The officials said that India's USD 200 billion textile and garment sector is in turmoil as consumers in the US, Europe, and other major countries cut back on clothing purchases in response to a spike in inflation due to the conflict in Ukraine.

As consumers in the US, Europe, and other major nations reduce their clothes purchases in reaction to an increase in inflation brought on by the situation in Ukraine, India's USD 200 billion textile and apparel industry is in disarray.

About 22 per cent of the industry's revenue comes from exports, which have decreased for five consecutive months. In November, they fell over 15 per cent year over year to USD 3.1 billion.

Due to high costs and low-quality imported clothing, manufacturers claim that domestic sales are weak despite the broader economy's good growth.

Following strong sales previously this year, nearby textile companies are now reducing output, which is helping to explain a 4.3 per cent decline in manufacturing output in the July-September quarter that has policymakers worried.

The bombshell comes as the government of Prime Minister Narendra Modi tries to find opportunities for the millions of young people who enter the workforce each year.

Global retail sales of clothes have been negatively impacted by high inflation and low consumer confidence after 18 months of strong growth through mid-2022, and the outlook for 2023 is bleak, according to a McKinsey analysis released last month.

Despite strong development elsewhere, India's manufacturing sector, which accounts for 16 per cent of GDP, has been hampered by rising raw material costs and poor demand.

While the entire economy gained 6.3 per cent in the initial half of the current April-March fiscal year, aided by agriculture and services, manufacturing did not show any signs of improvement.

As businesses struggle to pass on higher input costs, textile producers have also been impacted, along with producers of footwear, furniture, electronics, and electricals. Consumer spending on these products has decreased as they spend mostly on food and fuel.

Manufacturers in the textile sector claim that increasing local cotton prices and other expenses have reduced profit margins, while domestic demand is still poor and international orders for next summer are dropped by around one-third.

Naren Goenka, Apparel Export Promotion Council told Reuters that since orders from important markets like the EU and the USA have significantly decreased, they anticipate challenging times for at least the next six months.

Sahid Khan, a clothing manufacturer in Ahmedabad, the textile centre of Modi's home state of Gujarat, claimed that profit margins were less due to reduced sales in the domestic market even though cotton prices had fallen by roughly 40 per cent from record levels reached in 2022.

According to Atul Ganatra, president of the Cotton Association of India, local cotton costs at least 10 per cent higher than benchmark prices elsewhere (CAI).

He further said that in order to provide local textile manufacturers with an equal playing field, the government must eliminate the 11 per cent  import levy on cotton.

This will give mills the choice to purchase cotton that is approximately USD 10 per pound less expensive from abroad than from domestic sources.

To combat the crisis, the industry has called for the duty-free importation of cotton, a bank loan interest subsidy, and an increase in production-related incentives.

A government official with firsthand knowledge of the situation who spoke on condition of anonymity because he was not permitted to speak to the media said that the government might shortly evaluate the demands and that an announcement is probably in the yearly budget coming in February.