Indian Textile Industry: Perspectives From 2023 And Hopes For 2024

The Indian Textile industry witnessed major challenges in 2023 due to fluctuating cotton prices, diminishing demand, capacity under-utilization and dumping of imported fabrics and garments from China and Bangladesh. Gurudas Aras takes an overview of the industry scenario in 2023 and what needs to be done to pull the industry out of the quagmire in 2024.

The year gone by has been one of the most challenging years for the Indian textile industry. The major challenges have been the fluctuating cotton prices, diminishing demand, capacity under-utilization and dumping of imported fabrics and garments from China and Bangladesh. The buying by the US and EU has remained quite low and that too for an unusually longer period, which has affected the exports badly.

Global Scenario: Not Inspiring
Despite gradual destocking by the buying houses, the exporters could not get sufficient orders in 2023 due to policy of keeping very low inventories by the retailers as a result of lack of demand in the two most important consumer markets, namely the US and EU. In October 2023, the US apparel imports were USD 6.5 bn., which was 21% lower than October 2022. On YTD basis, the imports were 22% lower than in 2022. The EU apparel imports in October 2023 were USD 7.2 bn., which was 20% lower than October 2022. On YTD basis, the imports were 14% lower than in 2022. In November 2023, India’s apparel exports are estimated to be USD 1.0 bn., which was 17% lower than in November 2022. On YTD basis, the exports were 13% lower than in 2022.

A paradigm shift is happening globally. The global garment industry is shrinking both on consumer, retailer as well as supplier side. Experts expect the US garment imports to continue declining 25% to 30%. This means the market will not recover in the foreseeable future for the exporters. The US retail sector is undergoing a big transformation. Recently, major US retailers declared their Q3 financial results, which showed falling sales with increasing profits (result of reduced markdowns). The US garment imports fell by 22.8% in value terms in September 2023, hence retailers preferred to reduce garment imports and worked on minimal stocking. This trend is likely to continue for at least next two more quarters till market equilibrium is reached.

Bangladesh resorted to imports of cheap raw materials from China and exporting the finished products to the EU and US. Having the tag of least developed country, none of its products come under any import tax. As a result of the above, Indian exports remained stagnated around $16.5 billion, while Bangladesh has already crossed the $44 billion mark. This situation is because of India not getting a level playing field in these top two markets.

Imports from China and Bangladesh: Trouble for Indian manufacturers
The total imports of knitted fabric (Chapter 60) in FY 2022-23 were Rs 6073 crore and in the first five months of current FY (April-August) 2023-24 imports have already crossed more than Rs 2594 crore. The main source of India’s imports of knitted or crocheted fabric is China, which accounted for majority of the total value, followed by Vietnam, Taiwan, Malaysia and Bangladesh. Polyester-based knitted fabrics hold the major share of imports, which is more than 60% of the total knitted fabrics imports. These fabrics are used for T-shirts, track suits, sportswear and activewear, which are some of the fastest growing segments of Indian textile and apparel industry. Even 100% cotton fabric import is more than Rs 400 crore, pile fabric import is more than Rs 600 crore and the warp knit fabrics import is more than Rs 750 crore.

India imports 504 tonnes/day of dyed synthetic knitted fabrics (HSN code 60063200) from China at an average price of USD 1.4/kg, while the domestic cost is USD 4/kg. Interestingly, the prices in China and Vietnam for these fabrics are between USD 3.5 to 6. The imports in value terms have gone up by massive 148% in the last three years. Surprisingly, the finished fabric is imported at a price which is even less than the price at which the industry buys the local polyester yarn. It becomes evident that these are being imported majorly in the name of inferior quality material and includes plenty of high sea transactions. This means there is a clear-cut case of under-invoicing.

India has a huge requirement of knitted fabrics for domestic consumption as also for apparel exporters. However, due to poor finishing set up, enough quantity of good quality fabrics is always in shortage locally, which results in massive imports. This needs to be controlled with more capacities created with state-of-the-art technology, especially in finishing.

The Free Trade Agreement (FTA) signed between India and Bangladesh is derailing India’s textile exports as well as its share in the home market. Fabrics imported from Bangladesh are exempted from customs duty due to which the imports from Bangladesh are increasing every month, which is upsetting the Tirupur manufacturers. In 2022-23, the imports of knitted fabrics from Bangladesh increased to Rs 264 crore from Rs 212 crore in the previous year. This increase of 24% has put local manufacturers in trouble. In 2022-23, the imports of knitwear garments increased by a whopping 57% to Rs 2489 crore from Rs 1576 crore in the previous year. This has clearly landed the local knit goods manufacturers in big trouble.

All the above factors have been responsible for the trouble the Indian textile manufacturers have faced in 2023. Some intervention from the government is absolutely must to save the local industry.

Local market situation:
The Indian domestic market is sluggish too. Even the festival season did not bring cheers to the manufacturers, unlike earlier years. It seems that the people are giving preference for food items, buying consumer equipment, gadgets like mobiles, i-pads, etc. as also cars and bikes over garments. The spinning sector reeled under high under-utilization due to reduced yarn imports by China as well as reduced buying by weavers and knitters. Reduced exports and dull local consumption resulted in trouble for the local textile industry. The PLI and PM Mitra schemes are expected to attract investments in man-made fibre and technical textile products and reduce the import dependability over the years. The athleisure and sportswear segment has however shown tremendous growth with the brands doubling their sales in the last two years. However, in this segment too most of the man-made fibre spandex fabrics have been imported from China, Vietnam and Taiwan. The margins of the textile mills are under pressure, although the cotton prices have stabilized by now around 2-year low.

The Indian textile industry is now grappling with a significant setback as freight costs witness a staggering 40% increase due to unrest in the Red Sea. This unexpected spike in transportation cost has raised concerns about its impact on operational costs and pricing.

What lies ahead in 2024?
The biggest change in the consumer markets globally have been the fall in demand due to various factors, including recessionary trends, increased food prices, increased energy prices in some countries because of the two wars that are presently on. According to the industry experts, the two major global markets, the US and the EU, are likely to continue with their reduced garment imports for at least another two quarters. In fact, the statistics show that all the other major markets such as UK, Japan and UAE have also reduced their imports in 2023 due to reduced consumption. This trend is likely to continue for some more time.

There is going to be growth in technical textile and man-made fibre industry in the new year due to government benefits. This should help India in regaining some global market share. There will be more push towards attaining sustainability and traceability in manufacturing processes as well as in products. More interest is likely in investments in the recycling technologies as well as technologies that will help in saving water and chemicals.

The government on its part needs to look at the increasing imports of man-made fibre-based fabrics and garments that are threatening the very existence of local industry. The under-invoicing needs to be curbed immediately in these imports. However, to meet the demand, new investments are needed in this sector with state-of-the-art finishing technologies in 2024.

In 2024, the textile producers need to look at making niche products, product basket diversification and exploring new markets like Japan. In the new year, most probably the EU and UK FTAs will be closed, which is expected to give tremendous boost to our industry. However, for that to happen, the manufacturers must seriously look at their costs and quality in order to score over strong global competitors.