How NBFC crisis has hit India's textile industry

Large retailers are allegedly importing apparel made of Chinese fabric from Bangladesh at nil duty, under our free trade agreement with the latter country.
However, the same agreement does not permit duty-free export from here.

The financial crisis at non-banking financial companies (NBFCs) has hit India’s textile industry, as unavailability of working capital has restricted companies from capacity expansion and made difficult the servicing of existing loans.

Largely comprising micro, small and medium enterprises (MSMEs), the industry largely used NBFCs for working capital - commercial banks were slow in extending credit.

Hence, “textile players, big or small, are facing a credit squeeze, with sluggishness in sales”, said Premal Udani, managing director at Kaytee India, a Mumbai-based children's garment maker and exporter.

“There is a sluggishness in apparel sales, set to continue for at least the next three months. We hope it would bounce back with a robust Diwali,” said Rahul Mehta, president of the Clothing Manufacturers Association of India (CMAI).

The industry says sales in the domestic market have slumped by 20-25 per cent in recent weeks.

To enhance liquidity from existing resources, many brought forward the usual ‘end of season’ sale by two weeks, to around the second week of June this year as compared to the first week of July or even after in past years.

“Many companies in the textile sector have undergone loan restructuring,” says R K Dalmia, director of Century Textiles & Industries, of the problem with lenders.

“A number of companies have delayed payment of instalments and interest, resulting in banks becoming more cautious.

"Even companies with a sound balance sheet are facing intensified due-diligence, surveillance and monitoring on borrowing. Unlike immediate release of working capital in the past, lenders are taking a cautious approach today.”

Rising import from Bangladesh has also been an issue; CMAI says the cumulative average growth rate of apparel shipment from that country is 52 per cent.

Large retailers are allegedly importing apparel made of Chinese fabric from Bangladesh at nil duty, under our free trade agreement with the latter country.

However, the same agreement does not permit duty-free export from here.

“We have a good market of ethnic and seasonal wear in Bangladesh but apparel export attracts 125 per cent of import duty there.

"Hence, the textile industry wants the government to make a mandatory provision to prompt Bangladeshi exporters to source a portion of fabric requirement from India,” said Mehta.

Photograph: Krishnendu Halder/Reuters