Indian denim industry facing problems


Denim fabric manufacturing is considered a sunrise industry in the entire textile value chain of India. Over the last decade, it was registering a 15% CAGR. Currently, the industry has an annual installed capacity of 1.5 billion meters, which is the world’s second largest, after China. Its sales turnover is estimated at Rs. 15,000 crores. The industry gives direct employment to four lakh workers, besides indirect employment.

Mr. Sharad Jaipuria, DMA Chairman

At present the total number of denim fabric mills operating in the country has reached 46 against 30 mills in 2012, representing an increase of 50%. The installed denim fabric production capacity has also increased from 800 million meters in 2012 to 1,500 million meters with still a capacity of 150 million meters in the pipeline for expansion.

The current domestic consumption of Indian denim fabric is 750-800 million meters, growing at an annual rate of 12%. Also, denim fabric exports are estimated at 200 million meters. As per the Ministry of Commerce, denim exports for 2016-17 were moved at $316 million, registering a total of 11% in comparison to 2014-15 which it was $355 million.

“Post-GST, the denim industry has temporarily closed down 30-40% capacity across the board and at present is operating at 60-70% capacity due to slowdown in demand and over-capacity in the industry. If the present trend continues there can be more production cuts,” the DMA Chairman, Sharad Jaipuria, said.

“Besides over capacity, the industry has also been paralyzed due to the reasons that denim needs to be cut, sewn and washed before it can be marketed. These upstream activities are majorly done in the unorganized sectors located at the SSI hubs of Gandhi Nagar and Tank Road in Delhi, Ulhasnagar in Mumbai and Bellary near Bangalore. These hubs mainly slowed down due to the liquidity crunch in the economy post demonetization and the slow acceptance of GST by small players to become part of the formal economy. As almost 85% of the fabric is sold in the domestic market, denim mills are badly hit”, stated by Akhilesh Rathi, Director, Bhaskar Denim.

Said Amit Dalmia of R & B Denims: “Since the upstream activities of garment sewing & washing in SSI hubs will take a while before they change for working smoothly with the formal banking system, we are not foreseeing any short-term recovery of the market. This has led to shutdown / slowdown of many denim mills and loss of jobs in this industry.”

“With oversupply in the denim industry as well as low demand and liquidity crunch in the domestic market, the negative impact has started becoming visible in the sales and profit volume of top denim mills in India in Q2 FY17-18 and the adverse impact would continue in Q3 as well”, said Arpit Jain, Vice President (Research), Arihant Capital & Brokerage.

Atul Singh, Director, Ashima, stated that, considering the current problems of the denim industry, the Government has announce immediate enhancement in the duty drawback rates and also extending some more benefits under the ROSL scheme, MEIS scheme, the focus product and focus market scheme so that denim mills can tap the potential of export markets”.