š§How One Town Earns Rs. 20,000 Crore for India!
A small Indian town managed to become a major export hub but now it is facing a slow down in growth and unemployment. Hereās how.
The world has braved the storm of a pandemic and a war, but we are still dealing with its aftermath: an insane inflation and fears of recession.Ā
With spendings reduced and every penny saved, times are still tough for businesses.
Hereās an interesting stat:
A European, who earlier wore a T-shirt only 3-4 times before buying a new one, is now wearing the same shirt 10-15 times before buying a new one!
And this change in the spending habits of our friends in the West is determining the fate of many close home.
This declining demand in the West has triggered a ripple effect in a small town in Tamil Nadu called Tiruppur.Ā
Tiruppur is the knitwear capital (knitwear is not just woollen clothes, it also includes shirts, T-shirts, vests, etc) of India.
55% of Indiaās knitwear exports are sourced from this small town!
From Nike to Tommy Hilfiger to H&M, major branded clothes are made in Tiruppur.
Today we will look at:
Tiruppurās inspiring journey from a small town to an industrial hub
Challenges that Tiruppur is facing
What can be done to save Tiruppur?
š From a Small Town to an Industrial Hub
The journey of Tiruppur is proof of how innovation, entrepreneurship and hard work can completely transform a town.Ā
Back in the 1920s, Tiruppur was struggling to grow crops due to scarcity of water.
Soon they became tired of labour and started producing vests and briefs.
Thatās when they realised: The high mineral content in the water which made farming difficult was a boon for the textile industry. It made clothes whiter!
Slowly and steadily, in the 1930s, the textile industry started growing in Tiruppur.
Till the 1970s, Tiruppur remained only a local Indian supplier.
Then in 1978, came a man named Verona, who took it international.Ā
Verona reached Tiruppur through word of mouth.
And boy, was he impressed by the quality of its production.
He immediately gave Tiruppur contracts for garment exports.
Other European importers were also impressed by the quality and soon contracts started piling up in Tiruppur.Ā
Now was the time that the town saw entrepreneurship booming.Ā
Entrepreneurs created different clusters and each cluster had to master only one specific task (like knitting, spinning, dyeing etc).Ā
This entrepreneurial spirit and streamlined process made Tiruppur the knitwear capital of India.
But, Tiruppur is now facing a slowdown and unemployment.Ā
šÆ Challenges in Tiruppur
Currently, Tiruppur is facing three major challenges at once:
Lack of demand
High cotton prices
Competition from countries like Bangladesh
Letās look at these problems one by one:
Lack of Demand: Covid, the Russia-Ukraine war, and now sky-high inflation, all of these factors have reduced demand for clothes. People are trying hard to keep the lights on in their homes in Europe, so clothes are obviously not a priority. Because of this, exports have fallen by 21% in the August to December 2022 period.
High Cotton Prices: Cotton prices in India were 15% higher than international cotton prices in December 2022. This was because of the low availability of cotton. Yes, heavy rains and pests have been destroying our cotton crops. Plus, an 11% import duty on cotton makes importing cotton expensive. Result? The textile industry cannot afford cotton. They have to pass on the extra costs to end consumers, who do not want expensive clothes. So, they have been turning to countries like Vietnam and Bangladesh.
Increasing Competition: While India's garment exports were worth $44.4 bn in 2022, Bangladesh's exports were worth $52.08 bn.
Now, the difference may not be huge. But the fact that this tiny country with limited resources has managed to beat us is alarming!Ā
What are they doing right that we aren't?Ā
Bangladesh and Vietnam are cheaper.
The shirt that we make for 50 cents (Rs. 41), Bangladesh makes for 22 cents (Rs. 18.)
This low cost is because of:
Cheap labour (yes, labour is even cheaper in these countries)
Trade agreements- Bangladesh and Vietnam both have signed several agreements which make their products duty-free in markets like Europe and Canada, which are also huge markets for us). In fact, Bangladesh also has a free trade agreement with India that allows them to get cheap raw materials from us and float their cheaper goods duty-free in our market.
Plus, their currencies are also weaker than the rupee, making it even cheaper for importers to buy goods from them.
The biggest strength of Bangladesh: its speed.
It takes us 63 days to complete an order for delivery, while it takes Bangladesh 50 days.
It takes us 10 days to get the shipment to port, while it takes Bangladesh one day.Ā
š® Future Prospects for Tiruppur
Now, all isnāt doom and gloom in the town.Ā
In January 2023, it did start seeing a teeny-tiny 1.5% growth in exports again.
But with a recession on everyoneās mind, especially thanks to the Silicon Valley Bankās fall, this growth may fall again.
Now, what falls is set to rise again. People arenāt going to stop wearing clothes. The town should be back on its feet the next festive season.
Well, it's not so easy in Tiruppur.
You see, many other major companies and exporters can survive small periods of downtime. They usually have cash or they can borrow from banks.
Tiruppur, on the other hand,Ā has many small entrepreneurs managing small clusters. These small entrepreneurs often donāt get adequate bank credit.
So, downtime means shutdowns. Shutdowns mean layoffs. And layoffs mean lost livelihoods.
Shouldnāt the knitwear capital of India deserve better?
Shouldnāt enterprising entrepreneurs running profitable businesses without VC money deserve better?
Steps need to be taken to provide adequate credit to these entrepreneurs.
The government should also announce measures to support this town that employs 6 lakh people directly and 4 lakh people indirectly.
The government could provide low-interest loans, tax incentives, or subsidies for small businesses.Ā
It could also partner with banks and other financial institutions to create a dedicated credit facility for Tiruppur's entrepreneurs.Ā
Signing more free trade agreements could also be a good option.
What other steps can be taken to help this town grow and prosper? Let us know in the comments!
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