Domino Effect Of Recession In Textile Sector

Worker empties spools of processed cotton yarn at a Tamil Nadu spinning mill.Half of the yarn-making machines in V. Kalyanaraman's spinning mill sit idle, and a third of his staff of more than 400 workers has been let go. The domino effect of recession in the West has arrived here in southeastern India, crimping textile exports and eliminating hundreds of thousands of jobs. ATextile factories -- including India's notorious garment-making sweatshops -- are among the country's first manufacturing businesses to suffer as American and European clothing retailers slash orders amid slumping consumer spending.

India's second-largest employers after agriculture, textile concerns employed 35 million workers last year. But the companies have already shed 700,000 jobs this year and at least 1.2 million textile employees are expected to be out of work by March, according to the government's Ministry of Textiles. The sector is crucial to the country's economy. The textile industry contributed 4% of India's gross domestic product in the year that ended March 31, and accounted for 13.5% of Indian exports, bringing in $17.6 billion.

The industry is particularly important in the southern Indian state of Tamil Nadu, which is bearing the brunt of the slowdown. At Mr. Kalyanaraman's Chandra Textiles Ltd., the work force -- mostly migrant female workers from rural areas -- has been trimmed 30% to 300 workers, and more cuts are expected as U.S. demand shrivels. Mr. Kalyanaraman has also halted construction on a new spinning mill, leaving it half-built. So far, most of the textile industry's job losses are among its least-skilled and lowest-paid workers at spinning mills, dyeing houses, and stitching and embroidery factories. Employees in such operations, mainly women, earn about $2 a day. It isn't unusual to spot child workers in such factories, although it's illegal to employ them.

As India's once-booming economy slows, some financial and technology companies have started handing out pink slips, too. Last month, American Express Co. cut 100 staffers in India, while Goldman Sachs Group Inc. is also expected to lay off an unspecified number of staff in India as part of an announced 10% reduction in its global workforce, according to people familiar with the matter. Cellular phone maker Motorola Inc. said Indian workers will be among those affected by a global reduction of 3,000 employees announced in October.

No sector has been hit as hard as textile manufacturing. The drop in demand for all textile products, including raw cotton, started late last year, company executives say. That's when the housing bubble burst in the U.S. and many Americans stopped buying household items such as carpets and blankets. The trend has since accelerated and spread into apparel and other products. Meanwhile, the industry's woes have been compounded by India's chronic infrastructure problems. Tamil Nadu state, home to a quarter of the country's textile production, last month capped power usage at 50% of normal levels to deal with a severe energy shortage. Textile businesses such as spinning mills need to operate around the clock to remain profitable, factory owners say.

"The textile industry is really being hit on all sides," says K.A. Srinivasan, chairman of the South India Mills Association. He warns that "the full effect is still to be seen." That is evident in the small city of Tirupur, 37 miles from Coimbatore. Tirupur used to be a thriving center for the Indian garment trade, with almost 3,500 apparel makers. Locals call the city "little Japan" for its dependence on exports. Half of the garments made there are shipped to the U.S. Now, trucks delivering raw cotton to Tirupur factories are half-empty, reflecting slumping orders. Workers who have had their shifts eliminated or shortened sit idly on the stoops of their garment plants.

Tirupur's exports, which were growing at 15% a year and peaked at $2.2 billion in the year ended March 31, are set to decline 20% this year, says A. Sakthivel, president of the Tirupur Exporters' Association. "From the tea shop to the big store or theaters, Tirupur lives on exports," Mr. Sakthivel says, adding that the slowdown "will affect us from top to bottom."Raja Shanmugam, who owns a garment factory that makes T-shirts for German clothing brand Tom Tailor, says he has seen a 20% drop in orders since September. Last year, his 800-person company, Warsaw International Ltd., had sales of $8 million. This year, he doesn't expect to bring in more than $5.5 million.

"Even now, I cannot plan for tomorrow," Mr. Shanmugam says. He cites unpredictable foreign demand and volatile exchange rates -- which undermine his efforts to hedge currencies -- as key concerns. The industry has been lobbying the government for help. Last month, a delegation from the Tirupur Exporters' Association traveled to New Delhi to ask the central government to reinstate a tax break for exports, reduce lending rates from state-owned banks, and extend a two-year moratorium on loan payments for garment exporters. The government has indicated it will try to help, but hasn't disclosed any specific measures.

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