Global Economic Scenario


On the global scenario, the fuel and the commodities prices havetaken a serious hit due to drastic cut in consumer spending and demand, especiallyin USA and Europe. The global crude oil price has come down to the $40-43 levelwhich is a huge 70% down from the peak level of $146/barrel, recorded May-Juneof 2008. Due to ongoing decline in global energy demand, the world oil pricesmay even come down to $30-35 level over next Q1/2009.


The global economy, however, remains in the slow and recessionarymode due mainly to failure of some top financial institutions in the USA and the continuing 'deep' recessionary conditions which have now also taken Europe [incl.UK/France/Italy] and Japan into its grip. The quarterly growth in these erstwhilewell to do economies is projected at not more than 0.25 to 1%. There is acomplete erosion of consumer confidence which has reflected in poor pre-Xmassales and closing down of several branches of the retail chains in the USAand Europe; and drastically bringing down the demand for oil.


Impact on India's Textile Sector


This decisively has impacted the demand for textiles andclothing from, both the USA and the Europe. Due to reduced export demand fromthe USA and the EC countries, the textile industry in both India and China has been in slow growth phase. Due to drying up of textile/clothing export orders, theexport plummeted 10.5% in Oct 2008 itself. Both the exports of apparel andtextiles have gone down already by 10-11% with respect to last year's.


The erstwhile key drivers for growth of the Indian textileindustry have been the global/export demand for its products and competitiveprice for domestic cottons. While, there has been a comfortable Cotton crop,at 325 lac Bales for the new 2008-09 season, the fixing of higher MSP by the government[due to undesirable vote bank gimmicks] has not enabled the input price forthe textile industry to go down; which in effect is making Indian textileproducts out priced and not duly competitive.


Due to above and the ongoing contraction in demand andprices, the domestic textile sector is in 'decline' mode, due mainly to slowlifting of fabrics and made ups owing to continuing slowdown in demand for clothingand apparels in both global and domestic markets. In the domestic markets, thedrastic erosion of share market value [which is now lowest in last 4 years] hasin effect led to the flight of much required FDI capital. Also, the high costof borrowings [along with the corresponding liquidity and credit crunch] is stillfuelling the negative sentiments and consumers are in bearish mood.


Domestic Textile Scenario


Owing to the already increased burden of fuel and interestcosts, there is slow down of consumption in the domestic economy. With loweringof repo. rate by the central RBI bank, it is expected that there will be infusionof credit and liquidity in the economy. The impact of this interim Govt.relief to the financial system may shown 'positive' signs perhaps over Q1 of2009 provided the USA/Europe/Japan are able to make some corrections to theirsinking economies. To a greater extent, this depends upon the success of theBailout package for USA auto majors.


Meanwhile, the Govt. declaration of providing Rs.1400 crorefor the TUF scheme is not to have any significant impact on the health ofindustry. It seems, this amount is only to clear the 'backlog' of last yearsand, therefore, a mere eye wash. With the interest rates still ruling high, therewould be No takers for new investment.


As, of present the Textile and clothing sector has touchedthe bottom of the 'U' and this is reflected in the downtrends in production anddemand as shown below:


  1. Cotton yarn, production down to 227 from 320 Mln kg pm
  2. Apparel exports down to 8.7from $9.6 bln for last year


 

The decline on demand for retail garments and made ups, in exports and dom. Retail, has affected the Indian fabric manufacturers. The cotton fabric output has shrunk to the lowest rate, since last 4 years; and is down to a combined 11.4% from a year ago.


Also, with the break on the growth in domestic Retail segment and with corresponding down-streams unlikely to see a sustainable 'rebound' soon; the Output of textile mills [esp. the spinning and fabric mills] is likely to slide down further in Q1 of 2009. It is time to pull the belt much-much tighter for next 2-3 Quarters could even be worse. Retailers, and reality, will remain under pressure.


Textile exports


Due to cut down in textile /clothing by the global retail chains, the expected and enhanced buying interest from overseas buyers for Christmas season did not come through.


This has negatively impacted the textile exports from India, which have shown a decline of about 10% for Q4 of 2008. Other than the appreciation of Dollar versus the rupee, there is no marginal relief for textile exports. The export demand and orders, for apparel and textiles, for spring-summer 2009 will remain subdued.


Overall, the short and medium term sentiment in textile sector will continue to remain weak over next 2 Quarters of 2009, and the real stepwise correction may not begin before mid-2009.


Note: The above Outlook and forecast for Textile sector is based on bi-monthly feedback provided to selective textile corporate, by Senior Textile and Clothing Industry Consultant, Mr. M. Tyagi