by Dheeraj Tagra
27-December-2018 | 13 mins read
The last few years have been very difficult for the textile value chain. As curtains are ready to fall on 2018, it can be safely said that it has been an interesting year for Indian apparel manufacturers as well as exporters.
In the initial months of 2018, though there was relief from the effects of demonetisation, the industry witnessed more tension and struggle with GST implementation and the lack of clarity that followed. With the passing months, currency benefit followed, as the rupee depreciated and the US-China trade war created some positivity. However, the recent decrease in the duty drawback rates has yet again dented the spirit of the apparel industry thereby starting another wave of negativity.
As far as the biggest challenges of the industry in 2018 are concerned, there is unanimity about some of the common factors that created upheavals such as price pressure, GST-related issues and unlevel playing field in global competition. Rapidly changing fashion trends, making lead times even shorter and competition from e-commerce are the other factors that were prevalent earlier too but grew significantly this year too.
“Overall it was a very challenging year. The biggest of them was GST and subsequently reduction of drawback. After quota regime, the margins in apparel export business shrunk a lot and reduction of drawback/RoSL by almost 7 per cent brought the industry to its knees. It took sometime before a balance was achieved between exporters and buyers,” summed up Vijay Agarwal, Chairman, Creative Group, Mumbai.
He further added that an increase in minimum wages, and costs going up once again further aggravated the woes of the exporters. “Approximately 14 per cent increase in yarn and cotton prices broke the back of exporters,” argued Vijay.
And these challenges were the reason that many companies could not achieve whatever target they had set for the year 2018.
“As a company, we could not achieve the goals set for the year 2018 as we had to face some individual problems also, besides the general ones that the whole of the industry faced like change of buyers,” shared Raja Shanmugham, MD, Warsaw International and President of Tirupur Exporters Association. Tirupur-based Warsaw International, with a turnover of around Rs. 70 crore, is one of the medium-level exporters, which like its counterparts, could not achieve its set goal in 2018.
Even in the case of companies where the toplines looked good, the growth was more symbolic than real. For example, though Creative Group achieved sales target with almost 15 per cent growth, its bottom line took a blow. With a total turnover of more than Rs. 1,000 crore, Creative Group has nearly 50 per cent share of garment export in total revenue. The company is into home furnishing and yarn business also and caters to the domestic market too.
As challenges are always harder to tackle for comparatively small players, they have faced more difficulties this year, be it lack of resources or higher pressure on all business fronts. One such player who is very vocal about this situation is Pradeep Nahata of Karni Exports, Jaipur.
He is of the view that looking at overall internal and external situations, the very survival of his company became tough being an SME. He stated that only due to his own extra efforts, his company managed to achieve about 70 per cent of its goals for the year 2018.
“Considering the ongoing scenario, we are quite dissatisfied, as many companies of our size are in real difficulty,” Pradeep.
Apart from the most evident problems, few issues that have always impacted the performance of the industry for years could not be addressed in 2018 and hence the industry is still struggling on those fronts.
Lokesh Parashar, President, Federation of Buying Agents (FBA) believes that a large number of export-oriented factories are still not able to see the importance of producing consistent international level of quality products that can match with the competitor’s quality. He warns that this lack of foresight will in all probability continue and hence the Federation is determined to play a constructive role in changing this attitude.
“We will focus on skill development of key people at the top and mid-management level in the organisation. I firmly believe that if the attitude of the people who run the organisation and take critical decisions is aligned to market needs, the rest of the company will automatically become aligned,” reasoned Lokesh with a futuristic vision.
According to Lokesh, there is no major change brought about in the area of intellectual property rights and this is increasingly becoming a major area of concern. He further averred, “Designs/products from overseas clients get imitated like a photocopy and are sold domestically as well as at an international level. Most of the clients complain to their buying agents about this malpractice and ask for solutions to stop this. However, with no strong mechanism in place in the country to check this, the buyers prefer to stay away from India altogether.”
While talking about the positives that have impacted the apparel industry in 2018, many in the industry point out two major factors – dollar appreciation and labour availability, both of which supported the industry in remaining above board. “It is very difficult to point out the positives seen in a tough year like 2018, but may be the saving grace was the devaluation of rupee that gave some respite to exporters,” admitted Vijay.
Few stakeholders of the industry also believe that finally the GST process has smoothened out, which is a big relief for the export industry. With refunds pain being pushed away, the industry is back to focus on growth.
“Growing number of implementations of technology ranging from semi-automated factories to the initiation/awareness for adoption of Industry 4.0 module, skill upgradation and certification of major chunk of industry workforce, large and growing domestic demand coupled with increasing spending power of people have been the positives of the current year,” informed Pooja Makhija, Director, Fashion Futures, Delhi.
Pooja has been involved in many projects as a consultant and is happy to note that the industry is now more willing to invest in technology and processes. New product innovation and start-up culture in the industry saw an emergence of product innovators looking to export their creative, value-added products.
This year also witnessed some major negative developments for some of the well-known companies like Alok Industries, Shri Lakshmi Cotsyn, Mandhana Industries, Provogue, all of which struggled with debt issues… but the industry experts feel that these are all individual issues only and will not have an impact on the industry as a whole. However, some in the industry add that on the face of it the debt issues seem like individual issues with their own set of specific problems; since these are big giants which have had their share of glory in the recent past, it is a warning for many others.
“The recent downfall and the current status surely puts a big question mark for the survival of upcoming manufacturers and retail entrepreneurs. With the ever-changing and dynamic phases of the industry, we can only hope that this does not become a trend,” cautioned Pooja. It is also worth mentioning that the apparel manufacturing industry in not so much capital-intensive, so debt issues were relatively less compared to that in the textile industry.
As usual, more or less the industry is happy with the Government/Ministry’s role in supporting the industry but they agree that it is not enough and to the extent of what the industry deserves.
“Our industry is a promising industry which ensures job growth and also helps thousands of budding entrepreneurs to find their feet, hence this industry needs the utmost attention of the Government. On the other hand, China has taken so many proactive steps to promote its apparel industry by spreading its tentacles all across the bordering nations like Bangladesh, Vietnam, Cambodia, Myanmar and Sri Lanka, by using their individual bilateral agreements and other advantages effectively for its investments,” said Raja.
Lokesh also noted, “While the Government will push hard to achieve their goals of export infrastructure, FBA will focus on changing the mindset of the factory’s top management. A positive outcome is that factory owners have taken the Federation suggestions on a serious note and are willing to change gear.”
“2018 was a very positive year for Fashion Futures. We diversified and expanded our horizon to the Leather and Jute sector which have expanded our own understanding, knowledge and client base. We set our foot on international ground and look forward to providing our expertise and adding on to our existing consultancy services. We have also been active and have participated increasingly in various skill development and assessment initiatives by the Indian Government,” Pooja Makhija, Director, Fashion Futures
“The duty drawback committee has released its revised list which clearly reflects that it has bowed down to the lobbying pressures, for example, cotton yarn exports have been blessed with 0.5 per cent increase in DDB and even raw cotton has been given an increase in DDB whereas cotton garments are reduced by 0.1 per cent DDB. This itself shows how our policymakers are aware of the ground realities,” Raja Shanmugham, President, Tirupur Exporters’ Association
Support by Government
- Interest subvention increased on pre- and post-shipment credit for exports by MSMEs from 3 per cent to 5 per cent.
- Basic customs duty increased from 10 per cent to 20 per cent for import of 23 knitted garments items.
- MEIS incentive continued at 4 per cent beyond 30th June 2018.
- Decreased duty drawback rates
- RoSL claims have not been cleared for the past three months