For quite sometime, there has seldom been any peacetime for Indian garment exporters, who have been chased by one problem or the other, all the time. They have alternately suffered from the appreciation of Indian Rupee or its depreciation, generally to their disadvantage, as both of these could be a boon to the exporters, only if these occur at right time. But that was not to be.


First, it was the low level of depreciation of Indian Rupee, which touched Rs.51.23 a dollar in March this year but started appreciation to Rs.46.10 a dollar, causing a loss in receivables from the exports by almost 10%. This kind of volatility was kept in view by the exporters while booking fresh orders for Spring/Summer 2010, which were generally finalized export order in August and September 09 at Rs.48.50 providing for a reasonable margin of appreciation of Indian Rupee. The orders were booked by the exporters, on the basis of this calculation, keeping in view the competitive prices by countries like China, Bangladesh and Sri Lanka while providing for reasonable appreciation of Indian Rupee. However, he recent and contino9us appreciation of Indian Rupee has made exporters unhappy as this has squeezed the exporters margins.


This has given rise to the demand of apparel exporters to hike the duty drawback rates to offset the losses due to appreciation. Says Rakesh Vaid, Chairman AEPC. The Rupee has already strengthened by 10 per cent. The industrial, the financial institutions and experts are expecting that it will further strengthen up to 12 to 15 per cent in a few weeks; thereby making our exports less profitable and less competitive. He has recommended that duty drawback should be increased 8 to 10 per cent at present to 13.25% of the FOB. He has added that garment exports during April to August 2009 have dipped by 7.39 per cent to $ 4.18 billion from 4.51 per cent on the year-on-year basis. With this pace, the country will not be in a position to touch an expert performance beyond $ 9 billion, he anticipates, as against the apparel exports out of India totally $ 10.17 billion during 2008-09.


It is not for the first time and the garment exporters have suffered alternatively from the changes in the value of Indian Rupee, but this time, the situation is different. The world appears to be breaking through the recession and the US has declared that the recession is over and this does kindle the hope that with this, our exports to the US should pick up, even if not restored to the targeted glory for the current and next fiscal year.


Vaid has pleaded with all concerned in the Government like ministers and secretaries for Finance, Commerce and Textiles besides the Deputy Chairman of Planning Commission seeking immediate hike in duty drawback at 13.25 per cent. He has reminded the Government that China has been able to offer much better prices since its exporters have been granted drawback refunds many times in the past one year from 11 to 17 per cent of their FOB value.


The statement made by Vaid stating that The United States and he European Union, which constitute a majority of Indian garment exports, are still reeling under the global economic recession is, however, not borne out by the fact that the US has officially declared that the recession is over. However, it is true that the impact of recession being over is nowhere to be seen in the matter of garment exports; at least the feel good factor on the garment imports has not yet percolated down to the US retail market and so the case with the EU market, another major export destination for Indian garments.


What about New Markets?


I think the observation of Vaid that the Governments efforts to penetrate new markets of Latin American, the Middle East and the Oceanic countries are on, But it will take a long time before we set our foot firmly in these markets. As a matter of fact, there are hardly any statistics available to reveal what progress, if any, has been made, either in terms of our efforts and their end results. However, whatever statement has been made by Vaid seems correct. Hence the importance of our getting back to traditional markets.


The Hopes on US


Is US out of the cluches of recession? Officially, yes but all other indicators point to a depressing scenario. We, in India, have the huge deficit in compiling information on the garment exports and probably this is likely to continue, impacting our chance of making a quick but dependable reading of the trends, which are indeed important. In fact, on this depends the timeliness and adequacy of relief, which must be considered by the Government. This is vitally important to keep exports floating.


 

Now that the global economic turndown has shown signs of thaw, and everybody hoped that Indian garment exports too will pick up, there has been a consistent appreciation of Indian Rupee, whereas its competing economies like Pakistan, Bangladesh, China's currencies are not inflicted with the same degree of appreciation.


In the present scenario, two factors are indeed important. First, the so-called certification that both the US and the EU economies are out of recession, are only partly true.


Global Export Scenario


It is an acknowledged fact that the world trade itself has suffered seriously on account of recession with the result both the exports and imports have declined. This has also resulted in decline in the global trade imbalances. The trade deficit of the OECD countries and Bricks countries comprising Brazil, Russia, India, China and South Africa. Most recent numbers till July 2009 show that countries in both groups seem stuck in the rough patch and with no signs of an immediately resurgence.


Prospects of US Imports


If you care to look at the figures given out by the US Department of Labour as also of other agencies, there has been a massive contraction of 9.5 per cent in employment in the US, and what is worse is that the situation has universally been acknowledged to be going to be worse in 2010. Granting for a while, that the US economy is out of recession, the fact that is relevant to Indian garment exporters whether the retail sales have picked up or not. Unfortunately, these have not. I feel that even future prospects of such retails picking up is not very bright either; as the propensity to go in for apparel purchases would depend upon the employment situation in the country. With employment level set to deteriorate further, it would be nave to expect a boom either in US retails or the possibility of garment apparels in a big way.


The number of US workers claiming jobless benefits for the first time climbed last week, as the labour market continues to signal that its recovery lag the overall economy. New jobless claims rose by 11,000 to 531,000, the US Labour Department said. The figures were worse than economists anticipated, although the less volatile four-week average showed that new claims have been waning in the last month.


To my mind, the comfort that we tend to draw from the fact that US has officially pulled out of recession, is not well based or well reasoned.


Prospects of EU Exports


Exports of Indian garment or for that matter of any other country to the OECD countries would depend upon the export well being of those countries. Unfortunately, they are not well placed in the matter of exports right to date or for the date for which the information is available. We might as well survey as to their exports are behaving. Not quite encouraging, if one were to go by the recent facts that have surfaced.


OECD countries take export hit


Some very important facts make an interesting reading. The facts that are available on OECD countries show that while in Sept. 08 i.e. a month after recession hit the world, 29 European countries had a positive growth in exports, which declined to 7 countries in Oct. 08 and went down further to zero countries in Jan. 09 and continued to be the same even in August 09. However, on the other hand, while only one country has had a negative export growth in Sept. 08, their numbers went to up to 23 in Oct. 08; further marched on 30 countries in Jan. 09 and remained at 29 in August 09. Important OECD countries with the highest shrinkage in exports in July 2009 included France (26%), Germany (28.3%), UK (31.9%) and Italy (68.7%)


Decline in Exports of Bricks countries


To my mind, some note has to be made in the export pattern of Bricks countries to have a better judgment of their placements and the level of the pressing need for improving their market share. More of deeper declines in their exports would lend urgency to step up exports and in the process give more tough competition to other countries even if the competition to India is not confined to limited to these countries alone, but the big Chinese brother needs to be properly accounted for.


 

The continued sharp deterioration of in the export trade is best brought out by the numbers emerging from OECD countries and the Bricks. Trends in dollar value of exports show in both the OECD countries and Bricks, exports continue to shi8rk close to one-third. It is also observed that the export deceleration has slowed down in the OECD countries in the recent months, the scenarios seems to have worsened in the Bricks.


The shrinkage in Bricks exports was not as immediate as in case of OECD countries. Numbers for Oct. 2008 indicate only India took an early hit among the five Bricks countries with its exports declining by 11.5%. Recent figures for July show that India has come on top with export shrinkage declining to just 19.4%, which was slightly better than 23.2% decline registered by China.


There have been repeated demands on the part of garment exporters, generally well based on the factors, which cannot be attributed to their failure. The cause for appreciation and depreciation of Indian Rupee is certainly much beyond them, but which certainly affects them rather seriously, both in terms of maintaining their competitive edge and as also in the matter of receivables. True, no Government can assure insulation of their currency vis--vis other countries in the world, save in China earlier when it had frozen Yuan, yet all Governments have been positive-and quickly-responding to the fluctuations in their currency valuation to offset any adverse impact on the garment exports. Even the mighty China has done it more often and more liberally, as pointed out by Rakesh Vaid, Chairman, AEPC. I think the demand made by Rakesh Vaid for The drawback rates to be increased from 8 to 10 per cent at present to 13.25 per cent of the FoB value is well based on logic, reason and above all public interest.


What is the way out of this impasse? To my mind, the Government should announce similar and prompt enhancement of their duty draw back, to which no reasonable mind can disagree.



Here I refers to the author of the article