India’s garment exports may continue to drop on high inflation, recession threat

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Indian garment exports are likely to continue falling for the next few months on high inflation and recession threat but rupee depreciation and prospects of a better cotton crop may cushion the blow.

The demand from the US and EU has weakened, pushing exports down by around 20 per cent in the last few months, according to industry sources. Since the trend is expected to continue for the next 5 to 6 months, garment exports may see a reduction in annual volumes though a strengthening dollar against the Indian rupee may prevent the decline in value, they said.

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Garment exports have been hit in the last three months of the first half of FY23 but export earnings increased 11 percent year on year to $8.127 billion because of the higher shipments in the early months. Readymade garment exports stood at $16 billion in FY22, up 30 percent from the year earlier.

Comforting factors

The current year may also open up more opportunities for the country despite challenges, says Arun Ramaswamy, CEO of New Man Exports in Tiruppur. “We are expecting the free-trade agreement with the UK pursued by the Indian government to become a reality soon. It used to be a good market for Indian garments till other countries took away the competitive edge.’’

The rising cost of production in Bangladesh and Vietnam, two competitors of India in garments, and the expected decline in cotton prices may augur well for the garment exports, he said, adding that the exporters are exploring the trade prospects in other regions like West and South Asia as well.

Expectations of a better crop are also keeping exporters upbeat. “There has been a record increase in acreage this year and we may get production of 350 to 360 lakh bales this year. This may bring down the cotton prices and raise the competitiveness of Indian garments.

Already the cotton futures for December-January are trading around Rs 62,000 per candy,’’ said Umang Patodia, MD of GTN Group of textiles. Last year, cotton production had dropped around 12 per cent due to inclement weather and reduced acreage, leading to a rise in prices and imports.

Imports rose by 4 lakh bales from a year ago to 14 lakh bales with the government extending the import duty exemption for the bill of lading for cotton till the end of October 2022 to meet the deficit. Cotton prices had zoomed 50 to 60 per cent to over Rs 100,000 per candy of 356 kg early this year. It is currently hovering around Rs 70,000 per candy.

The final estimate of the Cotton Association of India pegs the production in 2021-22 season (October-September) at 307.05 lakh bales (170 kg each) compared with 352 lakh bales in the previous year.

Challenges ahead

But there are concerns about irregular rains, which damaged the crop in several regions last year. “The harvest started this month and it goes into full swing in November and December.

Already there are rain and cyclone threats in Andhra Pradesh and Telangana. We are in for a good crop if the rains do not intervene,’’ said Sanjay Kumar Panigrahi, chief general manager of Cotton Corporation of India.

With the increased cotton output, the withdrawal of import duty exemption may not cause much impact. However, Patodia said that cotton prices were on a decline worldwide and besides the garment demand was expected to slow down in the coming months.

"The demand reduction is primarily due to higher prices for Indian products, which may be reversed once cotton prices come down,’’ he said. After the removal of the exemption, cotton imports will carry a duty of 11 percent.

Last year, the shortage prompted the industry to demand a temporary ban on cotton exports. The industry is pushing for more export of value-added products from cotton-like garments which bring increased earnings.

“Bangladesh buys cotton and yarn from us and then makes garments and exports them. Their exports are several times more than India, ‘’ said an exporter who did not wish to be named. Cotton exports declined 45 per cent to 43 lakh bales in 2021-22.

Other fibres

In tandem with the global trend, India is also using other natural and man-made fibres in garments. “Earlier it was 65 percent cotton and 35 percent other fibres. The ratio has changed to 55 per cent cotton and 45 percent other fibres now,’’ said P V Ramaswamy, chief executive of the Indian Cotton Federation.

In Tiruppur, the hosiery and knitwear garment hub of the country, there is more use of man-made fibres like viscose, polyester and rayon in garments that have good demand globally, according to Arun Ramaswamy.