If India’s exports of textiles and garments recovered quickly this fiscal from the lows of the pandemic-hit FY22, lucrative orders may elude them in FY23 due to an inexorable rise in the prices of cotton, a key raw material, and its yawning shortage in the domestic market. While shipments continue to be strong due to orders won earlier, the spectre of a slump in exports is staring at textile and garment firms as new orders are hard to come by. More so due to the Russia-Ukraine conflict which is expected to impact economic recovery. This is at a time when the global markets are vibrant and poised to remain so in the near term, thanks to industrial resurgence in key markets like the US and European Union.
Conventionally, during the January-February period, mandi arrivals of cotton peak and remain in the range of 2.5-3 lakh bales (one bale is 170 kg), but this year has been quite an exception. According to trade sources, cotton arrivals in markets across key producing states – Telangana, Andhra Pradesh, Karnataka, Gujarat, Maharashtra, Madhya Pradesh, Haryana, Punjab and Rajasthan – have seldom crossed 1.5 lakh bales in last the two months. And prices are skyrocketing – in many key markets these are ruling at three times the minimum support price.
In fact, an upto 80% spurt in cotton prices in the past one year has pressured margins of textile and garment firms. Most firms are struggling to pass on the rise in raw material costs to consumers. According to industry players, while high cotton prices will help farmers and somewhat boost rural disposable income, from the textile industry’s perspective, they have created a challenge for the entire value chain. The duty imposed on imported cotton is making India non-competitive in the global markets, which will be counter-intuitive in the long run.
Narendra Goenka, Chairman, Apparel Export Promotion Council (AEPC), apprehended that it would be difficult to maintain a high export growth rate in the next fiscal. “Overseas buyers have started scouting for alternate destinations to broaden their supply base for fear that elevated input costs in India would push up prices of garments,” he said. Apparel companies, in such a scenario, may be forced to absorb much of the rise in costs themselves, he added.
Raja M Shanmugham, President, Tirupur Exporters’ Association, said the relentless rise in cotton prices over the past 15 months has made it difficult for companies to honour orders, typically booked 3-6 months before, without taking a massive hit on their balance sheets. “We are also finding it difficult to change the price tags of products so frequently. Our cash flow has been hit very badly. Moreover, the garment industry is dominated by MSMEs, whose capacity to absorb input cost pressure is even more limited. So, we are requesting finance minister Nirmala Sitharaman to raise the individual loan limit under the Rs 4.5-lakh-crore guaranteed loan scheme by up to 20% to help the MSMEs cope with their liquidity issue,” Shanmugham said.
According to second advance estimates of cotton production by the Ministry of Agriculture, the country’s cotton output is estimated to decline by more than 3% to 34 million bales in the 2021-22 crop year from 35 million bales in the previous year.
T Rajkumar, Chairman, Confederation of Indian Textile Industry, has requested the removal of import duty on cotton, asserting this won’t hurt farmers, as India largely imports specialty cotton.
Meanwhile, impact of the Russia-Ukraine conflict is starting to be felt in the Indian textile industry, as cotton yarn prices, which were bullish for some time, started to fall. Buyers and traders are unwilling to take risks in this uncertain situation. Moreover, large number of powerlooms have temporarily shut down due to negligible demand from the garment industry, further putting pressure on prices.