All expansion plans have been put on hold and orders for new machinery are being revoked.
With the rupee rising roughly 12 per cent against the dollar in the current financial year, textile exporters have seen their margins eroded and tolerance levels for the inefficiencies in the business in India lowered.
So even as producers start implementing cost-cutting measures by slashing staff and restructuring the shopfloor, many are turning to competing countries to help them stay competitive.
Several producers, for instance, are shifting their production base overseas. House of Pearls Chairman Deepak Seth said the company, which laid off 1,000 employees recently, was finding it better to manufacture in China, Indonesia, Vietnam and Bangladesh.
"The raw material is cheaper and the lead time is shorter than India," he said.
Other companies have started importing fabric from China, Bangladesh and Pakistan at prices that are 15 to 20 per cent cheaper than domestic prices.
"The reason we are importing fabric from China is that the quality is better and cheaper, and, more importantly, we are getting deliveries on time," said Matrix Clothing Managing Director Gautam Nair.
Matrix has already slashed 300 jobs and, like others, is implementing various cost-cutting measures.
Other companies have stopped exporting the fabric they manufacture and are instead using it in-house. "There is a 10 to 12 per cent decline in the export realisation of fabric due to the rupee impact. Domestic prices are also depressed. We are, therefore, using it for in-house production," said Kamal Oswal, vice-chairman and managing director, Nahar Industrial Enterprises Ltd.
Despite these efforts, the situation in the Indian textile sector, which provides employment to 38 million people and had a turnover of $37 billion in 2006-07, is rapidly turning into a major nightmare for promoters and their employees. Exports constitute nearly 41 per cent of sectoral turnover at around $15.20 billion.
But with the rupee gaining strength, exports face a tough challenge. Producers in countries like Vietnam, Bangladesh, China and Pakistan are able to sell at much lower prices than Indian companies.
"Textile exporters are finding it difficult to compete in the price-sensitive international market as Asian competitors have experienced much lower rates of appreciation in their currencies," said Confederation of Indian Textile Industry (CITI) secretary general D K Nair.
For instance, the Chinese Yuan has appreciated 4.6 per cent and on the other hand Pakistani Rupee and Bangladesfhi Taka have depreciated by 1.4 and 0.43 per cent respectively making their products more competitive in the international markets against Indian exports.
As a result, powerloom clusters at Ichalkaranji, Bhiwandi and Malegaon in Maharashtra, Karur, Salem and Erode in Tamil Nadu are also at high risk of shutting down.
Already the total job loss figure is being pegged at around 10,800 and government officials expect the situation to worsen.
It is a remarkable reversal in fortunes in less than three years after the Indian textile industry was liberated from quota-based curbs for textile exports to the United States and European nations on January 1, 2005.
The fear is that employment-intensive small and medium companies, which comprise nearly 96 per cent of the Indian textile sector, will take a body blow.
Matrix Clothing's Nair adds that even if the situation stabilises, it may be difficult to win back clients, who have refused to bear the impact of the exchange rate change.