Demonetisation and its impact on Indian Garment Industry

As India reels under the after effect of the demonetisation move, Images BOF team spoke to a number of stalwarts in the Indian garment industry who shared their valuable insights on the policy’s impact on the garment industry in India and its value chains.

- Gurbir Singh Gulati

One of the boldest moves taken by the government of India in the history of Indian economy was the ban on high value currency notes of ₹1,000 and ₹500 denomination with effect from November 8, 2016 midnight. This scheme has received mixed reactions till now as some industry experts say that the sales are badly hit and this would continue to effect the new booking season. However, some feel that it’s a short span of hardships which will be overcome in some time. But one thing is sure — this scheme has impacted the garment businesses across the value chains.

Experts unanimously feel that the decision will benefit the organised segment in the industry as many unorganised players and firms working unethically will face pressure to comply.

Demonetisation & its After Effects

Slowdown in demand for apparel and other end products had a trickle-down effect on the textile value chain. Demonetisation had a tremendous impact on disposable incomes and hence consumer spending waned, resulting in a dip in the domestic demand for apparels and other end-products of the textile industry in the immediate term. The resulting inventory accumulation with the retailers has, in turn, caused deferment of purchases from apparel manufacturers (focused on domestic market) in the near term, besides resulting in stretched payments. This, in turn, will affect the cash flow of the textile industry and is likely to drive a constraint in the demand for the entire value-chain. Also, as the demand reverts back to a steady state over the next few months with expected improvement in liquidity, this impact will be neutralised.