India is going through the worst economic slump in the last 70 years–associated with a strike in consumption, liquidity recession in financial markets, fall in apparel export, plunge in FDI and a climate of profound mistrust.
India’s apparel exports have plummeted for two consecutive years. As per data from the commerce ministry, India’s overall exports of apparel or ready-made garments were significantly lower at $16.1 billion, opposed to $16.7 billion a year ago.
The country’s apparel exports fell by 1.2% from FY18 that in turn was 4% lower than the previous year. This comes after an annual average growth of 5.7% between FY10 and FY16. The factors that are responsible for the downturn range from concerns on the domestic front to slackening global demand.
As per Chandrima Chatterjee, a consultant at Apparel Export Promotion Council (AEPC), the time taken by the sector to align with goods and services tax (GST), result into a cyclical downturn of export incentives. Small and medium enterprises particularly face the credit squeeze, and it has adversely affected exports for them.
The share of apparel exports in the nation’s total textile exports has fallen dramatically from 51% in FY17 to 45% in FY19. Industry insiders describe the growth around FY10-17 to shifting of manufacturing bases by developed countries to emerging nations such as China, India, Banglade
sh, and Vietnam.
Indian Apparel Export Story
One significant reason behind this is, India has lost over a third of its apparel exports to the UAE in FY19. It was due to the Gulf nation’s 5% import obligation to limit trade activity and promote local production.
According to data from the worldwide consultancy company Wazir Advisors, India’s cumulative exports of clothing to the UAE decreased from April 2018 to February 2019 by a steep 33% to $1.78 billion. In the respective period the year before, it was $2.66 billion.
As a matter of practice, exporters were sending their shipments to the UAE for repackaging and delivering to surrounding countries.
“The UAE was used by Indian exporters as a route for shipping apparel to the Middle East, Africa and Europe. The UAE government, however, levied an import tax on all merchandised products, including garments, a few months ago.
On the contrary, exports of apparel to the United States and Europe are expanding. The decrease in apparel exports to the UAE has therefore been primarily compensated, “said H K L Maghu, Chairman of the Cotton Textile Export Promotion Council.
India’s total exports of clothing or ready-made clothing were marginally smaller at $16.1 billion, compared to $16.7 billion a year earlier, according to trade ministry information.
According to industry analysts, Indian exporters enjoyed a robust financial system between both the UAE and African countries. Now, individual African countries have formed their comprehensive financial systems.
Table Importers in African nations have therefore begun to approach Indian exporters of clothing directly.
This has enhanced India’s direct exports of apparel to African nations. As a result, India’s straight apparel deliveries have considerably risen to African and European countries, at the expense of the UAE. This trend is likely to proceed, said Rahul Mehta, chairman of India’s Association of Clothing Manufacturers (CMAI). Direct shipment to consuming countries, moreover, results in lower delivery time.
But, the fact is that there has been no significant cost advantage or arbitrage of India’s apparel exports directly to importing countries in Africa or Europe.
Moreover, the latest slowdown in the worldwide supply has accelerated competition in the market, which has also merged with modifications in taxation in India. Experts say that there was a 6-7% adverse effect on costs, which hurt the productivity of garment makers.
There are not this but many other reasons for the downturn. According to CARE Ratings Ltd, “India’s exports of clothing consist primarily of cotton clothing (51%), with human-made fibre accounting for about 28%. India needs to expand its fibre base, as worldwide consumption is leveraged and human-made fibre holds a more significant proportion as compared to cotton.
Apart from this, rivalry in pricing has also doubled in recent times. CARE Ratings adds that India is predicted to lose business to Bangladesh and Vietnam for ready-made garment exports. The possible explanation behind this is reduced competitiveness, as Bangladesh has duty-free access to the United Kingdom.
In the form of extreme competing influence from countries with a price benefit over India, India continues to encounter economic challenges as per ICRA note. This seems to restrict India’s apparel export industry’s general strength.
While China–the world’s biggest manufacturer and exporter of clothing, continues to shed market share in worldwide trade, India could not capitalize on the chance. Instead, Bangladesh and Vietnam, the world’s second and third-biggest apparel exporting nations, have gained a significant portion. While Bangladesh has been the EU’s primary beneficiary, Vietnam has continued to grow in its US fortress market.
Nevertheless, apparel manufacturers are now concentrating on expanding exports into countries such as Japan, Israel, South Africa, and Hong Kong. How far these new markets help will decide export developments in the years ahead.
In the future, measures made by India’s government to tackle the problems will stay essential to a wide-based industry-wide recovery. This also continues to remain crucial for the national apparel exporters to capitalize on the resurrected worldwide apparel trade.
China’s market share loss, which opens up a profitable chance for talented players like India, Vietnam, and Bangladesh, also remains crucial. It is essential for India to speedily conclude trade treaties with significant importing nations, besides allowing exporters to upgrade on technology and move up the value chain.