Garment exports fall 17% this year, MSP hike may drag them down further

Source: http://www.dnaindia.com

Garment exports from India have degrown 17% in 2018 and the situation could further worsen as input costs are on the rise. According to industry players, various aspects have led to declining exports and entities involved are struggling for survival.

Speaking to DNA Money, Rahul Mehta, founder and director, Creative Group and president of Clothing Manufacturers Association of India (CMAI), said, “That is a worrying factor because apart from anything else, the garment industry is the highest employer after agriculture. It all began last year post implementation of the goods and services tax (GST). Withdrawal of 5% duty drawbacks has made our products non-competitive in export markets to the extent of 7-8%.”

Exports, according to Ashok G Rajani, chairman, Midas Touch Export Pvt Ltd, have taken a beating mainly in the United Arab Emirates (UAE). “The duty drawback has virtually wiped out our competitiveness and there is no advantage there. Additionally, there is 5% value added tax (VAT) in UAE which further makes us non-competitive. Even in markets like Europe and America, we are not experiencing any major growth in exports. Overall, we are in a state of depression as far as the trade is concerned,” said Rajani.

Apparel is an extremely competitive product and neighbouring countries enjoy other advantages like free market access to Europe and other countries, something Indian garment manufacturers don’t have. “Withdrawal of 5% duty drawback creates a substantial difference. We are working closely with the government on explaining the challenges. There are certain taxes that are embedded / not refundable and the authorities are actively considering a refund of these taxes paid. There is a drawback committee looking into all these matters and it is work in progress as we speak,” said Premal H Udani, managing director, Kaytee Corporation (P) Ltd.

Udani added, “We are hoping that in another month or so we will receive tax money that we are paying but were not refunded. That should improve our competitiveness in the export market and descaling should stop.”

However, not everyone in the industry seems to share the optimism. The government constantly being in election mode, said a top executive from a garment export firm, is not looking at the garment manufacturers’ plight. And while the industry bodies have been knocking the doors of every possible authority, there seems to be some disconnect along the value chain. “It appears there is a lack of understanding on the issues faced by the garment manufacturers and exporters. We are in a state of suspended animation,” said the executive, adding that while the government wants to help they have their hands tied-up.

Apart from GST issues, the apparel industry is also impacted by a steep rise in raw material costs. Cotton and yarn prices, in particular, have escalated 20% over the last two months and that is adding to the pressure.

“Now with minimum support price (MSP) being raised, the cost will increase further. Cotton being one of our core raw materials for export of garments, increase in procurement cost will further impact the business. This apart, there is an increase in overall operational costs as well which is driving prices north and that’s making the business a difficult and challenging task,” said Mehta.

A lot of cotton and yarn is being exported to competing neighbouring countries and that’s another challenge faced by garment manufacturers, leading to scaling down of production and operations.

“We are one of the few countries with a presence in the entire fibre-to-fashion value chain and hence should not become an apparel importing nation. Increased raw material export to competing countries is a matter of great concern. This can be mitigated by incentivising value addition in the home market or rather dis-incentivising raw material exports. We should not be reliving the British era of exporting raw materials and importing finished goods. China is a classic example with $150 billion apparel market. It exports only 5% of its entire cotton and yarn produce, and that too only to its satellite countries where it has set up garment manufacturing factories. Compared to China, raw material exports in India are very high in the range of 25% to 30% and mainly going to competing countries,” said Udani, adding that raw material prices also impact the domestic manufacturers and it’s not a very rosy time for the industry.

While bigger players with sustaining power are able to swim through the present challenging business environment, a lot of exporters in the micro, small and medium enterprise (MSME) segment are having a tough time holding the fort.

“In fact, 80% of entities in domestic and export business are MSMEs so you can easily gauge the impact. Some have closed down their units, while others have reduced production from five units to two units to deal with the prevalent market conditions and so on. Exports are low so production is low and this has impacted existing and potential employment generation opportunities as well,” said Mehta.

While bigger players like Kaytee Corp, Midas Touch Export etc., are currently sustaining their operations their business is not completely immune to the challenging market. “Being larger in size, we are able to withstand the pressure on business so far. But, how long will we be able to so, is something we don’t know. That’s why we are hoping that the government will listen to our plea sooner rather than later and support this employment-generating industry,” said Udani adding that business profitability is getting eroded.

Despite the challenging business environment, there is a temporary relief for the garment exporters owing to the strengthening of the US dollar against the rupee. “It was Rs 64 to a dollar last year and now it has gone up to Rs 68.5, that’s a weakness of rupee against the dollar by 7-8%. It helps to an extent but not beyond that,” said Mehta.

Domestic industry, though sluggish at present, is showing upward trajectory and appears to have overcome demonetisation, GST and other roadblocks. More or less the domestic industry seems to have settled down. However, garment imports from Bangladesh, Sri Lanka, Vietnam etc., have increased which is a worrying situation and impacting domestic production, said the CMAI president.

To give a boost to domestic business, the association is organising a ‘National Garment Fair’ that will take place from July 16 to 19, 2018. “We are hoping participants will be able to transact business worth Rs 750 crore during the four days thereby beating the sluggishness in the market,” said Mehta.



Categories: Apparel, Asia, Brands, Business, China, Europe, India, Textile, United Arab Emirates, USA

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