Tirupur garment center crippled by war in Ukraine and slowing US and UK markets
The situation is rather serious, prompting Stalin to write to Modi to intervene in the matter; multiple reasons led MSMEs to face a crisis
from Tamil Nadu Tirupur Garment Export Center has overcome many significant challenges in the past, ranging from the 2008 economic crisis to a 2011 Madras High Court ruling against its effluent discharge plants, demonetization, GST and the COVID pandemic -19.
But, even as global demand for apparel exports increased as the pandemic receded, units were once again severely crippled by soaring yarn prices. The price of yarn, which was around ₹220 per kg (30 count), jumped to ₹440 per kg in April and May this year. Unable to manufacture garments with this spike in prices for yarn, a key raw material in garment manufacturing, these units in Tirupur, which are 90% MSMEs (micro, small and medium enterprises), were unable to negotiate better prices with foreign buyers and began to reduce production and buy yarn from mills.
Read also : Impact of COVID-19: Tirupur exporters demand financial rescue action from FM
Despite these problems, Tirupur’s units contributed about 54.2 percent of the country’s textile exports last year. The apparel cluster generated exports of ₹33,525 crore ($4.51 billion) in FY22.
Orders fall, demand falls
Today, the Russian-Ukrainian war and the economic downturn in the United States have plunged these MSMEs into a liquidity crisis.
According to a letter written by Tamil Nadu Chief Minister MK Stalin to Prime Minister Narendra Modi, orders for the summer season are down about 40% from last year. Pointing out that Tirupur’s garment export units and their supplier MSMEs are facing a financial crisis, Stalin said he understood that “the month-on-month growth rate of ready-to-wear garment exports employment shows a sharp decline”.
Tirupur is one of India’s largest knitwear export hubs supplying the US, UK and European markets, and MSMEs constitute 95% of the export units in this hub, he pointed out. “It is reported that orders for the summer season are now down about 40% compared to last year,” the CM said in its letter.
While some units have even closed for short periods, the majority only operate four or five days a week. Previously, regular shifts lasted eight hours, but now it is difficult to work just one as there is not much demand, Raja M Shanmugam, chairman of the Exporters Association of China, told media. Tirupur (TEA).
Furthermore, he said that previously, despite higher prices, there was an increase in demand in the first five months. “Now we are seeing a bigger drop in orders for the coming months. We are expecting a 30-40% drop in total exports for the year due to the ongoing global scenario,” he said. affirmed.
The reduction in purchasing power of the population in foreign and domestic markets has played a huge role in stalling production. Reports quote exporters saying that garments already produced and exported have gone unsold due to weak demand.
Read also : To save the garment industry, the government should provide cheap credit and refund wages
According to the Chairman of Tirupur Exporters And Manufacturers Association (TEAMA), Muthu Rathinam, competitors such as Bangladesh, Vietnam, Ethiopia and China have benefited from high yarn prices in India and received orders over the past the current season. Indian exporters were unable to offer decent prices.
Even the few major domestic garment manufacturing units such as Lux, Amul and Dixcy, which manufacture garments worth ₹10,000 crore a year, are dealing with huge stocks of pre-made garments, according to reports.
Even as Tirupur’s knitwear exporting MSMEs struggled against the double whammy of the COVID pandemic and rising cotton yarn prices, the Russian-Ukrainian war worsened the situation in EU markets, United States and the United Kingdom, Shanmugham said. This has led to a situation where units have few orders and lots of unsold inventory.
The protracted war hit demand from Europe, with most global retail customers carrying high inventories. And the US economic slowdown is also causing problems for advance orders. Of Tirupur’s monthly income of ₹3,000 crore, US contributes to earn ₹1,000 crore.
According to the TEA, the United States contributed about 40% of the region’s exports, while for Europe it was 35% last year. Any interruption in supply or drop in demand in the EU and UK could wipe out business worth more than ₹1,200 crore per month, exporters told reporters. Garment makers in Tirupur have admitted that sales of knitwear have stagnated in the past, thus affecting production and employment opportunities, but this time the situation is serious.
Tirupur’s exports had increased from ₹27,500 during FY20 to ₹25,000 crore during FY21. It was expected to rise by around ₹36,000 crore before the Ukrainian crisis hit the export garment industry.
This self-started cluster located 500 km southwest of Chennai, generates an annual turnover of 4 billion dollars and employs around 700,000 people. It manufactures and exports cotton and cotton blend T-shirts, dresses, sweatshirts, pullovers and other knitted garments, mainly to the United States, Europe, Australia and Canada. It accounts for a quarter of the country’s total garment exports.
Read also : How Tirupur Textile City Cared for Migrant Workers During Lockdown
Stalin, in his letter to Modi, immediately requested a special Emergency Line of Credit Guarantee (ECLGS) program for MSMEs in the garment sector, to help them overcome the current crisis.
In his letter, he listed several factors, including the economic impact of COVID-19, the Russian-Ukrainian war and the expected economic slowdown in the West, as reasons for the crisis. It remains to be seen whether MSMEs in Tirupur will once again show resilience and be able to emerge from this crisis as they have done in the past.