"Global recession; it would impact heavily onthe country's exports of garments owing to the nature of the product, therecession and the destination of the country's export markets being recession-struck countries"
Karnataka is major apparel sourcingdestination for the global market with exports of over rupees 8, 500 crore in2006-07 making it the largest garments exporter in India.
Since 1985 garment exports have been the single mostimportant item of export and the apparel industry has been the largestmanufacturing industry in the country. The decline in demand for clothing,especially in the US and Europe which are the country's main export markets,could damage the apparel industry irreparably and cause serious strains on theeconomy. Some garment factories have already closed, others are cutting down onovertime payments and still others exploring the possibility of part timeemployment to its full time workforce. Beyond doubt new recruitment to theindustry has been halted. An estimated of 40, 000 workers have been laid offand some 50 garment factories have put up shutter in the past 6 months. Buttrade union leaders claim that unscrupulous apparel industry elements wereblowing the global recession to trim down on concessions given to workers.
In comparison to other countries the local apparel industryis quite healthy at the moment but things could change for the worse in a monthor two. However apparel factory owners were blowing up the global recession todrastically reduce the jobs/ benefits given to employees. One of the big groupsin Bangalore has not settled the workers Group Gratuity benefit those who leftin December 2008. This is a cunning ploy of the factory owners to reap morepersonnel profits at the expenses of the poor workers. However some garmentfactory owners are spreading scare stories to create panic and show bleakpictures to their workers while gain in a personal capacity.
Garment factories owners to avoid workers unrest factoryowners cunningly announce the closure of the factory for a week citing somereasons or other and allow the workers to go on leave for this period, howeverwhen the workers report back after a week they found the factory closed and theowners missing, they were opportunities with zero facts on the actual situationin the garment factories. Indian apparel industry was one of the world's bestperforming industry during the past few years, but now their is a dark cloudsin the industry graph, industry analysts predict that by the end of 2009approximately half a million direct workers from garment sector will lose theirjobs, considering the other people who are indirectly associated with thetextile industry. Total direct and indirect job losers are expected to reach 6million. Approximately 60% of the total garment manufacturing in India is exported to foreign market like EU, US, and Japan generating revenue of up to US$52billion. Garment exports one of the biggest employments in the country.Economic slowdown in the US, and EU has affected the garment business in India resulting in a drastic decline in the country's garment exports. As meltdowndiminishes the garment sales in US, Indian suppliers are beginning to feel thepinch. Food is the first preference over clothing, as the customers ofthe western countries curtail their expenses to fight slowdown; export marketof garments in countries like India began shrinking. To sustain themselves inthe market garment manufactures chose to go in for cost cutting, there byopting for lay off/ closer units. Estimate states that during end of 2008 toJune 2009 almost 8, 00, 000 garments and textiles employees had lost theirjobs.
During Oct 2008 as economics' slowdown branched out thetotal output of the garment sector comedown by 10% simultaneously investment ingarments were also decreasing, ultimately affecting the profitability of theindustry. Some biggest apparel companies in India, which are mainly located inBangalore, Tirupur, Ludhiana generates employment for 400000 jobs has suffereda 50% loss in sales especially the export during 2008. This has affected 20-30%of jobs in Bangalore and Tamilnadu. The top 10 largest garments manufactures instate if the sag in garment exports has knocked India. This has ultimatelyresulted in retrenchments and lay off, majority of the layoff target theunskilled workers/ daily wageworkers that comprise 25-30% of a companyworkforce. Garment industries running on 75% of their capacities or havereduced their three shifts into one. Garment industry in Bangalore is hit hardby heavy loss, less domestic consumption and cancelled export orders. It isfeared by the apparel industry people that the slowdown would not improve inthe near future making 2009 a gloomy year for the apparel industries. A furthermelt down will be a huge blow on the economy of the country. The worst is notyet over for the apparel sector.
Current orders for garments are reported to be about one half of what it was before. US Buyers are asking for price reduction of as much as 35 percent of their earlier price some apparel industries are accepting such loss- making offers hoping the crises would be temporary and that some of their costs would be covered even at such low price. Labour protests and picketing have begun. The global recession would impact heavily on the country's export of garments owing to the nature of the product, the extent of the recession, and the destinations of the countries export market being recession struck countries. Latest evidence of the recession affecting retail buying is seen in the lower placement of orders for garment recently. Already some garment industries have either shut down, cut-off overtime payments or reduced their work force. Consequently, a serious setback to garment export would have a severe impact on employment, incomes, export earnings, the trade balance and the balance of payments. The current crisis in garment exports is a serious threat to the countrys industrial and economic growth and development.
The recession has also affected Japan and rest of the World, including India and China, whose robust growth is receiving a setback. As a result, the global recession is affecting other exports as well. Prices of Tea and rubber have declined and the exports of other industrial goods are also facing decreasing demand. The ultimate duration and intensity of the global recession is uncertain at present. Even before the reversionary conditions had a serious effect on garment exports, the competitive of our industrial exports and sustainability of export industries were in danger. The problems in the countries manufacturing industries, including the apparel trade, began much before the global recession affected it. The manufacturing industry has faced severe problems of late. This is particular so with respect to export industries. The escalation of costs of raw material, transport, electricity, fuel costs, wages and financial cost have jacked up costs of production significantly. The escalation of costs has cut into profit margins and capacity of the country, exports to complete in international markets with other countries like Vietnam, China, Nepal and Bangladesh with their lower inflationary pressures. While the local costs of production were rising, the exchange rate of the rupee was kept relatively stable this year. This did not help the garment industry to be competitive in world markets. It is in this economic backdrop that garments exports, and industrial exports in general, have not fared too well. The recession in our export markets is compounding the problem severely.
There is nothing we could do to mitigate the global recession. There is much we could do to get our house in order. Countervailing policies that mitigate the effect of the recession must be put in place immediately. The weakness in our macro-economic policies that stem from bad fiscal management must be addressed to control inflation and bring it to a single digit level. Fiscal policies must address the serious imbalance in the economy. Inability to address economic problems owing to a myopic political vision could lead the country to serious economic difficulties in the not too distant future. Allowing the countrys main industries to languish is akin to killing the goose that lays the golden eggs.
About the Author
The views expressed are of the author who is a research scholar at University of Mysore, Mysore, Karnataka, India.
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