India's textile boom hits a wall

The Star

a day ago

IN a garment hub in south India, RK Sivasubramaniam is fielding requests from American retail chains Walmart and Costco who want to sidestep higher US tariffs faced by rival Asian suppliers.
But rows of idle sewing lines at his factory lay bare his biggest challenge.
'Even if orders come, we need labour. We don't have sufficient labour,' said the managing director of Raft Garments which supplies underwear and t-shirts priced as low as US$1 to US brands.
Considered India's knitwear capital, Tiruppur, in the southern state of Tamil Nadu, accounts for nearly one-third of the country's US$16bil in apparel exports, and is staring at a huge opportunity as US buyers explore ramping up sourcing from India in the face of heftier tariffs on other Asian hubs.
US President Donald Trump plans to hit India, the world's sixth largest textile and apparel exporter, with a 26% tariff from July, below the 37% imposed on Bangladesh and 46% on Vietnam, all of which are bigger American suppliers.
Those tariffs will make apparel from India much more competitive.
But the mood is somber at the Tiruppur textile park as it faces a reality check: India's hopes of capitalising on its tariff advantage are hindered by a skilled labour crunch, limited economies of scale and high costs.
Raft Garments wants to expand production to tackle new orders but is importing high-end machines to automate some stitching processes, given the business for now heavily depends on migrant labour, which is very tough to find or retain.
Garment exporters in India say workers have to be trained and many leave within months to work at smaller, unorganised units that allow longer hours and pay more.
The larger manufacturers can't match them due to foreign clients' requirements on cost and workers' conditions, according to interviews with 10 manufacturers and apparel exporter trade groups representing 9,000 businesses.
Prime Minister Narendra Modi has for years courted foreign investors to his 'Make in India' programme to turn the South Asian nation into a global manufacturing hub.
A shortage of skilled workers in a nation where 90% of the labour force operates in the informal sector is seen as a big roadblock, especially in labour-intensive sectors like garments.
Tiruppur offers a glimpse of India's labour strain.
'We need at least 100,000 workers,' said Kumar Duraiswamy of the exporters association in Tiruppur, where he said more than a million people currently work.
Modi's government last year said it was extending a programme to specifically train 300,000 people in textile-related skills, including garment making.
In the textile hub, some have taken matters into their own hands.
Amid a hum of sewing machines at the Cotton Blossom factory, which makes 1.2 million garments a month – including for American sporting goods retailer Bass Pro Shops – Naveen Micheal John said he has set up three centres thousands of kilometres away to train and source migrant workers.
And even then, most return to their hometowns after a few months.
'We skill them there for three months, then they are here for seven months. Then they return back,' John said during a tour of his garment unit, adding he wants to look at other states where labour and government incentives both may be better.
Capacity woes
China's US$16.5bil worth of apparel exports, Vietnam's US$14.9bil and Bangladesh's US$7.3bil made them the three biggest suppliers to America in 2024, when India shipped garments worth US$4.7bil, according to US government data.
US companies have for years been diversifying their supply chains amid geopolitical tensions. And even before the news of tariffs in April, now paused until July, Bangladesh's garment industry began losing its sheen amid political turmoil there.
A survey of 30 leading US apparel brands by the United States Fashion Industry Association showed that India had emerged as the most popular sourcing hub in 2024, with nearly 60% of respondents planning to expand sourcing from there.
A worker inspecting a yarn spinning machine. — Reuters
With the tariffs, India's exports would cost US$4.31 per sqm of apparel, compared with US$4.24 for Bangladesh, a sharp improvement on India's competitiveness without the levies, according to Reuters calculations based on 2024 import data from the US Office of Textiles and Apparel.
But it's in the economies of scale where India loses.
The Bangladesh Garment Manufacturers and Exporters Association says an average garment factory there has at least 1,200 workers, whereas in India, according to its Apparel Export Promotion Council, there are only 600 to 800.
'Bangladesh capacities are huge ... We have issues of capacity constraint, lack of economy of scale due to smaller size of factories, labour unavailability during peak seasons,' said Mithileshwar Thakur of the Indian trade group.
To address those challenges, garment makers have started to set up factories in states where migrant workers come from, he said.
A worker putting cloth into a giant trolley. — Reuters
In Tiruppur, its exports association says the largest 100 exporters contributed 50% of its US$5bil sales last fiscal year, with the rest from 2,400 units, a telling sign of the fragmented and largely smaller-scale operations.
Raft makes 12 million garment pieces a year with a workforce of just 250 people.
A US client is close to placing an order for three million units, which will stretch the factory to its limit and force it to consider expansion.
'This one order is more than enough for us,' said Sivasubramaniam.
Pricing roadblock
Data from shipping consultants Ocean Audit showed that Walmart imported 1,100 containers of household goods and clothing between April 2 and May 4 from India, nearly double the same period last year, including cotton shirts and pleated maxi skirts.
In a statement, Walmart said it sources from more than 70 countries around the world as it aims to find the right mix of suppliers and products.
While US retailers are lodging more queries in Tiruppur, pricing negotiations remain contentious due to higher labour and other costs.
Indian brokerage Avendus Spark said in March that Bangladesh's cost of labour stood at US$139 per month, compared to India's US$180.
P. Senthilkumar, a senior partner at India's Vector Consulting Group, said India had stricter rules for overtime policies and worker shifts, further raising costs.
In Dhaka, Anwar-ul-Alam Chowdhury of Evince Group said most of their US buyers were sticking with Bangladesh, given the 'large production capacity, lower costs, and reliable quality give us a clear edge'.
In India, though, Tiruppur exporters said they are in hectic talks with many US clients who love the Bangladesh cost advantage and are aggressively bargaining.
At Walmart-supplier Balu Exports, Mahesh Kumar Jegadeesan said US clients had conveyed 'we will not budge on the price' and were willing to move some orders only if Indian exporters can match prices.
Inside the nearby Raft Garments factory, where women were stitching underwear, the smile on managing director Sivasubramaniam's face sparked by 14 new business inquiries of recent weeks faded quickly.
'All want us to match Bangladesh prices. Price is a big problem,' he said. — Reuters