Recession in Europe, US Jolts Gujarat's Textile And Chemical Sectors

Ahmedabad, Aug 7 (KNN) Gujarat's textile and chemical sectors are facing the brunt of the ongoing recession in Europe and the US, which has led to a decrease in orders, according to a report in TOI.

A bad debt cycle triggered by low demand, shrinking working capital, high input costs and stretched payment cycles has forced companies to cut costs.

The textile industry in the state provides direct and indirect employment to about 70 lakh people, while the chemical industry directly employs five lakh and provides indirect employment to seven lakh people.

Due to a drop in demand from international markets coupled with a decline in domestic demand due to cautious discretionary spending because of inflation, the apparel and textiles industry has taken a hit. 

This has had knock on effects right through the textile value chain. Their export demand has also gone down with Europe's textile industries downsizing production as gas prices spike and demand remains muted.

Rahul Shah, co-chairman of the textile taskforce of the Gujarat Chamber of Commerce and Industry (GCCI) said, "Fluctuations in cotton prices, which are now declining, is another jolt. As prices are falling, manufacturers procure limited quantities of raw material and avoid placing future orders. The entire value chain thus suffers because of inventory piling up."

"The cost of holding inventory has also increased. Inventory and stock levels are thus in the lower band for manufacturers," he said.

GCCI president pointed out that, with production cut and low demand, companies have stopped entire shifts. Companies are moving towards variable cost structures. Many managerial and supervisor-level employees are given leave without pay when the plant is shut.

Shailesh Patwari, former president of the Gujarat Chamber of Commerce and Industry (GCCI) said, "The dyes and intermediates industry is witnessing its most difficult phase ever. Average capacity utilization is only about 40 per cent. The industry had invested heavily in expansion in good years and with demand low now, the problem of oversupply can be seen. On the other hand, specialty chemicals companies are doing well."  (KNN Bureau)