Business

Domestic Denim Sector Faces Tough Times On Demand Slowdown

The denim sector, one of the fastest growing segments within the domestic textile industry, has hit a roadblock. Having grown at a healthy CAGR of around 15% in the last decade, the sector with an annual installed capacity of 1500 million metres of denim fabric and the world's second largest producer after China, has been facing over-capacity situation for the last few months following slowdown in demand, both at domestic & exports levels. The denim sector has urged the government to come with a support package that can bail the sector out of its current plight. In fact, the denim fabric manufacturing sector is currently operating at around 60-70% as the offtake of fabric has been considerably impacted in the domestic market in the post-GST period as a large part of garmenting activity happening in the SSI sector are under stress. Almost 70% of denim fabric is consumed in the domestic market. On the export front as well, the sector is facing tough competition from low-cost producers. The current domestic consumption of Indian denim fabric is around 750-800 million metres, and is growing at the rate of 12% per annum. The sector exports around 200-300 million metres. As against this, the installed denim fabric capacity has increased from 800 million meters in 2012 to 1500 million meters in 2017 and another 150 million metre capacity is in the pipeline. There are at present 46 denim players as against 30 players in 2012.

"Post GST, the denim Industry has temporarily closed down around 30-40% capacity and at present operating at around 60-70% capacity due to slowdown in demand & over capacity situation in the Industry. A present, the Industry is bleeding & if present situation continues there will be more production cuts," says Sharad Jaipuria, chairman, Denim Manufacturers Association.

Experts say that besides over capacity in the industry, it has also been affected due to the fact that the denim fabric needs to be cut, sewn and washed before it is marketed. Most of these downstream activities are primarily done in the unorganized sector, located at SSI hubs such as Gandhi Nagar & Tank Road in Delhi, Ulhasnagar in Mumbai and Bellary near Bangalore. These hubs have slowed down due to liquidity crunch after demonetization and slow acceptance of GST. "The small units undertaking the job works are badly impacted & this has adversely affected the entire value chain," says Akhilesh Rathi, director, Bhaskar Denim.

"In view the present difficult situation, the government needs to come up with some fiscal sops. There is need to increase the duty drawback rate and extending some more benefits under ROSL scheme, MEIS scheme, focus product and focus market schemes. This will increase the competitiveness of the sector in export markets," says Atul Singh, director, business development, Ashima Ltd.

Meanwhile, the domestic textile industry has also drawn the attention of government with respect to a sharp increase in imports of cotton/manmade fabrics and manmade yarn in the last two-three months and demanded safeguard measures to protect the domestic production base.

Sanjay Jain, chairman, Confederation of Indian Textile Industry says that pre-GST imports of textile products were attracting Basic Customs Duty plus countervailing duty and Special Additional Duty. Post-GST, CVD and SAD have been withdrawn and IGST is introduced. Unlike CVD and SAD, IGST is fully adjustable against GST liability on sale of the imported product. The government recognizing the problem and threat of imports flooding the market, has recently increased import duty on manmade fabrics from 10% to 20%. However, the import duties on manmade yarn and cotton fabric have been kept at the old rates.

"We have requested the commerce and textile ministries to increase import duty on MMF yarn, cotton fabric and MMF Fabrics by 15% to give ample protection to the local yarn, fabric and garment producers from the cheap import threats especially from FTA nations like Bangladesh and Sri Lanka," says Jain adding that the on-going scenario is badly affecting the domestic yarn, fabric and garment manufacturers. There is a greater need to impose safeguard measures such as Rules of Origin, Yarn Forward and Fabric Forward Rules on the countries like Bangladesh and Sri Lanka (have FTAs with India) in order to prevent cheaper imports. These countries are often used to route cheaper goods produced in countries like China and others.