Apparel industry may see massive job losses by next year

01 Dec '09

3 min read

The government must probe reasons for fabric prices jumping by over 50 per cent in the past two months which has forced many garment exporters to cut production or honour contracted quantities at a loss, the Apparel Export Promotion Council(AEPC) said.

"Besides price fluctuations, fabric availability has become a serious issue," said AEPC chairman Rakesh Vaid. "Weaving units are not making any delivery commitments." Mr Vaid said the fibre and yarn price hikes are being passed on to garment manufacturers. But overseas buyers are not able to absorb this hike due to their fixed selling price. Giving a cost sheet of a ladies' top made of cotton voile, he said the cost escalation is to the tune of 24 per cent -- from Rs 164 a piece in July to Rs 199 now.

Mr Vaid said the cotton voile 92 x 80 was trading at Rs 20 per metre in July is up 55 per cent at Rs 31 per metre now. The price of cotton voile 82 x 72 is up 57 per cent from Rs 18.50 per metre to Rs 29. Similarly, price of 60's cambric 92 x 104 is up 50 per cent from Rs 24 to Rs 30 now. The AEPC chairman said that in April, 2 x 60s yarn was costing Rs 740 per bundle which has now increased to Rs 1,030 per bundle. "The rates change on daily basis unlike monthly price fixation earlier."

The global economic recession has resulted in dropping retail sales in all importing countries. The fresh financial crisis in Middle East has also led to doubts over an imminent recovery. As a result, Indian apparel industry is running in losses or operating at profit margins of one to two per cent. By January next year, Mr Vaid said, there could be massive job losses on unprecedented scale which could lead to social problems in apparel manufacturing clusters across the country.

In first half of current financial year (April to September 2009-10), garment exports out of India tumbled 7.32 per cent compared to last year. In October 2009, the country's apparel exports were hit severely and declined by 17.62 per cent to 603 million dollars in the year-on period.

Indian apparel exports to the United States – the world's largest market – declined by 6.46 per cent to 2.27 billion dollars during January to September this year compared to 3.07 billion dollars in the previous year. But China's gained by 1.95 per cent to 17.23 billion dollars and Bangladesh's were up 2.35 per cent to 2.66 billion dollars.

“The government must introduce fiscal relief measures to save garment exports out of India,” said Mr Vaid adding there are fears of industry suffering collateral damage. “Stimulus packages and other steps announced so far have had negligible impact on the Indian apparel industry. They were either release of withheld benefits or restoring benefits withdrawn earlier.”

The AEPC chairman demanded duty drawback rates of 13.25 per cent to mitigate the increasing cost disadvantage, extension of two per cent duty-free scrips for exports to the United States and the European Union under the Market Linked Focus Product Scheme, abolishing countervailing duty on textile machinery, extension of service tax exemption for all export-related services and provision of upfront service tax exemption instead of refund route. The council represents about 8,000 small, medium and large garment exporters. India exported clothes worth 11 billion dollars last year and is the world's fifth largest exporting nation.

Apparel Export Promotion Council

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