Shanghai setback leaves Ludhiana's apparel industry staring at losses

Repeated supply shocks have brought the Rs 20,000-cr textile hub to its knees

Go to the narrow lanes of Ludhiana’s bustling Shahpur Road, and you will find them crammed with customers, salesmen and traders. But the seeming sense of normalcy in this crowded market for fabrics and garments belies the deep distress that the city’s textile industry finds itself in. Repeated supply shocks, the latest being the closure of the Shanghai port in China, have all but brought the industry to its knees.

Ludhiana, Punjab’s Rs 20,000-crore textile hub, accounts for more than 90 per cent of India’s apparel production for the domestic market. But for the last six years, it has been repeatedly hit by one setback after another. In 2016, demonetisation crippled the city’s hosiery industry, which mostly comprised micro and small businesses. Then, just as it started finding its feet again, the Covid-19 pandemic piled more misery on it.

The latest supply shock has come from the closure of the Shanghai port for the last two months, owing to a resurgence of Covid-19 in that city. Shanghai handles a fifth of China's cargo and the country holds a virtual monopoly on the supply of garment accessories such as buttons, chains, embellishments, and so on. Even though the port opened for business last week, industry insiders say that it will take over a month for the supply chain to return to normal.  

“We’re tired now,” sighs Rehman, a small retailer who also owns a weaving unit. “Raw materials are getting costlier by the day, and we have not had a steady supply of accessories for months. There are overhead expenses to be paid and we also have to pay the workers. It’s very difficult.”

“The supply of garment accessories has been slow and unreliable for over three-four months now,” says Vinod Thapar, president of Knitwear Club, an apparel industry association. Many retailers add that their products would not sell for even half the price without the accessories that are mostly imported from China.

Thapar and others say that though the Shanghai port has reopened, manufacturers in Ludhiana have already curtailed or delayed their production plans, at the risk of not having ready stock by the time the peak season arrives in winter.

Factory owners say that earlier, basic raw materials would take 15-20 days to be shipped and specialised orders would take 60 days. These supply cycles have now extended multi-fold. Consequently, input costs for manufacturers have also gone up.  

Many factory owners have been forced to source their accessories locally. However, the local products lack competitiveness, both in terms of quality and cost, says Thapar.

IN THE SPOTLIGHT

• Rs 20,000 crore: Size of the apparel industry in Ludhiana 
• 500,000: Number of people employed (direct and indirect)
• 90%: Share in India's apparel production
• 90-95%: Share of MSMEs in industry
• 12,000+: Industry units  

Source: Industry estimates

Another problem is the depreciation of the rupee against the dollar. Says Harinder Thapar, a textile manufacturer and retailer, “Even if the basic cost of our material doesn’t rise, we end up paying more for our imports.”

The industry is also concerned about small manufacturers, who sell handmade fibre, facing a double-whammy. In addition to the cost inflation in basic raw materials, the high price of crude is severely impacting business, since fabrics like nylon and polyester are petroleum-based products.

 “While medium and larger manufacturers have learned to compromise and work through the supply shocks, the distress of the micro industry has been much bigger. Their survival is on the line,” says Sudarshan Jain, president, Knitwear and Apparel Manufacturers Association of Ludhiana.

“We (industry) expect the prices of winter apparel to increase by 15-20 per cent this season. While it could change with how the supply situation changes, we can’t test the market too much. We have to be careful in raising prices, or our sale volumes could be low,” says Jain.

In fact, the issue of price makes many retailers anxious. Most of them were banking on this season to make good the losses they had incurred over the last two years due to the pandemic. They point out that fashion is a space where trends change quickly, and if the increased prices are not accepted by consumers, they will end up with unsold stock which will not be of any use next year, as trends would likely have changed by then.