The Indian apparel and textile export industry has been on the stumbling end in the recent past, and we have talked enough about it. Now, the times are changing for the once ‘dropped-face’ exporters as shipments grew in double digits in the past months. It was first in the month July 2018 when India witnessed a surge of 11 percent in exports to Rs. 196.36 billion. And now, as per the latest traceable data available, exports of textile and garment products from the country soared 18 percent in the month of August 2018 to reach Rs. 21,895 crore as compared to Rs. 18,533 crore in the same month of 2017. Meanwhile, export of textile yarn fabric, made-ups zoomed 32 percent to Rs. 1,196 crore as against Rs.907 crore in August 2017. In the first five months of the current FY, the exports surged 11 percent to Rs.5,347 crore versus Rs. 4,799 crore last year. Additionally, cotton yarn fabrics, made-ups and handloom products’ export improved by 39 percent to Rs. 7,456 crore in August 2018 against Rs. 5,380 crore in August 2017. Man-made yarn fabrics, made-ups exports meanwhile grew by 24 percent to Rs. 3,196 crore in the reporting month. Similarly, in the April-August 2018, period textile and apparel export jumped 6 percent to Rs. 1,01,727crore as against Rs. 95,888 crore during April-August 2017. Notably, a staggering 17 percent drop in the April-June quarter was recorded previously.So what has helped the struggling industry to gain out of the blue growth? Well, that’s happened gradually if we analyse it..
The Dollar Punch
The Indian currency has weakened by about 8-9 percent since the start of the year against the US Dollar. The depreciating value of the currency acts as a direct subsidy for exports while acting as a punitive tax on imports. Also, the undervaluation doesn’t fall foul with the regional or multilateral agreements in the way export subsidies do. In simple words, a weaker rupee has lent some competitiveness to India’s ailing exporters because it makes products cheaper for the buyers in dollar terms.
Moreover, China’s ongoing trade war with the US and the former’s drifting focus from the apparel manufacturing industry due to the rising wages have also given an edge to the Indian exports. The record setting performance of US equities and the improvement in the labour market have also helped.Meanwhile, the sluggishness in the Euro Zone has enacted a key role. From the past few months , the global economy has suffered from the Euro crisis, as investors are focused on selling Euros and buying Dollars. Any outward flow of currency or a decrease in investments will put a downward pressure on the rupee exchange rate, a report claims.
But what has the currency done to it (exports)?
Let’s suppose that India is the exporting country and the US is the importer. India ships garment products to the latter. Assuming that INR 40 = 1 US in Scenario 1 and INR 80 = 1 USD in Scenario 2. The cost of an apparel product in India in both the scenarios will go like this:
Under Scenario 1: The US will get
only 1 product for 1 USD.
Under Scenario 1: The US will get 2
products for 1 USD.
So, importing from India has turned out to be extremely cheaper for the US. This will make India export more to the US and fetch foreign currency with better exchange rates. The exporters can now sell more garments (volumewise), and the trade volume will surge. Also, the Indian currency they get when converted is now higher than before. Thus, when there is a fall in rupee against the USD, exporters from India are benefited. In general terms, a weaker currency will stimulate exports and make imports more expensive, thereby decreasing a nation’s TRADE DEFICIT as well (or increasing surplus)
over time.
Where does the competitors stand against US Dollar?
In dollar terms, while the US’ apparel imports from China declined by US $ 803 million from US $ 26.021 billion during the January-November 2016 period to US $ 25.218 billion a year later, the decline for Bangladesh over the same period was by US $ 212 million. Against US $ 4.939 billion worth of apparel that it exported in January-November 2016, Bangladesh shipped US $ 4.727 billion worth of apparel in January-November 2017. By comparison, Vietnam, the secondlargest apparel exporter to the US, saw its export numbers growing by US $ 742 million from US $ 10.005 billion to US $ 10.747 billion. Among the top five destinations, India happens to be the fifth in value terms, with its apparel exports to the US in January-November 2017 augmenting by US $ 74 million to US $ 3.471 billion, against US $ 3.397 billion in the same period a year earlier.
According to the data from the Office of Textiles and Apparel (OTEXA), the average realisation per square metre equivalent of apparels exported by India to the US has been in the range of US $ 3.4-3.6 since 2014. In comparison, the average for China fell by 13 per cent to US $ 2.3 whereas for Bangladesh, it declined by 11 per cent to US $ 2.7. Vietnam reported a drop of 9 per cent in average realisation at US $ 3. The share of these apparel export destinations in the total apparel exports to the US clear depicts the picture. In 2017, India’s share in the total apparel export to the US was 4.5 percent; China’s 38.2 percent; Vietnam’s 13.8 percent; and Bangladesh’s 7.5 percent. India’s share is expected to rise further if INR continues
to stumble against the USD.
Concluding the Dollar Impact
It is unlikely for US Dollar to come down soon against the Indian Rupee. Seeing the ‘Holiday Season’ approaching in the US, the Indian exporters can make the most it by offering a variety of products to the buyers. Markedly, the bulk orders will only help the exporters to mark up their businesses or the foreign exchange fetched. This may also increase India’s overall foreign exchange generation as well in the months to come. While the mounting Dollar is a threat to the economy of India in the long run, in the shorter run, it still remains to be beneficial for the exporters to combat the capital crunch they had been facing in the recent past. Factors like the Dollar’s strengthening against some other currencies overseas like the
Chinese Yuan will also play a key role for Indian exporters as buyers would turn to India more in that case, seeing the value they get per Dollar here…
