Orders dry up for Surat's textile industry ahead of festive season

Topics textile industry | Surat

As the festive season approaches, the order books at Surat’s textile industry, one of the largest in the country, are down by 40 per cent as compared with last year, owing to the overall market slowdown coupled with long-pending input tax credit refunds blocking working capital.

For every component of the industry — manufacturing, processing or trading — orders from within and outside the state have been drying up. Usually Diwali is the time things pick up, even if demand has been lacklustre the rest of the year. But this time, that old festive magic isn’t working and there is no respite from the gloom.

In the days before demonetisation and before GST, Surat used to manufacture and trade 40 million metres of textiles daily. It is now 20-25 million metres per day.

“While the industry had seen a severe impact immediately following demonetization and the GST rollout, the festive season for the last two years had provided some respite.

 However, this year, with the overall slowdown in consumption, the festive season too has seen an impact on orders,” said Ashish Gujarati, president of the Pandesara Weavers' Association, one of the leading power loom clusters in the city.

This distress has been compounded by working capital issues in the form of pending refunds of input tax credit (ITC) that have accumulated over the last two to three years, in addition to elongated payment cycles.

According to industry estimates, refunds worth Rs 400-500 crore are still pending. The effect has been to block the working capital across the textile value chain, especially for weaving and processing units.

For a weaver, the major input is polyester yarn and the finished good is 'grey fabric', ie raw material. Earlier, polyester yarn attracted 18 per cent GST which was later reduced to 12 per cent. But grey fabric attracts five per cent GST, which led to an inverted duty structure resulting in an accumulation of ITC.

In fact, in August, the Gujarat High Court quashed the Centre's move to lapse such credit that had accumulated between July 1 2017 to July 31, 2018.

However, according to industry sources, a significant chunk of the accumulated credit has yet to be refunded, blocking the power loom sector's working capital.

"Payment cycles have also elongated as sluggish demand has meant slower sales at the wholesale buyers' end as well. As against the usual 30-45 days’ cycle which went up to 90 days in the post-GST and demonetization era, it has now in several cases has gone up further up to 120-150 days, blocking the working capital," said Jitubhai Vakharia, president of the South Gujarat Textile Processors' Association.

According to Vakharia, capacity utilisation is down by 20-40 per cent for the 320-odd strong textile processing units in the Surat industry.

As a result, the job losses that the industry experienced in the aftermath of GST and demonetization are unlikely to recover. According to industry estimates, around 100,000 workers in the power loom lost jobs, 80,000 in embroidery, 200,000-250,000 in the process houses, and another 30,000 in textile trading.

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