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This business lost Rs 9,000 crores in lockdown!

By SHOBHA WARRIER
Last updated on: May 28, 2020 08:36 IST
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'By the time the goods that were sent from December onwards reached stores in Europe, they became dead inventory as the stores there were closed by then.'
'Those that were in the warehouse there also became dead inventory. Those that reached the ports there also became dead inventory.'
'And what Tirupur produced in March is still here, and they have also become dead inventory.'

IMAGE: A garment factory in Tirupur, Tamil Nadu. Photograph: Kind courtesy Raja Shanmugham/Tirupur Exporters Association
 

There was a time India used to be the second largest exporter of garments after China, to Europe and the US.

Today, Bangladesh, Vietnam, Cambodia and Sri Lanka have gone ahead.

More than 50% of the knitwear exports from India happen from Tirupur, a small town in Tamil Nadu with an export of garments worth Rs 30,000 crore in 2019.

There are over 10,000 garment manufacturing units in Tirupur, employing over 600,000 people out of which 250,000 are migrant labour.

"When there has not been any economic activity for three months, how will this moratorium of three months help the industry?" Raja Shanmugham, below, president, Tirupur Exporters Association, asks Shobha Warrier/Rediff.com. The first of a two-part interview:

Do you think the stimulus package announced by Finance Minister Nirmala Sitharaman will help the MSME sector come out of the tough times?

The government has granted a reprieve of 20% of the working capital to be drawn from the bank.

But the negative side of it is, since the lockdown has been extended till May 31, no business is going to happen immediately.

So whatever moratorium is declared by the RBI will expire by the end of May.

It means no company will be in a position to pay older dues pending with the banks from June 1 onwards.

In effect, whatever package given to the MSME is going to be drained by the banks.

It is like, from one hand they are sanctioning loans, and from the other hand they are taking it back to the system. This is neutralising the whole exercise.

In effect, the package becomes meaningless as the sector is totally crippled.

In a situation like this, a revival of the industry should be the first priority.

The government should provide a moratorium of one year for existing loans. Only then the infusion of fresh working capital will work.

So, you don't see a revival happening with this package?

Obviously. They should know this fact. The moratorium is not good enough as for a place like Tirupur, from the beginning of March itself, closedown has happened.

It means the industry has not been functioning for three months.

When there has not been any economic activity for three months, how will this moratorium of three months help the industry?

The situation is worse than what it was when the RBI governor announced a decision on the moratorium. So, what is needed is the RBI should declare a moratorium for one year, or at least nine months.

Another thing is it is not just Reliance or Tata that are in the big industry bracket. Any company with more than Rs 20 crore investment comes under the big industry category.

The real big ones constitute only 3% to 5%; the rest are just above the MSMEs only.

Moratorium is required for them also.

You wrote to the central and Tamil Nadu governments more than a month ago seeking permission to open factories so that you could send samples for the spring collections abroad. Were you able to work, or were all 10,000 factories in Tirupur closed?

We were given permission to operate from May 6 with 50% capacity.

We started in a slow way, but we have not been able to reach the 50% level yet.

Here, everything works like a chain, and all the links in the chain have to work to reach the full operational mode.

Tirupur is a cluster, and we depend on each other to finally come out with a product.

For example, I am an exporter, I do not have a dyeing factory or a knitting factory.

To export a final product, I outsource these works from various agencies.

Against such a backdrop, it is not useful for me if I alone function. So, it is very important for the entire chain link, from spinning to knitting to dyeing to embroidery to printing, to start working.

Finally, we got permission to open up all the links, but it took some time for everyone to start working. So, from the 11th, all the supportive units also have started functioning.

How badly did the pandemic and the subsequent lockdown affect the cluster in Tirupur?

The lockdown period was for 43 days here.

The Tirupur industry is basically an export-oriented one catering to the Western market. And this market is divided into 10 to 12 seasons.

They expect a new collection for each season. It also means for each month, there is a new collection, and every one of them is unique. This signature has to be there in every product line.

It means if any one of the products misses the time line, it cannot be incorporated into the next season which may have a new uniqueness.

This is the way this industry runs

What happened this year was the lockdown in Europe happened much ahead of us. From March 1 itself, most European nations were shut down. Though the lockdown in the US happened later, the market got disturbed earlier itself.

By the time the goods that were sent from December onwards reached the stores, they became dead inventory as the stores were closed by then.

Those that were in the warehouse also became dead inventory. Those that reached the ports also became dead inventory.

And what Tirupur produced in March is still here, and they have also become dead inventory.

In short, the entire volume of products for the last three seasons became dead inventory.

The dead inventory for three seasons comes to around Rs 9,000 crores!

You mean getting paid for the dead inventory at various stages will be a problem for the manufacturers?

Yes. That is because they also could not sell the products during the season.

It is an industry where money circulates from one entity to another.

If one of them does not get money, the whole chain breaks. So, all of us are in a trap.

What will happen to the dead inventory?

We are in discussion about that right now. Most of them are asking for deferred payment as they have not been able to sell the products.

The credit line is 60 to 90 days, but they want it to be 150 to 180 days for them to mobilise the funds.

Many brands are asking for a discount price as they have to sell the products from the earlier season at a discount. They want us to share the burden of the discount.

Some brands have asked for bankruptcy.

These things have to be resolved individually and collectively.

It was reported that clothing factories in China, Bangladesh and Pakistan were working when India was under lockdown. So, they are at an advantage compared to Tirupur.

That was the main reason why I was vociferously asking for our factories to function, and do the sampling exercise.

Since it is a seasonal business, we cannot sit idle while others are working. We cannot miss the bus.

Unless we do continuous sampling, we will not get orders for the next season.

If we did not do that, the opportunity will be grabbed very easily by our competitors because they have already been functioning and ready with the samples. Naturally the buyers will place all the orders with them.

Did Tirupur miss the bus?

We almost missed it. Fortunately, they gave us permission to open our factories from May 6. So, from the 6th, all the factories here are working on the samples, and not on production.

Out of the 10,000 factories in Tirupur, 1,500 work only for exports. The rest are supporting factories for exports.

Now that the proto samples are ready, they will be sent to the buyers for their comments. Only after that, we start work on bulk samples for salesmen.

Based on the bulk samples, they will procure orders, and then place the orders with us.

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SHOBHA WARRIER / Rediff.com
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