The note bank shocker and the lingering sluggishness in exports have the apparel and fabric industry in knots, says a report.
"Given the weak trend in global apparel demand, the domestic market-focused apparel manufacturers are expected to perform relatively better than their export-oriented peers for the second consecutive year.
"However, given the temporary pressures observed in domestic consumption owing to note ban, the gap between their growth rates is likely to narrow significantly," an Icra report said.
Overall, growth for apparel manufacturers has been relatively weaker at 8-10 per cent in fiscals 2016 and 2017 compared to the past few years, wherein revenue of both apparel exporters and domestic-market focused players grew at a CAGR of 13-14 per cent during 2011-15, it observed.
Global apparel trade is under pressure, having contracted for the second consecutive year in 2016, owing to subdued demand conditions in the key importing countries.
"While the volume growth remains marginally positive, primarily aided by a recovery in demand from Europe, revenue realisation has seen a decline," it said.
The pace of growth for other apparel exporters like Bangladesh, Cambodia, and Vietnam has also moderated in the past two years, though they continue to grow at a relatively better pace compared to India.
"Nevertheless, scrapping of the proposed Trans Pacific Partnership has weakened prospects for Vietnam, which augurs well for India, as the risk of increased competition from Vietnam has abated to an extent for now," the report noted.
The agency pointed out that subdued offtake by apparel manufacturers, in addition to meagre fabric exports, continue to weigh on fabric demand as well.
Domestic fabric production remained tepid in first half of the current fiscal year with a modest growth of 2 per cent, following a flat production last fiscal.
"The demonetisation drive increased the challenges faced by this highly fragmented and unorganised segment of the textile industry as is reflected by a 6 per cent de-growth in fabric production in the third quarter.
"This in turn is expected to constrain the total fabric production and is likely to result in around 1 percent de-growth this fiscal," it concluded.
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