For 25 years Shades of India, a New Delhi-based luxury textile company, has built its reputation as a reliable exporter to the US and the Gulf of high-end apparel and home furnishings.
But today the company, which employs hundreds of workers and highly-skilled craftspeople, is facing an acute cash crunch as the global battle against coronavirus takes its toll on India’s large labour-intensive export sector.
Shades of India was poised to send a big order to one of its most important US customers last month when the Indian government abruptly imposed a 21-day nationwide curfew with only four hours’ notice, leaving the shipment stranded in the factory.
The company’s US customers, for their part, have failed to make overdue payments with their offices closed and employees working from home. With many retail stores in the western countries closed, David Housego, Shades of India’s co-founder, said it was unclear whether buyers would still want to take delivery of existing orders.
“The big, big problem is the management of cash flow in a situation like this,” he said. “On our revenue side, there is considerable uncertainty as we don’t know how long shops will be locked down. On the expenses side, we have very considerable fixed costs — wages, salaries, rents and outstanding orders for which [we] have paid for materials.”
The crisis confronting Shades of India reflects the wider woes from the fallout of the coronavirus pandemic for an export sector that employs an estimated 50m people making textiles, shoes, jewellery, sports goods, carpets and other consumer items for developed markets in the west and Asia.
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India’s abrupt and poorly planned lockdown has compounded the problems for exporters, with their shipments left stranded in trucks alongside highways or at ports. Many overseas buyers are also citing force majeure to cancel orders while others are demanding price cuts and discounts.
“In the whole supply chain, the most vulnerable are the factories and the workers,” said the owner of a high-end shoe exporter, which employed nearly 2,000 workers. “Some of our buyers have just cancelled all their orders, and some are engaging in talk about ‘how we can we share the pain?’”
Many governments globally are offering financial support to help companies withstand the shocks inflicted by the battle against Covid-19, including assisting businesses with their wage bills. But despite imposing a strict nationwide curfew that forced nearly all of the nation’s factories to close, Prime Minister Narendra Modi’s government has yet to offer any direct relief to companies.
Instead, the administration, which was under serious financial pressure even before the coronavirus crisis, has passed the burden for workers’ welfare during the disruption to businesses, ordering employers to pay workers their normal wages and warning against lay-offs.
Some companies say they have even received phone calls from authorities seeking assurances they had paid their factory workers.
“Everywhere, people are being furloughed and you have governments stepping in to help businesses,” said the shoe exporter, whose factories were making 5,000 pairs a day when production abruptly stopped. “We are still waiting for what the Modi government is going to do for business. We haven’t got anything at all. All we’ve got is: ‘Make sure you have paid your workers and you don’t lay off anybody.’”
India was already in the grip of a protracted slowdown before the coronavirus hit. Its economy grew just 4.7 per cent in the three months ending December 31. Now, growth will take a massive hit, with Capital Economics forecasting a four-decade low of 1 per cent for the financial year that started on April 1. Nomura, the Japanese bank, has forecast the economy could contract 0.5 per cent.
Some analysts said the extent of the slowdown would depend on New Delhi’s exit strategy from its three-week lockdown and whether some normal business operations could resume. But with India’s coronavirus caseload still rising, New Delhi has indicated that many restrictions will remain in place, which could hinder a manufacturing restart, particularly for non-essential items.
Even if restrictions were eased, acute labour shortages following the mass exodus of millions of migrant workers from India’s big cities and industrial hubs could constrain production and hinder critical transportation and logistics services in the months ahead.
“Those workers who have gone back to their villages en masse are not going to come back instantaneously,” said Saurabh Mukherjea, founder of Marcellus Investment Management, a local fund manager. “They’re going to say: ‘Let’s wait for the virus to ride its course.’”
Only once the pandemic was over would migrant workers catch the return train to India’s major cities. “That’s going to cause disruption in our factories through the summer,” Mr Mukherjea added.
Meanwhile, companies warned that paying hundreds or thousands of workers for long stretches when production was suspended, or sales were muted, would be unsustainable — particularly for smaller, standalone manufacturing firms. Unless there was government help, many believed large-scale lay-offs were inevitable.
“If companies don’t have revenue coming in, we can’t indefinitely pay the workforce,” said Mr Housego of Shades of India. “As in other countries, they [the government] need to step in and help subsidise the payroll.”
