Tangled web: The impact of coronavirus on Indian textile industry
• The world is grappling with the Covid-19 and this novel virus has jolted almost all countries of the world.
• The economic carnage brought forth by forced shutdowns and changes in consumer attitudes to discretionary purchases, such as clothing, may lead to the winnowing out of weaker players.
• Experts are worried about the impact that this black swan event will have on the domestic apparel industry in India, which is widely regarded as the second-highest employment generator after agriculture.
• To deal with this crisis, short term solutions like offering subsidies and extending moratoriums on loans will be critical. Moreover, India can leverage this period to devise a strategic approach to becoming a global textile hub.
The world is grappling with the Covid-19 pandemic, which has left no stone unturned in jolting almost all countries of the world. Besides the innumerable lives that have been lost as a result of this pandemic, another important consequence that the world is facing is the hefty toll on the economy.
This economic carnage has percolated into various businesses operating in and around the world, including the textile industry. This article discusses the impact that this black swan event will have on the domestic apparel industry in India, which is regarded as the second-highest employment generator after agriculture.
With Covid-19 hitting Italy in the midst of Milan Fashion Week in late February and leading to cancellation of major fashion events across the globe, the effects of this development have already begun to trickle down to the Indian textile industry. Fashion weeks have been cancelled in Shanghai, Melbourne, Beijing, Seoul, and Tokyo. Moreover, a few retailers such as Victoria’s Secret, Pink and TJX are also closing their e-commerce sites temporarily. Many prominent apparel retailers across the globe such as H&M, Chanel, Ralph Lauren, Sephora, Nike, Apple, Walmart, Urban Outfitters, Madewell, Everlane and Lululemon have responded to the Covid-19 pandemic by shuttering their doors.
In India as well, the government has only allowed bare essential industries to function in line with the emphasis on social distancing. Therefore, textile players are compelled to keep their doors shut. According to specialists, once the dust settles on the immediate crisis, the apparel industry faces a recessionary market. One of the reasons for this is the prospect of long-lasting changing consumer behaviour due to social distancing and the preference for sanitized products.
Will consumers want to march into crowded malls to do their shopping, as they nonchalantly did before? Moreover, the most critical part of an apparel purchase in a market like India is trial. As Spanish sustainable textile technology provider Jeanologia’s founder Enrique Silla explicates; after the Covid-19 crisis is over, consumers will be uncomfortable to touch and feel garments in retail stores, jittery about who would have touched it before them. He suggests,
“The world will not be the same after Covid-19. For the textile industry is very important to recover the trust of consumer. Only through sanitizing, brands will be able to speed up regaining consumers’ trust, guaranteeing the fast recovery of our industry.”
Further, as per experts, it is being widely speculated that a significant number of people in the world are bound to lose their jobs (and are already being laid off by their employers) as a means to cut costs amid the health exigency. In fact, according to a recent note from the International Labour Organisation titled ‘Covid-19 and the World of Work: Impact and Policy Responses’, the coronavirus crisis will have far-reaching impact on labour market outcomes. The UN body estimates that the virus will pushing millions of people into unemployment, underemployment and working poverty, with almost 25 million jobs being lost worldwide as a result of Covid-19.
This would mean income losses for workers and subsequently translate into fall in consumption of non-essential goods and services like garments, in turn affecting the prospects for businesses and economies. There will be no urgency to buy apparel as consumers are primarily focusing on grocery, medicines and staples purchase. This is also due to the uncertain economic scenario prevailing all over the world, limited product options and late & expensive deliveries, reduction in occasions to go out & hence the need for new clothes.
A recent report calibrated by Wazir Advisors – Impact of COVID-19 Scenario on European and the US Apparel Market – estimates that the combined apparel consumption of EU and the US might fall to about US$ 308 billion, 40-45% lower than the 2020 projected consumptions. This will be a tough time for Indian apparel exporters as about 60% of the country’s apparel exports are destined for EU and the US markets.
Besides these extrinsic woes, textile companies in India are also facing a number of their own challenges. The ongoing lockdown imposed by the government in the country, as per the industry body Clothing Manufacturers Association of India (CMAI) could lead to the loss of about Rs 1 lakh crores. “Demand in apparels may shrink by almost 40% in 2020,” observes Rahul Mehta, MD, MR Textiles. Around 81% of manufacturers have received cancellation orders from their buyers, he told the media.
Without fresh export orders and a restarting of the economy, many garment producers will be either forced to shut shop entirely or inflict stringent cost-cutting measures, including layoffs. CMAI anticipates as many as one crore job cuts in the textiles sector. Add to that the fact that last month, millions of migrants were compelled to flee from cities to their homes to evade death from hunger due to the plunge in economic activity.
However, on the brighter side, a number of countries around the world, such as the USA & Japan, have decided to learn lessons from this calamity and look for alternate production sources other than China. India should capitalize on this situation and present itself as a credible alternate to increase its textile and apparel exports share. Further, manufacturers need to maximise their internal capabilities and focus on building their efficiencies if they want to emerge as a better option than competitors like Bangladesh, Vietnam and Cambodia. They must also incorporate digital strategy in the buying process. They should also think about markets other than US & Europe such as Japan and South Korea.
In the short run, though the government should consider ways to provide cushion to the sector from these tough times. CMAI has urged the government to take a plethora of measures to protect the apparel industry. These include wage subsidies, interest subvention on total borrowings & working capital and extending moratorium on terms and working capital loans to 6 months. Taking a visionary approach in these difficult times may be tough, but it is necessary.