Textile and garment exports will likely miss the $33-billion target for this fiscal set by the government, despite a weakening rupee and shipment incentives announced in the foreign trade policy, as the financial crisis in top buyers ? the US and Europe ? has crimped demand, compounding worries of mills that are struggling to pass on huge raw material costs to consumers.
Textile and garment exports by India, the world?s second-biggest supplier, are unlikely to cross $30 billion in 2011-12, said Confederation of Indian Textile Industry secretary general DK Nair. The country shipped out textile products and garments worth $28 billion in 2010-11 and the government expected the exports to rise this fiscal as demand seemed to have returned after the global financial crisis in 2008. The US and EU, the worst-affected nations in the current debt crisis, together account for around 65% of India?s textile exports.
Although the government is yet to release the complete textile and garment export data so far this fiscal, textile cotton yarn and fabric made-up exports have risen 22.5% to $ 3.4 billion between April and September, while ready-made garment shipments jumped 32% to $ 6.8 billion, according to commerce ministry data. ?The situation will get worse now due to the adverse impact of the debt crisis in the US and EU,? Nair said.
The textile industry accounts for around 14% of industrial production and more than 10% of the total exports. It is the largest job generator after agriculture, employing around 35 million people.
?It’s difficult to meet the target as mills are sitting on huge stocks. They are finding it difficult to raise prices of products and sell in overseas markets due to poor demand. Rupee depreciation is a breather, but it’s not enough,? said a senior government official, who didn’t want to be named. The rupee has depreciated by more than 8% against the dollar since September on the greenback’s haven appeal in times of crisis, raising the value of exports for Indian traders.
The 2% interest subvention on garment shipments announced last week, as part of the foreign trade policy and the duty credit offered to the apparel sector under the Market Linked Focus Product Scheme for exports to the US and Europe, will help, but the losses on raw material costs far outweigh any such concessions, said an executive of a large textile mill.
Stocks have piled up as textile mills were caught off-guard by a fall in local yarn prices after they bought their main raw material, cotton, at high prices. They could not sell yarn locally at a profit nor could they ship out products due to poor demand as well as export restrictions, resulting in huge losses, the executives said. The government has removed restrictions on cotton yarn exports in the current fiscal after capping the shipments at 720 million kg in 2010-11, as it expects local output to go up with a rise in cotton production.
Nair said mills suffered losses of Rs 6,500 crore on account of cotton price fluctuation. ?Mills had stocked cotton for consumption until September at an average price of R57,000 a candy (of 356 kg each). Then demand slowed down, making the stocks adequate for consumption until December. Cotton prices, too, crashed and the mills suffered a direct loss of around R20,000 per candy on cotton,? he said. ?The mills had already suffered losses of another R4,500 crore as the government had imposed a cap on yarn exports in 2010-11, when output far exceeded domestic consumption,? he added.
