Wednesday, April 18, 2007

Another medium term negative for India

  • 7% appreciation of Rupee hits Indian textile industry
  • India is already underperforming it's potential compared to China which continues to dominate global export market
  • Now, not only are Indian textiles not expanding, they may be shrinking

See the following piece from IndiaInfoOnline:

The Apparel Exports Promotion Council (AEPC) has appealed to the Government to halt appreciation of the Indian Rupee against the US Dollar. The Indian Rupee has appreciated from Rs.45.61 in August 2006 to Rs.41.88 till date. Appreciation of the Indian rupee has started affecting exports in the form of lower unit value realization.

In comparison to the Indian Rupee, the Pakistani Rupee has depreciated by 1.33% during April 2006-2007. Similarly, the Indonesian Rupaiah has depreciated by 0.36% during the same period. On the other hand, the appreciation of the Bangladeshi Taka has been 1.95% in April 2006-2007. The Chinese Yuan has appreciated by 7.24%, Yet, the Chinese exports of clothing have been rising.

On re-accessing the exports scenario, the AEPC has arrived on the view that:

  • The strengthening of India rupee is particularly detrimental to low import intensive & price sensitive industry, like clothing, as profit margins are rather lower than other commodities.

  • Competition is getting adversely affected. This is leading to decline in exports of textile and clothing. Consequently, this has lead to a shortfall in achieving export targets for the industry.

  • This may also lead to shifting of export orders from India to neighboring countries and impact the employment scenario in our industry. It is worth noting that the clothing industry is one of the largest employment generating industry in the country.

"The exports of clothing to major destinations like US has slowed down in January 2007. Our concern is quite relevant as the US market accounts for 35% of India’s textile and clothing export," said Vijay Agarwal, Chairman of AEPC.

The Ministry of Textiles has revised the target of the readymade garment sector as US $10.5bn for 2007-08 against US $9.5bn for year 2006-07.

AEPC is of the view that the apparel industry needs continuous support of the government as stronger rupee vis-à-vis dollar, high interest rate of credit, non-reimbursement of local taxes and levies are making our exports less competitive in the international market.

AEPC feels the government should immediately intervene in the functioning of the industry for halting the further appreciation of the rupee. Urgent steps are required to be taken by government to curb sharp appreciation of rupee witnessed during last nine months so as to enable global competition and achieve export targets.

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