High Input Cost and Low Demand Hit the Indian Textile Industry

The outlook for the Indian textile industry for 2009 will remain grim as most of the developed markets are facing recession, leading to low textile demand.

The future outlook of the Indian textile industry is predicted to remain gloomy for 2009 due to negative impact of the recession on international markets, said an international rating agency Fitch Ratings, reported THE FINANCIAL EXPRESS.

Textile exports tumbled nearly 30% and the production contracted 20%-30% since April 2008. If one takes orders placed into account, then the export in the current year dropped even more. As per the available data, orders placed in the third quarter of 2008 by leading exporters slumped 15-20% on an average whereas the sales in domestic market slammed 10-15% on year-on-year basis.

The grim outlook for the Indian textile industry for next year is forecasted in the backdrop of forex losses and economic slowdown in the international market. These factors along with lengthening cash cycles and rising working capital requirements have put extensive pressure on the short-term liquidity of the industry.

Moreover, the impact of the global financial crisis was inevitable to fall on the Indian economy, resulting in drying up of investments in the country. Manufacturing sector will certainly see the direct impact of the crisis.

The Indian textile industry rallied under declining domestic demand and high input costs in the current year. Drop in demand from external markets (like the US and Europe, both absorb nearly 50% of the total production) created panic among manufacturers who have started trimming production in a phased manner.

Indian companies have adopted a policy of temporarily discharging workers to deal with menace of the global economic meltdown. Not only this, textile manufacturing units at major hubs like Delhi, Bangalore and Tirupur have been closed, rendering thousands of people jobless. The industry had asked the Ministry of Textiles to continue the interest subvention on credit for packing across value chain.

According to a Research analyst at RNCOS, “The global financial crisis has made the Indian textile industry to bleed white because it is driven by exports and the present scenario is likely to remain as it is until December 2009. As the effect of recession is higher on developed markets, the demand is expected to remain weak. This will be visible in the financial performance of exporters in the current financial quarter.”

Source: RNCOS INDUSTRY RESEARCH SOLUTIONS