Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
0 of .
Results for:
No results containing your search query
P. 1
Impact of Rupee Appreciation and Inflation on Indian Textile and Garment Industry

Impact of Rupee Appreciation and Inflation on Indian Textile and Garment Industry

Ratings: (0)|Views: 1,300 |Likes:
Published by Sevesh

More info:

Published by: Sevesh on Oct 31, 2009
Copyright:Attribution Non-commercial


Read on Scribd mobile: iPhone, iPad and Android.
download as DOC, PDF, TXT or read online from Scribd
See more
See less





Economics Analysis of Managerial ApplicationsImpact of Rupee Appreciation and Inflation on IndianTextile and Garment Industry
Submitted to:Ms. Gulnar SharmaSubmitted by:Bhavik Gandhi (M/FMS/08/10)National Institute of Fashion Technology, Mumbai.
A Stronger Rupee Tests the Fabric of India's Textile Exporters
 These are troubled times for India's textile industry. As the rupee appreciatesagainst the U.S. dollar, more and more small and medium-size firms arelaying off workers or closing down. Industry experts say that in the southerntextile hubs of Tirupur and Bangalore, a factory closes every week. PremalUdani, chairman of the Clothing Manufacturers Association of India,estimates that 500,000 to 600,000 jobs are at risk. As exporters struggle tosecure profitable orders, the Ministry of Textiles' $25.06 billion export targetfor the fiscal year seems well beyond reach.While the rupee has appreciated more than 15% compared with the dollarover the last year and a half, competing countries' currencies have notappreciated correspondingly. "Our currency is destined to appreciate," saidAnees Noorani, vice chairman and managing director of Zodiac Clothing, oneof India's leading brands in men's shirts and ties. "But does the appreciationhave to be as sudden or sharp as from 47 rupees to 39 rupees between July2006 and now?" The troubles come amid slackened demand from the Western consumer.With U.S. economic growth slowing, U.S. retailers have offered deepdiscounts. That has left India's exporters squeezed by customers who wantmore for less and by a currency whose appreciation provides less when theydo make sales. "Our competitiveness for the time being has gone away,"said P.D. Patodia, chairman of the Confederation of Indian Textile Industry. The association estimates that for every 1% fall in the value of the dollar compared with the rupee, profit falls by 1.2%. "Some exporters willbe permanently damaged and not all will survive," said Subir Gokarn, chief economist for Standard & Poor's Asia-Pacific. This isn't the first time priceshave shrunk. Free on board prices fell two years ago when quotas imposedby the Multifiber Arrangement were lifted. India's ready-made garmentexporters, who contributed 3% of the global clothing trade, responded byboosting export values 30%. Ready-made garments now account for 43% of India's textile exports. "Exporters were helped in reducing costs by thedisappearance of the quota premium expense," Udani said. "This timearound the dollar is in a free fall, so exporters can't plan anything." TheUnited States is the largest buyer of Indian textiles and apparel, at 19% and33%, respectively. That helps explain the degree of pain the dollar's fall hasinflicted. Apparel and textiles together contribute more than 30% of India'snet export earnings.
Supplier Consolidation
 The currency-driven troubles come at an already-challenging time. Retailersare using a smaller number of vendors, bypassing traditional buying housesto source directly from a few chosen manufacturers.Committing large sums for expansion requires nerves of steel."Unfortunately, interest rates overall in India, too, have moved up, from7.5%-8% to 12%-13% per annum," said Rakesh Valecha, director of corporate ratings at Fitch Ratings India. So after a federal governmentinterest subsidy for upgrading certain machinery, "the effective cost forexporters has gone up from 2%-3% per annum to 7%-8% per annum." Indiais not well-suited for high-volume, low-margin production, Zodiac Clothing'sNoorani said. "We have not built the kind of scale that Vietnam or China has.Nor do we have the productivity to compete with the best. I therefore feelthat India has missed the bus with respect to this part of the textileoutsourcing business. You can see that vendors of Wal-Mart and the like arenow in distress and we have a crisis."As recently as 2006, India, among the top five apparel exporters, seemed tobe making rapid strides. The new outlook is a sea change from industryprojections of exports doubling every year. "Today we are nowhere on thattrajectory and are in fact selling at prices which are lower than what we soldat even five years ago," Udani said. Many small firms operate at net profitmargins between 3% and 8%. "Thanks to low gross margins, any productionloss quickly turns into a net loss as well," the Textile Industry Confederation'sPatodia said. The industry's woes have led some prominent participants to leave or scaleback. In August, the Hinduja family, who controlled 70.1% of GokaldasExports, sold a 50.1% stake to the Blackstone Group, the private equity firm.Captain C.P. Krishnan Nair, chairman of the Bombay Stock Exchange-listedHotel Leela Venture, sold his family firm Leela Scottish Lace. The textile firmhad helped keep him afloat when the hotel industry and Hotel Leela'sfortunes in particular were in the dumps several years ago. The companythat made 12 million pieces annually with revenue of 4 billion rupees wassold to Bombay Rayon Fashions for 1.55 billion rupees in July.
Seeking Political Patronage
 The apparel and textile sector is India's largest employer after agriculture,with an estimated workforce of more than six million. So job losses are apolitical hot potato. The industry is looking for government help while itadjusts to the rupee's appreciation."We need a global level playing field with comparable infrastructure, interestrates, power costs and labor laws," Udani said. It costs more to ship acontainer from Tirupur to the western port city of Mumbai than it does toship one from Chennai, in southern India, to Hong Kong, he said. Respondingto industry demands, Shankersinh Vaghela, the minister of textiles,

Activity (32)

You've already reviewed this. Edit your review.
1 hundred reads
1 thousand reads
Pradeep S Kubsad liked this
Parth Dedhia liked this
rajshreejitu liked this
gullybaba liked this
Anil Bhatia liked this
Vidhi Varma liked this
Vidhi Varma liked this

You're Reading a Free Preview

/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->