Most Recent Articles In Government and Trade
Latest Government and Trade Articles
- Value, Price Focus at Prime Source
- Michael Froman Assures Industry on TPP
- Trade Shifts Talk of AAFA Summit
More Articles By
BANGALORE, India — Indian textile and clothing exporters are generally expecting a tough year ahead on the back of shrinking profits last year, but some savvy manufacturers are not that concerned.
After global quotas were abolished in January 2005, Indian textile and clothing exports surged 25 percent in fiscal 2006 to $17.5 billion. However, the momentum did not last and the following year exports grew by only 7 percent.
A 12 percent appreciation in the value of the Indian rupee against the dollar since October 2006 now has led to a decline in apparel exports. According to U.S. Customs data, Indian apparel exports to the U.S. dipped 0.53 percent in value in 2007 over 2006.
Far from achieving a projected 18 percent growth in the current fiscal year that ends this month, textile exports are likely to shrink, the Federation of Indian Export Organizations said.
“The current state of the Indian textile and apparel industry is quite bad,” said Premal Udani, chairman of the Clothing Manufacturers Association of India, and chairman and managing director of Kaytee Corp. “Exports are down and the immediate prospects for 2008-2009 are also gloomy.”
“There is severe pressure on pricing, due to fierce competition from other neighboring countries,” said Harish Ahuja, managing director of Shahi Export House. “Margins have dropped across the board and more than 60 percent of exporters have witnessed a decline in profit.”
The U.S. accounts for about 35 percent of Indian textile exports and the rupee rising 12 percent against the dollar has reduced profits for companies. In contrast, currencies of India’s competitors in the region such as Pakistan and Bangladesh have depreciated by 1.4 and 0.43 percent, respectively, while China’s yuan appreciated only 4.6 percent against the dollar.
As a result, India saw its market share of apparel exports to the U.S. decline from 4.44 percent, or $3.18 billion in the 2006 calendar year, to 4.29 percent, or $3.16 billion in 2007. China, on the other hand, saw its market share rise to 30.77 percent from 25.85 percent, while Bangladesh’s went up from 3.45 percent to 4.2 percent during the same period.
The erosion in profits of textile companies has forced them to cut back on manpower, leading to an estimated 150,000 workers losing their jobs across the country.
Sudhir Dhingra, chairman and managing director of Orient Craft Ltd., said his company laid off about 3,000 workers last year, but the total strength is now back up by about 1,500.
“Our company has let go the temporary staff,” said Udani. “So far, we have not had to retrench our permanent workforce. But if the markets remain depressed, this could become a possibility.”
Like others, Mumbai-based Creative Garments Ltd. also was affected.
“We have put our growth plan on hold,” said Vijay Agarwal, chairman of the company. “We have decided to stop production in two of our units for the time being, thus laying off about 400 workers.”
The crisis has especially hit smaller companies. However, bigger firms such as Orient Craft and Gokaldas Exports Ltd. have managed to reduce the impact by hedging on currencies, asking European customers to bill in euros and adding value to their products.
“Orient Craft is one of the few companies that has moved up the value chain,” said Dhingra. “We began the process 10 years ago and the impact of rupee appreciation is minimal.”
Companies also are meeting the challenge by opening factories in Bangladesh and importing raw material from China. The House of Pearls said it finds it better to manufacture in Bangladesh, China, Indonesia and Vietnam.
Indian textile companies fear the situation will worsen with signs of recession in the U.S. The Clothing Manufacturers Association believes that apparel exports to the U.S. will come down by 15 to 20 percent in fiscal 2009.
However, Orient Craft’s Dhingra, while acknowledging that recession in the U.S. will affect demand, said the impact may not be that severe.
“Clothes come next to food to Americans in priority,” Dhingra said. “This is good for us.”
As part of a long-term strategy, Indian companies are reducing their dependence on the American market. The share of the U.S. market, which used to account for 98 percent of Orient Craft’s exports, has come down to about 70 percent. Creative Garments’ Agarwal said his company also is shifting its attention to the European market.
Meanwhile, the textile industry is pressing the Indian government to offer tax and fiscal concessions, but the response so far has been mixed.
Amid the general gloom, entrepreneurs such as Dhingra and Agarwal are optimistic. Dhingra said Western countries are realizing that putting too much investment into China is risky, and expects them to look at alternate locations such as India, Vietnam, Cambodia and Bangladesh. If China were to revalue its currency, its exports would fall and India could grab a larger share, Dhingra said.