The domestic textiles & apparel (T&A) sector is facing severe disruptions, following the US’s imposition of a 50 per cent tariff on Indian exports. The US has been the single largest export destination for the Indian T&A sector, accounting for around 28 per cent of its total exports, valued at about $37 billion. A recent nationwide survey conducted by the Confederation of Indian Textile Industry has revealed that about 33 per cent of businesses have reported a more than 50 per cent decline in sales revenue.
The major contributing factors to this dip in turnover include requests for price discounts from US buyers, order cancellations or postponements and a reduction in order volumes, etc. According to the survey, about 85 per cent of the respondents have reported an inventory build-up due to the reduction in orders, while about two-thirds of the respondents had to offer a discount to their buyers. A majority of them are offering discounts to the tune of 25 per cent to remain competitive. The Indian textile goods have suffered a distinct tariff disadvantage of about 30 per cent in the US market, as compared to its major competing countries like Bangladesh, Vietnam, Sri Lanka, Cambodia and Indonesia.
The survey reveals that a significant 82 per cent of respondents (businesses) have experienced an extended credit cycle across the supply chain, as a result of the recent impact, with over half of them indicating that the credit period has increased by 3-6 months, reflecting a substantial strain on liquidity. Additionally, about 40 per cent of the respondents have reported a rise in working capital requirements by more than 30 per cent, further highlighting the growing financial stress within the sector.
All in all, the overall situation is quite challenging. While large textile companies are trying to keep themselves afloat, smaller apparel units are in a dire condition. Most of these smaller businesses have significant exposure to the US market, and the imposition of a 50 per cent tariff has turned their business completely unviable against their competitors. What makes the entire scenario quite precarious is the fact that the situation is uncertain.
The government sources say that the bilateral trade negotiation with the US is in progress, but are unable to provide any specific timeline. In fact, if the current impasse continues for another couple of months without being addressed, the industry will see many of these units shutting down their operations. Hence, on an urgent basis, these units will need a comprehensive financial package to keep them going.
As part of the financial relief measures, a joint memorandum submitted recently by the textile industry associations and export promotion councils to the Union finance minister has sought an extension of two years moratorium for the repayment of the principal loan amount. This will prevent the units from becoming NPAs and help manage the grave crisis.
The government should also consider the industry’s demand for extending 30 per cent collateral-free loans under the Emergency Credit Line Guarantee Scheme (ECLGS), with 5 per cent interest subvention – similar to the one extended during Covid, both for MSMEs and larger companies. The collateral-free financial help from banks and financial institutions will also go a long way in helping the exporters in their market diversification process, and thus reducing dependency on the US market. As part of export incentives, the ministry should reintroduce the Focus Market Incentive Scheme and extend a 20 per cent freight incentive on exports to the US in the form of a transferable duty credit scrip, so that there is no impact on the exchequer as the duty credit utilisation will be spread over a reasonable period.
No doubt, a slew of fiscal short-term measures will be required to help the domestic T&A sector surmount this difficult scenario posed by the US tariff. The government will have to come up with a well-carved-out package without much delay. However, in the medium-to-long run, there is a need to put up a multi-pronged strategy which can ensure that we create a much more robust and resilient textile base, which can withstand such headwinds more effectively in this fast-changing global trade order. It is high time that the government, along with other stakeholders, revisit the existing policy framework and come up with a comprehensive framework which can not only eliminate the inherent limitations but also help build a globally competitive textile value chain.