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Bankruptcies in US Export demand under threat

business Updated: Nov 09, 2008 20:23 IST
Gaurav Choudhury

Nervous exporters, smarting under severe earnings erosions last year, are struggling to ink new contracts as demand shrinks amid growing bankruptcies in the US, India’s largest export market. While a weaker rupee may have improved competitiveness, there is a problem from the demand side.

Latest data from information services firm Dun & Bradstreet show Chapter 11 filings for commercial businesses has increased from 3,600 in 2006 to an estimated 6,700 in 2008, registering a 84 per cent rise, while Chapter 7 filings has increased from about 11,400 to an estimated 25,000 during the same period, a rise of 116 per cent.

Under US laws, a company can use Chapter 11 of the Bankruptcy Code to "reorganise" its business and try to become profitable again. But a bankruptcy court must approve all significant business decisions. This is akin to filings with India’s Bureau for Industrial and Financial Reconstruction (BIFR).

Under Chapter 7, the company stops all operations and goes completely out of business. A trustee liquidates its assets to pay off creditors and investors.

US accounted for about 13 per cent of the total Indian exports in 2007-08.

According to the Apparel Export Promotion Council (AEPC) exports of readymade garments from India fell by 6.6 per cent in September over the same period last year.

“There is a drop of 20 to 25 per cent in the business of winter apparels from India. A large number of stores in the United States have been closed or are in the process of being closed. Many buyers have filed for bankruptcy due to low demand and economic crisis,” AEPC’s secretary-general Vimal Kirti Singh said in a letter to the commerce ministry.

Among those filing for bankruptcy are customers like Steve and Barry’s and Mervyns.

Pacific Sunwear has closed 150 stores while Lane Bryant, Fashion Bug and Catherines are closing 150 outlets, which are under-performing.

Firms like Eddie Bauer, Cache, Talbots, J Jill, Gap Inc, Foot Locker, Goodbye Levitz, Home Depot, Macy’s, Pep Boys, J C Penney, Lowe and Office Depot are scaling down operations as well due to falling sales, AEPC said.