Resilience of garment exporters helps to tide over crisis

19 Aug '08

8 min read

The imports statistics from the US for the six months period from January 2008 to June 2008 reveals that while countries like Vietnam, Cambodia, Indonesia and Nicaragua including Bangladesh were increasing their knit exports, especially in Category 338 and Category 339, India and China have recorded negative growth compared to the corresponding period of previous year.

Likewise, exports to European Union have also come down slightly. These two prime markets are a signal that, a lot needs to be done to enhance competitiveness and exploit full potential to sustain and grow further.

China is gradually loosing its competitiveness and the prices of Chinese goods are gradually increasing. Actually, the business scenario in China has now changed and they are no longer in a position to continue producing low cost goods and export it with its low-cost labour strategy coupled with reduction of VAT refund given to their exporters. The last few months has seen a rise in input costs like labour and power costs.

Other notable change was that the China Government has allowed their currency to get appreciated against dollar by about 6.5%. Of course, some of the measures like restriction on bank lending and curbing exports have been taken by the Chinese to reduce the trade surplus and also contain the increasing inflation. This has led to the creation of a level playing field in the global market and it may help to enhance the competitiveness of the exporters.

To help the exporters overcome the crisis, the state as well as the central government has come out with policies favourable to the sector. Among them is the Micro Small Medium Enterprises (MSME) Policy, exclusively for the growth of MSM Enterprises announced by the state of Tamilnadu. The Policy has included Ready Made Garments as one of the thrust sectors and this would help the knitwear sector to promote employment and enhance the competitiveness in the global market.

The exporters were facing unprecedented crisis due to appreciation of rupee against dollar and this external factor has affected and eroded our export competitiveness. To bail out exporters from the crisis, the garment exporters were making representations continuously and requested the Central Government for removal of all taxes imposed on exporting units and increasing of Duty Drawback Rates.

The Central Government announced Duty Drawback Rates on two occasions, first time it was increased from 7% to 10% for cotton knitted garments on July 16th 2007 with a retrospective effect from 1st April 2007 and again it has increased the rate from 10% to 11% with effect from 1st September 2007.

While studying the current business position, it is observed that all factors are behaving adversely. Petroleum product prices have increased subsequent to the spiraling oil prices in the global market, dearer cotton rates have contributed to escalation of cotton yarn cost, and power cost, transaction cost and processing charges have all increased to raise the woes of the exporting community. All these costs put together increased the manufacturing cost in the region of 25% to 30%.

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