Rupee appreciation - Trouble for Indian textile exporters

Experts views

Analysts from fibre2fashion conducted a survey focusing on the requirements for Indian textile exporters, highlighting the following key areas:

Rupee Appreciation and its management.
View on recent sops declared by the Finance Ministry for exporters.
Additional requirements to cope up with this situation.

When experts from the industry were asked about their views on management of the rupee appreciation situation, many of them had already opted for Forward Contracts. However, this is only a short-term view to manage the rupee appreciation. Some of them took it positively and have taken the advantage by importing new machineries for expanding capacities as well as importing raw material at a lower rate due to dollar depreciation. A majority of them are focusing on the domestic market due to boom in the retail sector.

The government has recently declared sops in 3 instances for exporters for TED and CST reimbursement, reducing interest rates on pre and post shipment credit given to exporters along with service tax reimbursement and, lastly with reduction in custom duty for fiber and its intermediates. When our analysts asked industry experts their views on the sops declared, most of them opined that the demand-supply equation controls the prices more effectively when it comes to reducing the rates. Cartelization in some products will not allow the benefit to be passed on to subsequent users. Acrylic fibre manufacturers are not happy with the recent sops declared as duty has been charged for all the fibers except acrylic and nylon. Raw material (acrylonitrile) duty is also unchanged. This seems to be a big loss to such companies, as they have to compete with cheap imports. Their margins have squeezed down by more than 5%. A majority of them believe that the announcement of the sops did not create much impact on the profits of the industry.

Experts from the industry believe that these are only short-term benefits and will not be beneficial to small and medium enterprises to cope up with rupee appreciation. They expect the government to take some measures on CENVAT accumulation along with cancellation of 1% NCCD from POY. In order to compete with cheap imports, duty on all raw materials / intermediates needs to be rationalized.

As per industry statistics, the European market cannot bring in as much volumes as the American market fetches. Secondly, there will always be a resistance to the incremental prices that exporters can enforce upon their foreign clients. Thus, targeting the burgeoning domestic market that has considerable growth potential should be the long-term strategy for the Indian textile sector. Besides this, while bigger companies like Gokaldas Exports and others have managed to plug losses by hedging, it is time smaller companies too looked at this option, as the textile industry has had to grapple with issues such as job cuts and profit losses this year.

Reference:

Press release from Press Information Bureau

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