Textiles in a tangle

Source: The post is based on the article “Textiles in a tangle” published in Business standard on 21st July 2023.

Syllabus: GS 3- Effects of liberalization on the economy & Effect of policies and politics of developed and developing countries on India’s interests.

News:  The article discusses the challenges faced by Tamil Nadu’s spinning mills due to a decline in demand from the US and EU, competition from other countries, high cotton import duties, and rising borrowing costs. It has resulted in many mills to seek financial relief and impacting India’s textile exports.

What are the challenges faced by Tamil Nadu spinning mills?

Demand Recession: There has been a noticeable decline in demand from US and EU markets. This is evident from the fact that textile and apparel exports from India fell by 11.3% over the previous year.

Financial Strains: Many mills in Tamil Nadu are under financial pressure. They have reached out to the Indian Banks’ Association seeking relief measures for their loans. It’s concerning that 15% of the 1,800 affected mills are now falling under the non-performing asset category, indicating serious financial health issues.

International Competition: Exporters, especially from Tiruppur, are grappling with stiff competition from countries like Bangladesh, Vietnam, and Cambodia. The challenge is compounded by the fact that India’s textile exports face tariffs of 5.9% in the EU, while many competitors benefit from nil or significantly reduced duties.

High Import Duty on Cotton: One major issue has been the 11% import duty that India imposes on cotton. This policy has meant that for the past 15 months, Indian cotton prices have been consistently higher than those on the international market.

Domestic Market Decline: There’s been a downturn in the domestic market as well. Tiruppur’s domestic sales have seen a decrease by 20-25%. Large clients report having too much stock, which means they are placing fewer orders.

Cotton Procurement Issues: The spinning mills are also facing challenges in cotton procurement. There’s been a massive 55% drop in cotton procurement over the last year due to the decreased global demand.

Global Economic Concerns: Economic patterns in Europe and the US have affected demand. Europeans, facing inflation, are focusing their spending on essentials and cutting back on textile purchases. Additionally, retail giants like Walmart are closing several of their outlets in the US and EU.

Despite these challenges, there’s a glimmer of hope as the industry anticipates a potential boost in demand during festivals like Diwali.

What are its implications?

Economic Impact: With textile exports dropping to $1,624 million in June from $1,736 million in 2022, India’s economy could face substantial revenue loss.

Job Losses: Mills shutting down means potential job losses for thousands in the industry.

Global Market Position: India risks losing its competitive edge to countries like Bangladesh and Vietnam, which enjoy tariff advantages.

Domestic Market Saturation: With a 20-25% drop in domestic intake in Tiruppur, overstocking issues could arise for retailers.

Supply Chain Disruption: A 55% reduction in cotton procurement may affect the entire textile production chain.

What should be done?

Policy Revisions: Reduce the 11% import duty on cotton to make Indian textile competitive.

Financial Support: Provide mills with the requested loan relief, including extending moratoriums, to prevent more NPAs.

Trade Agreements: Pursue favorable trade agreements with the EU and US to reduce tariffs below the current 5.9% and 6.2% respectively.

Domestic Market Boost: Promote domestic consumption to clear overstocked inventory in major outlets.

Diversify Markets: Explore new international markets beyond the US and EU for export opportunities.