September 7, 2010  Print Email | India's garment industry slips behind
More support needed from government, say companies
Posted by Agencies at 11:03 AM GMT on Mar 09, 2009 | MUMBAI (Reuters): Weak government support for India's garment industry means the country is losing business to Vietnam, Cambodia and Bangladesh, industry participants warn.
 incentive on cotton exports from India and more stringent labour laws in the country hamper the profitability of apparel firms, restricting their ability to cut prices. An import duty charged by the European Union is also cutting margins, they said.
"Because of cost competitiveness and export incentives, orders are going to neighbouring countries," said DK Nair, secretary-general of the Confederation of Indian Textile Indutries (CITI).
The global slowdown has already hurt the industry, which is gearing up for a sharp fall in exports and is expecting over a million job losses in the year ending March at a time when buyers in major countries are looking for low-cost alternatives.
Countries like Bangladesh and Vietnam have duty-free access to Europe, but Indian apparel exporters have to pay a 12 per cent customs duty to members of the European Union, squeezing their margins further, Nair said.
"That's a lot of money lost as [these companies] work on margins of only two to three per cent and have to lose 12 per cent on that," he added.
"We have logistic bottlenecks in the country, which many of the lesser developing countries don't have," said Devangshu Dutta, chief executive of Third Eyesight, a textiles and retail consultancy.
"For them, the importance of the garment industry is very high, in our case textiles... is just one of the products which gets handled," he added.
The lesser-developed countries are also at an advantage due to cheaper labour and competitive pricing, said Sunil Khandelwal, chief financial officer of textiles and garments maker Alok Industries.
India apparel exports are expected to come in at $8.5 billion for the year ended March, down from about $9.5 billion last year, said Rajendra Hinduja, executive director at Gokaldas Exports India's largest apparel exporter.
UNITS SHUT
Falling orders have resulted in the shut down of units across the industry for many small and medium enterprises, affecting jobs. Hinduja expects about half a million job losses in the coming three months, in addition to an equal number of jobs already lost in the last few months.
A five per cent incentive on cotton exports from India have ensured that that cotton becomes cheaper when imported by countries like Bangladesh and Cambodia, giving them competitive advantage, CITI's Nair added.
While the depreciating Indian rupee is typically expected to bring some relief, industry officials are unsure whether the fall will be sustained. "Any fall in currency is always positive. But the rupee is very volatile. We are yet to get benefits," said Jayesh Shah, chief financial officer of Arvind.
The partially convertible Indian rupee fell beyond 52 per dollar to a new record low last Tuesday. It has fallen 6.2 per cent against the dollar so far in 2009.
"The falling rupee has come as a relief. For new orders we will negotiate at current lower rates [with clients] and try to get rewarded," Hinduja said.
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