The government’s ambitious plan to achieve a 30% jump in textile and garment exports to $43 billion this fiscal and partly offset the impact of a domestic slowdown may go haywire. A 9.3% appreciation of the rupee since its lowest in August may restrict the pace of textile and garment export growth to a moderate range of 10-15% this fiscal, especially in the absence of any major policy intervention and the withdrawal of an up to 4% incentive on yarn exports in September, senior industry executives said.
After a marginal drop last fiscal, textile and garment exports logged a 12.5% year-on-year growth in the April-July this fiscal to $9.11 billion on the back of a depreciating domestic currency and a recovery in US demand. In rupee terms, the rise in exports during the period was more substantial, at 17.6% to R51,863.64 crore. Overall textile production gained 3.2% between April and August, showed the Index Of Industrial Production data, suggesting that exports contributed much to the textile sector expansion this fiscal while domestic demand remained muted. So any threat to exports this fiscal may curb the entire sector’s growth.
“The rupee dropping to the 68 level against the dollar was more of an aberration and the current level of the domestic currency seems to be a reasonable one. However, any further appreciation or wild swings from this point would hurt export prospects as the sector can absorb currency risks to a limited extent only,” said DK Nair, the secretary general of the Confederation Of the Indian Textile Industry.
Senior industry executives said textile and garment firms usually hedge 30-40% of their revenue in the currency market to beat risks, although some heavily export-oriented ones like Welspun hedge more.
Dipali Goenka, managing director, Welspun Global Brands, said: “We hedge around 60% of our revenue while the remaining 40% is kept open as a risk-mitigation strategy. Hence, we are not much affected when the rupee appreciates and, similarly, we do not gain much when the rupee depreciates... This ensures that we have predictable revenues to a significant extent.”
Welspun, Asia’s largest home textile company, draws more than 90% of its revenue from exports and is also a key supplier to retail giants including Wal-Mart, Target, and Bed Bath & Beyond.
However, most of the unorganised players — who account for 80% of the garment and 90% of fabric segments — don’t hedge. So any sharp appreciation of the domestic currency hits them the most and causes large-scale layoffs in a sector that offers jobs to 35 million people and is the country’s largest employer after agriculture. Even the bigger companies bat for stability in the rupee movement.
According to Alok Industries MD Dilip Jiwrajka, the sharp depreciation of the rupee and problems of compliance of global safety standards by key competitor Bangladesh helped India’s exports earlier this fiscal. “Although the rupee has strengthened a bit recently, we, as a company, don’t see much of a risk as of now. However, an upset equilibrium in the rupee movement may tend to hurt export prospects of companies in the sector,” he said.
Alok Industries, the country’s largest player with a strong presence across the textile and garment segments in the domestic as well as export markets, aims to raise its export revenue by around 80% to Rs 6,000 crore over the next two years.
Vardhman Group chairman SP Oswal said the stabilisation of the rupee is essential due to the very nature of the textile and garment business. “A depreciation of the rupee may temporarily help exporters, but raw material costs will rise consequently, and so will labour costs in the very labour-intensive sector. These will ultimately hurt them.” However, he sees no harm to Vardhman from the recent appreciation and expects exports to grow 7%, as forecast earlier, from over $300 million in 2012-13.
Source:- financialexpress.com
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