,” said D.K. Nair, secretary general of the Confederation of Indian Textile Industry, a lobby group.
Soundaraa Knitwears Ltd, a manufacturing unit on the outskirts of textile town Tirupur in Tamil Nadu, supplies a range of garments from baby wear to woven shirts to Europe. Last year, it recorded exports worth Rs25 crore.
Export orders have fallen 15% since April, compared with a year ago, forcing the company to fire 50 of its 400 workers.
Soundaraa managing partner Yoga Prakash says Europeans hit by a steep hike in oil prices are spending less on clothes, resulting in fewer export orders, while raw material and electricity costs have surged. Cheaper textile producers such as Vietnam and Cambodia are gaining at India’s expense.
“People are spending more on their cars with fuel prices going up, than on clothes,” Prakash said. “We just have just not been able to meet order price targets.”
The Confederation of Indian Textile Industry said the sector is growing at 4-5% instead of the projected 14-15%.
At least 1.5 million people employed in the so-called unorganized sector, which comprises 80% of the total weaving, processing and garment manufacturing units, have lost their jobs since last year, according to the Mumbai-based Federation of Indian Art Silk Industry. The federation represents small and medium companies in the synthetic textiles industry.
The industry had been expected to generate 14 million new jobs in the five years to 2012, some six million of them direct employment. But the Confederation of Indian Textile Industry said it’s already trailing behind and had created one million fewer jobs last year.
“Even if conditions improve, we won’t be able to achieve this target within five years,” said the group’s secretary-general Nair.
Textiles companies had been racing to set up large capacities since 2005, when import quotas were abolished. Now, they are postponing expansion plans as costs rise. Listed company Shree Rajasthan Syntex Ltd, which is located in Udaipur, Rajasthan, has postponed plans to set up a Rs100 crore synthetic fibre mill in Andhra Pradesh’s Nellore district, with a potential to employ 2,000 people.
“The situation is bad... We have not been able to pass on the costs to our customers,” said Vinod Kumar Ladia, managing director of Shree Rajasthan Syntex.
Prices of cotton, which accounts for more than half of domestic fibre consumption, have risen by 20-50% in the last one year while the costs of artificial fibres such as polyester, nylon and acrylic that are made from petroleum byproducts have increased as well.
Power looms clusters across the country are facing closure, according to Arun Jeriwala, president of the Federation of Indian Art Silk Industry and managing director of Surat-based Quality Silk Mills Ltd, a privately held company that produces 1 million metres of synthetic fabric a month.
The hardest-hit textile zones are Surat in Gujarat, which makes up 65% of the country’s artificial fibre production, Maharashtra’s textiles centres of Bhiwandi and Ichalkaranji and Tirupur in Tamil Nadu, Jeriwala said. The price of viscose fibre yarn, which is made from wood pulp after chemical treatment, too has risen from Rs91,000 a tonne to Rs104,000 a tonne since April. Polyester fibre has jumped 20% to Rs85,000 a tonne. Demand for synthetic fabric, which goes into making cheap saris and shirts, is also down 15% from last year.
“India’s lower middle class are major consumers of synthetic fabrics. While they are the more conscious section of the society, they have to shell out more to look good now,” said Jeriwala of the Federation of Indian Art Silk Industry.
Power costs have surged in states such as Maharashtra, Andhra Pradesh and Kerala, which cut electricity supply to industrial units by 25-35% last month amid a shortfall in generation. Manufacturers are using captive power, which cost more than double what they normally pay for grid power at between Rs3.75 and Rs4.25 per unit.
“There are challenges in the sector. First, there are the high power, raw material and real estate costs. And now the demand side is not showing robust growth,” said Unmesh Sharma, an analyst at brokerage firm Macquarie Securities (India) Pvt. Ltd.