India's Apparel Exports Hit by Surging Costs, Higher Rupee (Country Report) - Emerging Textiles

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EU Clothing Imports by HS 4-Digit Categories. US Imports per Quota Categories and per Quarter

India's Apparel Exports Hit by Surging Costs, Higher Rupee Country Report

21 April 2010

India's apparel exports continue falling this year, whatever the rebound in global demand. The domestic clothing industry is confronted with surging raw material and labor costs while the rupee strongly rose since the start of the year, especially against the euro. The federal government began offering some support but profits may fall in 2010 while apparel prices could be raised.

Although India's apparel industry should have taken advantage of the rebound in global demand in 2010, profits will be negatively affected by surging costs and by a stronger rupee.

Clothing exports are actually further falling this year, by contrast with a rebound in total Indian shipments to foreign countries.

Apparel exports were down about 10% in February at US$876 million, according to the Apparel Export Promotion Council (AEPC).

They fell 13% in the first 11 months of the fiscal year (April-February), in addition.

The decrease for full fiscal 2009-10 should reach 11% at about US$100 billion.

The situation is clearly deteriorating in addition, with the current surge in costs of clothing producers.

Surging Yarn Prices

Cotton yarn prices were up about 50% in the last 12 months (see our chart below).

After the knitwear industry of Tirupur warned the federal government about a coming disaster, subsidies for cotton yarn exports were withdrawn.

Cotton fiber exports were also restricted and heavily taxed to limit the rise in cotton fiber prices which triggered the surge of yarn prices.

At the same time, labor costs are also sharply increasing, in line with a jump in legal minimum wages, effective from April 1st.

The adjustment was mainly due to a return to inflation in India, especially for food products.

Stronger Rupee

In addition to surging raw material and labor costs, clothing producers are now confronted with a rebound in the rupee.

The US dollar fell 3.46% against the Indian currency in the first quarter while the euro even declined 9.4%.

If the US dollar is not yet back to its level of two years ago, after the sharp fall of 2008, the euro climbed by 5% from April 2008 (see our graph below).

As an immediate result, apparel exporters in India will get much lower margins on shipments which were booked a few months ago.

They will also be forced to raise their prices later this year, to partly pass the surge in costs on to their customers.

Loss of Competitiveness

If competitiveness of other origins is also shrinking, especially China, Vietnam could however take advantage of Indian higher prices on the US apparel market.

In the first two months of the year, US imports from India already fell 5% in US$ terms, compared with a rise of 6.8% in shipments from Vietnam.

US apparel imports from India had slided by 10% over the last quarter of 2009 with knit apparel even plunging by 18% (see our tables below).

First data in volume terms for the first quarter this year indicate a sharp rise in certain cotton knit categories, however, while imports heavily fell in cotton trouser categories.

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