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Demand shocks to hit textile exports, production to decline by 12%: KPMG

Date: 09-04-2020
Subject: Demand shocks to hit textile exports, production to decline by 12%: KPMG
Demand shocks are expected to hurt India’s textile exports over the next few quarters due to the outbreak of coronavirus across the globe. If the current scenario continues over the next few months, the domestic retail market would also be impacted significantly, said a KPMG report on ‘Potential impact of Covid-19’. The textile and apparel sector production is expected to decline by 10% to 12% in the April-June quarter, the report said.

There has been a limited impact so far due to lockdown. If the situation persists, the impact would be higher. With a drastic fall in global demand and an export ban on certain critical raw materials (those used to make masks for example), the impact on exports would be considerable, the report said.

With the lockdown in China, prices of man-made fibre imports are expected to rise significantly, resulting in higher prices for some goods in the domestic market. Prices of imported man-made fibres used for high value products is expected to rise by 25% to 30% over the next two quarters (April-September 2020), KPMG said in its report.

China is the fourth-largest trading partner of India for purified terephthalic acid (PTA) and also largest trading partner for polyester staple fibre (PSF). Cotton prices have been reduced by 3% and are expected to be impacted further over the next few months, it pointed out.

While cotton prices are expected to take a hit, the yarn, which accounts for 29% of India’s textile trade, will witness its production contract by 12-15% over the next two quarters due to a marked decline in demand from both domestic and global markets. Similarly, fabric production is expected to decline owing to decline in exports and stagnation in apparel/home textiles production.

From a manufacturing perspective, employment would be impacted owing to limited demand in both domestic and international markets. According to the report, apparel production is expected to decline by 18-20% owing to decline in global demand. Effect of lockdown on the domestic market is yet to be witnessed. Home textiles industry has had limited impact of the Covid-19 induced global downfall.

The report said that the sector contributes 2% of GDP and employs over 45 million people directly. With the nation-wide lockdown, there have been some temporary closure of factories and lay-offs have already begun among low-wage earners.

The need of the hour is that the government should extend tax compliances considering the nationwide lockdown and taxes need to be reviewed to minimise the impact of decline in demand. The sector has been under severe financial crisis hence interest rate reduction should be considered. Credit ratings based loan facilitation for MSME players need to be reviewed in order to make the sector competitive/lucrative, the report pointed out.

Source:- financialexpress.com

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