Madhu Sudhan Bhageria Demand is subdued because timelines are long

The ongoing West Asia conflict has triggered fresh volatility across global supply chains, with India’s textile and man-made fibre (MMF) industry among the first to feel the impact. Rising crude-linked input costs, disrupted availability of key petrochemical raw materials, weak buying sentiment and labour uncertainty are putting pressure on production and margins. In this interview, Madhu Sudhan Bhageria, Chairman & Managing Director of Filatex India, shares a ground-level view of the challenges facing the sector and outlines what policymakers and industry must prioritise to restore stability.

How do you see the ongoing West Asia conflict impacting the Indian textile industry in general, and specifically the MMF segment?

The MMF segment has been affected very quickly due to the conflict. Petroleum prices have risen sharply, and availability has also emerged as a major challenge. This is the primary issue the industry is currently facing. Polymer prices have increased significantly, even though the government has reduced customs duty. At the same time, buying activity has declined drastically, as market sentiment remains cautious.

Fabric and garments are products that consumers can postpone purchasing for a short period. Demand is unlikely to disappear entirely, but it is being deferred. Buyers are hesitant because they fear that once the conflict ends, prices may fall, leaving them with high-value inventory.

Although the impact at the retail end may be comparatively lower, each stakeholder in the value chain is concerned about their own margins. Yarn manufacturers are worried about profitability, followed by fabric manufacturers, processors, and then retailers. While retailers may be relatively less affected, overall buying has declined significantly.

In war-like situations, consumers tend to cut discretionary spending, and fabric and garments are among the categories that can be postponed easily. As a result, demand has dropped sharply. Even though prices have been reduced across the sector, demand has not recovered.

Another major concern is labour availability. There is fear of potential restrictions, and the rising cost of cooking gas has added pressure on workers. Since the textile industry largely depends on migrant labour from different states, many workers are leaving. Therefore, the industry is facing a dual challenge—labour shortages and weak demand.

Given the rising crude oil prices and the availability challenge, what remedial measures can the industry and government take in the short and long term?

The government has already taken a step by reducing customs duty.

However, another critical issue is the inverted GST structure. Raw materials attract 18% GST, while finished products are taxed at 5%, resulting in a significant working capital blockage. Although refunds are provided, they are often delayed and not received in full due to the refund calculation formula. This has been an ongoing issue for the last seven to eight years.

Recently, GST on finished products was reduced to 5%, making the gap between raw materials and finished goods even wider, thereby intensifying the problem. This is one area the government can address.

Beyond this, there is limited scope for government intervention, as demand decline is a market-driven phenomenon. Demand cannot be artificially created.

Do you think companies will now optimize energy usage by shifting to alternative energy sources or investing in energy-efficient equipment?

Companies typically focus on optimizing energy consumption and costs even under normal circumstances. However, the sharp increase in energy costs has intensified the pressure.

Electricity prices have not increased significantly, but heating fuels such as coal and furnace oil have become much more expensive. These challenges can still be managed to some extent.

However, when demand is weak, the ability to invest or expand becomes constrained. If demand is not present, there is little that companies can do beyond cost management.

Even on the export front, demand is subdued because timelines are long. Orders take 20–30 days for dispatch, plus transit time. By the time buyers receive goods, prices may have fallen, leaving them with expensive inventory. As a result, purchasing has reduced drastically—almost to 50% of previous levels.

How has the crisis impacted MMF exports?
MMF exports were not particularly strong even earlier, but whatever volumes existed have now been affected.

India has to compete with China, which can offer significantly lower prices due to abundant raw material availability. India faces shortages in key inputs such as PTA and continues to import from China because domestic supply is insufficient. Earlier, supplies were coming from the Middle East, but those have been disrupted due to the conflict. Therefore, supply constraints remain severe. Even if producers wanted to operate at full capacity, it would not have been possible under current conditions.

The government has exempted customs duty on key petrochemical inputs. Are you seeing the effect of that on the ground?
Yes, the benefit has been passed on. Producers have passed it on to us, and we have reduced our prices accordingly.

Currently, operations are running on extremely low margins—virtually negligible margins—just to keep plants functional. Despite this, full capacity utilisation is not possible, and most manufacturers have reduced production.

What key lessons should the industry and policymakers draw from this situation?
The measures taken by the government are positive, but they have been announced only for a three-month period. In import-dependent industries, three months is a very short timeframe. By the time orders are placed and goods are dispatched, nearly two months are already consumed. This effectively leaves only one month of benefit.

The government should have taken a longer-term view, at least for the full calendar year. Even if the conflict ends, normalcy will not return immediately. Shipping routes and refinery operations will take time to stabilise.

A minimum period of nine months or the full financial year would have enabled companies to plan operations more effectively. With only a three-month window, most businesses are unable to fully leverage the benefit.

Is there any government initiative to encourage investment in domestic polyester raw material production?
Yes, two or three plants are already under development. Once they become operational, the raw material issue should ease considerably. It is expected that two of these plants may come on stream within this calendar year or financial year. One is being developed by GAIL, another by Indian Oil, and a third is in the pipeline with Reliance, expected around early 2028.

If the customs duty benefit had been extended until the end of the financial year, it would have aligned well with these upcoming projects, helping India become largely self-sufficient, with only limited imports required.

MEG is largely produced from gas-based feedstocks, and its viability in India is limited. That is why it is primarily sourced from the Middle East. Even China imports significant quantities from the Middle East. Therefore, it is unlikely that many new MEG plants will come up globally. MEG is generally in surplus supply, but due to the current disruption, availability has become constrained.

How do you see the outlook for demand and pricing trends for polyester?
This situation is difficult to predict, as war-like conditions create significant uncertainty. It is not comparable to the market environment of the last four to five years. It is hard to estimate how long the disruption will continue.

If the war ends in the next week or so, how soon will normalcy return?
Normalcy could return within a month. By the end of May or early June, the industry may return to around 80–90% of normal activity. The remaining 10–15% could gradually recover over the following couple of months. Most of the recovery is expected to happen quickly once the conflict ends.