Unemployment, Financial crises are the major issues for every body. These days people are frequently going through the words like Global economic meltdown, International financial slowdown, Recession etc. Many of the people are highly affected by the results of all these. This fire dragon is burning everything by throwing the fire all around. These resulting drastic changes in lifestyle of many in score of ways. Currently we are going frequently through the sentences telling the peril effects of this global economic slowdown on numerous company employers of various sectors. This downturn, of course left negative marks on business too. Many businesses are going through and facing effects of this economic evil, commonly named as ‘Global Meltdown’. The effect of this slowdown on business sector is resulting directly in a negative way on its various phases including export-import sector, which is one of the crucial parts of any kind of business. Regarding this, the report of Federation of Indian Export Organisation (Fieo) tells that the manufacturing Industries here, have recorded steepest decline in the sector of exportimport. This proved correct when we take a look of exports done in some industries. This reveals that the handicraft export stepped down by 54 per cent in December 2008 as compared to that in December 2007. While Gems& Jewelry, one of the segments most affected by economic slowdown and the textile industries are contracted by 27 & 21 per cent respectively. This gives us broader idea about the effects of economic meltdown on export-import trade. While talking about the worldwide export-import trade in the current scenario of meltdown, ‘The exporters need to diversify to Asia & Africa to escape from the recession in traditional markets in the west’ – are the words of Director-General of Research and information systems for developing countries. This reveals that exporting goods or products from Asian & African countries could be proved as the helping hand for getting free from the recession in western traditional markets to some extent. This obviously is
excellent for the countries in Asia & Africa, which in tern is the chance for them to broaden their horizons in the export sector. Among all the Asian countries if we talk particularly about India then according to the Union Commerce Secretary, Mr. Pillai, India’s export performance is much better as compared to the rest of Asian countries. The two countries with major economies have released their January export figures, which are extremely lower than those of India. ‘Vietnam’, which is one of the countries having major economies has a negative growth rate of 24.2 per cent and ‘South Korea’, another country having major economies has 32 per cent of negative growth rate. While in case of India, in October the merchandise exports were decline by 12.1 per cent which was improved to 9.9 per cent in November and just dropped down by 1.1 per cent in December. This shows India’s excellent export performance in comparison with other Asian countries. At here, the government needs to pay the crucial role by taking some major steps. It needs to provide some social security to the retrenched workers in the export sector, as exporters were loosing out because competing countries like China, which referred as a global export powerhouse. China had provided additional concession to their exporters, which has had beneficial for them to price their products more competitively. Government needs to fulfill the demands of global exporters. It should continue the stimulus packages to boost the economy in the year 2009-10, for getting rid of global slowdown. During the coming fiscal the public expenditure needs to be stepped up to counter the slowdown.
CHAPTER - 1 TEXTILE INDUSTRY: INTRODUCTION
The textile industry occupies a unique place in our country. One of the earliest to come into existence in India, it accounts for 14% of the total Industrial production, contributes to nearly 30% of the total exports and is the second largest employment generator after agriculture. Textile Industry is providing one of the most basic needs of people and the holds importance; maintaining sustained growth for improving quality of life. It has a unique position as a self-reliant industry, from the production of raw materials to the delivery of finished products, with substantial value-addition at each stage of processing; it is a major contributor to the country's economy. Its vast potential for creation of employment opportunities in the agricultural, industrial, organized and decentralized sectors & rural and urban areas, particularly for women and the disadvantaged is noteworthy. Although the development of textile sector was earlier taking place in terms of general policies, in recognition of the importance of this sector, for the first time a separate Policy Statement was made in 1985 in regard to development of textile sector. The textile policy of 2000 aims at achieving the target of textile and apparel exports of US $ 50 billion by 2010 of which the share of garments will be US $ 25 billion. The main markets for Indian textiles and apparels are USA, UAE, UK, Germany, France, Italy, Russia, Canada, Bangladesh and Japan. The main objective of the textile policy 2000 is to provide cloth of acceptable quality at reasonable prices for the vast majority of the population of the country, to increasingly contribute to the provision of sustainable employment and the economic growth of the nation; and to compete with confidence for an increasing share of the global market.
Current Scenario Developing countries with both, textile and clothing capacity may be able to prosper in the new competitive environment after the textile quota regime of quantitative import restrictions under the multi-fiber arrangement (MFA) came to an end on 1st January, 2005 under the WTO Agreement on Textiles and Clothing. As a result, the textile industry in developed countries will face intensified competition in both their export and domestic markets. However, the migration of textile capacity will be influenced by objective competitive factors and will be hampered by the presence of distorting domestic measures and weak domestic infrastructure in several developing and least developed countries. The elimination of quota restriction will open the way for the most competitive developing countries to develop stronger clusters of textile expertise, enabling them to handle all stages of the production chain from growing natural fibers to producing finished clothing, The OECD paper says that while low wages can still give developing countries a competitive edge in world markets, time factors now play a far more crucial role in determining international competitiveness. Countries that aspire to maintain an export-led strategy in textiles and clothing need to complement their cluster of expertise in manufacturing by developing their expertise in the higher value-added service segments of the supply chain such as design, sourcing or retail distribution. To pursue these avenues, national suppliers need to place greater emphasis on education and training of services-related skills and to encourage the establishment of joint structures where domestic suppliers can share market knowledge and offer more integrated solutions to prospective buyers. The textile industry is undergoing a major reorientation towards non-clothing applications of textiles, known as technical textiles, which are growing roughly at twice rate of textiles for clothing applications and now account for more than half of total textile production. The processes involved in producing technical textiles require expensive equipments and skilled workers and are, for the moment, concentrated in
developed countries. Technical textiles have many applications including bed sheets; filtration and abrasive materials; furniture and healthcare upholstery; thermal protection and blood-absorbing materials; seatbelts; adhesive tape, and multiple other specialized products and applications. India must take adequate measures for capturing its market by promoting research and development in this sector, so that it gets the first mover’s advantage. The mood in the Indian textile industry given the phase-out of the quota regime of the multi-fiber arrangement (MFA) is upbeat with new investment flowing in and increased orders for the industry as a result of which capacities are fully booked up to April 2005. As a result of various initiatives taken by the government, there has been new investment of Rs.50, 000 crore in the textile industry in the last five years. Nine textile majors invested Rs.2, 600 crore and plan to invest another Rs.6,400 crore. Further, India's cotton production increased by 57% over the last five years; and 3 million additional spindles and 30,000 shuttles-less looms were installed. The industry expects investment of Rs.1, 40,000 crore in this sector in the post-MFA phase. A Vision 2010 for textiles formulated by the government after intensive interaction with the industry and Export Promotion Councils to capitalize on the upbeat mood aims to increase India's share in world's textile trade from the current 4% to 8% by 2010 and to achieve export value of US $ 50 billion by 2010. Vision 2010 for textiles envisages growth in Indian textile economy from the current US $ 37 billion to $ 85 billion by 2010; creation of 12 million new jobs in the textile sector; and modernization and consolidation for creating a globally healthy and a highly competitive textile industry. There will be opportunities as well as challenges for the Indian textile industry in the post-MFA era. But India has natural advantages which can be capitalized on strong raw material base - cotton, man-made fibers, jute, silk; large production capacity (spinning 21% of world capacity and weaving - 33% of world capacity but of low technology); vast pool of skilled manpower; entrepreneurship; flexibility in production process; and long experience with US/EU (European Union). At the same time, there are constraints
relating to fragmented industry, constraints of processing, quality of cotton, concerns over power cost, labor reforms and other infrastructural constraints and bottlenecks. E.g., cost of power was Rs. 8 per garment in India whereas in China it was only Rs. 2 per garment. Further, for the benefit of exporters, there should be a state-owned cargo shipping mechanism. Several initiatives have already been taken by the government to overcome some of these concerns including rationalization of fiscal duties; technology Upgradation through the Technology Upgradation Fund Scheme (TUFS); setting up of Apparel Parks; and liberalization of restrictive regulatory practices. Shri Kamal Nath, Union Minister of Commerce & Industry, has said that India will take up the issue of non-tariff barriers (NTBs) in the World Trade Organization (WTO) Doha round of multilateral trade negotiations, which are expected to gather steam from March 2005 onwards. On the eve of republic day president Kalam said that. "India is presently exporting six billion U.S. Dollars worth of garments, whereas with the WTO regime in place, we can increase the production and export of garments to 18 to 20 billion U.S. Dollars within the next five years. This will enable generation of employment in general and in rural areas in particular. By tripling the export of apparels, we can add more than 5 million direct jobs and 7 million indirect jobs in the allied sector, primarily in the cultivation of cotton. Concerted efforts are needed in cotton research, technology generation, transfer of technology, modernization and upgrading of ginning and pressing factories and an aggressive marketing strategy." Latest news from the Textile sector. 1. Ministry of finance has added 165 new textile products under duty drawback schedule. The new products included wool tops, cotton yarn, acrylic yarn, viscose yarn, various blended yarn/fabrics, fishing nets etc. Further, the existing entries in the drawback schedule relating to garments have been expanded to create separate entries of garments made up of (1) cotton; (2) man made fiber blend and (3)
MMF. Separate rates have been prescribed for these categories of garments on the basis of composition of textiles. 2. After the phasing out of quota regime under the multi-fibre pact, India can envisage its textile sector becoming $100b industry by 2010. This will include exports of $50b. The proposed targets would be achieved provided reforms are initiated in textile sector and local manufacturers adopt measures to improve their competitiveness. A 5-pronged strategy aiming to attract FDI by making reforms in local market, replacement of existing indirect taxes with a single nationwide VAT, liberalization of contract norms for textile and garments units, elimination of restrictions that cause poor operational and organizational performance of manufacturers, was suggested. 3. The Union Minister Shankar Singh Vaghela said that the Board for Industrial and Financial Reconstruction (BIFR) had approved rehabilitation schemes for sick NTC mills at a cost of Rs 3,900 crore. Of the 66 mills, 65 unviable mills have been closed after implementing voluntary retirement scheme (VRS) to all employees. According to him, the government has already constituted assets sale committees comprising representatives of Central and state governments, operative agency, BIFR, NTC and the concerned NTC subsidiary to effect sale of assets through open tender system. 4. Proposals for modernization of NTC mills have been made to the consultative committee members, including formation of a committee of experts to improve management of these mills. Even the present status of jute industry was under the scanner of the consultative committee. 5. The Government had announced change from the value-based drawback rate hitherto followed to a weight-based structure for textile exports that will discourage raw material exports and also curtail the scope for misusing the drawback claims by boosting invoice value of exports. 6. NCDEX launched its silk contract (raw silk and cocoon) on Thursday, January 20, 2005... With this launch, the total number of products offered by NCDEX goes up to 27.The launch of the silk contract will offer the entire suite of fibers to the entire value chain ranging from farmers to textile mills. With the objective of
protecting the interests of those affected but WTO agreements and globalization process, Government of India jointly with NCDEX has adopted a policy of encouraging future contracts of silk. The Ministry of Textiles and the Central Silk Board (CSB) had decided to introduce futures trading in mulberry cocoons and raw silk on NCDEX. The basic purpose is to mitigate the risk associated with the changing prices through an efficient price discovery mechanism. Futures trading on the NCDEX will provide an alternative trading avenue for farmers, weavers and traders and help them make a better price discovery for their produce. It will also help them to reduce risks associated with price volatility through hedging CDEX. The basic purpose is to mitigate the risk associated with the changing prices through an efficient price discovery mechanism. Futures trading on the NCDEX will provide an alternative trading avenue for farmers, weavers and traders and help them make a better price discovery for their produce. It will also help them to reduce risks associated with price volatility through hedging.
CHAPTER – 2 INTRODUCTION TO TEXTILE EXPORT
Introduction The Multi-Fiber Arrangement (MFA) has governed international trade in textiles and clothing since 1974. The MFA enabled developed nations, mainly the USA, European Union and Canada to restrict imports from developing countries through a system of quotas. The Agreement on Textiles and Clothing (ATC) to abolish MFA quotas marked a significant turnaround in the global textile trade. The ATC mandated progressive phase out of import quotas established under MFA, and the integration of textiles and clothing into the multilateral trading system before January 2005. The Agreement on Textiles and Clothing ATC is a transitory regime between the MFA and the integration of trading in textiles and clothing in the multilateral trading system. The ATC provided for a stage-wise integration process to be completed within a period of ten years (1995-2004), divided into four stages starting with the implementation of the agreement in 1995. The product groups from which products were to be integrated at each stage of the integration included (i) tops and yarns; (ii) fabrics; (iii) made-up textile products; and (iv) clothing. The ATC mandated that importing countries must integrate a specified minimum portion of their textile and garment exports based on total volume of trade in 1990, at the start of each phase of integration. In the first stage, each country was required to integrate 16 percent of the total volume of imports of 1990, followed by a further 17 percent at the end of first three year and another 18 percent at the end of third stage. The fourth stage would see the final integration of the remaining 49 percent of trade.
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Global Trade in Textile and Clothing World trade in textiles and clothing amounted to US $ 385 billion in 2003, of which textiles accounted for 43 percent (US $ 169 bn) and the remaining 57 percent (US $ 226 bn) for clothing. Developed countries accounted for little over one-third of world exports in textiles and clothing. The shares of developed countries in textiles and clothing trade were estimated to be 47 percent (US $ 79 bn) and 29 percent, (US $ 61 bn) respectively. Import Trends in USA In 1990, restrained or MFA countries contributed as much as 87 percent (US $ 29.3 bn) of total US textile and clothing imports, whereas Caribbean Basin Initiative (CBI), North American Free Trade Area (NAFTA), Africa Growth and Opportunity Act (AGOA) and ANDEAN countries together contributed 13 percent (US $ 4.4 bn). Thereafter, there has been a decline in exports by restrained countries; the share of preferential regions more than doubled to reach 30 percent (US $ 26.9 bn) of total imports by USA. The composition of imports of clothing and textiles by USA in 2003 was 80 percent (US $ 71 bn) and 20 percent (US $ 18 bn), respectively. Asia was the principal sourcing region for imports of both textiles and clothing by USA. Latin American region stood at second position with a share of 12 percent (US $ 2.2 bn) and 26 percent (US $ 18.5 bn), respectively, for textiles and clothing imports, by USA. In most of the quota products imported by USA, India was one of the leading suppliers of readymade garments in USA. Though China is a biggest competitor, the unit prices of China for most of these product groups were high and thus provide opportunities for Indian business. Import Trends in EU EU overtook USA as the world’s largest market for textiles and clothing. Intra-EU trade accounted for about 40 percent (US $ 40 bn) of total clothing imports and 62 percent (US $ 32.5 bn) of total textile imports by EU. Asia dominates EU market in both clothing and textiles, with 30 percent (US $ 30 bn) and 17 percent (US $ 8 bn) share, respectively.
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Central and East European countries hold a market share of 11 percent (US $ 11.3 bn) in clothing and 7.5 percent (US $ 4 bn) in textiles imports of EU. As regards preferential suppliers, the growth of trade between EU and Mediterranean countries, especially Egypt and Turkey, was highest in 2003. As regards individual countries, China accounted for little over 5 percent (US $ 2.8 bn) of EU’s imports of textiles and over 12 percent (US $ 12.4 bn) of clothing imports. In the EU market also, India is a leading supplier for many of the textile products. It is estimated that Turkey would emerge as a biggest competitor for both India and China. However, with regard to unit prices, India appears to be lower than both Turkey and China in many of the categories. Import Trends in Canada Amongst the leading suppliers of textiles and clothing to Canada, USA had the highest share of over 31 percent (US $ 8.4 bn), followed by China (21% - US $ 1.8 bn) and EU (8% - US $ 0.6 bn). India was ranked at fourth position and was ahead of other exporters like Mexico, Bangladesh and Turkey, with a market share of 5.2 percent (US $ 0.45 bn). Potential Gains It may be noted that clothing sector would offer higher gains than the textile sector, in the post MFA regime. Countries like Mexico, CBI countries, many of the African countries emerged as exporters of readymade garments without having much of textile base, utilizing the preferential tariff arrangement under the quota regime. Besides, countries like Bangladesh, Sri Lanka, and Cambodia emerged as garment exporters due to cost factors, in addition to the quota benefits. Thus, it may be concluded that these countries are likely to lose their market share in the future scenario.
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Estimated (US $ Billion)
Textiles Markets Present (2003) Gains in China USA EU 3.6 (20) 2.8 (5.3) India 1.5 (8.4) 1.9 (3.2) China India 13.0 (32) 12 (12) 5.0 8 (8)
Clothing Future (2014) Present (2003) China India 12.0 12.3 2.3 3.0 Future (2014) China India 67 (42) 60 (30) 13 (8) 16 (8)
2014 China India 80 (40) 72 (24) 18 (9) 24 (8)
(13.5) (16.9) (3.2) (12.2) (3.0)
It may be said that countries like China, USA, India, Pakistan, Uzbekistan and Turkey have resource based advantages in cotton; China, India, Vietnam and Brazil have resource based advantages in silk; Australia, China, New Zealand and India have resource based advantages in wool; China, India, Indonesia, Taiwan, Turkey, USA, Korea and few CIS countries have resource based advantages in manmade fibers. In addition, China, India, Pakistan, USA, Indonesia have capacity based advantages in the textile spinning and weaving. China is cost competitive with regard to manufacture of textured yarn, knitted yarn fabric and woven textured fabric. Brazil is cost competitive with regard to manufacture of woven ring yarn. India is cost competitive with regard to manufacture of ring-yarn, O-E yarn, woven O-E yarn fabric, knitted ring yarn fabric and knitted O-E yarn fabric. According to Werner Management Consultants, USA, the hourly wage costs in textile industry is very high for many of the developed countries. Even in developing economies like Argentina, Brazil, Mexico, Turkey and Mauritius, the hourly wage is higher as compared to India, China, Pakistan and Indonesia. From the above analysis, it may be concluded that China, India, Pakistan, Taiwan, Hong Kong, Brazil, Indonesia, Turkey and Egypt would emerge as winners in the post quota regime. The market losers in the short term (1-2 years) would include CBI countries,
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many of the sub-Saharan African countries, Asian countries like Bangladesh and Sri Lanka. The market losers in the long term (by 2014) would include high cost producers, like EU, USA, Canada, Mexico, Japan and many east Asian countries. The determinants of increase / decrease in market share in the medium term would however depend upon the cost, quality and timely Review of Indian Textiles and Clothing Industry The textiles and garments industry is one of the largest and most prominent sectors of Indian economy, in terms of output, foreign exchange earnings and employment generation. Indian textile industry is multi-fiber based, using delivery. In the long run, there are possibilities of contraction in intra-EU trade in textile and garments, reduction of market share of Turkey in EU and market share of Mexico and Canada in USA, and thus provide more opportunities for developing countries like India. It is estimated that in the short term, both China and India would gain additional market share proportionate to their current market share. In the medium term, however, India and China would have a cumulative market share of 50 percent, in both textiles and garment imports by USA. It is estimated that India would have a market share of 13.5 percent in textiles and 8 percent in garments in the USA market. With regard to EU, it is estimated that the benefits are mainly in the garments sector, with China taking a major share of 30 percent and India gaining a market share of 8 percent. The potential gain in the textile sector is limited in the EU market considering the proposed further enlargement of EU. It is estimated that India would have a market share of 8 percent in EU textiles market as against the China’s market share of 12 percent.
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CHAPTER – 3 Impact of an American Recession on India
Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking. The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring down oil prices to $70. The whole of Asia would be hit by a recession as it depends on the US economy. Even though domestic demand and diversification of trade in the Asian region will partly counter any drop in the US demand, one simply can't escape a downturn in the world's largest economy. The US economy accounts for 30 per cent of the world's GDP. Says Sudip Bandyopadhyay, director and CEO, Reliance Money: "In the globalised world, complete decoupling is impossible. But India may remain relatively less affected by adverse global events." In fact, many small and medium companies have already started developing trade ties with China and European countries to ward off big losses. Manish Sonthalia, head, equity, Motilal Oswal Securities, says if the US economy contracts much more than anticipated, the whole world's GDP growth-which is estimated at 3.7 per cent by the IMF-will contract, and India would be no exception. The only silver lining is that the recession will happen slowly, probably in six months or so. As of now, IT and IT-enabled services, textiles, jewellery, handicrafts and leather segments will suffer losses because of their trade link. Certain sections of commodities could face sharp impact due to the volatile nature of these sectors. C.J. George, managing
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director, Geojit Financial Services, says profits of lots of re-export firms may be affected. Countries like China import commodities from India do some value-addition and then export them to the US. The IT sector will be the worst hit as 75 per cent of its revenues come from the US. Low demand for services may force most Indian Fortune 500 companies to slash their IT budgets. Zinnov Consulting, a research and offshore advisory, says that besides companies from ITeS and BPO, automotive components will be affected. During a full recession, US companies in health care, financial services and all consumers demand driven firms are likely to cut down on their spending. Among other sectors, manufacturing and financial institutions are moderately vulnerable. If the service sector takes a serious hit, India may have to revise its GDP to about 8 to 8.5 per cent or even less. Lokendra Tomar, senior vice-president, Integreon, a BPO firm, says the US recession is likely to have a dual impact on the outsourcing industry. Appreciating rupee along with poor performance of US companies (law firms, investment banks and media houses) will affect the bottom line of the outsourcing industry. Small BPOs, which are operating at a net margin of 7-8 per cent, will find it difficult to survive. According to Dharmakirti Joshi, director and principal economist of CRISIL, along and severe recession will seriously affect the portfolio and fixed investment flows. Corporates will also suffer from volatility in foreign exchange rates. The export sector will have to devise new strategies to enhance productivity. The spectacular collapse of Lehman Brothers, 150-year-old company, when it applied for bankruptcy surprised everyone. The crisis arose due to a host of small banks which had, for several years, been sanctioning housing loans without, or inadequate, securities. There is no doubt that the Wall Street crisis will only have a marginal effect on India, thanks largely to the cautious regulatory system in place.
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It would be naïve to imagine that a recession in the United States would have no impact on India. The United States accounts for one-fourth of the world GDP and any significant slowdown is bound to have reverberations elsewhere. On the other hand, interdependencies between the US economy and emerging economies like India and China has reduced considerably over the last two decades. India has sharply criticized the United Nations (UN) and its affiliated organizations for sitting on the sidelines as the current financial crisis unfolded, saying the International Monetary Fund remained helpless despite the economic meltdown impacting the developing nations. India called on the world body to use its universality to coordinate an international response, which is crucial to overcoming the crisis. • Indian Software Industry: Turbulence in the global financial markets could translate into nasty surprises for the Indian Software Industry. The Indian IT vendors have been facing challenging times as a result of uncertainty in the US and Europe for well over a year now. The crisis though is not going to be restricted to the vendors exposed to these companies alone. The heat will be felt across the industry as the crisis leads to an overall slowdown in IT spends. Overall, the market will don a more conservative approach toward any spending, including IT spending, as the companies want to wait and watch whats going to happen to the business. When the whole industry is in turmoil, companies become cautious and step back to think how and where to spend, explains Arvind Thakur, CEO, NIIT Technologies. • Preliminary analysis of the current scenario indicates an impact on discretionary spend on IT due to the uncertainty and customer decisions being postponed .In the short-term the vendors will continue to get the same growth rate. While nondiscretionary spend is not going to get much impacted, the discretionary spend (on new technologies and integration of new technologies) is going to be limited.
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Non-discretionary IT spend will typically include existing work, live projects and maintenance kind of work. • Demand Slowdown: Six months after Bear Sterns went under and was acquired by JP Morgan, the latest series of events in the US financial sector would further slow down the demand for IT services. Most IT companies, however, did not offer any comment citing ‘silent period before quarterly results. In IT budgets, the non-discretionary spend, which is about 70 per cent, will continue. In a downturn, discretionary spend on new projects, innovation or up gradation gets affected. The impact, if any, will be on the latter. Unfortunately, the economic slowdown has been catching up with the other verticals as well, namely telecom, retail and manufacturing, especially the automobile segment. Some of the damage control measures by the US may make matters worse for Indian IT companies. • Disinvestment: The immediate effect has been the disinvestment in Indian Share Market by Foreign Institutional Investors. during the past few years, foreigners have pumped in about 60 odd billion dollars in order to buy shares in Indian companies. the resource crunch and liquidity problems in Wall Street forced them to liquidate their Indian share holdings. This led to the crash of the SENSEX and the artificial hue and cry over it. But as the foreign investors withdrew their investments, we had a net outflow of foreign funds, depressing the exchange value of the Rupee against the Dollar and other currencies. • Banking System: We have a chain of banking system based still on concept of welfares rather than profits. The urban (52) and state cooperative banks (16) have been playing significant roles in making 'fundamental our economy' strong. We have had developed 'a scientific fiscal mechanism of consistent monitoring' system for our banking system which would keep our economy safe in extensor, when the world's economy is in extremis. Common men, pensioners and small domestic savings still prefer post offices for one simple reason, the high rates of interest rates in comparison with any other financial institutions.
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Export Businesses: Export Businesses will suffer because of fall in foreign demand, but the depressed Indian Rupee will set it off to some extent. The rest of us in rural India should not suffer much - but alas! our capitalist-oriented Government will make us suffer. Because their greatest blue eyed pets, the capitalists who suffer losses due to depression of the value of the shares of their companies, will raise pressure on the Ministers of the Government. Even the prices of petrol and diesel will not be corrected down wards, because Government's pet boys may suffer loss of excess profits. So, the government will make us suffer.
Rural Economy: Economic crisis that is now “crushing” the poor around the globe and for lacking any vision for the future or how the organization could help developing countries deal with the serious looming challenges. The upheavals in the financial markets have very little to do with rural economy. Indian financial market especially banks have always been under RBI scanner, even during normal times.
Mass Layoffs: Indians are not used to mass layoffs. The recent economic boom has conditioned them to expect big companies to announce big profits, not wholesale sackings. India's rigid industrial relations system has also long discouraged corporations from making big retrenchments. India’s biggest private airline, Jet Airways, found out how deeply the community resents this industrial strategy when it "released" 1900 workers.A crowd of newly retrenched cabin crew, dressed in uniform, stormed the airline's headquarters in Mumbai to vent their anger.
Handicraft Sector : The handicrafts sector will be the most severely hit, followed by gems and jewellery. There has been a massive decline of 40-50 percent in handicraft exports from last year.That’s because this market is almost completely US-driven. In gems and jewellery, growth was projected at 20 percent, but due to the dwindling value of the dollar and the slowdown in the US, the growth rate is down to 10 percent.
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In light of the historical significance of the crisis it is too early to predict all its consequences. What we can be sure about, though, is that the world economy in general and the developing countries in particular will suffer from it in the future.
CHAPTER – 4
IMPACT ON INDIAN TEXTILE EXPORT
'Excerpts from the presentation given before Deputy Chairman of the Planning Commission Mr.Montek Singh Ahluwalia' Global textile & clothing industry is worth US$ 584 billion where clothing share accounts for 60% of share. Global trade is expected to grow to US$ 710 billion by 2010. Whereas, bulk of the increase is expected to be in Clothing, projected to grow to US$ 470 billion. The US market alone accounts for US$ 84.85 billion of apparel exports. Textile & apparel sector, alone, accounts for 14% of the total industrial production. This sector holds the second largest position after agriculture in employment generation. Apparel sector alone employs 60 lakhs people directly and indirectly. Apparel exports contribute around 8% to India's overall exports and 48% to textile exports. Indias apparel exports to top six countries: Destination USA UK France Germany UAE Italy % Share 33 11 8 7 6 5
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5, 7% 6, 9% 7, 10% 33, 47%
8, 11% 11, 16%
Immediate Challenges and Impact of Recession:
Nearly 5, 00,000 people have already lost jobs due to falling sales and Global Economic Recession. Another lot of 5, 00,000 will lose work by March 09 as per the survey in select clusters. In the next 2 months, the job losses will total of upto 1.5 million. Some exporting companies are reducing working hours, implementing 5 days a week instead of 6 days which resulted in reduced income levels of workers. Tirupur Exporters Association (the initiator of Knitwear technology Mission) too found out that the slowdown may lead to a decline of 30% in orders resulting in job losses.
As per the survey done by Okhla cluster shows 84% units register fall in export orders and employment.
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The survey did during the month of November 2008 within the 50 units. The findings are as follows A. 9084 workers employed B. 1258 job loss C. 13.84% extent of layoff D. 4593582 pcs. Order booked in Nov'07 to Jan'08 E. 3464812 pcs. Order booked in Nov'08 to Jan'08 F. 25% reduction in order booked during the same period
Garment Export expanding despite global recession Bangladesh becomes an exception that it is challenging India in apparel sector. Bangladesh's export of apparel is more than the India's export of apparel. During the period of 2007-08 Bangladesh's export accounted for US$ 10700 million. Bangladesh's export is projected to grow during June'08 to July'09 is US$ 16.30 billion. Employment increased to 2.5 million, terminal handling by customs improved down to 3 days from 12-13 days. Also price offered by Bangladesh to buyers for T-Shirts down by 20% from US$ 1.63/pc in 2000 to US$ 1.30/pc in 2007. The reasons: Why are we losing out? Power cost: India's tariff for power is 250% higher than Egypt. In Egypt the power tariff is 4.00 US cents per kilowatt, in Pakistan and Vietnam 6 to 7 US cent/kwh, in Indonesia 6.3 US cent/kwh, in Bangladesh 6.7 US cent/kwh, in China 8.5 US cent/kwh and in India 10 US cent/kwh. Labour cost: The labour costs are 229% higher in India than in Bangladesh. Below the table is given for some countries
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Country Bangladesh Vietnam Pakistan Indonesia China Egypt India
US cents per hour 27 29 39 52 57 60 62
US cents per hour 70 60 50 40 30 20 10 0
Ch in a Ba ng la de sh In do ne sia et na m Pa kis ta n Eg yp t In di a
52 39 27 29
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India' position in the important apparel categories Total imports of women cotton trousers of US accounted for US$ 6291.223 million in which US$ 433.533 million imports accounted from Bangladesh and US$ 262.514 million imports from India. In men' cotton trousers total import of US accounted for US$ 4970.652 million. In which US$ 757.201 million imports accounted from Bangladesh and US$ 210.115 million from India. Imports of Cotton sweaters of US accounted for US$ 820.82 million in which US$ 25.67 million imports accounted from Bangladesh and US$ 4.23 million imports from India. But the growth rates indicate a gradual takeover of these categories by Bangladesh. In women' shirts India is growing at 3.4%, while Bangladesh at 11.35%. In men' knitted shirts, India recorded decline of 10%, while Bangladesh increased by 20%. In men' cotton trousers, India recorded decline of 5%, while Bangladesh increased by 29%. India losing out on both high and low ends items India' cost breakdown for total fabric cost including credit is $1.89, while Bangladesh' cost breakdown is $1.86 for boy' woven bottom low-end item. In specialty wear (high value item) India's cost break down is $6.49 while the Bangladesh's cost breakdown is $5.87. The higher fabric cost is due to higher transaction and credit rates. Higher cut and make cost is due to higher labour cost and higher trim cost is due to higher duties. Moreover Bangladesh is duty free for EU and Canada so the landed cost works out much cheaper. In the case of the high end fabrics, Bangladesh uses Chinese knit fabric which is cheaper than even our vertical set up's and Bangladesh's costing are more competitive.
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Most of the Indian factories are not in EPZ's - the domestic goods fabric and trims attract an array of domestic taxes (service tax, VAT, excise etc.) - e.g. Zippers, thread etc. Government support to countries China has incorporated a phase wise increased refund of VAT from 11 to 17% on exports and additional 2% drawback from January 09 on manmade fibre and garments. Pakistan has reintroduced 6% R&D assistance. Cambodia's corporate tax rate is less than a third of India's as also exemption of up to 8 years in some cases. A 12% government cash grant for wages in Singapore during 2009 valuing Singapore $4.50 billion to sustain jobs. Indonesia announced fiscal stimulus of 72 trillion Rupiah (US$ 6.5 billion) on infrastructure projects, besides 51.3 trillion Rupiah of stimulus measures. Also introduced VAT exemption, import duty exemption and tax relief on investment. When the policy incentives were introduced in Bangladesh, its exports have significantly increased since 2005. Also Bangladesh has some export benefits that are as follows: 1. Income tax exemption 2. Subsidy on electricity, water, gas 3. Export loan 90% amount with letter of credit 4. Exemption from insurance premium 5. Refund of VAT on services like C&F, service, telephone, telex, electricity, shipping agent commission. 6. Duty free import of machinery 7. 80% exports of production considered as export orient industry for availing all export benefits. Also in comparison to Bangladesh, India is lacking in the procedures like 1. Shipment time less 3 day (India 10 days) 2. Easy access to bank credit (India access and procedural time a problem)
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3. Excellent infrastructure support in Export processing zones Indian textile and apparel industry Indian textile and apparel industry accounts for US$ 58 billion with potential to grow rapidly. Out of US$ 58 billion, India exports USD 23 billion in which USD 10 billion accounts for clothing and USD 13 billion accounts for Textile exports. Remaining USD 35 billion market is domestic market. Out of which USD 23 billion accounts for clothing and USD 12 billion for textile. India has strength of strong fibre base, flexibility in production of small order lots, design and development creativity, presence of integrated companies that is concept to consumer, ability to handle value additions; embellishments etc. and also has good cultural comfort with US and Europe. Vision Document 2012 As per the vision document 2012 textile ministry: Stitching machines required 14.15 lacs, investment required in garment making Rs.21800 crores, investment required in back value chain Rs.128800 crores and investment required for product development Rs.250 crores.
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EXPORT DATA FROM DEPARTMENT OF EXPORT GOVERNMENT OF INDIA
Textiles Exports from 2006-07 to April 2008 (Value - Rs.Crores) Item Cotton Yarn, Fabrics & Madeups 2006-07 19089.3 2007-08 18720.59 1540.93 373.58 36497.79 1312.87
9 Natural Silk Yarn, Fabrics & Madeups 1976.9 Wool Yarn, Fabrics & Madeups 385.5 Ready Made Garments 37506.1 Jute
Ready Made Garments
Wool Yarn, Fabrics & Madeups
Natural Silk Yarn, Fabrics & Madeups
Cotton Yarn, Fabrics & Madeups 0 10000
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India's position in the global trade in textiles and clothing As per the available WTO data, India's percentage share in global textiles and clothing trade was 4% in textiles, and 2.8% in clothing during the year 2007. India's rank in world trade has been 7th in textiles and 6th in clothing. Liberalised trading regime and emerging opportunities In the liberalized post-quota period, India has emerged as a major sourcing destination for new buyers. As a measure of growing interest in the Indian textiles and clothing sector a number of buyers opened their sourcing/liaison office in India. These include Marks and Spencer, Haggar Clothing, Kellwood, Little Label, Boules Trading Company, Castle, Alster International, Quest Apparel Inc., etc. Commercially the buoyant retailers across the world are looking for options of increasing their sourcing from the Indian markets. Indian manufacturers are also pro-actively working towards enhancing their capacities to fulfill this increased demand. Export performance in the current year In the year 2007-08 the textiles exports of India suffered badly due to sharp appreciation in Rupee vis-à-vis the US$. Although the rupee has depreciated sharply vis-à-vis the US dollar since April, 2008, the exports prospects of the Indian textiles sector continues to be adversely affected. Some of the reasons attributed to this decline are the financial sector melt down and economic slow down in international markets, increased cost of production because of increasing raw material costs, power and other input costs which have affected the profitability of textiles and garments units in India and their exports. The liquidity crunch is another factor that is affecting the industry. In such a situation the positive impact of rupee depreciation had been washed away. During the current financial year, various export promotion councils and trade bodies represented to the Government that the textiles exports had adversely been affected by recent global recession. For exports, the major markets have been USA, EU & Japan and all the three markets have gone into recession during the current year. As a result, during this year exports quantities were reduced or put on hold or the orders were cancelled.
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Country-wise analysis i) The European Union is the single largest market for India's textiles products, accounting for 34% of India's total textiles exports, followed by USA which accounts for nearly 25%. Other important countries are the UAE, Saudi Arabia, Canada, Bangladesh, China, Turkey and Japan. ii) India ranks 3rd in the EU markets of textiles and clothing after China and Turkey, EU's imports of textiles and clothing from India amounted to US$ 9.08 billion during calendar year 2008 registering a growth of about 6.42%. EU imports of T&C from India were of the order of US$ 8.53 billion in the calendar year 2007. iii) After surpassing Mexico, India ranks 2nd in the US markets of textiles and clothing (January-March 2009) after China with exports of US$ 1.35 billion. During the calendar year 2008, India's exports of textiles and clothing to the US amounted to USD 5.42 billion compared to US$ 5.45 billion in the calendar year 2007. iv) The USA, which is India's single largest market, is currently passing through a recessionary phase. The US imports of textiles and clothing from China and Mexico, its biggest two suppliers, receded by -2.74% and -15.79% during Jan-Mar'09. During the same period however, India's exports has also registered a decline of 13.92%.
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HIGHLIGHTS FROM ANNUAL REPORT OF TEXTILE MINISTRY India's textiles and clothing industry is one of the mainstays of national economy. It is also one of the largest contributing sectors of India's exports worldwide. At current prices the Indian textiles industry is pegged at US$ 52 billion, 64% of which services domestic demand. The textiles industry accounts for 14% of industrial production; employs 35 million people and accounts for nearly 12% share of the country's total exports basket. i) Exports of textiles and clothing products from India have increased steadily over the last few years, particularly after 2004 when textiles exports quota were discontinued. ii) During 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08 exports were of the order of US$13.5 billion, US$ 14.0 billion, US$ 17.52 billion, US$ 19.15 billion and US$ 22.13 billion respectively, denoting an increase of 64% in last five years. The volume of exports, as compared to certain other countries, could not register a faster growth due to various reasons like constraints of infrastructure, high power and transaction cost, incidence of state level cess and duties, lack of state-of-the-art technology etc.
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Cotton Balance Sheet from 2001-02 to 2008-09 2001Export (lack balls)
Export 90 80 70 60 50 40 30 20 10 0 85
12.11 0.5 0.84
9.14 2006-07 2007-08 2008-09
2001-02 2002-03 2003-04 2004-05 2005-06 Export
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EXPORT OF JUTE GOODS (rs crore) 200405 EXPORT 160.71 200506 362.33 200607 321.94
export 400 350 300 250 200 150 100 50 0 2004-05 2005-06 2006-07 export 2007-08 2008-09 160.71 362.33 321.94 334.81 291.99
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SILK EXPORTS Item Natural Silk Yarn, Fabrics & Made-up Readymade Garments Silk Carpet Silk Waste Total
3500 3000 2500 2000 1500 1000 500 0 Natural Silk Yarn, Fabrics & Made-up Readymade Garments 1976.9 1540.93 1197.21 1093.67 132.36 72.11 22.78 12.15 3329.25
2006-07 Rs Crore 1976.90
2007-08 Rs Crore 1540.93
1197.21 132.36 22.78 3329.25
1093.67 72.11 12.15 2718.86
2006-07 Rs Crore
2007-08 Rs Crore
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CHAPTER - 5 OBJECTIVE OF THE STUDY
The research project is mainly divided into two parts first one is introduction to recession and Indian textile export and the second is the study of impact of recession on Indian textile export.. The subjects under these two parts are 1. Introduction about recession and Indian textile export a. Introduction of recession b. Causes and general impact of recession c. Introduction of Indian textile export d. Impact of recession on Indian economy. 2. Impact of recession on textile export from India a. Collection of data about the export of textile from India to other country of last three year. b. Analyzing the data on the basis of data findings c. Making a conclusion on the data analysis..
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CHAPTER- -6 RESEARCH METHODOLOGY
Research methodology is considered as the nerve of the project. Without a proper wellorganized research plan, it is impossible to complete the project and reach to any conclusion. The project was based on the survey plan. The main objective of survey was to collect appropriate data, which work as a base for drawing conclusion and getting result. Therefore, research methodology is the way to systematically solve the research problem. Research methodology not only talks of the methods but also logic behind the methods used in the context of a research study and it explains why a particular method has been used in the preference of the other methods
Research design is important primarily because of the increased complexity in the market as well as marketing approaches available to the researchers. In fact, it is the key to the evolution of successful marketing strategies and programmers. It is an important tool to study buyer’s behavior, consumption pattern, brand loyalty, and focus market changes. A research design specifies the methods and procedures for conducting a particular study. According to Kerlinger, “Research Design is a plan, conceptual structure, and strategy of investigation conceived as to obtain answers to research questions and to control variance.
Types of research is: • Descriptive Research
The type of research adopted for study is descriptive. Descriptive studies are undertaken in many circumstances when the researches is interested to know the characteristic of
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certain group such as age, sex, education level, occupation or income. A descriptive study may be necessary in cases when a researcher is interested in knowing the proportion of people in a given population who have in particular manner, making projections of a certain thing, or determining the relationship between two or more variables. The objective of such study is to answer the “who, what, when, where and how” of the subject under investigation. There is a general feeling that descriptive studies are factual and very simple. This is not necessarily true. Descriptive study can be complex, demanding a high degree of scientific skill on part of the researcher. Descriptive studies are well structured. An exploratory study needs to be flexible in its approach, but a descriptive study in contrast tends to be rigid and its approach cannot be changed every now and then. It is therefore necessary, the researcher give sufficient thought to framing research. Questions and deciding the types of data to be collected and the procedure to be used in this purpose. Descriptive studies can be divided into two broad categories: Cross Sectional and Longitudinal Sectional. A cross sectional study is concerned with a sample of elements from a given population. Thus, it may deal with household, dealers, retail stores, or other entities. Data on a number of characteristics from sample elements are collected and analyzed. Cross sectional studies are of two types: Field study and Survey. Although the distinction between them is not clear- cut , there are some practical differences, which need different techniques and skills. Field studies are ex-post-factor scientific inquiries that aim at finding the relations and interrelations among variables in a real setting. Such studies are done in live situations like communities, schools, factories, and organizations. Another type of cross sectional study is survey result, which has been taken by me. A major strength of survey research is its wide scope. Detail information can be obtained from a sample of large population .Besides; it is economical as more information can be collected per unit of cost. In addition, it is obvious that a sample survey needs less time than a census inquiry. Descriptive research includes survey and fact finding enquiries of different kinds of the major purpose. Descriptive research is description of the state of
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affairs, as it exists at present. The main characteristic of this method is that the researcher has no control over the variables; he can only report what has happened or what is happening. The methods of research utilized in descriptive research are survey methods of all kinds including comparative and co relational methods. The reason for using such needs to be flexile in its approach, but a descriptive study in contrast tends to be rigid and its approach cannot be changed ever now and then.
Data collection methods:
After the research problem, we have to identify and select which type of data is to research. At this stage; we have to organize a field survey to collect the data. One of the important tools for conducting market research is the availability of necessary and useful data.
Primary data: The primary data is collected from department of commerce
Government of India and handicraft export Promotion Corporation of India. This data is export data of last few years of handicraft export. Secondary Data - The Company’s profile, journals and various literature studies are important sources of secondary data. Data analysis and interpretation 1. Pie chart and Bar chart
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This is very useful diagram to represent data , which are divided into a number of categories. This diagram consists of a circle of divided into a number of sectors, which are proportional to the values they represent. The total value is represented by the full create. The diagram bar chart can make comparison among the various components or between a part and a whole of data.
This is another way of representing data graphically. As the name implies, it consist of a number of whispered bar, which originate from a common base line and are equal widths. The lengths of the bards are proportional to the value they represent.
Preparation of report:
The report was based on the analysis and presented with the findings and suggestions. The sample of the questionnaires is attached with the report itself.
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CHAPTER – 7
Do you export textile goods to other countries? a. yes b. no
As my sample was textile exporters so all the respondents are exporting textile goods to other country
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Which textile you are exporting? cotton wool silk jute others 7 5 6 4 6
8 7 6 5 4 3 2 1 0
7 6 5 4 6
Among my samples 7 exporters are exporting cotton textile, 5 are exporting wool textile, 6 are exporting silk, 4 are exporting jute and other textile goods are exported by 6 exporters.
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To which your export business is most related to. Australia Canada France Germany Italy Japan Nether-land Uae U.s.a. U.k. Other countries
O e c u tr s th r o n ie U. .k U .a .s . Ue a Nth r la d e e- n J pn aa I ly ta Gr a y emn Fa c r ne Cn d aaa As a u tr lia 0 2 3 4 6 8 1 0 4 3 8 4 2 6 4 7
5 6 4 7 2 6 4 3 8 4 3
The maximum export is going to the France followed by UK, UAE, and Japan and lowest export is going to Netherlands leaded by Germany Australia and Italy.
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Do you think that recession affected your business? a. yes b. no
All the exporters are affected by this rescission.
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If yes then what is the impact on the business a. profit 1 b. loss 11
Among the samples only one exporter get profit during the recession rest of 11 get losses in their business.
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What is the percentage change in export a. 10% increase b. 20% increase c. 30% increase d. More than 30 % increase e. More than 30 % decrease f. 30% decrease g. 20% decrease h. 10% decrease a. 10% increase b. 20% increase c. 30% increase d. More than 30 % increase e. More than 30 % decrease f. 30% decrease 4 g. 20% decrease h. 10% decrease
0 1 2 1 0 0
The major loss in the export of textile goods are 30 % and more which can be seen in the accounts of 8 exporters.
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Did any Government policy help you to overcome from shock of recession? a. yes some how b. yes by very extent c. not at all
a. yes some how
b. yes by very extent
c. not at all
The interpretation of this question shows that there is no effort taken by government for relief of exporters.
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How much time you think that you need to overcome your losses in business a. more than two year b. less than two year but more than one year c. less than one year
9 8 7 6 5 4 3 2 1 0 3
a. more than two b. less than two c. less than one year year but more than year one year
75% exporters are thinking that it needs more than one year to overcome their losses.
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What you think who are Responsible for this all drama (financial crisis) a. USA b. Europe c. China d. India
All the exporters knows that the recession is caused by USA
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CHAPTER – 8 CONCLUSION
The Indian Textile and Clothing (T&C) industry is currently one of the largest and most important industries in the Indian economy in terms of output, foreign exchange earnings and employment. The industry contributes 4% to the country’s GDP, 14% to the country’s industrial production and around 12% to the country’s foreign exchange earnings. The T&C industry is also the second largest employment generating industry, after agriculture with direct employment of 33.17 million people (as of March 2006). Ministry of Textiles, Government of India, has targeted a growth of 16% per annum for the Indian T&C industry to reach US $ 115 billion by the end of Eleventh Five Year Plan. Provided the targeted growth is achieved, Indian T&C industry has potential to employ 45 million people and generate export earnings of US $ 55 billion by 2012. Indian T&C market in FY2008 was estimated at US $ 63.4 billion in 2007-08 with exports accounting for 35% valued at US $ 22.4 billion of which Textile exports accounted for US $ 12.7 billion and Garment exports accounted for US $ 9.7 billion. The industry has significant dependence on EU27 being the largest export market, accounting for 33% of the total T&C exports by value. US is the second largest export market for Indian T&C products with a 21% value share. Other important export markets are UAE (6%), China (5%), Bangladesh (3%) and Japan (1%). Declining demand in EU27 and US markets caused by the economic slowdown has severely impacted Indian T&C exports to these markets in 2008 The recent economic slowdown has significantly impacted the major export markets of Indian T&C industry i.e. EU27 and US. During 2008, value-wise yarn imports by EU27 declined by 13% resulting in a drop of 15% in Indian yarn exports to the region.
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Similarly, fabric imports by EU27 declined by 13% which negatively impacted Indian fabric exports by 7% y-o-y. However, China increased its yarn exports to EU27 by 5% and fabric imports by 1.9% in the same period. The US markets also witnessed a decline in y-o-y yarn imports by 9% and fabric imports by 7%. This resulted in India’s fabric exports to US declining by 8% whereas China increased its exports value by more than 2%. The only silver lining for India was an increase in value of fabric exports to the US by around 23% (y-o-y). In the ready-made garments (RMG) segment, imports by EU27 remained stagnant. However, Indian exports witnessed a 3.2% increase. RMG imports by US declined by 3% in value terms which negatively impacted the Indian T&C industry resulting in a 3% decline in exports. Despite lower imports by both EU27 and US markets, competing countries like Bangladesh, China and Vietnam outperformed by showing an increase in imports by 7%, 14% and 8% respectively in the EU27 region while in the US markets, Bangladesh exports increased by 11% and so did Vietnam by 20%. The made-ups market in both EU27 and US declined by 2% resulting in a fall of 6% in Indian made-ups exports to EU27 but with a gain of 2% in the US markets, India was able to maintain its share here. In comparison, Bangladesh increased its made-ups exports to EU27 by 8% and to the US by 9% whereas Chinese made-up exports to EU27 surged by 6%. The decline in exports to these key destinations has resulted in the industry missing its growth targets under the Eleventh Five Year Plan. The resultant fall in production is reflected in the Index of Industrial Production (IIP) figures. The monthly IIP for cotton textiles declined by 3.7% (y-o-y) in Dec 2008, 6.2% (y-o-y) in Jan 2009 and 12.1% (y-o-y) in Feb 2009 while the IIP for Textile products including apparel (2.3% y-o-y in Feb 2009). With the T&C industry having witnessed debt-funded capacity expansion, primarily driven by interest compensation under TUFS, the recent drop in production has resulted in under utilisation of capacities leading to inadequate absorption of fixed costs and weak debt coverage indicators. The decline in production and worsening financial performance
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of T&C industry has resulted in an estimated loss of 5 – 6 lakh jobs during the last few months. Lack of cost competitiveness among Indian T&C manufacturers vis-à-vis countries like China, Bangladesh, Vietnam and Sri Lanka has resulted in demand shifts in imports by EU27 and US to these countries. As highlighted earlier in the analysis of trends in imports by EU27 and US, though the slowdown has impacted all competing countries the intensity of impact is varied across these countries with India being the most severely impacted. Analysis of cost competitiveness reveals that Indian T&C industry has a significant cost disadvantage vis-à-vis China, Bangladesh, Vietnam and Sri Lanka varying from 2% to 12% depending on the T&C segment and country. Major factors contributing to the cost disadvantage of Indian T&C industry are high raw material cost, high labour cost, high power cost and high transaction cost. Moreover, on account of free market access available to Bangladesh (for exports to EU27 and Japan) and to Sri Lanka (for exports to EU27), these countries have a further cost advantage vis-à-vis India. This is further compounded by anomalies in taxes and duties thereby affecting the overall cost competitiveness of Indian T&C industry. Besides lack of cost competitiveness, the other impediments to growth for the Indian T&C industry are: • • • • • High dependence of T&C trade on EU27 and US markets High dependence on cotton products Lack of availability of skilled labour High working capital interest for procurement of cotton Delay in disbursement of TUFS assistance and other assistance
As the Indian T&C industry has a significant employment potential and export potential as envisioned in the Eleventh Plan, Government should take steps to address the issues affecting cost competitiveness of this industry by adopting the following measures:
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• Power related issues: Support captive power generation in the regions suffering from acute power shortage by allowing exemption of excise and customs duty paid for liquid fuels used for captive power generation. • Labour issues: Increase labour flexibility especially for the labour intensive sectors of T&C industry by allowing contract labour, extending labour working hours and relaxing the norms of Industrial Disputes Act, 1947 with regards the number of workers. • Anomalies in taxes and duties: Till systematic corrections in the taxation policy are implemented, devise a mechanism to refund the state level taxes and duties to T&C exporters, the incidence of which is on an average 4% of the ex-factory price. Also revise duty drawback rates to completely neutralize the incidence of all duties paid and the disbursal of duty drawback claims should be expedited. • Transaction cost: Documentary procedures at the ports should be simplified to reduce the transaction costs incurred by the exporters. Efforts should be made to increase port capacity and to improve rail/road connectivity to ports. • Raw material related issues: Formulate a comprehensive Fibre Policy to ensure availability of raw material (especially cotton and polyester) to the domestic T&C industry at competitive prices. Till a fibre policy is formulated, support the industry to reduce its dependence on cotton by abolishing import duty on manmade fibres and their intermediates, and abolishing excise duty on manmade fibre and their intermediates
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CHAPTER – 8 RECOMMENDATIONS
Immediate: 1. Immediate ad hoc increases in all industry Duty draw back rates by at least 2%. 2. 2% additional subvention in export credit 3. Exemption of fringe benefit tax as applicable to IT sector may be extended to apparel export sector 4. 80 HHC benefit should be re-introduced for at least 5 years 5. Interest free loans for investment in machinery should be introduced along with zero duty import of capital goods scheme.
Short term: 1. Moratorium of two years for repayment of principal amount against term loan 2. A part of funds under rural employment guarantee scheme be earmarked for apparel sector, since absorbs agriculture labour.
Long term: 1. Benefits available in SEZ are extended, at par to units in domestic tariff area, if exports are at least 90% manufacturing. 2. Higher allocation of funds to apparel export industry for capacity building 3. Rs.250 Crore allocations for brand building exercise.
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If recommendations are accepted
Over 71% employment generation is in garment sector Aims at 75% achievement in textile ministry's target for new jobs of 8 million by 2012 Direct employment generation in garmenting will be 3.34 million Weaving, knitting and processing will be 1.14 million Spinning 0.2 million Indirect employment generation will be 6.05 million.
• • • •
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Websites: 1. 2. 3. 4. www.wikipedia.com www.google.com www.scribd.com www.texmin.nic.in
Books & Articles: Marketing management: analysis, planning, implementation, and control by Philip Kotler - Business & Economics - 1988 Marketing Management by Philip Kotler, Kevin Keller - Business & Economics - 2008 Research methodology: a step-by-step guide for beginners by Ranjit Kumar - Social Science - 2005 Research methodology by Douglas K. Detterman - Psychology - 1985
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ANNEXURE Questionnaire for exporter
Name of exporter Address of exporter
Do you export textile goods to other countries c. yes d. no
Which textile you are exporting? cotton wool silk jute others
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To which your export business is most related to. Australia Canada France Germany Italy Japan Nether-land Uae U.s.a. U.k. Other countries
Do you think that recession affected your business. c. yes d. no
If yes then what is the impact on the business c. profit d. loss
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What is the percentage change in export i. 10% increase j. 20% increase k. 30% increase l. More than 30 % increase m. More than 30 % decrease n. 30% decrease o. 20% decrease p. 10% decrease
Did any Government policy help you to overcome from shock of recession? d. yes some how e. yes by very extent f. not at all
How much time you think that you need to overcome your losses in business d. more than two year e. less than two year but more than one year f. less than one year What you think who are Responsible for this all drama (financial crisis) e. USA f. Europe g. China h. India