‘Garment exports likely to witness zero growth’
Rahul Mehta is the President of the CMAI (Clothing Manufacturers Association of India). He has also been recently elected as vice-president of the Asian Apparel Federation, a joint conference of apparel-industry associations open to all Asian countries and regions. He is the managing director of Creative Casualwear Pvt Ltd, a company that is a part of Rs 400 crore-Creative group of companies.
In a chat with Saurabh Turakhia, Mehta discusses the adverse implications the rising rupee holds for the garments industry and also explains why the quote-free regime could not bring as good results that were expected of it. Excerpts:
What effect is the rising rupee having on the garment exporters?
The sudden appreciation of the rupee in a period of four weeks have wiped away the margins. As it is, this industry works on thin margin levels of 7 to 10 per cent. The payment for orders already fulfilled is affected. The orders currently processed will certainly result in a loss, but will still have to be fulfilled for goodwill and to continue to be in business. If the players quote their prices for future orders keeping the rising rupee in mind, we are found to be ‘overpriced’ in comparison to China, which can offer better prices. In addition, there is a cascading effect of this on the employment that the sector provides directly and through ancillary industries.
What exactly is the garments exports scenario like now?
Though the official figures are not out as yet, garments exports may reach a figure of $8.3 billion for the year ended 31 March, 2007, short of the set target of $9.5 bn. The exports grew by 30 per cent in 2005 over 2004 and by 12 to 13 per cent in 2006 over 2005. However, for 2007, we may either have zero or even negative growth. US and Europe together account for 65 per cent of our exports.
There was a lot of optimism around the time when the quota regime was to come to an end, which threw up more demand in key markets. What do you think went wrong?
Firstly, we cannot ignore the adverse impact of the rising rupee. In addition, looking back, I feel that neither the government nor the industry on its part have been proactive enough, with the result that India could not take advantage of the quota-free regime. In contrast, countries like Sri Lanka, Bangladesh etc took proactive steps by setting up apparel parks, SEZs (special economic zones) as well as legislative support through government and industry initiatives and are reaping the benefits. In India, the industry keeps complaining of rigid labour laws, lack of infrastructure, difficulty to get contractors etc while the government feels that the industry did not modernise itself adequately. In short, both got int some sort of complacency which is why things stand the way they do.
Going ahead, what trends or developments you foresee in the global exports scenario?
In future, fashion will become more and more prominent. The margins will be further squeezed owing to competition. Branding will also become more critical. Furthermore, there will be a reduction in lead-time for fulfilling orders. Most importantly, there will be considerable emphasis on quality, delivery and service.
What do you think of the idea of Textile Parks?
Such parks have to be essentially very large in size. However since such big spaces are unavailable in metros, one may have to move to other cities. That again, will increase the logistical and transportation costs. Such parks may not be very successful in the absence of financial relief or incentives.