Indian textile firms battle low demand, high losses

The festive season is here, but textile firms across India are an unhappy lot. Declining export orders, high cotton costs and low demand on the domestic front have all adversely affected the industry, once considered a leader in textile

exports to the US. The repercussions of possible double dip recession in the US and the deteriorating debt situation in Europe has culminated into decline in demand from these regions, which currently account for more than 35 per cent of India's global exports. And it has begun affecting the domestic players as well. According to data released by the US Department of Commerce, Office of Textiles and Apparel (OTEXA), India is lagging behind Bangladesh, China and Vietnam.

There’s yet another issue grappling textile firms. Fall in cotton prices and low demand situation on domestic as well as international front has concluded in more than 60 textile companies, including biggies such as Vardhaman, Raymond, Lakshmi Mills, Nahar Mills, registering a net loss for the first time. And they don’t expect the situation to improve this quarter either.

The number of companies defaulting payments have gone up and they along with Confederation of Indian Textile Industry (CITI) are in talks with V G Kannan, the State Bank of India (SBI), Exim Bank and IDBI bank for restructuring of loans.

CITI has also requested for a moratorium on loan repayment and interest, conversion of eroded working capital into working capital term loans (WCTLs), and relaxation in margin money and interest rate for working capital for purchase of cotton. A delegation led by DK Nair, secretary general, CITI, recently met Anand Sinha, deputy governor, Reserve Bank of India to explain him of the crisis in the
industry and the need for a relief package.

Adding to exporters' woes is the government's decision to slash tax incentives on exports from October 1, 2011. A reduction in tax benefits will impact their margins. Plus, government’s recent decision to allow entry of duty-free garments from Bangladesh has further upset the textile industry. Industry players feel that in-stead of assisting them, government has further added to their woes by allowing duty free imports from Bangladesh.

Despite exports for April-July this year clocked at 54 per cent higher than that in the corresponding period last year, the figure is gradually shrinking, with the commerce ministry cautioning last month that the surge was not sustainable and that a contraction in export orders was expected in the coming months too. Country's low factory output in August that grew at its slowest pace in 29 months is a result of decreasing export volume.

Experts suggest exploring safer export destinations, such as Africa and the Middle East to come out of the sluggish demand scenario from the US and Europe. In recent times, the share of these developed markets in India's export trade is slowly increasing, but without timely support from the government against other issues, the industry seems to be heading towards nowhere.