Rupee appreciation in real terms has hurt Tirupur’s exporters, making it hard to compete on a cost basis with lower income countries such as Bangladesh. Bangladesh has already signed an FTA with the EU which has given it a 10.5 per cent cost advantage over India. Similarly, Vietnam is currently negotiating a free trade agreement with the EU and is already part of the Trans-Pacific Partnership.

While Tirupur’s exporters managed to overcome external shocks in the past, and ride through periods of slowdown such as the 2008 crisis, the cause of Tirupur’s pain this time is domestic policy. The combination of demonetisation and a hurried, faulty GST implementation has brought Tirupur to its knees.

Demonetisation completely decimated domestic demand by removing all liquidity from the market. GST has increased costs, not only of compliance but also of materials, services and working capital. Prior to GST implementation, the sum total of export incentives amounted to 13.65 per cent of FOB value. Subsequent to GST, this fell to eight per cent, a steep reduction of 5.7 percentage points.

Tirupur is India’s largest cotton textile export cluster. The tightening of liquidity for exporters has led to a contraction in demand for downstream processing units, leading to their inability to pay back loans on their capital.