By  on January 27, 2009

BANGALORE, India — The Indian government and the central bank unveiled a second economic stimulus package earlier this month, but executives said it’s unlikely to help the beleaguered textile industry.

“The government’s second stimulus package is totally disappointing for the textile and clothing industry,” said R.K. Dalmia, chairman of the Confederation of Indian Textile Industry. “The global economic crisis has eroded demand for textile products.”

Indian apparel exports dipped for the third straight month in October, mainly due to weak demand in the U.S., its biggest market. According to Rakesh Vaid, chairman of the Apparel Export Promotion Council, apparel exports from India in fiscal 2009 ending March 31 are likely to fall 9.4 percent to $8.78 billion from $9.69 billion in 2008. Citi estimates that about 700,000 jobs were lost in the textile industry last year. In a recent report, India’s industrial production unexpectedly rose 2.4 percent in November from a year earlier, after declining in the previous month for the first time in 15 years, although economists said it will likely not be sustained.

Rajendra J. Hinduja, managing director of Bangalore-based Gokaldas Exports Ltd., said he expected Indian textile exports to decline 25 percent during 2009. AEPC executives estimate the drop will be 24 percent.

The knitwear industry, based in the southern town of Tirupur, which exports most of its production to the U.S., has been especially hard hit by the global crisis. A. Sakthivel, president of the Tirupur Exporters’ Association, said about 20,000 workers in the town could lose their jobs. There has been a 30 percent decline in orders for Tirupur factories, another executive said.

Citi’s Dalmia noted that in addition to international developments, India’s textile industry had been negatively affected by recent government decisions. These measures include increasing the minimum support price of cotton and delaying reimbursement funds to companies that have spent money on machinery upgrades.

“On the other hand, other major textile-producing countries like China and Pakistan have taken significant remedial measures to address their industry’s problems,” Dalmia added.

“The bank rate cuts are of no use as nobody is looking at taking loans,” said D.K. Nair, secretary general of Citi. “The industry has no working capital to invest. Companies have faced losses for the last six quarters. They cannot repay loans. Their only concern is survival.”

Nair said the textile and clothing industry has demanded, among other things, a two-year moratorium on loan repayments and an increase in duty drawback rates. These demands have not been conceded by the federal government, so far.

“The Indian garment industry faces the grim reality of continued losses of over 120 billion rupees [$2.44 billion at current exchange] per month due to forced cuts in production caused by the slowdown in local and global markets, rising input costs and neglect by the government,” said Rahul Mehta, president of the Clothing Manufacturers Association of India.

Mehta said the average production cut in the industry is 15 percent since September, forcing closures and job losses.

Indian government officials have said they are considering giving further concessions and incentives to specific sectors of the industry, including textiles. These are expected to be announced next month.

Big companies like Gokaldas Exports have managed to hold on.

“We will touch last year’s top-line figure [$269 million] in exports,” said Hinduja.

However, Gokaldas and most companies have export orders only up to March or April.

“The U.S. saw the worst retail sales in 40 years over Christmas last month,” said Hinduja, adding he expected buying from retail chains to remain low for the next few months because of high inventories.

Hinduja said the Mumbai terror attacks in November also resulted in foreign buyers reducing their visits to India. Visits are down by about 50 percent and buyers preferred to hold meetings in places like Hong Kong, he added.

The outlook for India’s economic growth in the near term is gloomy. The Asian Development Bank has forecast that India’s growth rate will decrease to 7 percent in fiscal 2009 ending March 31, down from the 9 percent growth posted in the last fiscal year.

Given this domestic scenario and high rate of retail bankruptcies in the U.S. last year, the outlook for Indian textile exports remains depressing. Nair of Citi said the first half of 2009 will be worse than it is today, but he hoped a revival would come in the second half of the year if President Obama is able to implement measures to rejuvenate the U.S. economy.

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