Crystal Gazing: Apparel Export Market 2018

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Maju Tee and Andy  Cacoon Wrap
Maju Tee and Andy Cacoon Wrap

As the curtains have risen on yet another year, it is time to look at how the apparel export market is doing and what the outlook is likely to be through the year. Statistical projections indicate that apparel exports are all set to reach $20 billion in 2017-18, 13 per cent higher than a year ago largely on policy support from the Government.

Taking Stock

Textile and apparel play a major role in the Indian economy and it accounts for about 15% of the total export. Of which, the cotton apparels/textiles have seen a good growth in terms of exports every year. Bhavin Parikh, CEO, Globe Textiles (India) Ltd. opines, “Apparel Export Market in India has a long way to go, compared to how our competitors are doing from other countries. In terms of volume of apparels exported to different market in last 5-7 years, exporters were performing significantly well. But from past one year or so, apparel exports have been under-performing due to immediate impact of Demonetization, GST, Rupee Appreciation and other factors. Because of this reason, lately exporters have started focusing on Domestic Markets. Nevertheless, suppliers who have been consistent in terms of aspects like price and deliveries are doing well even now.” As recently as Nov 2017, Indian apparel exports fell 10%. Apparel exports of India have stagnated in past three years at around US $17 billion and have dipped in past three months. “Free Trade Agreements (FTA’s) that India’s rival textile-manufacturing countries have had a significant impact on India’s export figures. The EU levies a 12% duty on Indian cotton while Bangladeshi and Vietnamese cotton are exempt from any duties. Even after the roll-out of GST in India, taxes to the tune of 12% have not been subsumed in GST resulting in higher input cost resulting in costlier products. A serious cut in export incentives such as duty drawback rates and in the Rebate on State Levies (ROSL) scheme that textiles enjoyed before rollout of the GST has played a major role in today’s stumble. Garment exporters had to receive Rebate of State Levies (RoSL) of 11.30% but now it has come down to 6.5%” says Deepak Periwal, Founder & CEO, Yarn Live.

Bani Bralette in Crackle Print and Mantra Legging In Crackle Print
Bani Bralette in Crackle Print and Mantra Legging In Crackle Print

Market Drivers

The first quarter of 2018 is likely to remain flat, but exporters have an optimistic outlook for rest of the three quarters. This is because they anticipate that there would be overall growth in demand and hence opportunities for getting increased orders are likely. “In any case, competitive pricing strategy, consistency in quality and delivery only would be able to drive the market going forward,” avers Parikh. Sunil Mehra, Founder & Designer at Sunil Mehra adds, “Indian fabrics like cotton, silk, woolen weaves etc. are highly appreciated in the foreign countries but lack of modern technology and the production methods disturbs the export demand. With government taking important measures to support Indian apparel export market, it is likely to expand in the forthcoming years. According to D.R. Mehta, president of the Textile Association of India, the country expects its textile and apparel exports to reach $80 billion by 2020.” GST is meant to make Indian manufacturing more competitive by reducing costs and eliminating the archaic indirect tax system that entailed multiple taxes at every stage of the textile value chain. The immediate impact of GST has understandably been negative for the apparel industry, as shown by the dwindling export figures. “This is down to the fact that the entire fabric industry that forms the basic raw material for garments has been brought under the tax net for the first time. In the short run, I expect the struggle to cope with the new GST regime to continue. The mandatory implementation of the e-way bill from February 1 will have a significant impact on the sector. There is still a large portion of the industry that is finding it ways around GST but the e-way bill should plug that hole too. The real uptick will be noticed in the second half of 2018 when I expect all the teething problems to have settled and the industry to function like a well-oiled machine again. The Government can pre-pone the end of the gloom by announcing certain crucial incentives for the garments industry during the last budget session before the next Lok Sabha elections in February,” says Periwal.

Challenge Factor

Doing business in the apparel sector is increasingly becoming a challenging task, so micro level challenges would remain and exporters have to work around them. “But apparel sector need to gear up to meet the social and ethical compliances which is becoming a compulsion to work with international brands and retailers. We need remain updated with the latest trends and work on ourselves to meet them. Also ‘Design To Delivery’ timelines fine tuning can also give us competitive edge. Brands like ZARA have earmarked fast fashion concept and every other retailers want to follow the same,” says Parikh. Apparel export industry is one of the important segments of the industrial sector in India. Besides being a highly demanded industry abroad, the apparel export market has been not been doing great from the past few years. “The export market for men’s wear has been growing at a healthy pace in India and is one of the key contributors to the economy. With rising labor costs and shortage of labor at the same time, it is quite challenging for the Indian companies to accomplish the demand,” says Mehra.

Andy Sweater in Burgandy
Andy Sweater in Burgandy

SWOT Analysis

Dubai and Saudi Arabia have imposed 5% VAT on a large number of goods including garments from Jan 1, 2018. Ludhiana-based exporters who export garments to these countries are feeling jittery over its possible impact on their trade. On one hand, GST has increase their costs of manufacturing and on the other, the garments will become more expensive for end consumers in Dubai and Saudi Arabia after they impose VAT. “After GST implementation in India, cost of manufacturing readymade garments in Bangladesh is now lower than in India giving a rise to garments imports from Bangladesh into our country. Import of garments from Bangladesh jumped 56% to $87.4 million from July to November over the corresponding period last year. Of this, import of knitted apparel surged 69% to $30.1 mn. Import of woven apparel jumped $57.3 mn, from $38.1 mn in the same period last year. Garment manufacturers in Bangladesh import fabric from China duty-free. They enjoy cheaper electricity and cheaper labour compared to India. Domestic garment manufacturers will keep losing orders if garments from abroad will be cheaper for buyers,” says Periwal. There is an urgent need to either restore the incentives that were enjoyed by garment manufacturers of India in the pre-GST regime. Post-GST, manufacturers in India are not able to compete with the low taxation, cheap labour and subsidised electricity being offered to garment manufacturers in countries like Vietnam and Bangladesh. Specifically, the duty-drawback on garments and the ROSL scheme that garment manufacturers enjoyed pre-GST need to be restored. “The major opportunity is the increase in demand for the exports of cotton apparel. Cotton production is seen to rise by 11% in 2017-2018. Today, the country is seeing a great boom in the production of organic cotton. This is so because Indian and international brands have understood the need for sustainable approach. Therefore, the production and the simultaneous export of the cotton apparel will make a larger difference in Indian apparel market,” avers Rina Nathani, Retail Head – India, SATVA Living.

Looking Ahead

The Indian apparel industry has matured in terms of its existence and it has to continuously thrive for excellence in order to find its right place in the global market. The manufacturers need to be diligent in ethical business and employ the best practices in the industry. The UP government has granted the approval to Handloom, Powerloom, Textile and Garment Policy, 2017. Manufacturers will get help in finance and marketing through this scheme, apart from rebate in GST and electricity bill, along with reimbursement of transportation and Provident Fund. “In an effort to boost apparel exports from Gujarat, the Apparel Exports Promotion Council (AEPC) has inaugurated its new office in Ahmedabad. The Gujarat Chamber of Commerce and Industries (GCCI) has announced its international exhibition named ‘Farm to Fashion’ to promote textile and apparel industry of Gujarat. The exhibition will be held in the second week of March 2018,” says Periwal. In all the apparel exports are seeing some waves of change and it is widely expected that there will be a revival in the sector this 2018.

This story appeared in the Feb 2018 issue of Apparel India Magazine here: Bindu AI February 18

All images are courtesy SATVA Living

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