Source: The Hindu
Supply chain hit, demand drops, outlook for 2020 bleak, say observers
India may face a further dip in GST collections as most of the industries such as poultry, sea food, consumer durables and electronics, tour and travel, hospitality, apparel, gems and jewellery etc. are likely to see a significant decline in revenue due to COVID-19 outbreak, as per industry observers.
Cross border trade is also likely to get hit as exports to prominent countries like Europe, U.S. and China will see a decline due to the corona outbreak. For instance, the textile industry, which accounts for 10% of the annual exports, is heading towards a major decline in revenue as supply chain has been disrupted and export orders have been on a drastic decline, as per observations made by Vayana Network, a third party supply chain finance platform.
Ram Iyer, Founder & CEO, Vayana Network, said, “Supply chain is seriously damaged. Both exports and imports are affected. The corona factor will create serious working capital shortages for corporates and the entire supply chain ecosystem.’’
According to ICRA, demand in the key markets has remained subdued, with impact heightened by the rapid spread of the COVID-19 across regions in the recent weeks.
ICRA expects the Indian apparel exporters to report a moderation in profitability in FY2020, with pressures likely to sustain at least in the near term, and the turnover growth to be subdued, except for a few larger players with an established client base.
Mr. Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA said, “The Indian apparel exporters are passing through testing times, with several internal and external challenges. The external issues primarily stem from an unfavourable demand-supply scenario.’’
As per ICRA analysis, the industry is also facing challenges like increased bargaining power of buyers amid intense competition, cost-side pressures emanating from disruptions in procurement of materials and consumables such as colours, chemicals, accessories/trims etc, from China.
While demand from the EU has remained weak, recent trends in the U.S. apparel imports have also been discouraging, corroborated by a volumetric decline of about 12% Y-o-Y in apparel imports by the US in Q3 FY2020 and an overall decline of ~0.3% Y-o-Y in 9M FY2020. This follows an about 17% and about 5% Y-o-Y decline in domestic retail sales of clothing and clothing accessories (in value terms) in the U.S. in Q3 FY2020 and 9M FY2020 respectively, ICRA further says.
Trade activity growth had shown a bit of improvement in February 20, largely backed by higher export growth and oil imports, however, trade dynamics are likely to change further in 2020 due to COVID-19, warns Emkay Global Financial Services, in a trade review.