NEW DELHI–Falling global demand, prompted by surging cotton prices, will cut India’s garment export volume by at least 15 percent this year, according to the country’s leading garments exports organization.
“Overall raw material is getting expensive and it is going to impact the consumption pattern,” said Premal Udani, chairman of the Apparel Exports Promotions Council, or AEPC, which represents 8,000 Indian garment garment makers. He added that rising cotton prices were causing buyers to postpone or reduce the size of orders while they waited for prices to cool.
Still, the organization said India’s garment exports in value terms will still grow 6 percent to $11 billion this financial year and by another 10 percent in the 2011-2012 year. Also, of note, last month the Cotton Advisory Board said the country was likely to harvest a record 32.9 million bales in the year 2010-2011, a rise of nearly 12 percent on the previous year.
Global cotton prices have long been on the rise, with futures hitting a record high of $2.04 per pound in February. Currently the price of cotton per pound is near $1.67. For Indian garment makers, the problem has been compounded by a global economic squeeze that has hurt retailers in Europe and North America, its biggest markets.
Flooding in Pakistan and Australia – coupled with surging demand from China – has squeezed the world’s cotton market. Pakistan, the world’s fourth-biggest grower, is facing a shortfall of 2.5 million bales while Australia has said it lost 300,000 bales last month. In China, meanwhile, demand is growing with a buoyant economy, while adverse weather has damaged domestic supply of cotton.
In India, the world’s second biggest grower and exporter of cotton, cotton prices have more than doubled in the past year. Garment makers and exporters have put heavy pressure on the government to limit or ban the export of raw cotton and cotton yarn. Indian farmers, meanwhile, have benefited from rising prices, planting record crops of cotton for the season.
“Business has dropped around 40 percent since cotton prices rose so high,” said Vishal Anatolia, managing director of MV Exports and garment maker and exporter, based in Jaipur, Rajasthan.
“It’s very difficult to do business and be competitive when prices are so high,” he said, adding that he expected some garment factories to close and employees to be laid off if the pressure persisted.
Some 35 million Indians are employed in India’s textiles industry and it offers an important alternative to agriculture for unskilled or low-skilled Indians, especially in cities and urban areas.
APEC added that China, its great competitor, had also struggled amid rising cotton prices, leading many of its manufacturers to quit the middle and low-cost garment markets. This meant more buyers would turn to India.
“Even if five percent of China’s trade shifts to India it would bring in immense opportunities to the country …” it said in a statement.
It added that Japan was a growing market for India thanks to a recently signed free trade agreement that will allow India to export garments to Japan duty free. Currently, Indian exporters pay duties of around 11 percent.
This year, Indian exports to Japan are likely to total $125 million; that could grow by $50 next year, the AEPC said.
India’s own domestic market, thanks to continued economic growth, remained strong, it said.