India’s apparel export industry has been badly hit by the global slump, reports Caroline Andrade 

The global economic slowdown has begun to take its toll on Indian exports. The textile industry by far is the worst industry affected, and with garment sales drying up in the U.S, suppliers in India have nowhere to turn. The condition is desperate now, because the industry has taken a hit when many of the leading players had invested huge sums in upgrading infrastructure and expanding capacities, planning to meet the growing demand of the export markets.

According to the Economic Times, India with apparels exports worth $9.7 billion in 2007-08 is the fifth largest exporter of readymade garments in the world. However recent data released by Apparel Export Promotion Council (AEPC) showed that apparel exports plunged 11.29% in November 2008 to $621 million dollars, compared to $700 million during the same period in 2007.

This could worsen during the current fiscal year, when apparel exports are likely to fall 24% short of $11.62 billion target and may wind up at $8.78 billion. Latest surveys conducted by the AEPC in Gurgaon and Okhla towards December-end showed 84% manufacturing units reporting a fall in export orders and employment in the range of 20% to 80%.

In 2008, Bangladesh’s exports increased 11%, while India’s exports were down 1.25%. The conditions after September worsened. While Bangladesh’s exports grew by 21%, India saw a decline of 10-12% in the September-December ‘08 quarter.

Last year, India even lost its position as the fifth largest apparel supplier to the US. Vietnam is also posing as a serious threat and is expected to overtake India this year. Bangladesh currently enjoys cost advantage because of cheap labour.

Explains, N. Kanagaraj, the proprietor of M.K Textiles, in Tirupur district, “Our buyers are not able to sell their goods in their country, because people are not interested in buying the goods. So they are selling the goods at a reduced price in their country. The exporters to the U.S have been reporting about payment defaults. There are also instances where the overseas buyers have been asking for price reduction and delayed payments.”

S.N Rangaiah, general manager, accounts & finance, Gokaldas Exports Ltd. agrees. He says, “Gokaldas is not getting orders. We have factories on rental basis, so my industry is getting impacted; consequently I have had to reduce my facilities by 30%.” He elaborates saying, “I cannot pay salaries to all my employees now, and thereby my employees cannot be maintained well. I have also had to reduce my manufacturing facilities.”

“The customers who were buying goods worth Rs.100 crore earlier, now buy goods only worth Rs.70 crore. It is a chain reaction, if the demand goes down; even I am bound to get affected.” He adds, “My revenue entirely depends upon the U.S, if their economy is not doing well, then my export orders are going to be affected.”

The sharp decline in the export orders, has led to a subsequent decline in the profit margins of various companies. Bangalore based Gokaldas Exports, Arvind Ltd, Bombay Dyeing and Manufacturing Co. registered losses in the October-December quarter.

Financial results of 50 major companies listed in the Bombay Stock Exchange, showed that although the turnover increased, profits became negative in the second quarter in the year 2008.

Gokaldas Exports, controlled by the equity giant Blackstone, reported a net loss of Rs.15 crore for the third quarter of the current fiscal as against a net profit of Rs. 17 crore for the corresponding period of last fiscal. Gokaldas, which exports for brands like Nike and Gap, noted that even as sales moved up marginally, it could not help trimming its expenditure and it amounted to an increase of around 6 percent.

Coming summer, the MD Rajendra Hinduja expects the situation to be even worse with a 30-40% dip. “The turnover of our company is reduced and the losses incurred were nearly 25- 30%,” says S. N Rangaiah of Gokaldas Exports. He explains, “We had made forward covers for the dollars. So if in last January (2008), the value of the dollar was Rs.42, we made advance booking of the dollar, thinking that it would be valued at Rs. 43.”

“However now that the value of the dollar is Rs. 51.16, I am not getting it at that value. Hence if I had not to make that forward cover, I would not be incurring losses and would get it at the current rates.”

Sumir Hinduja of Gokaldas Images says, “Prices get lower obviously. Most customers prefer to buy something cheaper, so brands like GAP and Old Navy have more demand in the U.S.” He adds, “Brands like Walmart, having target operations, are expanding their business, by selling cheap priced goods. They are like the Big Bazaar of India.”

Says Mahesh Doshi, of D.M Apparels, Mumbai, “In the long run profits have been down by about 50%,” He explains, “If the volume of turnover comes down, the affect is geometrical; lesser margin lesser turnover.”

Indian exporters are also at a disadvantage on the duty drawback front. Duty drawback is the reversal of taxes paid on the inputs used in garment manufacturing. India offers a duty drawback of 8% on exports while in China it is 17%, in Vietnam it is 15% and in Bangladesh it is 14%.

S. N Rangaiah of Gokaldas Exports says, “The one relief package applicable to us is the duty drawback scheme, which is a cash incentive and most of the garment industries go for this scheme, but there is no income here. Hence we have not been benefited directly.”

“The industry has been fighting for an increase in the duty drawback scheme so though the government announced a 1,400 crore package to the apparel industry per se, the industry is not benefiting from it, except for the 2% relief package given by it.”

He explains that earlier the interest rate was high at 4%, and the government brought it down to 0% and then increased it again at 2%. “Now we are requesting the government to increase it more by 2%,” he concludes.

However, ministry officials seem to be optimistic about doing something for the revival of this industry and say that it is only a matter of time. Says, Bala kumar, assistant director, Ministry of Textiles, Government of India, “Suppose if the industry wants to avail of the schemes, then they have to apply for a loan from the bank. The bank in this case means the Government of India, so once the financial allocation of the government gets exhausted, then they (textile industries affected) will be given the money next year. There is no problem, it is only a matter of time.”

Yet, Bala Subrahmanya, Professor of Economics, Indian Institute of Sciences, Bangalore says, “When already investments are made, the government could have helped the Indian exporters, by diversifying their market ranges. Money is not the solution; a market needs to be created for those suffering. It would be helpful for those incurring losses, but only to a small extent.”