India and Pakistan’s textile and apparel industries are stepping up pressure on their governments to offer more assistance, as both countries continue to be hard hit by the faltering global economy.
This story first appeared in the March 17, 2009 issue of WWD. Subscribe Today.
Indian manufacturers received export incentives from the federal government last month that are expected to provide some relief. Apparel made of cotton, wool, silk and man-made fiber will get direct government assistance in the form of duty free scrips at 2 percent of the value of exports to the U.S. and European Union. The scrips can be used by apparel manufacturers for imports, or sold to other exporters for cash, and the program will run for six months starting April 1.
Commerce & Industry Minister Kamal Nath said he estimated the benefit, also given to the leather industry, to be worth 3.25 billion rupees, or about $62.6 million at current exchange.
“The primary objective of this incentive is to provide support to these two employment-oriented sectors,” Nath said.
Textile and apparel companies have been pressing the government for a comprehensive relief package, including higher duty drawback rates and interest subsidy. However, with national elections set for next month, further incentives are unlikely until a new government takes over, officials said. The latest incentives fall short, according to some.
“The incentive should also have been extended to other value-added sectors such as yarns, fabrics and home textiles,” said D.K. Nair, secretary general of the Confederation of Indian Textile Industry. “These sectors are doing worse than apparel.”
India’s textile exports to the U.S. dipped 0.5 percent to $5 billion and apparel exports fell by 3 percent to $3 billion in 2008, according to U.S. Customs data. Textile Minister Shankersinh Vaghela told lawmakers that an estimated 500,000 workers had lost their jobs in the textile and apparel industry in the past year.
On Feb. 17, the government announced a 5 percent duty-credit certificate for raw cotton shipments, effective retroactive to April 1, 2008. Under this plan, raw cotton shipments will get a benefit of $5 for every $100 worth of exports, which can be used to import goods, or the certificate can be sold to other exporters for cash. The plan will run up to June 30.
“It will go a long way to revive cotton exports and help in declogging huge stocks in the market,” said Dhiren N. Sheth, president of the Mumbai-based Cotton Association of India. “It will also create fresh demand for Indian cotton, which will benefit our farmers.”
But V.S. Velyutham, chairman of the Cotton Textiles Export Promotion Council, also known as Texprocil, said the decision could be detrimental to the overall growth of the Indian textile industry if simultaneous steps to protect the interests of value-added segments such as yarn, fabrics and home textiles are not taken immediately.
“The export competitiveness of the Indian textile industry is already affected by the high cost of cotton,” Velyutham said. “The industry was looking at some relief in the prices of cotton, but contrary to expectations, the recent moves will only aggravate the ongoing crisis.”
He said the government’s goal of providing relief to farmers would not be achieved because the cotton season was already over and most farmers had sold their stocks.
India is now the world’s second largest producer of cotton after China, next to the U.S. Its cotton output in the year ending Sept. 30 is estimated at 29 million bales, down 9.94 percent from earlier estimates of 32.2 million bales.
Pakistan’s textile and apparel sector is seeing little to no relief from its government, forcing firms to cut prices and cut costs in an effort to ride out the downturn.
Sohail Sadiq, chief executive officer of Lahore-based Fortune House, a knitwear mill with a capacity of 1.2 million garments a month, said his mill began offering U.S. importers a 20 to 25 percent discount in January. Sadiq said he’s able to offer the discount and remain in business because his energy costs have declined.
Power outages in the industrial sector have decreased to a more manageable five hours a day, he said, which has lowered the amount of time and money he’s had to expend on the factory’s backup diesel generators. Natural gas shortages during the winter months also slowed the use of boilers for the dyeing process, which delayed fabric deliveries to the mill. Now that the winter months have passed, gas shortages will no longer be an issue.
But the country remains volatile politically, adding to industry uncertainty. On Monday, Pakistan’s government moved to defuse the latest crisis that saw street fights and raised fears of government instability when it agreed to reinstate a fired Supreme Court chief justice.
Fortune House is feeling the pain. Even though Sadiq has avoided layoffs, the mill is working at only 50 percent capacity.
“Our government just does not have the money to give any incentives, so firstly we have to trim our cost…our profit margin has shrunk to only 50 percent of what it was earlier,” he said. “This is how we intend to ride the recessionary wave.”