Even as there is a slowdown in demand for Indian garments in the US and Europe, free trade agreement (FTA) with Australia is likely to provide a level-playing field for home textile exporters in 2022-23, according to a report.
The build-up of inventories on account of the cut on discretionary expenditure and reallocation of expenses to services have reduced imports into the key US market, according to an India Ratings and Research (Ind-Ra) report.
Consequently, the home textile segment continued to experience a demand slowdown, whereas other segments of cotton, apparel and man-made spinning continue to benefit from the China+1 sourcing and continuing US ban on the use of cotton from Xinjiang, China.
However, given the discretionary nature of textile products, Ind-Ra expects the slowing demand in Europe, the US and other parts of the world to have an impact on textile exports.
In addition, the report stated that small yarn players facing cotton availability issues are likely to get impacted.
Further, the report stated that the FTA with Australia eliminates the import duty on textile exports from India, bringing the Indian product prices at par with China, Vietnam and Bangladesh.
India's exports to Australia contribute 5-6 per cent to the total Australian requirement and at a value of USD 500-600 million, they remained at 1-2 per cent of total textile exports from India in 2020.
Given the economic challenges being faced by some exporting nations and the increasing need to diversify supply chains, Indian home textile or garment producers are likely to benefit.
Given the slowdown being experienced by the US and Europe, this could provide partial relief along with other FTAs likely to be signed with the UAE, UK, Canada and Israel.
These markets have an aggregate textile import of USD 60 billion and even an incremental gain of 5 per cent for India would be a 50 per cent gain on the existing exports of USD 6 billion.
The total textile export from India to the world aggregated USD 43 billion in FY22, it added.
"Our rating outlook on textile companies remains stable and while we expect a demand slowdown in exports to developed markets, some of that may be mitigated by domestic demand and softening cotton prices.
"The benefits of FTAs are likely to be at the margins in the initial couple of years, but over a period of time, this will provide opportunities for diversification and moving up the value chain for the Indian cotton industry," Ind-Ra Director Rohit Sadaka added.