In China’s health crisis, Gurugram garment makers sense opportunity
The garment industry in Udyog Vihar, which saw a major slowdown in 2019 with little hope of recovery, has a chance at revival owing to the coronavirus outbreak in China. Garment-makers are expecting a rise in the demand of finished clothes over the next few months as a result of US- and Europe-based buyers diverting business to India from China, where factories have shut down, causing a break in the global supply chain.
According to garment-makers and exporters in Udyog Vihar, Western buyers, who typically rely on China’s advanced factories and cheap labour, have started placing orders with them instead, and several potential buyers have been enquiring about the units’ production capacity.
The coronavirus outbreak in China has led to a disruption in industries, even as factories and shops have shut down and flights have been suspended, multiple reports state. Exporters and manufacturers say that if the crisis continues, they expect a rise of at least 20-30% in the export of finished garments this year.
Udyog Vihar houses at least a thousand garment-manufacturing and export units that have a combined turnover of more than a thousand crores, according to experts.
The demand for finished garments had reduced considerably in 2019, leading to several small export units shutting shop, industry experts say. A delay of around four months in GST refunds also took its toll, garment-makers say.
“Small units working with limited capital and under thin margins could not afford to keep running. The factors that led to the slowdown still persist,” Ramandeep Singh, the director of a garment manufacturing unit here, says, adding that his factory faced a slump in demand of 20%-30% in 2019. Others say they saw a fall of 20% in sales last year as compared to the previous year, as they lost business to countries such as China, Vietnam and Bangladesh due to several reasons—high labour and transport costs, lack of clear government policies and technological advancements in other countries.
According to a 2019 study published in Ideas for India, India’s share in global textile exports declined while countries like Bangladesh and Vietnam expanded their market share. It says India’s textile exports are constrained by high costs, unhelpful customs policies, and competition from abroad.
The slowdown in the industry also led to large-scale job losses and a freeze in hiring. According to labour rights activists, hundreds of workers—both men and women—were laid off in 2019. The garment industry in India is woman-dominated—according to the Confederation of Indian Textile Industry, 2016, of 35 million employed in the textile industry, nearly 20 million are women.
Savitri, 28, is one of 30 workers at a medium-sized factory who were ‘temporarily suspended’ in September 2019. For the workers, redundancy had not been a problem earlier because they often found a new job in another factory, she says. However, she hasn’t found another job yet in the industry as factories tell her they are full and can’t hire an extra workforce.
“Two-three years ago, factories would usually keep one or two extra staff members for backup in case of sickness or emergencies. That seems to have stopped for the last few months,” Savitri, who had been working in the industry for six years, says.
Gurugram has seen thousands of layoffs in its factories since last year. It has the country’s largest automotive hub in Manesar, and more than 40,000 workers, according to labour rights activists, have been affected by the slowdown.
Companies with greater contractualisation have seen higher retrenchment, according to the workers. Many of those who have been laid off are migrant workers from Bihar, Uttar Pradesh, Odisha, and West Bengal. After searching for jobs in vain, most of them have now returned to their hometowns, members of the workers’ unions at the industries say.
Workers retrenched from auto firms say they tried moving to the garment sector to find employment but were met with closed doors. Gurmeet Singh, 26, who hails from Ambala, says many units refused to take him in, saying there was no vacancy.
“For several months in 2019, extra labour was removed. No hiring is taking place in the industry,” Praveen Yadav, president, Gurgaon Udyog Association, says. However, industry owners say an expansion in the workforce will depend on the number of orders diverted to them in the coming month.
The health crisis as an opportunity
In an industry that has not recovered from the slowdown, garment industry owners say the crisis in China could be a huge opportunity for India’s business if the government steps in to give the industry incentives.
Satyendra Singh, the general manager at a garment-manufacturing unit in Udyog Vihar Phase-5 that employs around 300 workers, says they have received orders from at least two ‘new’ customers from France since the health scare grew in China.
“Many wary Western buyers have been approaching us the last one month; we expect the queries to turn into orders in the next few weeks,” Singh says, adding that he is expecting a rise in exports this quarter. Their clientele, he says, is clothing brands such as GAP and Walmart, among others.
Animesh Saxena, managing director at another manufacturing unit in Udyog Vihar and president of the Federation of Indian Micro and Small & Medium Enterprises (FISME), says they have received preliminary enquiries from Western buyers in the wake of the virus, and that if the health crisis escalates, huge amounts of business could be diverted to other South Asian countries, including India.
He adds that this could serve as a ‘golden opportunity’ for the industry to revive, but only if the government responds quickly.
Others reiterated their concerns about losing business to Bangladesh in the next few weeks due to low labour costs and export-conducive policies.
“Factories in Bangladesh are bigger; manpower is cheaper. Bangladesh has a duty-free import policy of raw material from India and China, which is their advantage,” Ramandeep Singh says, adding that the rate of duty refund under the Central government’s rebate scheme hasn’t been announced and there is still no clarity on the incentive.
Earlier, a 4% incentive was available for garments under the Merchandise Exports from India Scheme, which was discontinued in August last year.
According to the Apparel Export Promotion Council, Bangladesh’s garment export has risen exponentially for the same reason.
In 2005, Bangladesh’s exports were valued at $3 billion and India’s were at $5 billion. In 2019, Bangladesh’s exports rose to $36 billion while India’s were at $16.5 billion, shows data with the council.
IS Yadav, joint director, district industrial centre, Gurugram, says the garment industry here is being provided trade subsidies, and that the state government has several schemes to boost the industry. “No immediate plans to increase incentives exist,” he says, adding that more than 200 units have benefited from the government’s incentives.
However, industry experts say only the next two months will decide what the future of the garment trade will look like.