Is nobody buying clothing? Low demand affects textiles, cotton
Moneylife Digital Team 22 June 2011

Due to the ban on exports, the country has excess stock of cotton and prices are falling. However, due to sluggish demand in domestic as well as overseas markets, the textile industry is suffering

In our earlier articles (Slowdown spreading across all core sectors in India: ) and (Sluggish demand impacts cement and realty sectors ), Moneylife had written on how sluggish demand has been impacting a number of industries.

Another major sector—the textile industry—has also been impacted by the same issue. The industry contributes around 14% to industrial production, 4% to GDP (Gross Domestic Product), and 17% to the country's export earnings. However, as per the IIP (Index of Industrial Production) data, the apparel index has declined from 182.81 in April 2010 to 180.61 in April 2011, a drop of 1.20%. There has been a slack in demand and cotton prices are falling. Garment export growth has not been great either.

In 2010, the Indian government responded to excessive exports of cotton yarn by imposing an export ban. The ban reduced domestic prices and enabled surplus stock to be consumed internally. This led to a fall in prices of cotton yarn. With the reduction in cotton prices, one would expect the industry to pick up, but there has been a fall in demand.

Sanjay Jain, managing director, TT Limited—a major player in the textile sector—told Moneylife, "There was an unprecedented rise in the prices of cotton mainly because of crop shortage in Pakistan and China in 2010-11, this led to a rise in prices across the value chain from yarn to fabric to garments. (The) government had abruptly stopped yarn export registration from 1 December 2010 which resulted in accumulation of cotton yarn. The same was only allowed from mid-March again. However, a supply overhang was created and (this) has led to sluggishness in the sector over the past three months—this is the key reason for sluggish growth in the sector. India is one of the largest exporters of yarn in the world and 20% (of domestic) production is normally exported, this sudden stoppage reduced market size by 20% and it wasn't possible for the domestic market to increase demand overnight. Yarn manufacturers have now cut down on their production and inventory cost."

He further explained, "(The) summer season is almost over, however, demand is expected to pick up in the festive season. This year a bumper cotton crop is expected across the world and this is expected to have a downward impact on the prices of textiles. So far, prices have corrected by around 25%-33% and some further correction is expected. This phenomenon will continue for 3-4 months."

A Rajkot-based cotton exporter (preferring anonymity) told Moneylife, "Prices have been crashing, as there is no demand in India as well as in the export market. When prices were high, manufacturers preferred polyester yarn over cotton yarn. 'Sankar-6', (a benchmark quality) in one month, has come down from Rs61,000 per candy (356kg is one candy) to Rs42,000. Prices are likely to fall further."

One would expect the garment industry to grow with the benefit of these reduced prices-but that does not seem to be the case.

Readymade garments account for almost 45% of total textile exports. However, Indian apparel exports could not keep up with the growth in demand from the US. The total apparel imported by the US from India grew by just 9.33% from $2,846 million in 2009 to $3,112 million in 2010, as per the US Department of Commerce. The total apparels imported by the US across all countries were valued at $63,105 million, which improved by 13.10% to $71,398 million in 2010. From January to April 2011, US imports from all countries grew by 13.56% over the same period in 2010, but imports from India grew by just 12.65%. This just shows the textile industry was not able to keep pace with growing demand, despite the fact that it has grown by nearly 13%.

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