September 24, 2022
  • September 24, 2022

Rising repo rate is another challenge for India’s textile industry

By on May 6, 2022 0
The 40 basis point increase in the repo rate announced by the Reserve Bank of India (RBI) this week will lead to more expensive lending and will add to the already existing challenges, such as high cotton and cotton yarn prices, and weak domestic and export demand. for the Indian textile industry. The key repo rate under the liquidity adjustment facility is now 4.40%.

Immediately after the RBI announcement, Bank of Baroda and ICICI Bank raised the interest rate on repo-linked loans by 40 basis points. Kotak Mahindra Bank also raised the interest rate by 35 basis points for certain loans. Other banks are also expected to follow the same policy and raise their interest rates in the coming days.

The 40 basis point increase in the repo rate announced by the Reserve Bank of India (RBI) this week will lead to more expensive lending and will add to the already existing challenges, such as high cotton and cotton yarn prices, and weak domestic and export demand. for the Indian textile industry. The key repo rate under the liquidity adjustment facility is now 4.40%.

Sanjay Jain, managing director of knitwear company TT Limited, told Fibre2Fashion, “Lenders will increase the interest rate on loans after the repo rate hike. This will have a negative impact on the entire value chain of the textile industry. Like all other industries, business loans for the textile industry will become expensive. As a result, the cost of capital will increase for textile companies for new factories and machinery, which normally requires large loans. Production costs will also increase due to more expensive working capital Jain said the need for working capital for textile companies has already doubled due to skyrocketing prices for cotton and other raw materials.

According to HDFC Bank Chief Economist Abheek Barua, the RBI has shifted its focus from growth to inflation control. The increase in the repo rate to 4.40% exceeded expectations. Barua expects the repo rate to rise further in the current fiscal year to 5.5%.

Currently, central banks in all geographies including the US and UK are raising interest rates to curb inflation in their respective countries. However, for the Indian textile industry, it will be yet another challenge when the demand for garments from end users is still weak in the domestic market and uncertainty looms over the export demand due to geopolitical unrest.

But some people in the textile industry believe that the impact of rising interest rates will be marginal. For companies like TT, which manufacture their loungewear, hosiery and garments using only cotton, the main problem is the scarcity of cotton which makes rising prices unbearable for the entire value chain. The cost of production is skyrocketing just because of the record increase in cotton and cotton yarn prices. According to Jain, retail prices for knitted garments have already increased by 30%, and a further 15% increase is also likely to occur if cotton becomes more expensive.

Fibre2Fashion (KUL) Press Office