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Indian textile producers are witnessing initial signs of a demand slowdown as high energy and food prices have weakened demand for products such as curtains and bedspreads in the top export markets of the US and Europe, textiles secretary Upendra Prasad Singh said.

“It’s a fact that inventory levels are high at the moment. Due to high inflation in the US, demand has slowed, especially for home textile products as it is more price-sensitive than apparel and garments," Singh said in an interview.

The latest readings of manufacturing and services activity indicate that the economic outlook is darkening in the US and Europe. High energy costs because of the war in Ukraine, supply-chain disruptions because of pandemic-related lockdowns in China, surging commodities prices, and rising interest rates are increasing the risk of recession.

Japan’s Nomura said the US and EU could enter recession in the next 12 months as there are increasing signs of the world economy entering a “synchronized growth slowdown", and that countries can no longer rely on a rebound in exports for growth.

India’s exports, too, have begun moderating on a sequential basis after touching a record high in FY22. Meanwhile, a sharp surge in oil and gold imports has pushed the nation’s trade deficit to a record in June. “Demand is not as robust as it used to be a year back, but opportunities are coming up as well. Several countries are adopting the China-plus-one strategy. Sri Lanka has also been vacating space in the sector. The free-trade agreements (FTAs) with the United Arab Emirates and Australia will also push up export growth," he added.

Sachchidanand Shukla, chief economist, Mahindra Group, said cotton prices are set to weaken amid slackening demand and global recessionary fears. He added that a better crop outlook could also drive cotton prices lower.

Textiles secretary Singh said the government would soon launch the second round of production-linked incentives (PLI) in textiles to boost production of apparel and garments as they got limited benefits in the first round.

Textile export growth is crucial as India’s share of ready-made garments has dropped from 6% in FY10 to 4.2% in FY21 as Bangladesh and Vietnam grabbed market share.

India’s share of cotton yarn, fabrics and handloom products inched up from 3% in FY10 to 3.9% in FY16 and then fell to 3.4% in FY21, Morgan Stanley said in a note.

“Growth in apparel and garments has not happened as it should have. We have been stagnant in this sector for quite some time. Therefore, 4,500 crore would be allocated in the second PLI. We have been facing tough competition from Bangladesh and Vietnam because they have FTAs with European countries. A boost to apparel and garments is especially beneficial for women workers as this sector employs a large number of women. Besides, we have also proposed lowering the investment threshold this time to bring in more investments," Singh added.

The textile secretary added a weakening rupee and easing cotton prices would help increase India’s competitiveness. Textile makers had been asking for a ban on cotton exports, but easing cotton prices meant that government intervention is no longer required. According to Apparel Export Promotion Council chairman Narendra Goenka, textile export growth volume may drop 10% this year due to softening demand.

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