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In ready-made garments (RMG) sector, the US and Europe predominantly used to dominate as India™s exporting hubs earlier. However, things seem to be changing now with demand coming from new emerging markets such as UAE and African countries.
The share to UAE, the second largest destination for India™s apparel exports after USA, is growing. Major buyers are from all GCC countries. In 2014 alone, India exported $2,329 million of RMG to UAE, an increase of over 60 per cent from total trade of $1,432 million in 2012. While exports to UAE grew at a robust pace, demand from US remained steady. The South American market has grown to be very lucrative for Indian exporters. India exported about $480 million to America. Within the continent, two regions – Chile and Uruguay – have emerged. India exported about $53 million to Chile and $13 million to Uruguay, as per the data shared by the Apparel Export Promotion Council (AEPC). Colombia, which used to be unsafe due to high drug cases, is now receiving huge fillip in the trade with increased exports.
With the economic slowdown in Europe, Indian exporters are looking to tap newer markets such as Japan, Middle-East, South America and Africa to boost revenues.
Changing dynamics of global markets
The dynamics of RMG industry is changing globally. While the leading manufacturers and exporters have taken a backseat, their contemporaries have geared up to fill the space.
For instance, China, which used to be a leading player in RMG exports, is suffering from several bottlenecks. “China is becoming uncompetitive. Labour cost is going up there making it unviable for the industry, said Gautam Chakravarti, Ex-CEO & Director of Gokaldas Exports Limited, adding that China has the benefit of having a large manufacturing base. With its high production capacity, it has scope to cut cost and survive on low margin. Whereas, for Indian manufacturers, it becomes an economically unviable proposition to cut cost and survive on low margin.
China has a fairly large RMG industry compared to India. In the financial year 2013-14 alone, India\’s apparels and textiles exports were at around $40 billion, while China\’s exports stood at $274 billion, close to eight times higher. Even if 10 per cent of China™s exports get diverted to India, Indian exports could double.
Similarly, Bangladesh is also facing a tough time. More than 100 garment manufacturing units were closed last year, this year as well some of the factories are shutting operations, Chakravarti told Maritime Gateway. Even, US, the largest importer of RMG, is not doing good since last six months. Even the Russian market which saw around 50-60 per cent of devaluation of its currency is impacting the sector.
The economic crisis and rising labour cost in neighbouring countries proves to be beneficial for the Indian industry. The country has been slowly biding its time to tap into China™s footprint, with expected growth of its apparel exports over next two years. Even non-compliance of large number of factories in Bangladesh provides India a big opportunity.
Despite the growth potential, Indian RMG industry is dwindling with mere growth in exports.
Challenges and concern
Indias shipments to key markets like US and Europe remained lower than expected due to the economic slowdown. Though, US remained a key destination for textile and apparel exports, its import duties range between 15 to 50 per cent, depending upon woven or knit textiles, or the type of raw material used.
Similarly, garment exporters are also concerned about Vietnam, a key competitor, which is likely getting duty-free access to the EU market from 2017 under a FTA concluded between the two parties recently, while Indian exporters have to pay a 9.6 per cent duty.
Additionally, the Indian RMG industry is highly dependent on cotton, which is dependent on the crop. The cotton textile products also suffer the disadvantages of differential duties in major markets.
The low growth in apparel exports in India in last financial year was largely attributed to the sluggish demand from Europe and the devaluation of Chinese Yuan against the US dollar, which made India™s apparel exports less competitive. Exports for the FY 2015-16 (from April 2015 till February 2016) indicated a meagre 1.5 per cent growth compared to previous year, translating to a lower than targeted export of around $17 billion. India’s ready-made garments exports to world were to the tune of $15,491 million.
Another concern is that Indian manufacturers are highly unorganized. Most international players have strict parameters for their suppliers, such as compliances on a regulatory standpoint, laws related to minimum wages, standard working hours, strict deadlines, etc. For instance, when an international buyer works with suppliers, he expects multiple designs and varieties to be shown. While sending a salesman™s sample is an international norm that is never followed here. In such cases, small timers often fail to compete with more established players in the global space.
In other challenges, competition from other emerging markets cripples the industry. Dependence on overseas customers increases the industry’s vulnerability to the global economic conditions, and to fluctuations in currency rates, an industry insider said.
The availability of special fabric is another bottleneck. Some RMG manufacturers import almost everything from fabric to accessories to meet international high quality export standards from China, Taiwan and Hong Kong, which makes it an expensive affair, said Prasanna Kumar, Assistant Manager, Pearl Global Industries Limited. “Losses are involved if a manufacturer imports raw material and sells the products domestically, he dded.
Echoing on similar lines, Chakravarti said, some players face issues in sourcing raw material and imports. While global brands demand for 65-70 per cent of manmade fabric, India hugely lacks in the segment. Only a few looms in Surat produce around one crore meter of manmade fabric, which again being used to make Indian ethnic apparel. In this case, China has better advantage as it uses locally sourced fabrics.
Apart from these, the industry faces issues of state level taxes. In addition to it, government™s support for exports is miniscule compared to global players. Therefore, there is a need that the textile industry is given interest rates subvention, re-calibrated product market matrix to include exports to emerging markets, as exports are growing in developed markets from the countries with preferential access.
Shipping woes
India primarily exports fashion garments to the world. With every season, fashion and trends keep changing which puts the manufacturer and exporter under a strict timeline for delivery. At times, even shipping consignments by sea takes months, which makes the exporting a challenging affair.
“In an industry where requirement keeps changing with every season, meeting the shipping deadline is very crucial for any exporter, as delay causes cancellation of consignment as well as financial loss, said an official of Jeena & Company, a freight forwarder in India, adding that any issue with vessel timing and manufacturing, the exporter mostly has no option but send the cargo via air freight.
For instance, delivering consignments to South America, the major importer of Indian garments, within the strict timeframe is often a daunting task. Though it has a long coastline, its distance from India is vast and makes it an expensive proposition. “Thus, the time taken from factory-to-rack of Indian apparels is prolonged, many brands are unwilling to wait that long to get supplies from Indian manufacturers and preferring other countries even if they charge a premium.
Even the alternative air transportation becomes expensive, with excessive fee of `5,250 per kg. Due to the nature of Indian fashion garments – with heavy work and its embellishments – weight of garments exceeds causing high transit fee and makes the proposition economically unviable. In India, around 70 per cent of RMG exports are done by sea freight and rest by air.
In addition to it, most of the Indian ports do not have adequate infrastructure to support the growth momentum of RMG exports. Though efficiencies of Indian ports have improved in recent times, they massively lag behind those in China, which accounts for seven of the world\’s largest ports. Mumbai Port comes in the thirties, with little more than a tenth of shipments of 37 million TEUs (twenty-foot equivalent) from the port in Shanghai, China\’s commercial capital.
In India, only a few ports handle the RMG shipments. “In South, most of the RMG shipments are going to Tuticorin Port, Santhosh NM, Manager (Ocean Products), South Zone, Ceva Freight (India) Private Limited, told Maritime Gateway. It takes only eight hours from Tuticorin Port to reach the transhipment hub Colombo in Sri Lanka. It gets faster clearance there and shipment reaches over night.
Even customs clearance at Indian ports poses another hurdle for the exporters. As the whole process of custom clearance takes days, an exporter has no option but to plan and move the cargo several days ahead.
“Also, earlier buyers used to give us a window of 120 days, which has been reduced to 60 days with the fast-changing fashion trends in the industry. Today, time is a major constraint, Chakravarti said.
Another concern is the issue of transshipment.
China, being closer to the largest importing market US, has better advantages over India with having major transshipment hubs. While for India, the closer transshipment hub is Colombo, which makes it less competitive.
India™s RMG Exports & Growth Potential
Despite all woes, India™s RMG sector is expected to accelerate in the coming years. According to estimates, country™s apparel exports will grow by 12.6 per cent in 2016-17 to reach at $20.3 billion, in addition to growth in outbound apparel shipments during the period.
According to an industry expert, several factors are responsible for this positive forecast. For instance, India ranks first in global jute production and shares 63 per cent of the global textile and garment market; whereas it is second in global textile manufacturing as well as in silk and cotton production.
On top of it, India has an edge in value-added garmenting, which remains partly insulated due to the lack of readily available similar capabilities in other competing countries. Bangladesh, which is traditionally known for apparel like t-shirts, shorts and so on, whereas the ornate, embellished and creative designs from India are always sought after, he added. Fabrics like cotton, synthetics, wool, silk and denim are highly popular abroad. With the upsurge in Indian design talent, Indian apparel, too, has found success at fashion hubs of the world.
Similarly, knits are a huge success in the export world. India™s strength in knitting has grown consistently over the years and has earned global recognition. It offers a variety from yarn to knitwear and world-class solutions in circular knitting, warp knitting, flat knitting and jacquard, along with designer saris and handloom.
India™s export manufacturing map is also quite diverse, catering to the markets of Jaipur, Gurgaon, Noida and Faridabad (For embellished, embroidery, heavy prints, handwork and zardozi work), while knitted cottons come from Tirupur and Bengaluru, and while knitted woollens are made in Ludhiana. Both Mumbai and Bengaluru are popular for denim wear. Apart from exports, the domestic apparel industry has a huge growth potential. In the last five years, it has grown at a 10 per cent CAGR.
Government Support
To boost exports in the RMG sector for the year 2016-17, the Union government has taken several initiatives. The new Merchandise Export from India Scheme (MEIS scheme) introduced in the Foreign Trade Policy of 2015-20, which included exports of products to select markets. And the current Union Budget has cut excise duties for textiles from five per cent to 2.5 per cent. With iImproved duty entitlement, duty free imports of fabric up to one per cent of the Free Over Board (FOB) value of exports for specific fibres during the preceding financial year has been allowed.
According to Ashok G Rajani, Chairman, AEPC, further impetus for exports was the continued zero excise on trimmings and embellishments for export garments to the extent of five per cent of FOB. This would provide additional finance to the tune of `5,000 crore to garment exporters.
Emerging trends in the RMG sector:
A decade back, manufacturers used to play the role of a tailoring store. Now, entire merchandising is being taken care of by the manufacturer. Brands have now shifted focus more towards brand building and brand visibility, leaving the design, fabric and other quality issues to the expertise of manufacturers. The entire sourcing model is maturing. Even, the cycle of production for a manufacturer is changing. With rapidly changing fashion trends, manufacturers are no more running similar products throughout the year. Earlier, a single design was produced for 3-4 seasons.
The industry is also going through a restructuring process. Some players facing de-growth, while others are growing. For instance, value-for-money and affordable brands are growing, while high-end brands are facing demand crunch.
EXIM destinations
Export: Major exporting regions for India include UAE, GCC, Sweden, Chile, Uruguay, Norway, Hamburg and UK. The RMG sector in India gets around 80 per cent of its revenue from exports.
Import: Major importing markets for India include China, Taiwan and Hongkong. RMG manufacturers import raw material such as fabric, button and accessories.
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