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‘With demand compression it is sensible to conserve cash’

Thomas VergheseFormer-Chairman, CII Marketing, Retail and Textile Councils

Thomas Verghese Former Chairman CII Marketing Retail and Textile Councils“Lack of credibility and trust will lead to many large brands looking for alternative sourcing to China but I do not think any country is equipped to replace China including India.  India does not have that kind of capacity to feed global demand and are not in a position for bulk manufacturing of normal commodity items. We do more of customized exports. We don’t do manufacturing of bulk items. We don’t have that capacity and infrastructure at the moment. It will take two to four years minimum even if everyone is aligned and the government gives supporting fiscal and tariff benefits. Given the reality of Indian industry and government’s policy support measures, it seems an unrealistic expectation.”

What is your observation and understanding of the current turmoil facing the textile industry?

The textile industry has come to a standstill. No activity other than a limited scope of manufacturing masks is on among garmenting. Moreover the textile industry after agriculture is the largest employer and a large number of people in the unorganized sector, don’t have a social security. So a lot of them will be rendered jobless depending upon how proprietor deals with recovery after post lockdown. There will be significant shakedown in the industry after restarting. One can expect a lot of unemployment in the short and medium term. Secondly demand for the textile industry, a discretionary item of purchase will take longer to recover. Both industry and individuals will focus on conserving cash. Therefore, savings will go up while discretionary items will go down in the short to medium term. Short to medium term in conjecturing means at least a year for recovery maybe longer and this has been more or less confirmed by big four consultants like McKinsey, BCG, ATK and APMG all their forecast speak about long term recovery for the industry and definitely textile will not be a priority unless the government provides certain sops to kick-start employment because for the government also large scale unemployment will be a big a challenge. 

Thirdly, the impasse between the US and China had already thrown the textile industry in disarray because China is the largest producer of a lot textiles, accounting for almost 25 to 30 per cent of global trade. Already the textile industry over the last year and a half has been experiencing turmoil because of a trade slowdown. China has suffered a lot because of this. It rolled a much lower export income and revenue and that would impact their overall manufacturing operations. It will take some time because now there will be an issue of trust. A lot of people will now have reservations about dealing with China. Unfortunately, China’s place in global community, as a large reliable supplier of textiles cannot be taken up by any country. Weather it is India, Turkey, Vietnam etc, no one is in a position to take on this so called lack of credibility and therefore ,the consequent loss of business for China in a short to medium term basis. Some countries can plan to build capacities but that is a two to four year project. Indian textile industry will see a ripple effect of this. 

Will this be an eye opener for India and the rest of the world that they should not be depend on just one country for sourcing. Also, can India emerge a strong alternative sourcing destination? 

Lack of credibility and trust will lead to many large brands looking for alternative sourcing to China but I do not think any country is equipped to replace China including India.  India does not have that kind of capacity to feed global demand and are not in a position for bulk manufacturing of normal commodity items. We do more of customized exports. We don’t do manufacturing of bulk items. We don’t have that capacity and infrastructure at the moment. It will take two to four years minimum even if everyone is aligned and the government gives supporting fiscal and tariff benefits. Given the reality of Indian industry and government’s policy support measures, it seems an unrealistic expectation. The only country that can gear up in the short term is probably Vietnam because there has been a lot of FDI in textile in the last 5 to 10 years. They are looking at Trans Pacific agreement as the opening a new textile manufacturing hub. 

How can the government help in overcoming this challenge?

The government is not playing an active role other than providing new initiatives for technical textiles and India is not really highly placed in the supply chain of technical textile but it is expanding its horizon. That is the main support from this Union Budget. There are a lot of statements about creating global hubs, none of which happened on the scale that it was envisaged, like in China or other countries. The government will need to provide solid support maybe even amend the Amended Technical Upgradation Scheme to include spinning, to cap the limits among other things.

What is your advice to small manufacturers and the industry at large?

Because of demand compression it is more sensible to conserve cash and importantly work on re-development of markets. That will be my first advice to all manufacturers big and small. It has to be across the board we will have to improve quality, improve our propositions and become more competitive. 

 

 
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