After a harrowing 2020 which left the Tirupur garment sector reeling under the global lockdown and exodus of guest workers, 2021 isn’t quite the relief that the multi-billion dollar sector hoped for. In addition to manpower shortage, Covid restrictions and threat of a drop in orders, the industry is battling skyrocketing prices of a crucial material — yarn.
The price of yarn has shot up by 60% to 70 % over the past five months to Rs 345 per kg. The price of rubber yarn has almost doubled from Rs 420 to Rs 800. Textile manufacturers complained that yarn prices change about five times a month, leaving their cost calculations in tatters.
Tirupur Exporters Association president Raja Shanmugam says yarn price had a cascading effect on the entire value chain, ultimately affecting the profit margin of exporters. Profit margins have dropped from 15% to 30% to 5% to 10%.
While Micro, Small and Medium Enterprises (MSMEs) are chugging on with zero profit or at times after bearing huge losses, others, including exporters, are left with no option but to reduce their profit percentage to less than 5%.
Tirupur has more than 7,000 industries involved in the garment sector, upon which up to 12 lakh workers depend. Most industries in this sector are dependent on each other like knitting, printing, dying, sewing and elastic industries. Tirupur accounts for 52% of India’s total exports of knitted garments.
“Yarn price, which dropped by Rs 10/ kg after May 2020, started to increase gradually in September. In the last three to four months, a kilogram of organic cotton yarn has increased by Rs 200 and 40 count yarn has increased to Rs 145,” said exporter R Sakthivel of Daffodil fashion.
The key reason for the price rise and surge in demand is the sudden increase in export of yarn to countries like Bangladesh, Sri Lanka, Vietnam and Cambodia, he said.
“Usually, yarn price increases proportionately with cotton, its raw material, and price goes up by Rs 2 to Rs 5 a kilogram at a time. This time, price of yarn has been on a continuous rise and it is disproportionate with the cotton price,” Sakthivel said.
Another exporter on condition of anonymity said most yarn mills are located in northern India and export a significant share of yarn. These mills have been operating with 50% to 60% of their total workforce since lockdown. So, their orders were shifted to mills in the southern states, the exporter said, adding that yarn supply has not increased accordingly. “The mills prefer to export yarn as they make better profit in the global market than in local market. The demand, in turn, has triggered panic buying,” he added.
G R Senthilvel, secretary of Tirupur exporters and manufacturers association (TEAMA), has been in the business for 30 years and said he had never seen such an acute shortage before. About 90% of orders we process are not delivered on time and we bore a huge loss, he said.
He said they had lost many customers due to delivery delays and price revisions. Once a customer exits, it is very difficult to bring them back or find a new customer given the highly competitive global market, Senthilvel said, adding that countries like Bangladesh and Vietnam have an advantage over Triupur units due to free trade agreements.
Many of us are still operating only on the hope that things will get better as we have loans looming over us, he said.
Price of rubber yarn has almost doubled in the past few months and many industrialists have taken to importing it given the surge in demand. “Even if I place an order to import it, it would take at least three months to reach me,” said R P Govindasamy, president of Tirupur elastic manufacturer and traders association.
He said units had reduced production by half and increased price of elastics by 30%. “Some buyers understand our situation and accept the revised prices, but many do not agree,” he added.
Tirupur MP K Subbarayan wrote to Union textile minister Smriti Irani last month urging the Centre to intervene. He pointed out that seven mills of National Textile Corporation (NTC) have been functioning only partially after last year’s lockdown.
The government can tap the full potential of these mills and increase yarn production. “By doing so, the textile units could get yarn at a reasonable price without any interruption in supply and NTC would be able to provide work to all its employees,” Subbarayan added.
He also requested the state government to encourage cotton cultivation in Tamil Nadu to meet the rising requirement as industries currently purchase cotton from other states.
Industrialists say that it is high time the Centre stepped in to control yarn prices, warning that the garment sector would plunge into a deeper crisis if ignored.
Source: The Times of India
Due to the resurgence of the COVID-19 pandemic cases, the full recovery for Indian apparel players is likely to be delayed to 2022-23.
A report of Icra Ratings said that the full recovery for Indian apparel players will be prolonged and pushed back to the financial year 2023 amidst rising COVID cases in India and some of the key export markets.
Icra projects the Indian apparel companies to report double-digit growth in the financial year 2022 albeit on a low base, achieving 85-95 per cent of the pre-COVID turnover levels.
The report also says that apparel exporters’ business performance in the financial year 2022, however, is expected to be better than the financial year 2021, supported by continued favourable progress on the vaccination rollout and a material shift witnessed towards online shopping.
This will cushion the adverse impact on the bricks-and-mortar outlets, helping companies report a better performance compared to last year, the report noted.
The report also anticipated that lockdown restrictions are likely to be more targeted and regionally focused compared to the national lockdown implemented last year, and companies are better prepared to follow protocols, respond to restrictions and minimise loss of operations.
“While the demand for apparels had improved in recent quarters, it remained below pre-COVID levels. This apart, the recent rise in COVID cases in key metros and Tier-1 cities is likely to keep the demand weak in the near term,” the report reads.
Icra Vice President and co-head, Corporate Sector Ratings, Nidhi Marwaha says, “Even after the infections subside, the resultant higher channel inventory is expected to keep it a buyers’ market, allowing sellers limited flexibility to pass on the cost increases to the buyers. This is expected to cap the improvement in profitability during the financial year 2022, despite the year-on-year increase in turnover.”
Besides pent-up and festive demand, which temporarily supported demand during the third quarter of the financial year 2021, increased mobility amidst the easing of the lockdowns increased consumer confidence in the H2 financial year 2021, the report said adding that this encouraged higher footfalls in marketplaces and drove discretionary consumer spending.
Source: Apparel India
Textile production has decreased in India's textile city of Surat due to the onset of the second wave of the COVID-19 pandemic, according to various associations. Restriction of working hours, migration of workers, and textile traders testing positive are among the factors adversely affecting textile production and trade in manmade textile hub.
“In the last one-and-a-half months, the fabric production has been reduced by one crore metre per day. Usually, we produced 4.5 crore metre daily,” Ashok Jirawala, the president of the Federation of Gujarat Weavers Association (FOGWA) told The Indian Express this week.
Fabric production has currently declined by around 22 per cent compared to March 2021, according to FOGWA.
Though the government is yet to announce a full-fledged lockdown, a number of workers are migrating from Surat due to the fear that it might be imposed. As a result, workers' strength in factories has gone down by 25-30 per cent. "Workers are still leaving. In the coming days, more workers are expected to leave. If the current COVID-19 situation continues then we will clock huge losses,” Jirawala added.
The textile business in Surat has also been affected due to lockdown and curfew in other states. “Due to the COVID-19 situation, several marriages, which were fixed in the summer in UP and Bihar and other north Indian states, have been cancelled and this has also affected our business. Our markets in many areas in UP are under lockdown and the situation is similar in Bihar, Madhya Pradesh and Maharashtra,” Pramod Chaudhary, former president of Southern Gujarat Textile processing Association (SGTPA) told The Indian Express.
The decrease in trade volumes is reflected in the number of trucks carrying textile parcels from Surat to other parts of the country. Compared to the usual 350-400 trucks carrying around 150 to 170 parcels each, the number of trucks moving out of the city has come down to only 70, Surat Mercantile Association president Narendra Saboo said in the same newspaper report.
Meanwhile, the Gujarat Chamber of Commerce and Industry (GCCI) and the Federation of Surat Textile Traders Association (FOSTTA) have requested the state chief minister Vijay Rupani to impose a complete lockdown of at least one week. The voluntary 2-day lockdown on weekends is not enough to break the chain of the corona virus, according to these trade bodies.
There are 175 textile trading markets in Surat, which employ lakhs of workers.
Source: Fibre2Fashion News
Exporters have proposed the government to issue tax-free bonds in lieu of pending refunds under the Merchandise Export from India Scheme, in the wake of the country’s poor revenue realisation. The Federation of Indian Export Organisations (FIEO) has proposed a mechanism of tax-free bond attracting 6% annual interest with a three-year lock-in period to provide certainty of refund and ensure liquidity for exporters.
“Exporters may be allowed to file the claim so as to verify the value of the tax-free bond to be given to them, which can be encashed after 3 years, by which time the government revenue would be on sound footing,” FIEO said in a letter to the finance ministry, adding that the bond will also help those exporters who want to raise funds from the bank by pledging them.
As per FIEO president Sharad Kumar Saraf, exporters are yet to receive around Rs 40,000 crore worth of tax refund under the MEIS as they were not allowed to file their claim under the scheme April 2019 onwards.
“This has affected the liquidity of exporters, particularly the micro and small ones. This has also added to the uncertainties which are rising day by day,” the organisation said in the letter sent last month.
Under MEIS, the government gave duty benefits depending on product and country. Rewards under the scheme were payable as percentage of realised free-on-board value (of 2%, 3% and 5%) and MEIS duty credit scrip could be transferred or used for payment of a number of duties including the basic customs duty.
Last month, the government informed Parliament that as on February 26, 2021, the value of scrips issued under the MEIS is Rs 15,452.83 crore compared to Rs 39,530.45 crore in 2019-20.
India discontinued the MEIS in December 2020 after losing a dispute to Washington in 2019. The US had claimed that MEIS was non-compliant with the global trade norms. It was replaced with the Remission of Duties and Taxes on Exported Products scheme January 1, 2021 but the incentives under the new scheme are yet to be notified.
“Alternatively, the government can settle the MEIS claims for small exporters while providing the aforesaid option to others,” FIEO said in the letter.
India’s exports in FY21 contracted 7.3% to $290.6 billion, while imports fell 18% to $389.2 billion, leaving a trade deficit of $98.6 billion.
Source: The Economic Times
Assuring the industry of full government support, finance minister Nirmala Sitharaman on Wednesday urged the industry to wait and watch for next few days to assess the situation amid the second wave of Covid-19 pandemic.
Along with the new vaccination guidelines and with the five-fold strategy adopted in handling the Covid cases — test, track, treat, Covid-19 protocols and vaccination — there will be a sense of reassurance, Sitharaman said.
“With all these steps, we should hope to see a positive change in the way the second wave of Covid-19 pandemic is moving. Industry is watching out and I would want you (industry) to keenly observe what is going on and we are together with the industry in (fighting) this (pandemic). I am sure all of us together will understand how best to now ramp-up and sustain the growth momentum which all of us are keen to see between the last quarter and this quarter,” Sitharaman said in a virtual address to the Ficci National Executive Committee Members. “I would request the industry to watch the next few days a bit more carefully, and then assess for yourself what this quarter is going to be like,” the finance minister exhorted.
Separately addressing more than 150 senior industry captains in a virtual interaction organised by the Confederation of Indian Industry (CII), the minister assured ramp up in supply of oxygen and remdesivir to states. She also reiterated the importance of micro-containment policies over lockdown.
Elaborating on the recent announcements on the vaccination, Sitharaman said that the CII’s suggestions on opening up of the vaccination to all adults, allowing industry to vaccinate its employees and their families and allowing vaccine imports have all been accepted in the policy. The government has also cleared an advance payment of `4,600 crore to Serum Institute of India and Bharat Bio Tech, to help them ramp up capacities, she added.
Source: The Financial Express
Industries manufacturing essential commodities and continuous process industries have been exempted from the night curfew and Sunday lockdown
Industries manufacturing essential commodities
Manufacturing units of drugs, pharmaceuticals, sanitation materials oxygen, medical devices, medical textiles, their raw material components and intermediates; food related or food processing industries including food for poultry, pets and animal husbandry; units engaged in production of agricultural inputs including fertilisers, agricultural machinery and components.
Under the continuous process industries- these are excluded
Refineries, large steel plants, cement plants, continuous process chemical industries including paints; sugar mills; fertilizers; float glass plants; large foundries with continuous process; tyre manufacturing plants; large paper mills; electronics industries using surface mount technology, including mobile phones and consumer electronic products; automobile manufacturing units that have large foundries, paint shops or other continuous processes and vertically integrated large textile units
The GO has also exempted export and their vendor units
Manufacturing units that supply components or equipment for the defence sector; manufacturing units of automobiles and components and units producing packaging materials.
Relaxations are also permitted for these units
Telecommunications, night shift operations of IT/ITES companies workforce to operate from the office; maintenance and operations of data centres and other critical IT infrastructure to support back end operations of medical, financial, transport and other critical services; warehousing activities and industries providing maintenance for the purpose of fire safety, machine safety and worker safety will be permitted.
Source: The Indian Express
Tirupur garment exporters have thanked chief minister Edappadi K Palaniswami for considering large textile manufacturing units and those that make medical textiles as industries manufacturing essential commodities and thereby exempting them from night curfew and Sunday lockdown.
“The textile units and lakhs of workers there will be protected by this government order,’’ said Apparel Export Promotion Council (AEPC) chairman A Sakthivel in a letter thanking chief minister Edappadi K Palaniswami. In the GO dated April 20, the government had said that large vertically integrated textile units, manufacturing units of medical textiles, their raw material components and intermediaries would be considered as essential commodity making units. Sakthivel had written to the chief minister a few days back requesting him to exempt textile units from the lockdown restrictions.
Source: The Times of India
Ease of Doing Business for MSMEs: MSMEs in the textile sector, which had recovered to up to 90 per cent of their pre-Covid production capacity before the second wave struck in March this year, are staring at business uncertainty in the coming weeks. Post lockdown, which led to a contraction in business activity, MSMEs had started to recover back in September with an increase in yarn prices. The recovery had hit around 80 per cent of the production capacity by December last year. However, with fresh Covid restrictions including lockdown, night curfew, weekend curfew, etc., across the country, MSMEs are fearing a decline in production capacity again.
“Covid will impact textile MSMEs but we don’t know how much the impact will be this time. More than 60-70 per cent units, which are MSMEs in the sector, were able to recover back to the pre-Covid level. They are now operating at a production capacity of around 70-80 per cent while it should have been 100 per cent till now,” Ashok Juneja, President, The Textile Association (India) told Financial Express Online. Founded in 1939, the association represents has over 23,000 members.
India’s domestic textiles and apparel industry has a share of 2 per cent of India’s GDP and 12 per cent of the country’s export earnings, according to government data. During Covid, India became the second-largest manufacturer of personal protective equipment (PPE) kits in the world with over 600 companies in India certified to produce PPEs currently. The global market for the same is likely to be more than $92.5 billion by 2025. “The export of textiles and apparel also decreased for the period January 2020 to November 2020 due to the pandemic. But now export orders have started increasing,” according to a statement by Textiles Ministry in February this year.
However, with lessons from last year, Juneja expects MSMEs to ensure labour doesn’t migrate back to hometown again. “This time there won’t be much labour issue as entrepreneurs seem better prepared than last year to take care of them, pay complete salaries without deductions, and avoid any layoffs.” The sector is largely unorganised with no comprehensive information regarding the impact of last year’s lockdown even as the level of production fell in jute, silk, etc., the ministry had said. As per Udyam Aadhaar Portal, the total textile manufacturing MSMEs registered between September 2015 to June 2020 were 6,51,512 while apparel MSMEs were 4,28,864. According to Udyam Registration, which replaced Udyam Aadhaar in July last year, 1,15,855 textile manufacturing MSMEs and 85,564 apparel MSMEs were registered between July 1, 2020, and February 9, 2021.
“Up to March last year, all textile units were running up to 80-90 per cent of their capacity before they contracted in production capacity to 30-40 per cent. The activity picked up in September and by December it scaled to 80-90 per cent production capacity. Cotton and synthetic yarn made great profits with the increase in prices. However, the performance has been sliding again from March 2021 due to Covid and currently, it stands at 60-70 per cent. If there is a complete lockdown, the production capacity might decline to previous year levels,” TK Sengupta, immediate past president, The Textile Association (India) told Financial Express Online.
The cotton prices surged by 7 per cent – 10 per cent month on month during January 2021, led by strong export demand for cotton yarn, according to India Ratings & Research. As per India Brands Equity Foundation, the production of raw cotton in India is estimated to have reached 35.4 million bales in FY20. A cotton bale is a standard-sized and weighted pack of compressed cotton lint after ginning.
Source: The Financial Express
“In line with our policy to encourage value-added exports, the cabinet, in its meeting today, ratified the decision of ECC to withdraw customs duty on import of cotton yarn,” said Advisor to Prime Minister on Trade and Investment Abdul Razak Dawood. “The notification will be issued in a few days,” said the advisor.
Days ago, the ECC withdrew customs duty on the import of cotton yarns, in order to facilitate the value-added exporters.
“Pleased to inform that on a summary moved by Ministry of Commerce, ECC has withdrawn customs duty on import of cotton yarns to facilitate the Value-Added exporters. This will be notified with the approval of the cabinet,” informed Dawood in a tweet post on Wednesday.
It is pertinent to mention that regulatory duty was already withdrawn in December 2020 on the recommendation of the commerce ministry. “Now the value-added manufacturers and exporters can import cotton yarns at 0% customs duty,” added Dawood.
Source: The Business Recorder
Pakistan, one of the world’s largest cotton producers, is finding it increasingly hard to meet its own needs, a problem that could push up import bills and further hurt its fragile economy. Years of bad weather, pest outbreaks and better margins on other crops have hurt the quality and quantity of harvest. And the scale of damage is accelerating: production in the current fiscal year is set to tumble to the lowest level in about three decades.
As a result, the country is spending billions of dollars to import record amounts of cotton to feed its textile industry, something it can ill afford to do. Its current account -- which posted a rare surplus between July and December -- has recently flipped back into a deficit amid higher imports. The move also threatens to boost cotton prices, which have already hit a seven-year high.
Cotton is one of the most important cash crops for Pakistan and commonly referred to as “white gold” by the 1.5 million farmers that depend on it for a living. It serves as the raw material for the textile industry, which provides employment to 40% of the workforce and generates more than half of foreign exchange earnings.
Low cotton output has forced more than 60% of ginners to completely shut their factories in the past three years, leaving hundreds of thousands of farmers and textile workers out of work, according to Jassu Mal, chairman of Pakistan Cotton Ginners’ Association, a group representing about 1,300 mills. ‘Alarming Level’ “The cotton crop has shrunk to an alarming level but we don’t see the government taking any serious steps to revive production,” said Mal, who’s also Chief Executive Officer of Sindh Agro Industries and operates Pakistan’s biggest ginning mill in Hyderabad. In the latest season, Mal had to close at least three of his seven factories and run others at 50% capacity due to the lack of cotton. The company’s number of ginning workers has plunged to 100 from 400 about five years ago.
Pakistan’s cotton production is forecast to slump to less than 6 million bales in 2020-21, the lowest since at least 1992, according to Nasim Usman, chairman of the Karachi Cotton Brokers Forum. At its peak, output was more than 14 million bales in 2004-05. The government has set a target for 10.5 million bales for fiscal 2022. That’s hardly a consolation as the previous year’s guidance was the same level and production is well short of estimates. Pakistan’s financial year is from July to June. Meanwhile, its textile industry is booming. Manufacturers are operating at full capacity and on track to ramp up exports, thanks to the resumption of economic activities as coronavirus cases eased in June.
Imports Soar This has caught the attention of Prime Minister Imran Khan, who said earlier this month that the textile industry is short of laborers. Cotton imports soared to make up for the production shortfall, almost doubling to 3.68 million bales in the nine months to March from a year ago, official data show. During this time, textile exports expanded $940 million to about $11 billion. However the amount was close to being offset by the $870 million increase in textile imports, which consisted mostly of raw materials, over the same period.
The country is paying dearly for overseas cotton and would need to import 3 million to 4 million more bales by June, said Khaqan Najeeb, a former adviser to Pakistan’s finance ministry. Higher purchases could further boost global cotton prices and widen Pakistan’s trade deficit, which rose more than 120% to $3.3 billion in March as Khan’s government struggles to tame inflation. A weaker rupee raises prices of essentials at home when the country’s balance of payment position worsens.
Diplomatic Tensions Pakistan’s long-running tensions with neighboring India could add pressure to the cotton shortage. Last month, the government had initially approved the import of cotton yarn from India, lifting a nearly two-year ban, but Khan’s cabinet later rejected the proposal in a dramatic U-turn, saying trade could not resume until some political issues are resolved.
To revive production, the government plans to offer subsidies for cotton seed and pesticides and may unveil a minimum price for the first time to support farmers, Fakhar Imam, Pakistan’s food security minister, said in February. “The cotton production crisis is deepening in Pakistan. We will have to prevent the farmers who are shifting from cotton to other crops,” he said.
For now, the measures don’t seem to be easing farmers’ concerns. Noor Muhammad, 56, has decided not to sow cotton this year on the seven acres of land he manages in Matiari after experiencing disappointment in the past. “I borrowed 100,000 rupees ($652) to buy inputs for the crop but a poor harvest never allowed me to pay it back,” Muhammad said, with perspiration dripping from his forehead as he carried a bundle of wheat, another major crop for Pakistan, off to the thresher.
Source: The BloombergQuint
China will soon launch its own version of the Better Cotton Initiative (BCI) standard, according to state media reports.
A Beijing-based cotton service provider, Zhongnong Guoji, which is also responsible for the Xinjiang Digital Cotton Research Centre, is leading the initiative, in co-operation with the China Fashion Association and the Ministry of Finance-backed Modern Seed Industry Development Fund.
“After years of living with pressure under BCI standards, we just want to build our own cotton brand to have a far greater say in the cotton and textile industry,” said Luo Yan, secretary-general of the Xinjiang Digital Cotton Research Centre.
According to Luo, the cotton programme will mainly focus on “improving production efficiency through digitalisation, a fully traceable cotton production process, low-carbon production and high-quality cotton farming.”
BCI withdrew from China’s Xinjiang region in 2020, citing persistent allegations of forced labour, and BCI affiliation has led a number of international fashion brands to be the target of boycotts in China over the past month.
Source: The BQF
