The coronavirus outbreak has affected everyone’s life, this time the readymade garment (RMG) industry is on the list. According to the latest report prepared by Crisil Ratings, the industry is likely to face a downfall, ranging between 25 percent to 30 percent, in the revenue collection in the current financial year. This decline is a result of prolonged lockdowns accompanied by a cut in the discretionary spending capacity of the people.
There is a fall in the exports also because of the ongoing pandemic worldwide. Crisil says that the fall in the export demand will be more than the domestic demand as the US and European Union are drastically cutting down their discretionary spending, which accounts for 60 percent of India’s RMG exports. Thus, lowering the profit.
Gautam Shahi, the director of Crisil explained that over the last 5 years domestic demand was supporting the RMG industry in widening their revenue collection. However, in current fiscal domestic demand is also decreasing significantly. Thus, revenues are highly expected to fall.
Moreover, readymade garment makers hold an elongated working capital of higher inventory and stretched receivables. The previous fiscal ended with 20-25 percent higher inventory before the COVID-19 shattered the market. So, increased inventories and decreased demand will further worsen the condition.
According to the experts, this sudden fall in the profit will make readymade garment makers run out with cash accruals and as a result, they won’t be able to meet their repayment obligations during the first half of the current fiscal. However, their current working capital is expected to pull them from this ongoing crisis.
Meanwhile, cash flow in the industry is expected to be back on track by the second half of this year as the demand is expected to increase as the festive season begins in the country. However, export demand is expected to be back on the track as the winter season begins in the other parts of the world.