Covid-19 creates a massive $2 billion hole in India’s apparel industry

As the Covid-19 pandemic continues to batter global supply chains, choking international trade in the process, the very survival of Indian apparel export is at stake. With overseas buyers and buying houses either cancelling or postponing confirmed export orders, industry body Apparel Export Promotion Council (AEPC) says about 65% of apparel exporters payment amounting to at least $2 billion (about Rs 15,300 crore) is currently stuck with foreign buyers.

According to A Sakthivel, Chairman, AEPC, the sector’s main traditional overseas markets are Europe and the US - regions severely hit by the pandemic.

“With lockdowns across markets, foreign buyers are postponing orders, and asking for hefty discounts. Goods in transit goods are also not moving. Those already dispatched are also finding no takers on various foreign ports. We never faced this kind of unprecedented situation,” says Sakthivel. He adds that that unless the government comes out with a special export centric package, a big question mark now looms large on the fate of the sector.


Echoing similar views, KL Magu, Managing Director of Delhi-based Jyoti Apparels opines that most of the exporters’ bank deposits today stand exhausted.

Had they received the payment from overseas buyers, the same would have been used to pay for inputs such as fabrics and raw materials and, more importantly, to service their banks' obligations. An uninterrupted cash flow cycle would have facilitated businesses to look for more funding from institutions to help sustain their operations, holds Magu, who is also the Ex-Chairman of AEPC.

“Foreign buying houses have also not paid for the 2-3 months old shipment, leading a huge blow to cash flow,” Magu adds. Calling the present situation “very grave with no light at the end of the tunnel”, he flags that payments expected against goods shipped in December, with a payment due date in March, has not come. To add to their woes, all future orders have now been indefinitely deferred.

Cancellations and postponement - the new normal for the sector
Various manufacturers ET digital reached out to, disclose that foreign buyers and buying houses are not lifting deliveries, despite them having reached their ports.

Such cancellations and postponement of shipments have resulted in packing credits being eroded, adds AEPC’s Sakhtivel, further underlining that apparel products are tailor made, design specific, and fashion specific and thus are ‘perishable’, and any cancellation would “make them redundant, with little or no salvage value next year”.

The widespread cancellation is not just a global phenomenon, but domestically too manufacturers are increasingly being advised to not ‘cut, stitch, sew any fresh item'. Rajendra Agarwal, Managing Director, Donear Industries Ltd informs that the firm has been servicing all the leading apparel brands from Blackberry, Madura Garments, ITC, etc., and each of them has postponed deliveries.

“We export 30% of our merchandise and I can say the outbreak’s aftershocks will extend till next year, '' remarks Agarwal, adding even if the company resumes production in June this year, any order execution may not materialise in the next 90-120 days. This is due to the cold responses of foreign buyers at this point in time.

Amid a slowing economy, the Indian apparel sector was already reeling under a liquidity crunch, besides many traditional bottlenecks. In Magu’s view, people adjusted to demonetisation, and then GST, despite all its flaws because these were India-based events, but the impact of Covid-19 is unprecedented. “We need buyers to survive. If the supply chain is halted and retail outlets selling our merchandise are closed, how will we pay our workers?” he questions.

The Indian apparel sector, the world's fourth largest producer of textile and garments, is not just a foreign exchange earner, but an employment oriented industry, employing 12.9 million people. Industry experts are of the view that given the widespread interdependence of many sub-industries on the sector, any resultant job losses will have a domino effect across numerous ancillary industries, jeopardising their very survival.

“The ripples of any degrowth in this sector will likely affect millions of bread owners across the length and breadth of the country,” cautions Sakthiwal.