Business Standard

Textile town struggles to survive

Only 60% of Tirupur's units are still in business

Image

T E Narasimhan Chennai

Two years ago, the narrow roads from the railway station to the Tirupur Exporters Association (TEA) office in Tirupur would take around 40 minutes to navigate. Today, devoid of traffic, it takes just 15 minutes. Back then, an occasional BMW, or a Mercedes, would whiz by. Today, none can be seen; what dots the roads instead is a plethora of godowns with rental signs.

Towns used to unprecedented booms — erstwhile mining Mecca, Bellary, is another example — invariably have to weather the onslaught of a bust, if the very underpinnings of their success are threatened. With Bellary, it was a mining ban that reduced it to a ghost town. For Tirupur — a town that booked Rs 12,000 crore in business last year — the Damocles sword that finally fell was a Madras High Court diktat in 2011 which ordered the 720-odd of the 3,000 dyeing units, which include manufacturing of knitwear products, in the textile town to shut down, because they were polluting the Noyyal river that runs through it.

 

It is difficult to sympathise with an industry that has polluted much of the area around it, while making profits. Indeed, like many businesses in history that have had to breathe their last because of the damage they inflicted on the environment, or because of the non-viability of their current businesses due to stringent pollution control norms, or even foreign competition, perhaps Tirupur’s time has come.

It certainly looks that way if you factor in an increase in cotton yarn prices, an interest rate rise and an economic slowdown in the Euro zone, Tirupur’s biggest buyer. This has meant only 60 per cent of the town’s units are still in business, of which only a third are enjoying steady work, according to TEA President A Sakthivel. The rest wrestle with survival on a daily basis. Around 50,000 workers have left in search of greener pastures. This is an ignominious fate for an industry that was a dependable supplier to Ralph Lauren and Tommy Hilfiger.

Gainers
Tirupur’s loss has been someone else’s gain. “Ever since dyeing units were closed, we could not process the products, and the production houses were not able to execute orders. This gave rise to credibility issues, and customers have started moving to other countries,” says P Vidhya Prakash, managing director, Styleman Textiles. Indonesia, Vietnam, Cambodia and Tirupur’s traditional competitors, China and Bangladesh, have welcomed customers fleeing Tirupur. Thanks to the rupee’s devaluation, a boon for exporters, the industry’s growth has remained flat in terms of value, despite recording a 15 per cent drop in volume so far.

The bulk of these customers, according to G Karthikeyan, MD, General Textiles Industry and general secretary, TEA, have gravitated to Bangladesh. “Cost-wise, we may be high, but quality-wise, we are far better, compared to the competitors”. According to Karthikeyan, a basic T-shirt manufactured in India costs about $1.70 versus $1.20 in Bangladesh. Chinese products, on the other hand, are price-competitive with Indian ones.

One factor that has hurt Tirupur’s competitiveness, say locals, is the free trade agreement (FTA) between India and Bangladesh. According to Sakthivel, in Bangladesh and Pakistan, the cost of producing finished products is much lower, even after importing the raw materials from India, due to their FTAs and government support. “The only choice we had was to pass on the 10 per cent margin to customers, to keep them happy and retain them. At this juncture, even that is not possible,” adds Prakash.

New horizons
As part of their strategy to minimise geographical risk, with Europe, their main customer, still in the doldrums, companies in Tirupur have started looking at new sources of business. “Earlier, 90 per cent of the business was from the traditional markets of Europe (60 per cent) and the US (30 per cent), which will be brought down to 50 per cent gradually”.

Recently, 145 exporters went to Japan and another 100 to Israel and Russia, to attract customers. In the next 10 days, there is a buyer-seller meet at Norway, Sweden and Denmark, all of which have experienced far less trauma compared to other countries in the EU, says Sakthivel. Also, turbulence with exports meant the domestic business grew strongly, clocking around Rs 500 crore.

Despite the desperate state of affairs in Tirupur, industry folk still maintain hope. “In any business, there will be ups and downs, and Tirupur has a history of bouncing back from crisis. We are confident that in the next six months things will turn around; we are already seeing positive signs, as some of the customers are coming back,” says Karthikeyan.

Much of this hope, however, rests on the much-anticipated FTA with the European Union, to be probably signed in October this year. The FTA will be crucial in helping Tirupur manufacturers compete with countries like Bangladesh and Indonesia, which currently enjoy a 10 per cent price advantage, as it is expected to give them zero-duty access.

Another encouraging sign has been the comeback of around 80 dyeing units that have installed machines with zero-discharge technology, although many business owners still grumble about how much less cost-effective this makes their units, compared to those in other states.

For the industry in Tirupur to regain its lustre, it has to come to terms with the fact that it has a social and moral obligation to the area in which it conducts business. Once it does, perhaps the economics of its trade will take care of itself.

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Jul 18 2012 | 12:14 AM IST

Explore News