India’s Textile Units Brace For Many Layers Of Uncertainty

Country after country had seen the novel coronavirus spread rapidly across borders, forcing draconian restrictions on movement of citizens and shutdowns across businesses. India was unlikely to remain immune.

Yet when Modi announced a 21-day nationwide lockdown, he was surprised at the severity of the restrictions. “We were anticipating something of this nature. But we did not expect a nationwide lockdown of this magnitude. With just a four-hour notice, the country went into a lockdown,” Masand, who owns a clothing business in Mumbai, told BloombergQuint.

As details emerged, 52-year-old Masand’s mind raced through what this would mean for ‘Rushank Clothiers’, his clothing business which clocks an annual turnover of about Rs 35 crore and employs about 150 people.

“My first thought was about the big quantity of ready stock I was holding,” he told BloombergQuint. “A substantial part of it was to be delivered in the next 25 days.”

25-year-old Rushank Clothiers manufactures shirts and supplies them to about a thousand retailers spread across 10 states in India. The travel restrictions meant that even goods ready for transport could not find their way into stores. Besides, the stores wouldn't open in any case to sell the goods.

Local shipments, Masand knew, would stall.

Like many others in the textile business, Rushank Clothiers exports as well. What will happen to the consignments due for exports to the Middle East, he wondered.

The Jawaharlal Nehru Port Trust, the terminal used by the company to export garments to the United Arab Emirates, was functional but only for supply of essential commodities. Shipping was not immediately possible.

“I don’t know if the buyer will accept the consignment as the last date of delivery was April 10," Masand said, adding that the probability of order cancellations is higher.

Masand’s pain is being felt by many others across different parts of the world, given an increasingly globalised supply chain in the textile industry.

With the onset of summer in Ontario, Canada, Allan Mathews was waiting to receive a consignment of beach towels. Just then, India declared a 21-day nationwide lockdown.

The towels, made in Solapur in the western Indian state of Maharashtra, were ready for dispatch, loaded into trucks for export via JNPT. The truck was stopped just outside the port because the lockdown did not permit for these items to be shipped under the essential commodities classification.

Mathews, vice-president at Home Textiles Inc., which had placed the order, got on the phone with his clients—mostly mom-and-pop stores in Canada—to inform them of the likely 21-day delay. But the lockdown was extended to 40 days.

A Problem Which Is A Sum Of Parts

The story of each individual textile business, when added together, will make for a much larger problem for the Indian economy.

The textiles and apparel industry contributes 2.3 percent to India’s gross domestic product, accounts for 13 percent of industrial production, and 12 percent of the country’s export earnings, according to National Investment Promotion and Facilitation Agency run by the Ministry of Commerce and Industry.

Close to 25 million people are employed in the sector, according to industry estimates.

What makes it tougher is that a large number of these units are small and medium enterprises with limited resources to withstand a complete shutdown in revenues. About 65-70 percent of all textile and garment manufacturers are SMEs, said Chandrima Chatterjee, adviser at the Apparel Export Promotion Council.

Most are facing a predicament similar to Masand.

“There is no production because of the lockdown. Those who were in the middle of their orders or had completed their orders and were not able to ship them have seen inventory pile up and are looking at losses,” Chatterjee said.

A survey conducted by the Clothing Manufacturers’ Association of India earlier this month threw up stark results.

• About 59 percent of those surveyed are expecting a revenue drop of more than 40 percent, while 29 percent expect a 20-40 percent drop.
• 81 percent of those surveyed had seen orders already cancelled, 98 percent are seeing delayed payments.
• 80 percent felt they may not be able to sustain their current work force without government support.

Dispersed Supply Chain Will Delay Restart

The nationwide lockdown is scheduled to lift on May 3. It’s unclear whether activities will be resumed in phases or only in areas where the spread of the novel coronavirus is relatively controlled.

These uncertainties will mean that the road to normalcy will be a long one, particularly for a sector like textiles which has dispersed supply chains.

For instance, Masand’s Rushank Clothiers sources fabric from Hi-Fabrique Inc., a Bengaluru-based fabric trader. While its hub is in the South Indian state of Karnataka, Hi-Fabrique sources textiles from several mills in Maharashtra, Gujarat, Rajasthan, Madhya Pradesh and other states. It supplies these to about 350 manufacturers and 3000 stores across about eight or nine major states.

Naveen Ranka, director at Hi-Fabrique, says that even if economic activity in any one big Indian state is affected, the impact will be felt all across. Even when trade resumes, restrictions on movement are likely to continue for longer, which will leave an imprint on the sector, Ranka said.

Persistent health fears will also mean that fewer people will travel, trade fairs will be pushed back. “The textiles market is entirely driven by look and feel... With travel curtailed and no trade fairs, how will suppliers sell?” he said.

There will be still another layer of uncertainty—how soon will stores open and people return to markets?

One of final destinations for shirts stitched by Rushank is Meena Bazaar in Chandigarh.

Footfalls in stores were down by about 60 percent even before the lockdown was announced, said Manish Jain, a managing partner at Meena Bazaar.

Jain does not expect normal footfalls to resume before mid-June. While he hopes to liquidate the current stock by August, the earliest he is expecting a pickup in business is during the festive season starting November.

Jain isn’t giving up hope though.

Like in China, we might see "revenge spending", said Jain. Till that happens, the hope is that the government will step in with some relief.

The Wait For Relief

Logistics and supply chain disruptions are unlikely to normalise any time soon, said Manguirish Pai Raiker, chairman of Assocham’s MSME council. Payments, too, are unlikely to come on time, even though liabilities will need to be services. Raiker suggested that the government should create a stabilisation fund for MSMEs to tide over this period of cash flows.

So far, relief has mostly come via easier conditions on the credit raised by companies after the Reserve Bank of India allowed a three-month moratorium on interest payments.

Masand has received a two-month moratorium. But it may not be sufficient. Salaries and wages have to be paid. Liabilities, though deferred, eventually have to be serviced.

The pressures will eventually become unsustainable for many businesses.

“Business has been slow for the last year and a half. Much before the pandemic,” said Masand. “This means that there is an increased chance that a part of the garment industry gets wiped out.”

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His sentiments echoed in the survey conducted by the Clothing Manufacturers’ Association of India. 20 percent of respondents said they could close down their business after the lockdown.