Demand slump in US, Europe hits Indian garment exporters; target likely to be missed

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Indian garment exports may fall short of the target this fiscal year because of a persistent demand slump in European and US markets.

After a 20% plunge in 2020-21 due to Covid-19, exports had rebounded by 30% to touch $16 billion last year. Encouraged by the recovery, the government had set a target of $17.6 billion in 2022-23, which the exporters feel will be difficult to reach given the global crisis.

Readymade garment exports saw a lower growth of 6.7 % year-on-year in the April-October period this year at $9.2 billion. After the initial promise, exports started declining from August.

“Since most of the traditional markets of Indian Readymade Garments (RMG) including UK, EU and the USA are witnessing recession and global headwinds, leading to shrinking of demand on one side and buyers asking for 15% discount on the other, we have requested government for expediting free trade agreements (FTAs) in these markets and ensure all tariff lines of RMG sector, which will enable a duty reduction of existing 9.6% and act as a strong breather,” said Naren Goenka , chairman of the Apparel Export Promotion Council (AEPC).

The impact of the global slowdown is beginning to show on credit demand from Indian exporters, with export credit by banks shrinking by nearly a quarter year-on-year at the end of October by 25 percent, signaling further downsizing in overseas merchandise exports, he said.

Household priorities shift

Goenka expects exports to equal or surpass the $16 billion reached last year. “Despite various constraints faced by the apparel sector this year, such as increased prices of raw material, Russia-Ukraine war and sluggish demand in major garment importing countries, we have been able to achieve $9.2 billion against a target of $17.6 billion.”

Goenka said the impact of the COVID-19 Pandemic and Russia-Ukraine War was witnessed in the European Union market and the priority of households has shifted to additional payments of gas, power and equated monthly instalments including food articles rather than purchasing garments. A similar situation is prevailing in the US and UK markets. The US is also facing a looming threat of recession.

The demand slump has forced knitwear garment exporters in Tiruppur to slash production and reduce working hours. Tiruppur is the knitwear garment hub of the country and accounts for 55% of the total knitwear exports from the country.

“We are seeing a drop in demand by 30 to 40 percent in the last few months.

This is supposed to be a peak season for us,’’ said Raja Shanmugham, former president of Tiruppur Exporters’ Association (TEA).
At $4.5 billion, exports from Tirppur had grown by 36% in 2021-22. In the current fiscal year, the growth has tapered down to 8 percent in April-October compared with same period in the previous year at $ 2.6 billion. The growth has plummeted by 30 to 40 percent in September and October. Total knitwear garment exports from the country was $8.2 billion last year.

Cotton prices

Interestingly, the downturn in garment exports has allayed the concerns on availability and high price of cotton. “Nobody is bothered about cotton prices now. Last year it was the other way round,’’ Shanmugham said.
Cotton prices which went over Rs 1 lakh per candy of 356 kg last year, triggered by a shortage, are now hovering around Rs 65,000 per candy, still at a high level. Despite the forecast of over 12% increase in output at 344 lakh bales for 2022-23, arrivals into the market have dwindled because of weak demand.

AEPC, having direct membership of over 7,000 apparel manufacturers/exporters, has sought several incentives to tide over the situation. This includes early announcement of a Production-Linked Incentive (PLI) scheme, including 10 high potential Man-Made Fibre (MMF) garment products and cotton apparel products and reducing the value addition criteria.

In a representation to the Finance Minister Nirmala Sitaraman, TEA president K N Subramanian said the knitwear exporting units in Tiruppur are encountering fewer booking orders, delays in receiving payment, non-acceptance of booked orders and deferment of shipments.

The cluster exports 75 percent of garments to the US, EU and UK markets. Considering that a negative export trend is continuing in November, too, he requested the minister to increase interest subsidy on pre- and post-shipment rupee export credit for both Micro, Small and Medium Enterprises (MSMEs) and non-MSMEs to 5% across the board from 3 percent and 2 percent respectively.