INDIA’S textiles and garments industry, which had picked up steam about three years ago after the dismantling of the quota regime, is in the doldrums following the global financial crisis. Exports are plunging, hundreds of thousands of workers are being laid-off and smaller units are pulling down the shutters.

Worse, the industry has taken a severe hit at a time when many of the leading players had invested huge sums in upgrading infrastructure and expanding capacities, planning to meet the growing needs of the export market.

There’s a sense of doom in textile export hubs like Tirupur, a vibrant textile centre in the southern state of Tamil Nadu, and even in India’s IT capital, Bangalore, where hundreds of units had been established in recent years.

International private equity major Blackstone, had in August acquired control of Gokaldas Exports, a Bangalore-based textile major, for nearly $120 million. Gokaldas is one of the three largest apparel exporters in India, employing over 50,000 people.

Says Rajendra Hinduja, managing director, Gokaldas Exports: “Orders from buying houses are getting delayed as many shops in the US and Europe are closing. While the apparels export industry is expecting a 25 per cent drop in orders, we are also facing aggressive competition from suppliers in Vietnam, Cambodia and Bangladesh.”

Gokaldas Exports has reported a 75 per cent fall in second-quarter net profits, though the company does not plan to lay off workers at present. It hopes to leverage Blackstone’s global network to help it tide over the crisis.

According to the Federation of Indian Chambers of Commerce and Industry (FICCI), “the Indian textile industry, which was on the threshold of exponential growth a couple of years back, is sliding down.”

Textile and clothing exports, which had amounted to $22.13 billion in financial year 2007-08 (up from $19.7 billion in the previous fiscal), was projected to rise to $26.55 billion in the current fiscal (ending March 31, 2009). In fact, during the first four months of the current financial year, textile exports were up by nearly 15 per cent.

But according to sources in the Union Ministry of Textiles, current trends indicate that exports are unlikely to top last year’s level. Industry estimates place total exports for the current fiscal at around $20 billion.

According to D.K. Nair, secretary-general, Confederation of Indian Textile Industry (CITI), demand from the US and Europe have fallen sharply and buyers are paying lower prices. Shipments to the US, for instance, fell to $3.8 billion during the January-August period in 2008, as against $3.9 billion in 2007.

A CITI study indicates that 50 major textile firms have reported a steep decline in net profit during the second-quarter of the fiscal (July-September), with some even recording losses. Another study of financial results of 28 textile firms by the Associated Chambers of Commerce and Industry of India (Assocham), indicates a 40 per cent drop in net profits during Q2 of the fiscal.

The worst affected will be the apparels export segment, which will clock in exports of less than $8 billion, about 16 per cent lower than last year’s figures.

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THE textile industry, one of the oldest in the country, is the second-largest employer, providing jobs to 35 million people. Most of them are in the unorganised sector, but the removal of quota in 2005 saw the emergence of dozens of companies that invested huge sums in modern machinery and equipment and paid relatively better wages to their employees.

But the sharp slowdown in the industry has already seen about 750,000 workers being sacked. Another 1.25 million workers are likely to lose their jobs before the end of March, according to the government, taking total job losses to nearly two million.

“The textile and clothing industry, which is the largest employer in India’s manufacturing sector and one of India’s largest exporting industries, is currently going through a very tough time and unless remedial measures are immediately taken by the government, a large number of units will have to close, throwing tens of thousands of workers out of jobs,” warns R.K. Dalmia, chairman, CITI.

The government had set an ambitious expansion plan for the industry in the Eleventh Five Year Plan (2007-2011), hoping that it would more than double in size from $52 billion to $115 billion, indicating an annual growth rate of 16 per cent. But the industry is expected to grow at a measly 0.8 per cent in the current fiscal. “It is unlikely that we would be able to achieve the double digit growth for current year, let alone the target of 16 per cent,” says FICCI.

The organisation has sought a “special textile package” from the government to help it tide over the crisis. FICCI has demanded a moratorium for a year on term loans for the textile industry. It has also sought increased drawback rates along with export credit at international rates. According to FICCI, the profitability of the Indian textile industry fell by over 99 per cent in the June 2008 quarter.

It has also demanded release of funds pending under the Technology Upgradation Fund Scheme (TUFS) and extension of the sunset clause for export-oriented units for five years. Indeed, there has been a sharp decline in investments into new facilities and modernisation, as reflected in the funds sought under the TUFS.

During 2006-07, about Rs610 billion had been sought under TUFS; this fell to less than Rs200 billion the following year. In the first half of the current financial year, projects worth less than Rs65 billion have been sanctioned under TUFS. The industry expects the figure to be less than Rs100 billion for the whole of the fiscal.

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ONE of the biggest setbacks to the textile industry has been a populist move by the government – which is staring at general elections in April this year – to raise the minimum support price (MSP) for cotton, despite declining prices of cotton globally.

The industry accuses the government of artificially propping up cotton prices – 20 per cent over current international price – which is hurting the textile industry. The cotton textile sector saw a nearly 10 per cent drop in output in October, while textile products (including apparel) fell by nearly five per cent. Consequently, exports of cotton textiles have been hit badly because of pricing disparities.

“The hike in MSP was effective from October 1,” points out D.K. Nair, secretary-general, CITI. “So in the first month itself, the result is there to see and things are only likely to get worse in the coming months.”

The central government hiked the MSP for cotton by a whopping 45 per cent, despite clear signs of the global financial crisis, which had started taking a toll on India’s exports. The slowdown saw global cotton prices fall, but in India, the government directed the Cotton Corporation of India (CCI) – which buys cotton from farmers – to pay a much higher price. The result: domestic cotton prices are spiralling at time when international prices are declining, rendering Indian cotton textile products uncompetitive.

According to P.D. Patodia, president, Cotton Association of India (CAI), as cotton is a global commodity, there is need for reference to international price indicators while fixing the MSP.

The three leading industry bodies – CITI, CAI and CCI – have urged the government to slash MSP to save the industry from the crisis. However, with elections due in April, the central government is unlikely to oblige, the industry fears.

India’s cotton production is expected to fall to less than 30 million bales in 2008-09, as against a target of 32.3 million bales. Patodia points out that pest attacks and unfavourable weather in parts of Maharashtra and Gujarat have hurt the prospects for cotton. The area planted under cotton is also lower by five per cent in the current year.

The textile industry in India is indeed facing a grim situation and the coming months are unlikely to see much relief for the beleaguered sector, both on the domestic and export fronts.