The Ministry of Textiles (India) has been quite proactive since Piyush Goyal has taken charge, and in a recent interaction with the country’s top textile and garment exporters, he asked the industry to aim at reaching US $ 100 billion figure in textile and apparel exports from the current export value of US $ 33 billion, that’s almost 3 times more!
Though the target expectation is huge and no time line has been defined, the industry believes that the number can be achieved in the near future with a proper roadmap to exploit opportunities created in global trade.
Exports in 2021 picking up with a bang…
It’s true that India apparel and textile export has been on continuous decline trajectory for last 3 years but the start of 2021 has been phenomenal. Encouragingly, India’s textile and apparel exports to the USA, its single largest market, were up 54.58 per cent in the first seven months of 2021, according to OTEXA. This is the fastest pace of growth among the top five countries exporting textile and garments to the USA. The other four major destinations – Vietnam (up 17.60 per cent), Bangladesh (up 29.19 per cent), China (up 27.95 per cent) and Mexico (up 31.12 per cent) remained behind India in 2021.
Despite having a well-built domestic textile supply chain, India has been surpassed by competitors such as Vietnam, Bangladesh, China, and Mexico, which have been growing much faster to key markets – US and the EU. But, if above-mentioned data is anything to go by, 2021 has so far seen a reversal of this trend, particularly in the US market.
One of the reasons for this encouraging performance cited by the industry is the higher export order booking for apparels and a major consolidation in home textile segment where India has traditionally been a strong player. The country could manage to stay afloat in 2021 all because of less severe lockdown restrictions in the country’s export hubs especially in southern states such as Tamil Nadu and Karnataka during the second COVID-19 wave that couldn’t hit the business activities severely in April-June ’21 quarter.
But, is this a long-term phenomenon? No, until a complete revival of the industry takes place from bottom. While officials at the Ministry of Commerce and Industry have repeatedly maintained their stand on duty remission schemes such as RoDTEP (Remission of Duties and Taxes on Exported Products) and RoSCTL (Rebate of State and Central Taxes and Levies) that have somehow helped the exporters in the garments and textiles sector, the stakeholders have consistently raised their concerns over delayed operationalisation of tax rebate schemes and lower-than-expected benefits.
For long-term sustained growth, a well-defined roadmap needs to be created by the Government, taking industry stakeholders into confidence…
- Find the gaps in product categories and focus on building capacities for the same
One of the biggest problems Indian garment manufacturing faces is the non-conversion of raw material into premium products that generate more revenues. Export of raw cotton fetches approximately Rs. 275 per kg, while the export value – when converting cotton into yarn – stands at around Rs. 325 per kg. On the other hand, a kilogram of garments exported with all its value additions can fetch between Rs. 800 to Rs. 1200 and that’s where India must focus on. In terms of value addition, the apparel sector is far ahead of any other segment of the textile chain.
What works in favour of India today is the US ban on Xinjiang cotton which has created an immediate and direct demand for cotton, and cotton-made apparels for other countries. And, as India is the second largest cotton producing nation (with 6,162 thousand metric tonnes of production in FY ’21), it is an obvious choice for buyers as they move from China.
China shipped US $ 4,628.50 million worth of cotton garments to USA in 2020, declining by a massive 45.20 per cent from 2019. Top 5 cotton products’ HS codes were – 611595, 620442, 611420, 610342, and 620630 in which China shipped items worth US $ 128.50 million, US $ 124.70 million, US $ 123.30 million, US $ 94.70 million, and US $ 81.40 million respectively. Collectively, the value stood at US $ 552.60 million in 2020, which was US $ 855.40 million in 2019. So, clearly China is losing out on these product categories and buyers are on a lookout for an alternate sourcing destinations in 2021 onwards.
Here are the above-mentioned 5 HS Codes with their briefs:
HS Code 611595 – Full-length or knee-length stockings, socks and other hosiery, incl. footwear without applied soles, of cotton, knitted or crocheted (excluding graduated compression hosiery, pantyhose and tights, women’s full-length or knee-length stockings, measuring per single yarn < 67 decitex, and hosiery for babies)
HS Code 620442 – Women’s or girls’ dresses of cotton (excluding knitted or crocheted and petticoats)
HS Code 611420 – Special garments for professional, sporting or other purposes, n.e.s., of cotton, knitted or crocheted
HS Code 610342 – Men’s or boys’ trousers, bib and brace overalls, breeches and shorts of cotton, knitted or crocheted (excluding swimwear and underpants)
HS Code 620630 – Women’s or girls’ blouses, shirts and shirt-blouses of cotton (excluding knitted or crocheted and vests)
According to AEPC, these 5 products along with 15 other top cotton garment products in the USA market, should be utilised to grab the shift. “A policy of incentivising value-added exports like these 20 products and disincentivising exports of raw material, such as cotton and yarn will help enhance exports,” said AEPC in a statement.
- Keeping track of close competitors like Indonesia
Apart from China, what could be another great move is keeping an eye on the Indonesian apparel exports…As per data analysed by Apparel Resources, Indonesia is the closest competitor of India in its apparel exports to USA as it has been holding 4th spot since long in top apparel exporters tally to USA, while India has remained on 5th all through the time. However, the situation is taking turn in India’s favour from last couple of months due to the country’s resilience in COVID-19 pandemic unlike Indonesia which is finding it difficult to retain its position in global apparel market post-COVID. See below table to know how India has gradually surpassed Indonesia over the years in the USA market to grab fourth spot in 2021.
Comparative analysis between India and Indonesia apparel export to USA
|Year||Apparel exports from Indonesia to USA (in US $ million)||Apparel exports from India to USA (in US $ million)||India’s Gap in Value (in US $ million)|
|Jan.-Jul. ‘21||2137.36||2318.13||(+) 180.77|
Courtesy – Apparel Resources
India has been able to surpass Indonesia, as the country is facing some severe challenges in its garment manufacturing sector. The labour-intensive business is dependent on imported cotton that’s priced in USD, making it vulnerable to a weak rupiah and economic tremors and this is not the case for India. Besides, annual increase in minimum wages in West Java and Jakarta regions have squeezed an already-tough margin for the manufacturers with the loss of workforce during pandemic times. Many garment units have responded by laying off workers and reducing the number of shifts. Over the long term, Indonesia’s ability to boost manufacturing and create productive jobs for its swelling workforce will require a breakthrough vision and buyers are not going to wait for that. That’s where India needs to catch the bus!
- Increase business to Hungary and Denmark
The Top 5 traditional EU destinations for India – Germany, France, Spain, Netherlands and Italy – registered decline in their respective RMG imports from India during 2020 for obvious reasons. It’s worth mentioning here that these 5 markets accommodated 73.48 per cent of India’s total export to EU – with UK excluded. While the EU-India FTA talks will aim at increasing India’s apparel exports to these 5 traditional and top markets, the other two emerging destinations – Denmark and Hungary – can’t be overlooked.
Denmark was the 6th top apparel export destination in EU for India during 2020 with an export value hovering around US $ 231.95 million, that’s 3.29 per cent yearly growth, while Bangladesh declined by 0.51 per cent in its apparel export to Denmark in 2020. When we talk about Jan.-Jul. ’21 period, the growth in Denmark is even better, as India shipped US $ 132.81 million worth of garments noting 46.62 per cent growth on Y-o-Y basis, during the period. The potential for growth is huge as future projections for this emerging retail market are all positive. The revenues in the Denmark apparel market are projected to reach US $ 4.58 billion in 2021 and the same is expected to grow annually by 4.02 per cent (CAGR 2021-2026). Hence, tapping this growing market in the early stage will set the future platform for the Indian factories.
Another rising market is Hungary that imported US $ 21.16 million worth of apparels from India in 2020, as compared to just US $ 2.79 million in 2019, marking 658.42 per cent yearly growth in a pandemic-ravaged year. Notably, Hungary imported US $ 1.56 billion worth of garments from worldwide in 2020, as says ITC data, and India’s share to this value remained just 1.35 per cent and that’s where the key lies. In Jan.-Jul. ’21, India has already shipped US $ 20.70 million worth of garments to Hungary, as against just US $ 6.98 million in Jan.-Jul. ’20 period.
India’s garment export to this small yet potential European destination seems to be weaving up strongly. As per Statista, the total revenue in apparel segment in Hungary was US $ 2.07 billion in 2020 and the same is expected to grow annually by 16.2 per cent from 2021 till 2025.
The chances of India’s growth in Denmark and Hungary are high because of the fact that both these countries are known to source high fashion garments in small quantities, something which India already has an upper hand in, as compared to its Asian counterparts.
|India’s Apparel Export to Denmark and Hungary|
|Country||Knitted Apparel||Woven Apparel||Total
|Jan.-Jul. ’20||Jan.-Jul. ’21||% Change||Jan.-Jul. ’20||Jan.-Jul. ’21||% Change|
Courtesy: Apparel Resources
- Price fixation of raw material should be done
There should be an inclusive policy to bring the cost of raw material down or at least peg it for a duration. This will be an immediate and direct boost to apparel manufacturers who are grappling with the issue of high raw material prices since long. India needs to follow a stable price fixation policy for critical inputs like cotton, as is being followed by Bangladesh, so it is easy to plan, budget and execute programs.
- Strong FTAs needed to counter trade barriers
India has been facing duty disadvantages against its competitors in the major overseas destinations. The industry needs a respite, which is possible only by forging trade agreements. In the EU, India’s exports face a duty disadvantage of 9.60 per cent for exports vis-à-vis exports from other countries like Bangladesh, Cambodia, Turkey, Pakistan, Sri Lanka etc.
In the UK, after the implementation of the BREXIT in January 2021, 47 Least Developing Countries (LDCs) including Bangladesh continue to enjoy preferential trade benefits after the UK’s departure from the EU. The present duty structure in Canada shows a 17.5 per cent differential as compared to Bangladesh and Cambodia. The same is the case with Australia, where Bangladesh, Cambodia and China have zero duty access to Australia and India faces duty of 5 per cent.
UAE is India’s 2nd biggest destination, with around US $ 1.52 billion exports, comprising 12.4 per cent share of India’s overall exports. The average tariff applied by UAE on RMG Import from India is 5 per cent, hence tariff elimination from 61 and 62 products is necessity.
Ironically India enjoys good relations with all these countries, but no trade advantage!
- Government push to improve factories efficiency
Of all the challenges that India faces in its apparel manufacturing business, what hurts the most is low efficiencies on shopfloor. It’s an irony that Indian factories are still running at around 35 per cent average efficiency as compared to over 50 per cent efficiency of Bangladesh and Vietnam; and over 60 per cent efficiency of Sri Lankan factories. Because of low efficiencies, average cost of production of Indian factories is higher than the neighbouring countries. “Even if we ship a product at US $ 2.50, Bangladesh is able to ship the same at US $ 2.20 to the same buyer. The main reason is the cost we bear due to failure in efficiency improvement,” claim most exporters in the Tirupur belt.
The Government needs to step in with the support of associations and consultants who have spent their lives to improve factory’s operations. Once factories in need are identified, a state-wise mission can be run with the help of a team of experienced consultants those who should report directly to Textiles Ministry sharing progress and requisites.
The same was maintained by renowned manufacturing business consultant Nimish Dave, Founder, The Idea Smith. “The Indian garment manufacturing industry needs to work on achieving operational excellence and enhancing their efficiencies. The Government must take all stakeholders, including consultants into confidence to work towards a goal in order to wipe off inefficiencies from shopfloors and compete with more efficient countries. Another thing that the Government should do is not look into past trends and mishaps, rather work completely on the requisites that the industry needs in the today’s time. It’s like new targets and new beginning,” averred Nimish.