For textile makers, calendar 2024 to weave a rebound
Net-net, a favourable landscape marked by easing cost pressures and demand revival is likely to support the growth of Indian textiles in 2024, says Aniket Dani.
India’s textiles industry is expected to rebound in calendar 2024 on three tailwinds: consistent improvement in domestic demand, gradual recovery in exports and lower cotton prices.
In fiscal 2022, the sector had stitched its decadal best revenue growth and record profits because of pent-up demand across the domestic and global markets as the COVID-19 pandemic subsided.
Last fiscal, however, growth did not improve or even sustain. Heightened geopolitical tensions pushed the European region, which accounts for a fifth of India’s apparel exports, into slowdown, curbing demand for textiles.
And the US, the largest market for domestic readymade garments (RMG), saw inflation spiralling, which prompted consumers to defer discretionary spending.
In the first half of calendar 2022, cotton prices rose to new highs because of lower-than-expected crop and a surge in demand. This impacted the downstream segments.
Cotton prices, which averaged Rs 110-130 per kg before the pandemic, hit a high of Rs 280 in May 2022. A simultaneous pick-up in demand pushed up prices, offsetting India’s competitive advantages such as easy availability of cotton and lower cotton prices.
This was particularly damaging as the country competes with Bangladesh and Vietnam, among others, in the lower end of the garments spectrum where affordability is critical.
In the second half of fiscal 2023, export of garments contracted 7 per cent in volume terms as demand slumped because of macroeconomic worries in key markets.
For the full fiscal, volume of exports to the US fell 18 per cent and to the UK 7 per cent. To the European Union, they grew a flattish 1 per cent.
The cotton yarn industry was worse off, with exports halving as yarn demand from global RMG producers shrank.
However, the worst seems to be behind as 2024 dawns.
For one, cotton prices have eased from their highs. Also, with cotton production estimated to be higher this cotton season, the prices are unlikely to rise anytime soon.
Higher availability of cotton and low cotton prices will offer a much-needed support to the domestic textile value chain, which relies more on natural fibre than crude oil-linked synthetic textiles.
Also, the seasonally strong festive season in the west, spanning almost three months from Thanksgiving to the New Year, is expected to bring good tidings.
Recent high-frequency data show India’s cotton yarn exports grew well over 50 per cent on-year in the first half of this fiscal, indicating India has been able to cash in on its competitive edge again (with cotton prices declining) and the expected increase in end-user demand from other apparel producing countries.
We expect three factors to drive the growth of the domestic textiles industry in calendar 2024.
One, the steady growth in the domestic demand, which accounts for around three-fourths of the overall demand.
Second, the improvement in order flow from export markets because of better consumer demand as economic conditions improve and big box retailers restock inventory.
Third, demand ahead of the spring-summer season in the west, which will likely boost the off take of garments from India, thereby supporting the growth of the entire value chain.
In the long run, India will be able to capitalise its dominant position in cotton production (the country accounts for approximately a quarter of the global output). Furthermore, as the largest exporter of cotton yarn, the country supplies to the very nations it competes with in the global apparel market.
Recent policy initiatives, such as the PM Mega Integrated Textiles Regions and Apparel (PM MITRA) Parks scheme, are also expected to provide substantial support.
The PM MITRA Parks scheme offers plug-and-play infrastructure, which can be a crucial support given the predominance of micro, small and medium enterprises (MSMEs) in the industry.
The government also has introduced a Production Linked Incentive (PLI) scheme with an aim to make the country self-sufficient in the man-made fibre value chain, reducing the reliance on imports.
While these measures strengthen domestic manufacturing, challenges persist on the exports front.
India faces a disparity in duties with its competitors such as Pakistan, Bangladesh and Vietnam. As a result, the country’s share in apparel imports of major markets has been stagnant.
For domestic textile manufacturers to overcome this discrepancy, the government must expedite the signing of free trade agreements.
India also faces a logistical gap, which results in extended turnaround times and cost overruns. Addressing this issue is crucial for enhancing competitiveness of the domestic textile products.
Furthermore, steps must be taken to enhance the production efficiency of textile units. The government offers export incentive schemes such as the Remission of Duties and Taxes on Exported Products and rebate on state and central taxes and levies.
Along with these, if the units’ production efficiency also improves, it could propel the country’s textile exports over the medium term.
One way to achieve this is by extending the validity of the Technology Upgradation Fund Scheme retrospectively beyond March 31, 2022. Under the scheme, textile manufacturers could get subsidy on capital investments in technological upgradation and integrated manufacturing facilities.
Net-net, a favourable landscape marked by easing cost pressures and demand revival is likely to support the growth of Indian textiles in 2024. Leveraging policy support and addressing structural challenges are pivotal to ensuring a sustained growth and improved competitiveness in the global market.
About the author:
Aniket Dani is a Director-Research at CRISIL Market Intelligence & Analytics.
