Exporters gear up for hard times as India’s apparel export to EU drops by 4.44%

by Nitish Varshney

12-December-2018  |  10 mins read

India and EU
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Region-wise, the European Union is the largest apparel export destination for India. However the latest export data released by Department of Commerce (India) suggests India is not at all recovering in the European market, which is a major setback to the country’s exporters. Against US $ 3,110.69 million worth of apparel exports in April to September 2017 period, India fell 4.44 per cent to hit just US $ 2,972.73 in the same period of ongoing financial year.

As per Apparel Resources’ analysis on the data, India declined both in knit and woven categories significantly. Knitted apparels export witnessed a fall by 2.85 per cent and valued at US $ 1,558.22 million in Apr. to Sep. ’18 period, while in the corresponding period last year it stood at US $ 1,603.91 million. On the other hand, woven garment exports declined by 6.12 per cent to earn US $ 1,414.51 million in the review period which, last year, stood at US $ 1,506.78 million.

Notably, the United Kingdom, Germany, Spain and France (top 4 exporting destinations in EU) dwindled in their respective imports from India which is not at all appreciable as it is contrary to the global trends. All these countries are continuously growing as far as their import from India’s competitors Bangladesh and Vietnam are concerned. Further, the only positive destination in top 5 tally was Netherlands which grew in its import from India. It’s worth mentioning here that these 5 markets accommodated 78 per cent of India’s total export to EU with a combined value of US $ 2,319.60 million and sluggish export performance in these countries is surely a factor of worry for the country. Let’s take a look at how India performed in below-mentioned countries during April to September 2018 period.

1. United Kingdom

Apparel export to the largest export destination in the EU remained subdued in the said period both in knit and woven categories. India fell by 8.46 per cent to US $ 797.78 million as the shipment value to the UK in the same period of last fiscal stood at US $ 871.5 million. Knitted apparel export plunged by 10.61 per cent and tapped US $ 408.4 million, whereas woven apparel export too dropped by 6.09 per cent to hit US $ 389.38 million.

2. Germany

When it comes to apparel export to Germany, Bangladesh wins the race as it shipped apparels worth US $ 5,579.51 million in FY 18 and remained not too far from USA which is its largest apparel exporting destination. But, that’s not the case here. India exported apparels just worth US $ 570.88 million in the said period with 0.77 per cent downfall on the yearly note. Major fall came from woven segment as export in this category dwindled by 10.91 per cent, while knitted category noted surge by 7.03 per cent.

3. Spain

Following the declining trend, apparel export from India to Spain remained sluggish. India clocked US $ 420.65 million with a fall of 7.48 per cent during the review period. Knitted apparel export were massively down to US $ 135.09 million from US $ 155.45 million in the same period of the prior year. While, woven segment too noted drop of 4.19 per cent to US $ 254.10 million from US $ 265.20 million in the corresponding period of last fiscal.

4. France

Once France was a strong export market for India but today it is not any more a positive destination for the country. During April to September 2018 period, India touched US $ 337.41 million, a fall of 3.08 per cent from what it gained last year. Knitted apparel exports plunged by 0.59 per cent, while woven category saw dip of 6.08 per cent in the review period.

5. Netherlands

The only positive export destination in top 5 list for India was Netherlands. The country grew 6.56 per cent as India shipped apparels worth US $ 224.34 million in the period under review, while in the corresponding period last year it valued at US $ 210.53 million. However, India could only manage to see growth in knitted apparel segment which grew by 19.71 per cent, while woven category dropped by 6.31 per cent in the review period.

India’s Apparel Export to top 5 EU Destinations
S. No. Country   Knitted Woven Total (Apr- Sep ’17) Total (Apr- Sep ’18) % Change
Apr- Sep ’17 (value in US $ million) Apr- Sep ’18 (value in US $ million) % Change Apr- Sep ’17 (value in US $ million) Apr- Sep ’18 (value in US $ million) % Change
1 United Kingdom 456.88 408.4 -10.61 414.62 389.38 -6.09 871.5 797.78 -8.46
2 Germany 325.39 348.25 7.03 249.9 222.63 -10.91 575.29 570.88 -0.77
3 Spain 155.45 135.09 -13.10 265.2 254.1 -4.19 420.65 389.19 -7.48
4 France 189.86 188.74 -0.59 158.29 148.67 -6.08 348.15 337.41 -3.08
5 Netherlands 104.13 124.65 19.71 106.4 99.69 -6.31 210.53 224.34 6.56

Data Source: Department of Commerce, India
Compiled by: Apparel Resources

Is the industry not READY for Readymade Garment export?

With several internal as well as external headwinds, the past year turned out to be rather challenging for India’s apparel exporters, especially in the EU where lack of FTA was already hurting the export performance. On the other hand, the competing countries have better market access due to free trade agreements, or FTAs, with key markets like the European Union. It is a well-known fact that India has been holding negotiations with the European Union to conclude a Free Trade Agreement since 2007 as part of its strategy to expand market share in the European market but it has not happened yet.

Moreover, transition to the new taxation regime in form of GST, besides posing liquidity challenges for the industry, added to uncertainties because of alternating stances on export incentives during the year. Further, a stronger rupee against Euro caused more challenges as far as competitiveness of India is concerned against its competitors which depreciated more in their respective currencies than rupee.

Apparel
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Can BREXIT be a challenge?

Before we talk about Brexit, we have to look at some figures. The value of India’s exports to the EU in FY18 stood at US $ 53.60 billion, i.e. 18 per cent of its total merchandise exports in dollar value terms. Of that, apparels alone accounted for around 12 per cent, i.e. US $ 6.42 billion. Of this US $ 6.42 billion, US $ 1.72 billion or 26% was contributed by UK. Seeing these figures, it can safely be stated that UK is undoubtedly an important market for Indian apparel export which cannot be overlooked. However, Brexit will finally happen on 29th March 2019 and this ‘divorce’ of Britain-EU is expected to affect Indian apparel exporters as well. The net impact of Brexit on India’s export competitiveness will depend upon the relative movement in exchange rates of the pound, euro, yuan and rupee against the dollar, and also the sensitivity of India’s export basket to change in prices/exchange rates. With Brexit on, the only way to expand business in UK, would be through bilateral negotiations, which would mean a new set of negotiations and a longer timeline.

Pooja Makhija, Director, Fashion Futures, India talked about Brexit with Apparel Resources and said, “Britain had provided a gateway to EU until Brexit happened. This will affect the India UK bilateral ties. Many companies will now have to move to relocate their business set ups to other places but hopefully Brexit will have a positive effect too.  The results may just not show up immediately though. With the UK moving out of EU, it might not be as attractive to Indian firms as before. However, UK government would not like to miss out Indian investment and will thus try to attract Indian firms by offering more incentives such as tax breaks, easy regulations and opening up markets. Though there are lot of negative emotion towards Brexit but this will eventually surpass as long-term benefits of Brexit will outweigh the short-term costs for India.”

Raja M Shanmugham, President of Tirupur Exporters’ Association and Chairman of Warsaw International quoted that Brexit may or may not hit the exports from India. “Even if it affects, it would be short term,” opined Raja.

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