• India's apparel exports have remained weak during the past few quarters.
  • The industry has faced several external and internal headwinds as the country transitioned to a new taxation regime.
India’s apparel exports have remained weak during the past few quarters

India’s apparel exports have remained weak during the past few quarters

Fiscal 2019 is expected to be the fourth consecutive weak year for India's apparel exports, a new report shows, as the country drops back to sixth position amongst the largest apparel exporting nations.

India's apparel sector suffered 4% de-growth in fiscal 2018 and modest growth rates of 1% and 3% in 2016 and 2017, respectively, according to a report by ratings agency Icra. The industry has faced several external and internal headwinds as the country transitioned to a new taxation regime over the last year, which posed liquidity challenges and created uncertainty over export incentives.

In the global apparel market, the European Union has led a strong recovery in apparel imports, accounting for two-fifths of global apparel trade. Imports by the US, meanwhile, remain muted, despite the trend being increasing during the past two years.

China – the world's largest apparel manufacturer and exporter, continues to be challenged by rising production costs, while Bangladesh and Vietnam remain the key gainers, the report notes.

In contrast, India's apparel exports have remained weak during the past few quarters, primarily owing to an inexplicable decline in shipments to the United Arab Emirates (UAE, 17% share in India's apparel exports in FY2018). This is reflected in a year-on-year de-growth of 18% in the first quarter in US dollar terms, following a decline of 20% and 12% in the third and fourth quarters of 2018, respectively.

If trade with UAE and Saudi Arabia is excluded, India's apparel exports stood lower by only 1% in the first quarter. "While this provides some comfort, the situation remains unencouraging, when compared with a 4-5% growth in the global apparel trade," the report notes.

Having said that, with the low-base effect setting in, the trend has moderated as reflected in a de-growth of only 1% in India's total apparel exports in July 2018. Nevertheless, Icra is expecting fiscal 2019 to be the fourth consecutive weak year for India's apparel exports.

"The Government's accommodative stance of reversing the reduction in export incentives has provided some interim relief to apparel exporters," the report notes. "However, the industry now faces concerns on continuance of export subsidy schemes in India, after being challenged by the US at the World Trade Organisation (WTO). This seems to be constraining the growth momentum of India's apparel export sector."

Going forward, steps taken by the Government to address these concerns, besides impending developments in international trade, including the modified TPP and the EU-Vietnam FTA, remain crucial for the sector participants, Icra believes. Moreover, movement in Indian currency vis-à-vis currencies of competing nations will determine the competitiveness of the Indian players. This is particularly critical considering the cost advantages in terms of lower labour and financing cost that some of these nations enjoy.

While India has a large fibre base, the share of Indian garment exports in global apparel trade has remained low at 3-4%. Going forward, steps taken by the Government to address the concerns on continuance of export subsidy schemes, will remain crucial for India's apparel exporters to capitalise on revived global apparel trade and loss of market share by China, the report warns.

Late last month, India set out plans to revitalise and double the country's exports by 2025 with a specific strategy being prepared for leather, textiles and apparel.