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Indian Garment Sector Faces $3 Billion Virus Impact, Survey Says

The average garment factory in India has had nearly $1.5 million worth of orders cancelled or put on hold, a new survey says, which could equate to a $4.17 billion impact nationwide.

“Measuring Impact of Corona Pandemic on Indian Apparel Export Industry,” conducted by Rajesh Bheda Consulting (RBC), gauges and illustrates the wide-reaching effect of the COVID-19 pandemic on India’s garment export industry. The survey is based an online form completed by 77 apparel exporting companies from different manufacturing hubs across India.

Though the results were based on a relatively small sample, they provide much-needed data reflecting the scale of the challenge facing the respondents, and its potential impact on India’s roughly $17 billion garment industry, RBC said.

More than half the respondents (56 percent) said payments were delayed, whereas in 19 percent of cases, fashion brands refused to pay for the orders altogether. Out of the cancelled orders, in 43 percent of cases no payment were received, in 35 percent partial payment for the material was received and 22 percent said the buyer had paid for the material.

“When we extrapolate the results of the survey at the apparel export industry level, this could result in export orders worth $4.17 billion being cancelled or put on hold,” Dr. Rajesh Bheda, managing director of RBC, said. “This amounts to almost 25 percent of the annual apparel exports from the country.”

Because the Indian industry mainly executes spring-summer orders, January to March are the peak production months, resulting in a severe impact, Bheda noted. As a result, the Indian apparel export community is likely to face unprecedented liquidity challenges, he said, putting the livelihood of 12.9 million garment workers is at stake.

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“Even if we consider the fact that participant factories are likely to be larger, hence, the results need to be moderated, the total business impacted can be estimated at $3 billion,” Bheda added.

The sector was already struggling with increased competition from Bangladesh, Vietnam and Pakistan, which have preferential trading relations with the European Union.

In neighboring Bangladesh, as of April 16, orders worth $3.16 billion were cancelled or on hold, affecting 2.26 million workers, RBC noted. However, collecting and publicizing data on order cancellations and orders on hold by the Bangladesh Garment Manufacturers & Exporters Association helped stakeholders communicate the impact with international buyers. RBC believes this resulted in a few buyers like H&M, Marks & Spencer, Inditex, PVH, Kiabi, Target and VF Corp. taking a compassionate view and assuring on not cancelling the orders produced and under production.

India similarly must proactively engage with the buyers, international media and trade missions of importing countries to stress the need for following ethical trading principles, RBC said, and develop a viable solution to avoid order cancellations and delay in payments during the crisis. This will help to safeguard the livelihood of garment workers who have been producing clothing for major international brands.

“RBC’s analysis is right and estimation is hovering around the same amount of loss that we are anticipating,” said Raja Shanmugam, president of Tirupur Exporters Association, which represents the largest knitwear cluster of the country.

“Tirupur is totally oriented to the Western markets and we have to work on two aspects–tangible loss of $1.5 million per unit and we also need to consider non-tangible loss due to the market closure–and the late revival of the market in six months to one year would be a huge amount,” Shanmugam added. “There should be a holistic revival package by the authorities to address the needs of the industry and thereby revival of the industry and the entire economy of the country.”