To save garment industry, govt should dish out cheap credit, reimburse wages

Pee Empro employs around 6,000 workers at its three garment-making units in Faridabad near Delhi. These employees, however, have been out of work since the lockdown that began on March 24. The enforced idleness happened when production was in full-swing to meet the summer season’s demand in Europe.

When the lockdown was relaxed on May 4, after 40 days, the got permission to restart with just 96 people.

“That’s the joke that is going on,” says Tony Uppal, 62, owner of Pee Empro.

Uppal supplies ladies and kids fashion garments. “My business is design-driven,” he says. The merchandise is perishable as he supplies a fresh collection every month. A piece that retails for $7 will sold off at 50 cents as season nears its end, he says.

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Countries like China, Bangladesh, Vietnam, Indonesia, Cambodia and Pakistan that India competes with in garment exports, either did not close their factories or have restarted industrial operations.

Uppal fears that buyers will look elsewhere for fulfilment of orders for the coming summer-spring collection if India’s onerous restrictions continue.

Textile producers and exporters across the country share Uppal’s apprehension. Many have faced gigantic losses due to the stalling of work and stranding of shipments in transit after the announcement of the nationwide lockdown and cancellation or suspension of orders due to the COVID-19 crisis across the world. To avoid further losses, they want the government to help them with financial aid to re-start their businesses.

India’s loss vis-à-vis Bangladesh

According to Rajesh Bheda Consulting, which advises fashion and lifestyle organisations on how to be competitive, each of the 60 garment units it surveyed online reported an average of $1.49 million (₹11.5 crore) in cancelled or suspended orders because of the closure of malls in Europe. On the basis of this tiny sample, it projects a loss of about $3 billion (₹756.77 crore) across the industry.

Bangladesh’s Garments Manufacturers and Exporters Association (BGMEA) says orders for 967 million pieces worth $3.1 billion have been cancelled and around 1,150 factories employing around 2.24 million people or half the workforce engaged by the industry have been affected. Bangladesh’s garment export industry is bigger than India’s. Its exports in 2018-19 were $30.6 billion, or more than 80 per cent of the country’s total exports, compared to India’s $16 billion or 7 per cent of overall exports.

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If the projected losses actually happen, India would have suffered proportionately more pain. The Apparel Export Promotion Council (AEPC) is also conducting a loss survey online, but the results have not been declared.

The shock and awe-inducing lockdown has also compounded the troubles of exporters. Shipments were held up in transit within the country or at the ports because only four hours’ notice was given before the country was shuttered.

In comparison, in Bangladesh, garment factories were exempted from the lockdown when it was announced on March 31. Four days later they were directed to close. By then workers who had gone to their villages for a holiday had returned at the urging of employers. The slums in Dhaka they live in have become new coronavirus hotspots. Like Indian migrants they have battled the police as they protested over unpaid wages. Around 2,000 factories reopened in the first week of May; the rest will restart in stages.

Hard times for apparel brands

These are wrenching times for the big apparel brands as well. On May 4, J Crew, a US mall chain, which started out in the 1940s as a mail order supplier of affordable female fashion clothing, said it had filed for bankruptcy to allow its lenders to convert $1.65 billion in debt into equity. The company had set up its first J Crew stores in Manhattan in 1989. It is the first big retail chain to have declared bankruptcy due to the pandemic.

In a regulatory filing with the Securities and Exchange Commission, the San Francisco-based Gap Inc. said it had suspended paying rent on its stores in North America as it negotiates for lower rates.  JC Penny also said in its regulatory filing that it has furloughed its salaried store workers for the duration of the lockdown and was trying other measures to improve cash position and financial flexibility including delaying payments for goods and services.

Closer home, manufacturers and exporters don’t want to meet a similar fate.

S Sakhtivel, executive secretary of the Tirupur Exporters Association says it has asked the government to declare a moratorium of at least six months on term loans repayments and a continuation of the 5 per cent interest subsidy on working capital (called pre-shipment packing credit) which expired at the end of March. With 9,000 units, of which 1,150 are exporting, Tiruppur is India’s biggest cluster accounting for 22.5 per cent of apparel exports and 46 per cent of its knitwear exports. “We have to run the show,” he says.

“Even big Indian clothing retailers are playing tough. Against 60-75 days earlier, they are asking for 130 days credit,” Sakhtivel says. If immediate payment is sought some of them are willing to lend through their finance companies at 18 per cent interest.

Can social distancing and work go hand in hand?

But even if they are allowed to operate can they meet the do gaz ki doori or two yards’ physical distancing norm between two workers?

Raja Shanmugam, president of the Tirupur association says the factories are now running lean because they are sending samples for the coming summer-spring season. “The space between machines is about two metres,” he says.

Shanmugam makes knitted fabric T-shirts and employs 800 people. A bigger concern for him is that Tirupur is in the Red Zone after 18 COVID-19 cases were detected, none of them fatal. Owing to restrictions, workers from the adjoining districts which the Tiruppur cluster employs in large numbers will not be able to commute, he says.

Sudhir Dhingra, the founder and owner of Gurgaon-based Orient Craft, one of the largest garment manufacturers, is doubtful about most of the units being able to maintain the social distancing norms because the workstations are tightly packed.

If they are forced to remain inoperative, Dhingra says, the government must reimburse the wages – which according to him are 40 per cent of the cost – just as the United States, Canada, New Zealand, Australia and the EU countries have done.

Running the show till help shows up

Some industries have found temporary solutions.

Gautam Nair, founder and managing director of Gurugram-based Matrix Clothing has repurposed three of his nine plants to make personal protective gear for health care professionals dealing with COVID-19 suspects and patients. His employees are required to wear masks, disinfect their hands, take temperature readings and work on alternate machines to minimise the chances of infection.

Nair supplies to a host of big brands, including Gap.

He says if the government does not provide financial support, a substantial chunk of the industry will wind up as the garment export industry works on very fine margins. While workers cannot be left in the lurch, he doubts the legality of the home ministry order that mandates employers to pay wages for the duration of the lockdown.

“Everybody must stretch to tide over the crisis,” says RC Kesar, director of Delhi’s Okhla Garment and Textile Cluster (OGTC) which has 28 companies doing export business worth $400 million.

“Cheap and easy liquidity is what the industry wants,” says Harminder Sahni of Wazir Advisors, a consultancy firm. “Those who survive will be able to pay back.”

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He believes the government has a responsibility to do more than it has, given the huge taxes it collects and the lack of a welfare system in India, unlike in western liberal democracies.

The garment industry employs workers moving out of agriculture. Protecting those jobs will reduce downward pressure on rural wages and prevent a large chunk of people from sliding into poverty.