Textile units to see 25% spike in production costs due to Covid compliance

Some plan to operate at 50% capacity, due to huge inventory piled up with distributors and retailers before the lockdown

Already impacted by a lockdown-induced shortage of labour, the textile industry is now facing prospects of an increase of as much as 25 per cent in manufacturing costs. This is also because functioning units have to comply with statutory norms on sanitisation and social distancing on the shopfloor to prevent spread of coronavirus.

“Even if the lockdown period ends and factories open, we will have to increase compliance on social distancing and sanitisation to improve cleanliness across the value chain. This is set to increase our cost of production by at least 25 per cent, which we will pass on to consumers,” said Ujwal Lahoti, Owner, Lahoti Overeseas.

The nationwide lockdown started initially for three weeks beginning March 25, but was later extended till May 3.

Textile units are planning to start production with 50 per cent of their installed capacity post May 3, due to huge inventory piled up with distributors and retailers before the lockdown. With uncertainty remaining over opening up of retail markets simultaneously, textile manufacturers are planning to start their factories in phased manner.

“There is ample stock available with distributors and retailers. Hence, we will start production slowly. It will not be difficult in Gujarat and some other regions with low Covid-19 cases but, certainly will be tough otherwise. Initially, we are looking to start at 50 per cent operating capacity,” K V Srinivasan, Chairman of Cotton Textiles Export Promotion Council (Texprocil).

“Overseas buyers are cancelling orders on a large scale and re-negotiating terms of business including product pricing. Buyers aren't even releasing payments to exporters against shipments done made. Exporters are under severe financial pressure with many finding it extremely difficult to manage salaries and wages, and other fixed cost to run the factory,” said Srinivasan.

Exporters are therefore hoping to get a financial package from the government and interest-free working capital loans to sustain textile shipment from India.

R K Dalmia, President, Century Textiles, however, believes that textile units have already started approaching local authorities seeking permission to run the factory with internal workforce initially.

“But, the labour-intensive textile industry will certainly be impacted immensely due to unavailability of skilled and unskilled migrant workers who have moved back to their native places,” said Dalmia.

Meanwhile, both cotton and man-made fibre (MMF) prices have declined sharply due to global trade restrictions and fall in crude oil prices. This is likely to benefit textile players at large. But, the top and bottom lines of textile players are expected to remain in the negative in the June quarter, with marginal recovery in Q2, due to lean demand during the monsoon, and further growth thereafter.