Has Demonetisation And GST Narcotised Indian Apparel Industry?

The Indian textiles and apparel industry which accounts for almost 24 per cent of the world’s spindle capacity and 8 per cent of global rotor capacity has been struggling due to the impacts of demonetisation and goods and services tax (GST). According to a report by Investment Information and Credit Rating Agency of India (ICRA), disruptions caused by demonetisation and transition to GST regime has narcotised the Indian apparel and fabric industry.

The production declined by one per cent in the first quarter of fiscal 2017-18 in the highly fragmented fabric segment, which witnessed a de-growth — a phase of planned and equitable economic contraction — of two per cent in the previous fiscal.

The report also adds that ‘India's apparel exports continue to remain volatile with the global trade not showing any signs of improvement amid subdued demand trends in the key importing countries’.

Shweta Sharma, Founder, Ombrelane.com, told BW Businessworld, “GST rollout will likely have a negative impact on the fashion/textile Industry in the short term; shopping for clothes will become expensive and is bound to have an impact on the top line. However, in the longer term, things should smoothen out and fashion industry should benefit from a more efficient value chain and streamlined tax structure.”

Stating the causes for this volatility and de-growth, the report says, ‘Apart from the demand pressures, high raw material prices and currency movements continue to weigh on the industry's performance, which has been visible in the profitability of manufacturers over the past three-quarters.’

“Demonetization had an impact on both organized and unorganized sectors of the fashion industry. In the short term, both offline and online retailers experienced a dip in sales; however, at the same time adoption of cards and digital wallets increased. While demonetization brought a temporary slump in the fashion market, the effects seem to have already been neutralized,” added Sharma.

The textiles industry has been a major contributor to the national economy in terms of direct and indirect employment generation and net foreign exchange earnings. The sector contributed about 14 per cent to industrial production, 4 per cent to the gross domestic product (GDP), and 27 per cent to the country's foreign exchange inflows, the previous year. The employment to over 45 million people also rests on it. Thus, reviving the sector must be on the government’s priority list.