Dubbed India's Manchester, the southern town of Tiruppur in Tamil Nadu used to be a bustling hub of textiles barely four years ago. From the global financial crisis of 2008 and the banning of dyeing units by the Madras High Court in 2011 to demonetisation in 2016-the industry withstood blow after relentless blow and survived.
Then came Covid-19, and as the world shut down in 2020, so too did Tiruppur.
How 'Revenge Buying' Pushed Up Prices
In 2021 and early 2022, as lockdowns were cautiously lifted, consumers across the world began to indulge in 'revenge buying'. Having been deprived of a normal life, they splurged on garments. Cash registers were ringing in Tiruppur.
As demand surged, prices of cotton skyrocketed by 53% in 2022, while prices of yarn doubled. Cotton growers and traders the world over cashed in on the opportunity. Traders and large corporates hoarded cotton, pushing the prices to unsustainable highs.
But small and mid-sized mills and garment manufacturers in Tiruppur were unable to keep pace with these prices, and so, their working capital took a hit.
Exports Dried Up Globally
Around the same time, Russia invaded Ukraine, triggering economic sanctions being imposed by Europe and the US. Russia reacted by cutting off gas supply to Europe, thereby trebling energy costs. As prices of essential commodities soared in Europe, the demand for garments nosedived. Families stopped purchasing clothing seasonally, preferring to utilise their existing wardrobes.
The key market for Tiruppur's exporters dried up. Desperate to make a living, exporters then turned to the domestic garment market to sell their garments. This move added severe pressure to the already wafer-thin margins, as domestic garment manufacturers were now forced to compete with exporters who were vying for the same pie.
The Indian consumer, taking a cue from the global consumer, also cut back on spending on garments. The only solace is that the demand slowdown in India is not as bad as it is in Europe and the US.
As a whole, the industry has taken a severe hit. Today, Tiruppur's apparel makers are producing barely 30% of their capacity. There are no takers for their clothes. Fabric wholesalers are sitting on warehouses filled to the brim without any sales.
The peak sale seasons of Deepavali, Christmas and New Year, followed by the Sankaranti and Pongal periods of 2024, have all been washouts. The future looks grim too, thanks to the Israel-Hamas war that has increased shipping costs globally due to the conflict in the Red Sea.
Losing The Competitive Edge To Bangladesh
The bigger elephant in the room, and one that has not been addressed satisfactorily thus far, is the import of cheap garments from Bangladesh and fabric from China.
As much as 50% of all imports of textiles and apparel by India is from China (38%) and Bangladesh (12%), as per 2022-23 data on the Textile Ministry's website. Of these, 40% of garment imports are from Bangladesh, and 20% from China. The dumping of textiles by China is being monitored by the Indian government, and anti-dumping duties have been imposed on Chinese viscose staple fibre and other raw materials. But the bigger problem is that of Indian apparel makers moving to Bangladesh and flooding the Indian market with cheap goods.
Bangladesh is an obvious choice for apparel manufacturing given labour is much cheaper than in India. Electricity is cheap and Bangladesh has managed to snag lower duties in Western export markets than India, with many countries waiving duties on Bangladeshi apparel since it is a poor country.
In fact, even India has waived import duties on Bangladeshi apparel, which has made it more lucrative for Indians to manufacture in Bangladesh and sell in India.
Hike In Electricity Tariffs
Adding insult to injury, the Tamil Nadu government in September 2022 hiked electricity tariffs by introducing peak-hour charges and hiking demand charges. Then, in July 2023, the Tamil Nadu Electricity Regulatory Commission increased the retail electricity tariff for high-tension industrial consumers by 2.2%. Despite agitations and protests by small business owners, no solution seems in sight.
With the cashflow hamstrung, the Finance Ministry's new rule of making payments to MSMEs within 45 days has hurt small business owners. Many MSMEs have also witnessed cancellation of orders, as the payment window has shrunk from the usual 120 to a 180-day cycle.
Overall, Tiruppur's garment industry is in the doldrums and it is unlikely that it will revive without strong support and intervention from governments, both State and Central.
The immediate need is to protect homegrown businesses by imposing import duties and tariffs as relevant. Power and tax incentives would also help. Tiruppur's exporters also want a Board that will help them navigate such rocky times. The road to recovery remains challenging, and the industry continues to face significant headwinds in its efforts to regain its former glory.
(Sandhya Ravishankar is a journalist)
Disclaimer: These are the personal opinions of the author.