Did Demonetisation hit garment manufacturers severely?

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The GDP stood at a three year low at 5.7% for April-June quarter of 2017- 18, which has raised concerns about the annual GDP numbers for the fiscal. The present economic scenario definitely does not augur well for the textile manufacturers, who are dealing with both the GST as well as effects of demonitisation.

The GDP stood at a three year low at 5.7% for April-June quarter of 2017- 18, which has raised concerns about
the annual GDP numbers for the fiscal. The present economic scenario definitely does not augur well for the textile manufacturers, who are dealing with both the GST as well as effects of demonitisation

A major decline in manufacturing and the lingering effects of demonetisation sharply pulled down India’s economic growth rate in the first quarter of the current fiscal ended June to 5.7 per cent, as compared to 7.9 per cent in the same period a year ago, the latest official data has showed. According to data from the Central Statistics Office (CSO), India’s gross domestic product (GDP) for the first quarter at Rs 31.10 lakh crore also registered a sequential fall compared with the 6.1 per cent growth in the fourth quarter of the 2016-17. “GDP at constant (2011-12) prices in Q1 of 2017-18 is estimated at Rs 31.10 lakh crore, as against Rs 29.42 lakh crore in Q1 of 2016- 17, showing a growth rate of 5.7 per cent,” a CSO release said.

In terms of Gross Value Added (GVA), which excludes indirect taxes and subsidies, the growth was even lower at 5.6% over the GVA for the corresponding quarter of last year. The principal reason for the decline in growth is a fall in manufacturing sector, which saw a growth of 1.2 per cent during the quarter, Chief Statistician T.C.A.
Anant told reporters here after the release of the GDP numbers. “Principally, the major sector that has seen a sharp decline in industry,” he added.

Of the 32 million people employed by the textile industry, one-fifth are daily wagers, who mostly get paid in cash. “While on one hand, slow sales increase the possibility of stock returns to manufacturers or affect the order book for the next year due to unsold inventory; on the other, slow sales and consequent liquidity pressures on retailers can result in stretched payments to manufacturers,” according to rating firm ICRA. Similarly, 20% of the 250,000 workers in the leather industry will also be impacted.

The GDP data comes close on the heels of the Reserve Bank of India’s annual report, which said that almost 99 per cent of the banned currency notes following the announcement of demonetisation in November last year have come back to the system. According to the RBI report for the last fiscal, 89 million pieces of the banned Rs 1,000 totalling Rs 8,900 crore had not been returned, out of 6,700 million such notes. This amounts to 1.3 per cent of the Rs 1,000 notes in circulation before the demonetisation announcement on November 8, 2016.

Further, the rollout of the Goods and Services Tax (GST) on July 1 this year is also being considered a reason for the decline in economic growth this quarter. Chief Statistician of India TCA Anant said the slowdown in GDP growth was due to de-stocking by firms as caution ahead of the GST rollout. “Major sector which has seen a sharp decline is industry. Corporate entities were pulling down their stocks in Q1 (April-June), which seems to be in anticipation of Goods and Services Tax (GST) price labelling effect,” Anant told media persons. Anant said the phenomenon was usually not observed as firms accumulated stocks ahead of the festive season. The Chief Statistician said there was a likely revival from the second quarter onwards as subsequently stocks would be restored to normal levels as GST progressed.

Prime Minister Narendra Modi, during the launch of the GST regime, described it as a “good and simple tax” that would end harassment of traders and small businesses and integrate India into one market with one tax rate. However, induswatchers claim that, at least as far as exporters are concerned, it will take time. As the present situation holds, Indian exporters are already feeling pressure on their margins because of rupee which has appreciated by nearly 7% this year. GST only added to their woes. Exporters, especially small ones, are having
a tough time complying with the new indirect tax regime. Not only that, they also fear a loss of competitiveness due to higher working capital requirements and tedious documentation work. Latest export data from July, which paints a lacklustre picture, has only deepened this fear. While Bangladesh reported annual growth of 26.54% in its July exports, driven by the robust performance of its ready-made garment sector, India’s export growth slowed to 3.94% from 4.39% in June.

Manufacturing performance effect on GDP Country’s gross domestic product (GDP) is likely to remain below 6% in the second quarter of 2017-18 owing to muted agriculture growth and sluggish performance of manufacturing and mining sector, said a latest SBI research report. This definitely does not augur well for the textile manufacturing industry, the results of the report confirm.

The GDP stood at a three year low at 5.7% for April-June quarter of 2017-18, which the report said has raised concerns about the annual GDP numbers for the fiscal. While it has estimated GDP numbers to remain muted at sub-6% for the July-September quarter, the third and fourth quarter growth is expected to be below 6.5%.