Tirupur knitwear industry Going through challenging business environment

The reasons for Tirupur’s woes are both external and internal. On the external side is the emergence over the last several years of strong competitors such as Bangladesh and Vietnam. It’s hard to compete on a cost basis with lower income countries such as Bangladesh. Further, in the new era of bilateral free trade agreements where countries across South and East Asia are rushing to sign agreements with the biggest export markets, India has faltered.

This has been primarily due to the FTA-related revenue losses for domestic manufacturers in sectors such as auto and winery. Bangladesh has already signed an FTA with the EU, which has given them a 10.5 per cent cost advantage over India. Similarly, Vietnam is currently negotiating a free trade agreement with the EU and is already part of the Trans-Pacific Partnership.

While Tirupur’s exporters managed to overcome external shocks in the past, and ride through periods of slowdown such as the 2008 crisis, the cause of Tirupur’s pain this time is domestic policy. The combination of demonetisation and a hurried, faulty GST implementation has brought Tirupur to its knees.

Demonetisation completely decimated domestic demand by removing all liquidity from the market. GST has increased costs, not only of compliance but also of materials, services and working capital.

The Centre had promised 90 per cent of GST would be refunded within nine days from the date of export, with the remaining being refunded in 90 days. However, most have still to receive their GST refunds or the promised refund of State levies that were part of the incentive package. This has led to a severe tightening of liquidity for exporters which, in turn, has led to a contraction in demand for downstream processing units, leading to their inability to pay back loans on their capital. At the same time, banks and private lenders have tightened their purse strings when it comes to helping small businessmen in crisis.

The knitwear export sector has been passing through a challenging business environment. This was evident from the continuous decline of knitwear exports month after month since October 2017, after three months transition period was over. The exports declined as much as 21 per cent during the second half of 2017-18. The most worrying factor is that the negative growth trend in exports is continuing in the current financial year and the average decline of knitwear exports in the month of April and May was 34 per cent.

Though government says GST for textiles is only 5 per cent, there are hidden taxes and they pay up to 13 per cent tax, which becomes a unbearable for small and new players. While bigger companies can at least sustain the crises, small players are the ones who are the worst hit. They were not prepared to take the blow of drastic reduction in incentives given to exporters and stringent GST norms.

If this wasn’t enough, the e-way bill bogey continues to hang over Tirupur’s textile manufacturers. The many complications of a badly implemented GST are slowly eating away at India’s largest cotton textiles export cluster. One can only hope the Centre expedites payments and institutes a mechanism for faster rebates in future.

On the other hand, the falling rupee has given no respite to the industry as the price of yarn, its key raw material, has zoomed. Competing countries’ currencies also falling, taking away the low rupee advantage. The cotton yarn price has risen by Rs. 20 a kg this month to Rs. 240 per kg for 40 count yarn. Going by strengthening cotton prices, industry fears another hike of Rs. 5 per kg in July. The price hike has put the knitwear garment export sector in a difficult situation and it’s hard to sustain.

Ultimately, it’s time the government should relax tax norms and offer incentives to help entrepreneurs tide over the crisis. If not done soon, a labour-intensive industry that generates 2,400 jobs per Rs. 1 cr of investment will leave lakhs of low-skill workers unemployed due to shut down of factories. In the next few page we are covering views of some leading players from the industry about current scenario of Tirupur knitwear industry and its future.

Tirupur Exporter Moving ahead, despite ups & downs

Tirupur Exporters Association – popularly known as TEA – was established in the year 1990. This is an Association exclusively for exporters of cotton knitwear who have production facilities in Tirupur. From the modest beginning TEA has grown into a strong body of knitwear exporters. Today, it has a membership of 951 Life members and 155 Associate Members. Last year, Raja M Shanmugam was elected as the President of Tirupur Exporters’ Association (TEA) after Padma Shri Dr. A Shaktivel stepped down as TEA President to leave way for youngsters. The change of guard was seen in the industry as the result of a group of younger and progressive entrepreneurs, who floated “Team for Change”.

Besides, Shanmugam is the Chief Mentor of NIFT-TEA institution and Founder President of CII- Tirupur chapter. He is engaged in the business of garment exports and the Managing Partner of Warsaw International, Tirupur and Director in Alpine Group of Companies. Besides, his public offices include membership in Cotton Advisory Board, NBMSME, and as President of Forex Derivative Consumers’ Forum, Tirupur. To know more about Tirupur knitwear cluster and TEA’s plans for its development, B. P. Mishra, Associate Editor Knitting Views’ recently met and interviewed Shanmugam. Given are some excerpts…

What is the current scenario of Tirupur knitwear industry?

The cotton yarn price increase by Rs. 20 per kg in last month has literally pushed the knitwear garment export sector into a difficult situation and to sustain in the competitive global environment. The knitwear export sector has been passing through a challenging business environment further to implementation of GST and this could be apparently witnessed from the continuous declining of knitwear exports month on month basis since October 2017, after three months transition period is over and the declining of exports for the second half yearly period of 2017-18 was 21 per cent. The most worrying factor is that the negative trend in exports growth is continuing in the current financial year also and the average decline of knitwear exports in the month of April and May was 34 per cent.

The knitwear sector is now only booking the orders, business have now started to look ahead and poised to bring back the industry from brink after prolonged one year period lull and at this point of time, the increase in yarn prices would derail the industry and the aftermath effect would be severe as not only the knitwear garment sector will get affected but also there will be a boomerang effect on the textile mills. Considering this crucial concern and the overall benefit of textile industry, we appeal the textile mills not to increase the cotton yarn prices and also not to stop cotton yarn supply.

What has been the impact of major govt. decisions in last one year?

Commoners have been double victimized by the demonetization policy. Manipulators have managed to gain victory; it’s the common people who have to suffer and government should have taken care of the commoners. The government should have encouraged the mass to avert getting indulged in unethical practices. Wrong doers are more in numbers, as they have gained the confidence as no strict actions have been taken against them.

Bank employees had managed to settle their black money as well but these loopholes could have been curbed if the govt. had taken necessary measures before demonitisation, than definitely would have become a huge success. Intention was good, but outcome became where the govt. couldn’t take it beyond certain limit. This was followed by GST, which changed the macro economy but we need to take care of the micro demands as micro organizations had to suffer. Trial could have been made for GST and then whatever changes were needed could have been included and then could have been introduced as a mandatory policy.

All the policies should have been pre planned after considering all the pros and cons and then only should have been brought into implementation. The overnight decision of GST implementation choked the whole system. The hasty implementation had become self – defaming for the govt. The whole system has changed and many changes had to be made in the system.

As an exporter how has the GST affected the business? Why is the business going down?

GST has affected us in numerous ways. Next to agricultural sector is this sector and the government should do the needful for the welfare of the same. The difficulties emerged because neighboring countries like Bangladesh, Vietnam, Cambodia, Pakistan, Sri Lanka, Myanmar all these have advantage portion as they fall under under-developed nation categories either or they’ve got their own bilateral agreement with the European Union on FTA front. Thereby they are placed on advantageous position than India. So, India has to compete. The advantage for India is the raw material producing country in comparison to all these neighbouring countries. India again has advantage of having huge workforce because we are going to be the youngest nation among community of nations. But despite of that we get defeated by the small emerging countries on textiles and readymade garment front. Reason being that they do have easy access to the consuming markets in Europe and America. So, already we have disadvantage of 10-14 per cent when it comes to exports. Besides, they are also other policy related factors with India which is an additional advantage for other countries.

Moreover, raw material from India is sucked out by the competitor countries, where again India is losing. Govt. should adopt a proper and stronger promotion policy now. They should increase Duty Drawback Rate, ROSL rate, Interest Equalization Scheme rate to bail out the knitwear exporting units out of the crisis. We also need to have FTA, CEPA, CECA expediently to have a level playing field in the global market further to increasing of Chinese investment in our neighbouring countries. We have good leaders but system needs to be worked on, which is not changing since age-old. Serious ground level dialogues have to be done by the officials. Besides, GST refund is also not getting properly given to us, which should be made faster as the dues are pending for more than a year.

Earlier banking systems were working in a very professional and healthy manner, reason being the field officer would have direct relation in analyzing the loans and bounds of the loany. That has been worked out and appreciated. The growth has been taken forward so it has benefitted loany as well as loaner equally. After the advent of BASEL norms, it has changed as they are not connected to each other in direct manner. Hence, we are seeking for a revisit to the NPA policy by banks through government channels since such changes needed intervention of various monetary policymakers. Currently, the pendency of dues under Remission of State Levies scheme alone stand at Rs. 450 cr collectively for the Tirupur knitwear cluster. Besides, there was an outstanding capital goods subsidy of Rs. 100-odd cr for the entrepreneurs here under the Amended Technology Upgradation Fund Scheme.

The banks should take up loan dues and the subsequent classification as NPA on a case-to-case basis instead of following the blanket norms on NPA classification. They should take into consideration how much dues are pending for a particular industrialist and proportionally compute the loan portion which should be turned NPA.

What is your take on recent increase in custom duty by the govt.?

The Department of Revenue, Ministry of Finance has increased the Basic Customs Duty from 10 per cent to 20 per cent for import of 23 knitted garments items and also one knitted fabric item, which came into effect from 16th July 2018. The textile products imports from countries like China, Bangladesh, Vietnam, Cambodia and Sri Lanka have been significantly increased with CAGR of 17 per cent in Five years and in last year itself, the RMG imports has increased from Rs. 3,994 cr in 2016-17 to Rs. 4,983 cr in 2017-18. The leading retail stores in our country have also started importing garments from Bangladesh and other countries, as it is cheaper compared to garments produced from our country.

Considering the vulnerability of Indian textile industry and a serious threat to employment, Tirupur Exporters Association has been continuously making representations to the government and also emphasizing the threat during the personal discussion with the Hon’ble Ministers and Secretaries and appealing to restrict the textile products imports. We have also submitted a white paper to the Hon’ble Union Minister of Textiles detailing the issue and how threat has emerged from China by setting up their factories in our border countries to take advantages of abundant availability of labour, low wages and also customs duty exemption available to these countries in the EU, Canada etc. Under agreement on South Asian Free Trade Area (SAFTA), some specified garment items imported into India from Bangladesh is also exempted. We thank Union Minister of Textiles for considering the requisition, taking a swift action and helped for increasing the Basic Customs Duty from 10 per cent to 20 per cent to protect our textile industry and also employment. The Minister is taking a lead role for the protection of industry and also growth of industry.

Please tell us about the recently opened NIFT-TEA incubation center?

AIC-NIFT-TEA Incubation centre is non-Profit organisation registered as section eight company under the companies’ act 2013. The main motive behind it is to continuously support existing & aspiring entrepreneurs in transforming knowledge and innovation into sustainable enterprises that will enable them to compete in and contribute to a global society. It has world class facility with suitable infrastructure in terms of state-of-theart machinery, lab facilities national and global mentors, business and planning support, access to seed capitals, industry partners, training, consultancy and other relevant components required encouraging the startup in textiles and apparels.

The centre was meant for the purpose of innovation and entrepreneurship promotion in India through various initiatives and NITI Aayog would provide a grant-in-aid of up to Rs. 10 cr for a period of five years to the Atal Incubation Centers (AIC). It has 10,000 sq.ft building having the incubation facilities comprising product development, training, conferencing and incubatee work space, in which budding entrepreneurs who want to create to startups in the areas of textiles and apparels could be enrolled as incubatee and nurture their innovative ideas.

The AIC-NIFT-TEA Incubation Centre for Textiles and Apparels itself is epitome of demonstrating Unity in Diversity. Around 200 industrialists have joined hands to promote this industry. It’s difficult to unify all the competitors to come together. The govt. has blessed to get the Incubation Centre of its own for this industry which is an achievement for Tirupur.

What is your message to your member exporters?

In our Association Executive Committee meeting recently we discussed on the increase in cotton yarn prices, job working charges, accessories prices including other related expenses and felt that working with the existing garment prices would certainly lead to a difficult situation and cant not be sustained in longer term. Considering the current scenario, the Executive Committee unanimously decided to ask our members to send a communication to their buyers to increase the garment prices by 10 per cent while finalizing the new orders to compensate the increase in input prices. The units are taking a lot of measures and implementing latest techniques and technologies to increase their efficiency and enhance competitiveness in world market.

T R Srikanth, President, TEKPA

Due to GST implementation and reduction of duty drawback rate, the market is going through tough phase for last eight months. Hence, we are unable to compete with our neighbouring countries like Bangladesh and Sri Lanka. Today, there are so many countries where entire knitwear industry is duty free, having advantage of FTA, and over direct 15 per cent advantage over us. But in certain fashion garments category we are the leaders.

Now, it has become tough to get loans from banks because the business is very less. Bankers are not giving loans so we have also opposed to the govt., to give loans to everybody whether job worker or exporter. We are fighting for last so many years but are confident of coming back and fly high. We are getting good winters and summer orders, so expect doing good business this year.

There are lots of payment issues, which majorly the job workers are facing, because of scarcity of cash flow. Job worker are suffering to get the payment because of GST refund not being given properly by the govt. Exporters have assured us of payment, even govt. has assured to release the GST refund. 2017-18 is expected to be on little down when compared to previous year. But we expect things to improve in 2018-19. The need of the hour for job worker is to go for cost cutting; have very low rejections from the exporters and ensure timely delivery. Besides, we are regularly visiting international technology exhibitions to keep our units up to date, so are we have all the latest printing machines in Tirupur as compared to other markets.

S Bharath, Mehala Machines India Ltd

A lot of companies are having cash flow crunch because of delay in GST refund and also overall input cost has increase making us uncompetitive. For Mehala, the impact just started after the ban of LOUs. It has added to our cash flow crunch. Banks are not lending money or asking for lot of papers, so how will we grow. GST is a temporary issue and acceptable but other things are policy problem. The govt. should do something to relax these stringent conditions.

Labour scarcity is there but still Tirupur has managed to outsource people.We are getting Labour force from Orissa and Bihar. Now, cutting and spreading room and other departments are modernizing to overcome this labour issue.

Tirupur for us is little slow from the sewing side as exporters are affected but Delhi, Ludhiana and Bangalore are growing. During last financial year Mumbai was the top sales performer for us. 2018 will be a struggle but we sincerely hope everything to settle down, and the year to endwell for all of us. Now there is no other issue that is hurdle as we have already seen GST, demonetization, TUFs, labour, currency and other issues. The year 2019 is expected to be a good year for apparel and textile industry.

Mohan Kumar Cheran Machines India Pvt Ltd

Our sales got affected last year as there were not many expansions or new projects. Industry is expecting more expansions, which are not happening. Tirupur is not getting several export orders, even other parts of country are facing same problem. Everybody is waiting for payments. If the GST refunds come then we will be happy as they can purchase more machines. We make machines after orders only but today there are many machines lying in my factory due to non-payments. Orders are coming but cash flow has been affected in market. Now banks are also a little afraid to give loans because of recent frauds. Getting bank loans and high rate of interest is a big issue. Now lots of paper work is required after TUFs and other policy changes done by the govt.

Meanwhile, digital textile printing machine is getting very good response, as we have educated Tirupur people for use of pigment inks. There is some investment happening in printing. Job workers unit who were dependent on exporters are really feeling the pressure. Job workers can only survive if they do big jobs, but exporters are giving them small orders.

As a local machine manufacturer we do see advantages in GST but it is good that one country having one tax system. We are not much affected by the new system. The market is standstill but we are hopeful of doing well by 2018 end. We can bring in more new machinery but only once the situation improves. We are not getting any support from the govt. for Make in India initiative. No support from any garment exporter or other govt. associations. Textile industry always depends on world market. We are expecting to sell good number of machines from August onwards when three major industry exhibitions will be taking place in North, South and Eastern Region of the country.

A Gopalakrishnan, Unity Overseas Tirupur

In July 2017, we launched a new multi-coloured sequence embroidery machine model, which received very good response. Last year our sales were less due to weak demand, so as soon as Tajima sales improved, our company’s turnover improved. Though Tajima have not been able to do anything in the price matter but further improved the quality and introduced certain new innovations. The industry is affected because the duty drawback is reduced after GST, which is affected the volume orders. For the industry this year is going to be improving.

For the basic customers, when they want to do the basic garments, they are not able to get the manpower. Labour issue has been a major issue in Tirupur. To solve the problem they have to automize as there is less availability of labour force which day-by-day is becoming very expensive. As far as GST is concerned, see there is always complain when you want to change, 50 might be against while the other 50 might support the GST policy. New auditors need to be appointed; proper documentation is to be done. Earlier things were not systematic now they have to make systems.

As a technology supplier everything has been same, more or less, we already had accountant to keep a track of everything. For small companies, it is difficult as earlier they didn’t need any accountant but now it has become mandatory. The person who is selling is getting the benefit because previously whatever duty we were paying, we will just add the machine cost but now we can put it as GST, so it is refilled to the customers. So this acts as a local support for the local suppliers.

Meanwhile, LC has totally stopped. Previously, when they were paying the LC or the roll over, it was completely within the bank limit. Most of our customers are not going for long-term business, as they prefer short term. There are many people who are saying that because of GST the banking system has become very strict, lots of the projects are in pipeline and are not getting approved, lots of investments and loans are not getting sanctioned. See the people are overall doing it in the right manner are getting the loans but the ones who are not following the proper procedure are not getting it. The banks have become more systemized as well as strict.

If 10 out of 100 people are facing trouble and are thinking to withdraw, the industry will get 5 new people. Actually the industry is not at a bad phase, it depends upon person to person. If the person doesn’t have the capability then it’s obvious they will face difficulty. I personally believe 2018 will be an average year for Tirupur export segment, while in 2019 it may flourish to its full potential.

Kalidas, Golden Falcon International

After demonetization and GST, there is no money rotating in the market. Most of the companies are not getting their payments hence some of them are taking loans. We don’t think the scenario is expected to improve soon. We are not getting any support from State or Central Govt. but still expect to perform well in 2018-19. Post GST things have not improved at all. Job workers are getting their payment released even if it is delayed. But as a technology supplier or importer of machines we are very much affected as new orders are not coming. The orders are getting stuck, as people are not getting their projects financed from bank.

Moreover, still few people don’t know SGST and CGST, so due to this their payments are getting stuck, so indirectly complete chain of our business gets affected. Business in 2017 was down by almost 30-40 per cent when compared to 2016. Even the exporters are also affected due to changes in govt. policies and drawback rates. Though, we are mainly catering to exporters but have 30 per cent domestic customers, who are also affected by the same. I expect things to improve by the end of this year.

P Ganesh, Newtech Garment Machinery

We have to compete with Vietnam, Bangladesh and Cambodia so we need to use the similar technologies. Basically, we are only using technology in the sewing and not in cutting or spreading and packing segments. Buyer is not paying enough money for the garments and reducing down the prices, whereas the manufacturing cost is increasing, we need to adopt the technology of other countries to strike a balance. People have the knowledge but they are not interested in investing money for long-term purpose, but when it comes to technology, we need to think about the long-term benefit.

Particularly, in Tamil Nadu we are facing another problem related to banking, the government has reduced the circle rate of land by around 30 per cent, so the input goes down. Also banks are not showing any keen interest in giving bigger amount of loans. They are demanding lots of documentation,which is delaying the whole procedure.

Now the main problem is drawback, and GST is not an issue for the exporters. Now the people have to change their mindset and work according to the cost. We need to reduce the production cost and want to get profit from the factory. The only way is to adopt new technologies. In next two-three years, you can get back your investment from a machine like hanger system.

Now paying GST upfront on machinery import will hamper the industry, if you are planning to invest Rs. 1 cr, Rs. 25 lakhs have to be paid upfront and that money will also get stuck. But against GST bank is ready to give loan to the factory immediately.

We have to change the mind of the people or we have to run the factory with 80 per cent efficiency. Most of the factories are not running with this much efficiency. There is no labour issue but we are unable to utilise the labour properly. We are not using the labour to its full potential. To earn the profit they need to decrease the production cost or adopt new technologies. Earlier, it was much easier to run factory but nowadays growing competition one has to sit in the factory and simultaneously look after other works.

Since past 7-9 months we have been struggling to get big orders. However, we are not much affected in total turnover of financial year 2017-18. Our turnover in last two years is almost same. This year the scenario is not going to improve, it will take sometime. The solution is increasing efficiency of the factories and technology up gradation. The government should give a prior notice before changing or introducing any policy, and accordingly we can prepare ourselves. The impromptu decisions of the government are hampering the industry. Tirupur is for the biggest exporter of knits and has seen many ups and down. Even after all these hurdles, I am sure somehow it will come out of this.

Varadharaj, Unique Technologies

GST implementation and reduction of duty drawback have been the major issues the industry is facing these days. Getting GST refund is taking a lot of time. Normally, May and June months are always slow, so whatever improvement happens in market, will happen from September onwards only. The machinery companies are affected by the TUF scheme, as the process is taking a lot of time. As the foreign manufacturer company has to register with govt., so there’s lot of paper work required and it’s really time consuming. Now, 60-70 per cent of machinery suppliers have registered. For us the business in terms of percentage was same in FY 2017 and FY 2018. The GST is not a problem, as we can claim it back but have to pay in advance. By the end of August month, Tirupur will come up with all these challenges and grow. Apart from other issues, labour problem is a big issue in Tirupur today. For cutting, spreading packing etc. they used technologies to reduce manpower, but stitching is still an individual operation. The companies need to replace their machines with upgraded models, but market is already loaded as we have machines more than our capacity.

S Boopathy, The Empire Textiles

If the money rotation and GST refunds delay issues get solved, then August onwards the market is expected to improve. As the textile is the main business and second largest employment generator of India, the govt. should support it strongly. However, they keep on changing the policies and rules related to machinery imports in India, which makes it difficult for us to plan our orders in long-term.

Besides, getting loans from banks is becoming difficult, even the banks are not allowing LC’s rollover. Also, those who have not registered under Textile Up gradation Fund Scheme are still allowed to import machines and will not get the benefit under TUFs. The job worker segment these days is not willing to expand much as their capital is getting blocked due to delay in GST refunds. Apart from these, the second hand machines getting imported from China are also affecting our business.

Apart from new models of CMS circular knitting machine, we recently introduced flat knitting machines, and till day have sold 10-15 machines and several orders are in pipeline. The overall response is OK but due to current business scenario sales are little bit affected. Apart from Tirupur, we are getting good business from Kolkata, Delhi, Mumbai and Nepal. If all the issues raised by our industry are solved, then FY 2018-19 is going to be very good for everyone.