Outraged manufacturers in Tirupur, the so-called knitwear capital of India, staged a two-day production shutdown last week to draw attention to an untenable surge in critical costs.
“It is the need of the hour for the central government to pay attention,” Raja M Shanmugham, president, Tirupur Exporters Association (TEA), told Sourcing Journal of the crisis in raw materials prices.
“Manufacturers are facing a huge price issue, with increasing yarn prices pushed upwards by the higher cotton prices,” Shanmugham said.
Acknowledging that prices are rising globally, Shanmugham added that India should be able to leverage its raw material stores and labor pool “to benefit our stakeholders, rather than draining our resources to see the neighboring countries being enriched by them. This is the time for the Indian government to step in and save the industry.”
Meaningful actions include banning raw cotton exports and eliminating last year’s 11 percent duty on cotton imports, which further squeezes local manufacturers.
“As cotton has also got included in the list of commodities, prices can be jacked up at the whims and fancy of the exchange trade where there is no tangible trade happening, just notional paper trade,” Shanmugham said. “Cotton being an essential commodity for downstream industries of our countries this should not be allowed or encouraged to have derivative options, those will topple the industry for good.”
“Right now, government policy also supports that raw yarn and fabric being exported to our competitor countries and they are then beating us to the end-product. This also ensures that they provide much needed employment to their labor as well as earn foreign exchange. Exports of these should also be regulated so that domestic demand is fulfilled first and the remainder exported,” he said. Bangladesh, Vietnam, Pakistan, China and Turkey are some of the major international markets for Indian yarn and fabric.
Although Tirupur manufacturers feel distanced from New Delhi where these decisions are made, they also have a strong voice. Tirupur accounts for nearly one-quarter of India’s apparel exports, according to analysts.
“Commitments made several months back have to be met by exporters,” TEA executive secretary Sivaswamy Sakthivel said. “These are all very well for larger companies who have vertical integration,” he added, but for the small and medium enterprises making up 95 percent of Tirupur’s businesses, “the pressures are intense.”
The past year’s increasing cotton prices have substantially ratcheted up the pressure. The industry saw pent-up cotton demand when Covid restrictions first loosened up and shortages stemming from U.S. sanctions on Xinjiang cotton, which accounts for 10 percent of global production.
Confederation of Indian Textile Industry chairman T. Rajkumar noted a substantial price differential: the average price of cotton was 37,000 rupees or $497.63 a candy (355 kg) in September 2020, rising to 60,000 rupees or $806.92 in October 2021, when the new cotton season started. On Dec. 31, the price was 70,000 rupees or $941.40.
Indian exports have picked up in recent months. Apparel exports were up 22 percent at $1.46 billion in December 2021 from $1.2 billion for the same period a year prior. Exports for the nine-month period from April to December 2021 were $11.13 billion, up 35 percent from $8.22 billion for the same period the previous year, which was staggered by Covid-19 and the subsequent lockdowns and cancellations of orders.
While asking for the cotton export ban to aid the industry, Shaktivel said the sector is also seeking bank support to pluck SMBs from crisis. Yarn prices that jumped 10 rupees (13 cents) on Wednesday only adds “fuel to the fire,” Sakthivel said.