BANGALORE, India — The forecast for Indian textile exports in the coming year remains gnarled, with high raw material prices and government policy major concerns, industry executives said.
This story first appeared in the September 16, 2008 issue of WWD. Subscribe Today.
“The outlook for exports in the current fiscal [year] is not very encouraging,” said Premal Udani, chairman and managing director of Mumbai-based Kaytee Corp., and chairman of the board of trustees of the Clothing Manufacturers’ Association of India. “We expect exports to be lower than last year.”
D.K. Nair, secretary-general of the Confederation of Indian Textile Industries, said, “It will be a very difficult year for Indian textile exports. At best, exports will be stagnant, and could even be lower than last year.”
Rajendra K. Hinduja, managing director of Bangalore-based Gokaldas Exports Ltd., said, “We will be lucky if exports grow by 10 percent this fiscal year. My own projection is 7 percent growth.”
Apparel exports grew 6.8 percent to $9.4 billion, while total textile exports from the country rose by 10 percent to $18 billion in the most recent fiscal year that ended April 1. The Indian textile industry posted lower profits, as the rupee rose 12 percent against the dollar.
The reasons for the industry pessimism include uncertainties about the rupee value, rising inflation, higher prices of raw materials and adverse government policy.
While the rupee has depreciated now to about 44 to the dollar from its level of 39 last October, Indian exporters are unable to benefit from this as they have hedged the rupee at about 40.25 to the dollar through October.
“We will benefit from the rupee depreciation only after October,” said Hinduja.
Any benefit from a depreciating rupee, however, is likely to be offset by the increase in cotton and man-made fiber prices, industry executives said.
“Cotton prices are up 45 percent over the previous year,” Nair said. “World consumption has grown, while supply from the U.S. has declined. In addition, India is exporting one-third of its production.”
Prices of man-made fibers have also increased 20 percent over last year because of the spike in crude oil prices, Nair added.
“High cotton prices are of tremendous concern,” said Udani. “India is primarily a supplier of cotton-based fabrics and apparel. Markets overseas are pretty soft. There is resistance to price increases.”
Hinduja hoped that monsoon rains in July and August would boost domestic cotton production, increasing supply. However, the increased supply will not help domestic producers if cotton exports continue. Both Hinduja and Udani wanted the government to curb cotton exports, but Nair was not optimistic.
“Cotton prices will remain an issue as supply-demand mismatch will continue this year,” he said. “India is supplying cotton to overseas competitors while domestic industry suffers.”
To make matters worse, the government increased the minimum support price for cotton farmers effective Sept. 1. The increase is as high as 40 to 50 percent for medium and long-staple varieties.
“Overall, the government seems to be working at the behest of the cotton exporter,” said Udani. “We believe 33 percent of India’s raw cotton has been exported. This does not make sense at all. The government has also hiked the minimum support prices for cotton. This will further increase the cost of cotton by 15 percent.”
The other area of concern for industry is government fiscal policy. Nair said the federal government has not disbursed 20 billion rupees meant for machinery upgrade from a special fund. This is affecting capital requirements of companies that have undertaken technology upgrades.
The central bank and federal government, in recent notifications, withdrew a 4 percent interest concession given for export credit and cut duty drawback rates for textile products. The drawback cuts range from 20 percent to 60 percent, depending on the textile product.
“The new rates have come at a time when most export industries are in bad shape,” said Ganesh Kumar Gupta, president of the Federation of Indian Export Organizations. “The reduction in drawback rates will adversely impact sectors like textiles.”