The year that was i.e. 2011 ended on a low and uncertain, even if not depressing, note. There was hardly any cheer or even hope for a better future. Not that it is the end of the world, in so far as Indian garment exports are concerned. I do tend to agree, as someone said, "if winter comes, can summer be far behind?
First,the present scenario or the bad news of Sliding GDP Growth and Indian Rupee.The projected GDP growth that has been revised downwards earlier by the Govern
Then there are a number of factors, more directly related to the garment export sector. The present rate of inflow of export orders has just been bare minimum to keep some big exporters going on but with little hope of exports turning the tide. The international garment export scenario is marked by serious uncertainties.
Major Indian Export Destinations:
The latest information available on two of our most important garment export destinations i.e. US and EU offer hardly any solace to us. The US retail, which had been credited with the sales picking, is now known to have paid heavy price in terms of offering huge discounts in order to attract higher number of footfalls and puffed up sales, placing heavy burden on their margins. The desperation that marks various serious efforts being put in by President Obama with an even excessive emphasis on creating employment and push up exports are enough indications of the state of health of the largest economy in the world.
The debt crisis continues with its relentless pursuit of Euro Zone, which does not seem to be limited only to 5 European economies of Portugal, Ireland, Italy, Greece and Spain (PIIGS). The most recent shadow of lurking downgrade now extends to more economies, including the formidable France. European Economic and Monetary Affairs Commissioner Oilli Rehn, I feel, has summed up the European situation very aptly when he said, "This crisis is hitting the core of the Euro Zone. We should have no illusions about this." Sharing the concern, M. Shirakawa, Governor, Bank of Japan, says, "Europe's debt problem is the biggest risk for the global economy, including Japan's. If the situation worsens, it may trigger a global credit crunch."
Imminent World Recession
The economists including those from IMF tell us while the world has not come out of 2008 recession, another recession is building up which would be more damaging that the earlier one. We need to wait and watch how it ultimately turns out to be. "The global economy seems to be headed for another downturn after just three years. The recovery is likely to lose traction due to the continuing euro area debt crisis," RBI Governor D. Subbarao said, "As fiscal austerity progresses, the euro area could enter into a recession. With growth decelerating even in emerging and developing economies, the spillovers from euro area are likely to pull down global growth," he added. The World Bank also has warned developing countries to prepare for the "real" risk that an escalation in the euro area debt crisis could tip the world into a slump on a par with the global downturn in 2008-09.
These strong warning signals, we can ignore, only at our peril Domestic Front. Nearer home, there is an array of problems that stare at us. Our textile sector, which is basic to garment export industry, is in deep problems. CITI has made several appeals to the Finance Ministry to intervene and help restructure textile companies loans, as they have been incurring heavy losses particularly because of volatility in cotton prices and uncertainties in major export destinations. Indian spinning industry lost Rs. 11,000 crore during last year alone.
Apart from the chronicle problems that the Indian garment export industry has been suffering from, which have so often been repeated by them through the columns of The Stitch Times or otherwise, like increase in duty draw- back, reduction of interest rates, updation of the archived labour laws, erratic supply of power and lack of development of infrastructure, the recent feedback from the garment exporters reveals a number of new
factors that have emerged on the fore. The Government had been of the view that any shortfall in garment exports could be made up by the domestic demand, which is huge. The experience of garment exporters is quite at variance from this. They point out that even retailers' schemes and prolonged discount season sales failed to attract consumers during the festive season. At the moment, increased inventories and debt pressure continue to hamper the growth of domestic retail sector, which has always been treated as a backbone support for the exporters to fall back upon as a cushion to reduced exports.
The break-up of journey to FDI in retail sector, mid-way - limited only to Cabinet decision without any follow up, that had raised a lot of hope among the big domestic players for fresh induction of capital in the fund-starved sector had had its negative impact. This has also set a rethinking among the international retailers, who had not only lobbied very hard, but had also pinned their hopes of their entry in to a potential market. Yet another factor, which has serious ramifications both for domestic garment manufacturers and exporters is the political decision to allow Bangladesh garment, duty-free entry into India. Given the advantage of one of the lowest labour costs, Bangladesh has been in serious competition with Indian garment exporters. Now with the advantage of duty-free entry into Indian market should lead to a strong and unhealthy competition with domestic garment producers. Even the confidence of garment exporters falling back on domestic consumption on account shrinking and increasingly competitive global garment market shall stand undermined.
Perhaps, the most damaging factor is the high volatility of Indian currency. The exporters have been crying foul when Indian currency appreciated, rendering their products costlier in the world market. Now when the Indian rupee had nearly breached Rs. 53 per US dollar, the garment exporters continue to be unhappy, as several of them had hedged in order to avoid heavy losses. They said with appreciation of Indian rupee, the cost of inputs, freight, fuel have gone up. On the volatility of Indian rupee, Ramu S. Deora, President, FIEO says, "The sharp fluctuation on the exchange rate has not really benefited the export sector. On the contrary, cost of inputs, freight, fuel, have gone up with hike in import. The rupee depreciation might have helped a few exporters fetch better margin, but it has not helped the export volumes. The weak rupee, on the other hand, is hurting the manufacturing sector. Government should ensure that high volatility in exchange rate is curbed and rupee moves freely within a narrow band."
Restricted Government Role
Unfortunately, there does not seem to be clarity on the Government, more precisely RBI on its role when the Indian currency is being subjected to violent fluctuations, particularly when it is consistently appreciating, which further pushes up our import bill. Earlier, RBI did intervene in the currency market by pushing in more dollars so as to keep its relationship with Indian rupee within acceptable limits. But that is not the situation now. When Indian rupee continued to appreciate heavily and consistently, everybody expected RBI to intervene, but it did not. There was a reason for that. Indian forex reserves are not large enough to permit RBI to pump dollars in the current situation. The RBI has therefore avoided intervention, leaving Indian trade and industry to fend for itself.
Nobody would disagree with Deora that high volatility in exchange rate should be avoided, but the moot point is whether RBI has the resources to back up their intervention in the market.
It is important to note that today India is in a very piquant situation, when India's external debt of $326.6 billion has outpaced our current forex reserves at $293.54 billion and the Indian rupee has been battered heavily by US dollar by appreciating 20% within a short span of a few weeks, making it the worst performing currency in Asian region.
There has been more than enough bad news. What is or can be a good news?
The Good News
To be honest, I do not see much (read any substantive) good news. However, there are a few small pieces of good news floating around. First, the manufacturing industry seems to be picking up and the last information that we had had was that it has risen around 4% from the rock bottom of 1%+ during September. Second, the inflation rate is also showing signs ofthaw. It has moved from double digit to a single digit. Our Finance Minister hopes, it would come down to 7% by March this year. On FDI front, the Government is waiting for the State elections to be over, sometime by February end. The RBI has reduced the Cash Reserve Ratio (CRR) by 0.5%, thereby inducting Rs. 32,000 crore in the economy. However, there is no respite in case of repo rate and reverse repo rate. This is a welcome beginning, after months of consistent increase in repo and reverse repo rates. However, banks are in no hurry to reduce the interest rates.
There has been an overall improvement of exports, with 32%+ growth. But the garment exports do not seem to be moving in the same direction and level; notwithstanding our export target has been revised upwards to $ 14 billion for the current fiscal, which, to my mind, is quite unlikely unless the export figures are bungled up again, as last time, when the export figures were over-stated by some $ 9 billion.
Prospects for Cheer in 2012
There is nothing to spring hope and faith in our garment export performance, notwithstanding our upping the export target at $14 billion which everybody knows cannot be achieved. The response of the Government to provide our garment export industry a level playing field in a highly competitive world market has been left in the cold, if not total neglect. What about our trade bodies ? Their role has been one of putting up demands for more concessions and sops, some of which are quite genuine while several others are not, whenever there is an opportunity. Has any Action Plan which meets heads on with our problems been ever prepared? Their action has been defensive and in any case not pro-active which the dire need of the industry is. They have been happy and contented with making presentations to the Government which
have been ignored, if I may say so, without even appearing to be taken note of in terms of decision or action thereon.
I do not find that anybody has really given a cool, professional thought as to how to get out of the present stagnant and decaying phase of Indian garment exports. Everybody seems to be looking up to the Government to do something for them. The Government, on its part, has shown a scant regard to its own duties and obligations. Mere issue of DISH A in one form or the other, generally reiterating what the laws of the land specifically requires every manufacturing unit to adhere to (and NO MORE). Does not constitute providing guidance and leadership to the garment exports industry to take it out ofthe rut it has fallen into. Even our defense, at the international for a, on the issue of employment of child labour in our garment exports industry, has been, at best, half-hearted, failed to achieve what it set out to do and we continue to be on the watch list of US Department of Labor. I personally, it could have certainly been done better than mere assigning a study to an organization that had low credibility in the assessment ofthe Assessing Authority i.e. US Department of Labor.
Nobody can beat us in the game of not doing the things in the right way.
What Ought to be Done
We are all deeply aware of the competitive world we are living in. Every country, big or small, is almost obsessed with claiming a pie of cake of garment exports. Even the mighty China, the largest garment exporter in the world, never loses sight of the fast evolving global situation and keeps on reviewing and ACTING to ensure that it continues to grow, year after ,Year after year, for which all kinds of strategies including partial de-freeze of Yuan, notwithstanding all the nations joining together to assail them of this unfair trade practice.
Having learnt the hard way, we all know it too well that Government of India, in its total commitment not to act, would not do anything. It is only inevitable that the garment export industry will have to fight its own battles. Having said that, we suggest that it is only adoption of methodologies to reduce costs and improve efficiencies and there is no alternative to that. We are saddled with rising input and labour costs and stiffest competition from other countries. Unless, we move and move fast with proven management practices that can meet all the requirements of cost reduction and improving efficiencies, we would continue to be what we are but we should not be, particularly when adoption of improved management practices pay for themselves within a shorter period that one imagines and are highly cost effective .
Originally Published in 'The Stitch Times', February, 2012.
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