By: Pradeep Pandey

A sharp appreciation in the rupee against currencies like the US Dollar and Euro, and soaring raw material prices, have left the slowdown-hit textile industry hanging by a thread. Nearly half of Indias textile and apparel exports are to the US and European countries, and the rise in the rupee has sent exporters profit margins and targets haywire.

The rupee ruled at an 18-month high of 44.97 to the dollar and 61.76 to the Euro on Monday on increased flow of foreign currency in the equity market. The domestic currency has appreciated by nearly 14.5% against the Euro, and over 5% against the dollar in the past five months. To add to the textile industrys troubles, cotton and yarn rates have increased by 20-25% in the past six months on speculative commodity futures trading and an increase in exports to countries like Bangladesh, Korea and China.

Cotton prices have gone up by over 20% to Rs.27, 800 a candy, or 355.55 kg in March 2010, from Rs.23, 200 a candy in July 2009. Yarn prices have increased by 25% to Rs.175 per kg compared to Rs.140 per kg during the same period.

Many players such as Gokaldas Exports, Arvind and Alok Industries have responded by increasing garment prices by up to 12%, but are having a tough time negotiating at increased rates with buyers, says Premal Udani, chairman, Apparel Export Promotion Council. October-January orders are generally booked in March. In the past 10 days, we have hardly finalised any orders, said Rajan Hinduja, MD of Gokaldas Export, the countrys largest garment exporter. He expects profit margins to drop by 20-25% compared to six months ago.

Only recently, companies were looking forward to renewed demand from the West, after the 2008-2009 economic recession left them out in the cold and millions were rendered jobless. Textile exports registered a decline of 1.71% to $21.75 billion during April 2009-March 2010, compared to $22.13 billion in the previous years corresponding period, according to Associated Chambers of Commerce and Industry of India.

Exporters are not able to pass on the increase in yarn prices to buyers, said A Sakthivel, president of Tirupur Exporters Association. Jaipur-based exporters are also feeling the pinch. Our costing has gone up by 25-30% a unit due to fabric prices being hiked by 60-70%, said GP Mittal, president of Garment Export Association of Rajasthan.

Originally published in The Economic Times, dated 31 Mar 2010