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Cover Story | October 2018

Designed For Gains

Dollar has been hardening, making Indian textile and clothing exporters happy. With negligible import content for the domestic industry, and the Government’s bid to curb cheaper import, good times are ahead, reveals the ITJ Cover Story.

Gains only and too little pains, for the textile industry! The Rupee-Dollar swings in the last few months, with the Rupee weakening in the very recent past, have, by and large left the textile industry untouched. Affirms Sanjay Jain, Chairman of the Confederation of Indian Textile Industry (CITI): “India is a net exporter in textiles. A very small percentage of what we import is used in exports of textiles and garments.”

Rahul Mehta, President of the Clothing Manufacturers Association of India, is even more positive: “The higher cost of imports will help the domestic manufacturing industry, as it will it more competitive against the cheap imports, especially from countries like Bangladesh and Sri Lanka, who enjoy several duty-free concessions. The import content at the garment stage is not too significant, and hence the higher cost of imports may not affect the industry to a great extent.”

Good news began pouring in as early as July. After a staggering 17 per cent decline in the April-June quarter, India’s textiles and clothing exports revived to witness a jump of 11 per cent in July due to favourable government policies and rupee depreciation. Yarn exports to China increased 20 per cent to 24 per cent between April and June. However, the Chinese yuan also weakened in the period and hence Indian exports were affected. Now, the exporters are making more hay while the Dollar sun shines and they unperturbed, though high volatility may hit exports, warns the Apparel Export Promotion Council (AEPC).

Data compiled by the DGCIS under the Union Ministry of Commerce showed total textiles and apparel exports at Rs 196.36 billion for July 2018 compared to Rs 176.92 billion for the corresponding month last year. Total textiles exports witnessed a jump of 15 per cent to Rs 108.79 billion for July 2018 versus Rs 94.29 billion in the comparable month of previous year. Moving in tandem, India’s apparel exports recorded a jump of 6 per cent to Rs 87.57 billion for July 2018 as against Rs 82.63 billion for the same month last year.

Supportive government policies, which prompted the government to expedite refund on state and Goods and Services Tax (GST) levies on raw materials, are also behind the sudden spurt in India’s textiles and apparel exports. Apparel exports, which were almost stagnant for the last couple of years, is expected to do better. It will give the garment producers cushion against increasing raw material prices.

Indian textile sector is the largest industrial employment provider, employing more than 100 million people directly and indirectly and a major industry for the economic growth of the country. Overall growth in exports during April-July 2018, therefore, stood 3 per cent vis-à-vis same period last year.

Further, the manmade fibre (MMF) segment, which is expected to be the growth driver of the industry in the coming years, has seen increase in production. Growth has been observed in production of MMF, spun yarn and fabric during April-June 2018.

The glad tidings have come immediately after the depressing statistics that India’s textile and clothing exports, remained flat at $39.2 billion in 2017-18, a marginal growth of $39 billion in the previous year. Besides, the imports growth of textile and clothing has come down significantly. While the imports of textiles and clothing has increased from $1.78 billion in April-June 2017 to $1.87 billion in the same period this year, an increase of 5 per cent, it is significantly lower than the growth of 16 per cent last year. The measures taken by the government to increase the import duty on various textile and apparel items are helping in further reducing the imports drastically.

The recent weakness in the Indian rupee has been viewed in a positive sense by those who fear that an overvalued currency has made India’s exports uncompetitive. The Indian currency has weakened by over 12 per cent since the start of the year. Recent comments from policy makers also suggest that a weaker currency will help rather than hurt the Indian economy.

Textiles continue to make up a significant constituent of India’s exports, accounting for $40 billion of a total of $220 billion. Overall, the textile export industry has been stagnating since 2014, having seen contraction in annual growth. However, data released by the US Office of Textiles and Apparel on Indian textile imports, reveals that India has actually not been losing ground to emerging economies.

The problem that is now at the centre of controversies is rise in the fuel cost. The currency’s weakness makes imports costlier. India is the third-largest importer of oil and given that fuel permeates every sector of the economy, the escalation in its cost will have wider implications. Oil importers will take a hit on margins or pass on the cost to consumers. Importers of capital goods fear a shrinkage in margins as well.

Overall, all commodities exports (ACE) witnessed a stupendous growth of 30 per cent in August. The exports of textile and apparel grew 18 per cent in August 2018 to stood at Rs 21,895 crore as compared to Rs 18,533 crore in August 2017. The exports of textile and apparel grew 18 per cent in August 2018 to stood at Rs 21,895 crore as compared to Rs 18,533 crore in August 2017. Similarly, the cumulative figures (April-August 2018) grew 6 per cent at Rs 1,01,727 crore as compared to Rs 95,888 crore during April-August 2017.

Quoting union ministry of commerce & industry, DGCI&S’ quick estimates for August 2018, Sanjay K Jain said that the export of textile yarn fabric, made-ups for August 2018 grew 32 per cent to Rs 1,196 crore as compared to Rs 907 crore and for the five month period of the current fiscal, the growth was 11 per cent to Rs 5,347 crore as compared to Rs 4,799 crore in the April-August 2017 period. The positive trend in exports for the entire textile value chain has been the result of CITI’s continuous persuasion with the government and pragmatic approach shown by the union finance minister, union commerce and industry minister and union textiles minister on the issues of T&C industry especially post GST implementation. The timely policy support and intervention to boost the industry which was reeling under severe stress especially after the implementation of GST should be highly appreciated, he added. According to him, the exports of cotton yarn fabrics, made-ups, handloom products in August 2018 grew 39 per cent to Rs 7,456 crore as compared to Rs 5,380 crore in August 2017. Similarly, the exports of man-made yarn fabrics, made-ups grew 24per cent to Rs 3,196 crore in August 2018.

On the effect of strong dollar on technology import, Sanjay Jain had this to say: “Of course, the technology import will be a little costlier due to a stronger Dollar. But this will not be too much to affect the overall picture. Other benefits we are getting due to good investment climate will offset such disadvantages.”

Rahul Mehta felt that strong dollar will tend to be beneficial to garment exporters, as it enables us to be more competitive in pricing. “However, it is important to remember that ultimately it is the parity of different currencies as compared to ours that will determine our competitiveness. If therefore, the Bangladesh or Vietnamese currencies also decline in the same proportion as the rupee, the advantages of a depreciated rupee will be short lived,” he added.

According to Wazir Advisors: “India’s textile and apparel exports have grown at a CAGR of 6 per cent since 2005 and reached $37 billion by 2017-18. By 2025, they are expected to reach $80 billion, growing at a CAGR of 10 per cent. Apparel exports are expected to grow faster at 12 per cent CAGR and reach $42 billion from the existing $17 billion.”

The Wazir Advisors’ report added, “With increasing manufacturing costs in China and issues of social compliance in Bangladesh in the recent past, global buyers are looking towards sourcing destinations with costs lower than China and reliability higher than Bangladesh. China’s bulging domestic market will also need more attention than earlier from its textile and apparel manufacturers which will decelerate their export growth. The trend of buyers diversifying their sourcing base is reflected in China’s apparel exports growth slowdown while exports from Bangladesh and Vietnam have increased at exponential rates. Even though exports from the competing countries will continue to grow, India stands to gain the most in the long run with abundant availability of skilled manpower and a well-integrated supply chain from fibre and finished product.”

Textiles demand to remain robust
India Ratings and Research (Ind-Ra) has maintained a stable outlook for the cotton and synthetic textiles for the remaining FY19. The domestic demand for textiles is likely to remain robust from end-user segments, supported by a strong rise in private consumption expenditure during the rest of FY19. Also, textile exports are likely to rise, with apparel exporters benefiting from the depreciation of the Indian rupee against the US dollar. The Indian rupee depreciated at a higher rate against the US dollar over April-August 2018 than the currencies of key apparel-exporting nations.

Ind-Ra expects the overall credit profile of the sector to gradually improve, as expected by the agency in February 2018. The sector profitability is likely to improve gradually, with players passing on increased raw material prices to end-users, given the healthy demand, a depreciating rupee and waning impact of the structural issues. However, the positive impact of improved demand and profitability will be partly countered by sticky working capital requirements on the back of cost inflation and, thus, a steady reliance on debt.

A lower-than-expected cotton production in 2017-2018 (Indian cotton year: October 2017-September 2018) and a further decline in production in 2018-2019 (Indian cotton year: October 2018-September 2019) due to a low acreage, along with high domestic consumption demand and high export demand from China, would further erode the domestic stock levels. An expected decline in the stock levels, along with a likely rise in minimum support price for the cotton season 2018-2019, would keep cotton prices elevated.

An improvement in cotton less polyester staple fibre price spread is likely to result in volume growth of synthetic textiles and support the profitability of the synthetic value chain. Also, the government of India’s decision to allow input credit on MMF equivalent to 7 per cent of fabric price would lead to a decline in input prices for apparel manufacturers and, thus, further support their volume growth.

“Apparel industry will be negatively impacted”
- Sanjay K Jain, Managing Director, T T Ltd, and Chairman, CITI

What is the overall impact of stronger Dollar on the textile industry?
India is a net exporter in textiles. A very small percentage of what we import is used in exports of textiles and garments. The domestic apparel industry will be slightly negatively impacted. But the industry up to fabric stage and also the exporters will have only a positive effect. It is more important to see the rupee weakening in context to our competitors’ currency. It is obvious that the weakening Indian currency gave exporters a competitive edge.

What will be the effect of strong dollar on technology import?
Of course, the technology import will be a little costlier due to a stronger Dollar. But this will not be too much to affect the overall picture. Other benefits we are getting due to good investment climate will offset such disadvantages.

What is the present condition of GST after-effect?
The Government has been very proactive as far as GST is concerned. A lot of problems have been solved and the issue is being settled slowly and steadily. The industry’s dialogue with the Government on various issues is continuing. There are no major issues. The industry is hopeful that even the small vexing issues on GST will be soon resolved.

What are the other issues at present that need immediate attention?
We are pressing for higher ROSL, which is vital now. ROSL today is only for fabrics, made-ups and garments. Now we are trying to extend this to other segments too, across the value chain. Besides, at CITI, we are regularly analysing the situations and the impact of various measures and reporting to the Government for immediate action. The response from the Government side is quite good. Though the Government has imposed heavy customs duty on import of hundreds of textile goods, still there are some man-made fibre goods that need to be looked into. We have submitted proposals to the Government on this and is expecting good results.

“Higher cost of imports will help domestic manufacturing industry”
- Rahul Mehta, President, The Clothing Manufacturers Association of India (CMAI)

How has the dollar movement affected the clothing industry?
The higher cost of imports will help the domestic manufacturing industry, as it will it more competitive against cheap imports, especially from countries like Bangladesh and Sri Lanka, who enjoy several duty-free concessions. The import content at the garment stage is not too significant, and hence the higher cost of imports may not affect the industry to a great extent.

How has been the effect on the export of apparel textile goods?
A strong dollar will tend to be beneficial to garment exporters, as it enables us to be more competitive in our pricing. However, it is important to remember that ultimately it is the parity of different currencies as compared to ours that will determine our competitiveness. If therefore, the Bangladesh or Vietnamese currencies also decline in the same proportion as the rupee, the advantages of a depreciated rupee will be short lived.

What are the steps taken by the industry to tackle the see-saw movements in foreign exchange?
Exporters are hedging their foreign exchange requirements to protect them from volatile movements.

What are the recent trends -- prospects and problems -- of apparel industry in India?
With the gradual stability of the export segment and the domestic markets also settling down after the effects of GST, I foresee a better period ahead for the rest of the year.

What is CMAI’s recipe to rectify any negative impact?
CMAI as an association cannot really offer any recipes – however, we are in constant touch with the government to try and influence their policies. On the domestic front, our national garment fairs certainly give a much-needed fillip to the market sentiment, and this was very evident in the recently-concluded 61st NGF.

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