Indian apparel export towards right track but challenges are as usual!

Post-quota, this is most probably the first time that Indian apparel export is having reasonably good orders as more and more buyers are looking towards India. Government is not only aggressively working on FTAs but also taking positive steps at the policy level – both medium and at the top. A lot of apparel exporters have expanded recently or are in the process to increase their capacities. All these and allied developments show that the Indian apparel industry is gearing up for a better future. Experts too believe that with a focus on MMF garments, sustainability and FTAs, the Indian apparel sector will become the world’s best garment factory in the next three years. Sharing their growth plan, companies across India are happy and the only apprehension the industry has is regarding raw material security which is further creating issues like liquidity crunch and unprecedented pressure on profit.

The combination of favourable global scenario and Government support has made the Indian apparel exporters’ sentiments high. And these sentiments have created hopes that in the next season, there will be more orders. Buyers are also giving such indications. Indeed, such a scenario was never seen there in the last decade when most of the things were in favour of the industry. And this reflects in export figures also as apparel exports of the country have already seen double-digit growth.

Also Read: Indian apparel manufacturers’ revenue can grow 16-18% this fiscal: Crisil

Level playing field by trade deals

Sentiments are high for Indian exporters as there are multiple reasons in their favour and that too at various levels. Some of the aspects responsible for such high sentiments are the trade agreements which were pending from decades. Most recently, two trade deals were done and more are in pipeline.

The trade agreements with UAE and Australia have given a level playing field to Indian exporters. Australia is the largest apparel importer in the southern hemisphere and Indian apparel used to face an average tariff of 4.8 per cent in Australia as against zero duty for apparel from China and Bangladesh. Now India is also having the same advantage. So far India has a 3.22 per cent share (US $ 203 million) in Australia’s total apparel import and as per industry estimates, zero duty access would more than triple Indian apparel exports to Australia in three years.

And India has the potential to export knitted jerseys, pullovers and T-shirts of MMF which is a big chunk of Australian apparel imports. Jerseys, pullovers, cardigans, waist-coats and similar articles, knitted/crocheted of MMF have been the biggest apparel imports last year, while the second position was comfortably taken by cotton T-shirts.

Another interesting aspect is that the deal with Australia will also help in a different way. India is not good at making winter goods and its strength is in producing Spring and Summer products, Thus, Indian factories do not utilise their full capacity while producing winter goods. Australia, which is in the southern hemisphere, will need Spring and Summer products when it’s a lean season for Indian apparel factories.

Similarly, the Comprehensive Economic Partnership Agreement (CEPA) with UAE is also going to be a milestone for Indian apparel export. India supplies US $ 1.5 billion of apparel to the UAE as against its total imports of US $3.5 billion and thus Indian apparel exports contribute a decent share of 43 per cent. The trade pact would result in a drop of 5 per cent import duty for Indian apparel and will further strengthen the dominant position of Indian apparels in the UAE.

The apparel exports to the UAE also cater to the apparel needs of Saudi Arabia, Kuwait, Bahrain, Oman and the UK because the UAE is a large retail market with players across the value chain including big Western fashion chains, wholesale buyers from North Africa and the Middle East. In the knitted garment segment, there will be a hike in exports of T-shirts, babies’ garments, trousers and briefs while in woven segment, women’s dresses, tracksuits, trousers, shorts, shawls, scarves and veils will get the maximum advantage.

Discussion related to trade agreements are also expected to speed up with other countries and apparel industry will get the benefits of the same.

PLI and MITRA – big push for MMF and infrastructure

The Indian Government simultaneously is also aggressively supporting the textile and apparel industry and that too with a specific product/segment focus and ensuring growth too. In the last 8-10 months, the Government has been busy issuing schemes, notifications and holding industry discussions and now things have started taking shape as most of the stages are final. The latest buzz is about the 61 approvals under the Production Linked Incentive (PLI) scheme. The scheme worth  Rs. 10,683 crore for five years is pledging investments of around Rs. 19,000 crore purely in MMF and technical textiles only. As per the Ministry of Textiles (MoT), this investment has a projected turnover of Rs. 1,84,917 crore with a proposed employment for 2,40,134 people.

The individual project under this scheme is going to be massive as its Part-1 has the minimum investment requirement of Rs. 300 crore and the minimum turnover required to be achieved for the incentive is Rs. 600 crore. While Part-2 of the scheme has a minimum investment requirement of Rs. 100 crore and the minimum turnover projected is Rs. 200 crore. There are some well-known apparel exporters who have got their expansion plans approved under the PLI scheme (see box).

Similarly with the total outlay of Rs. 4,445 crore, PM-MITRA (Mega Investment Textiles Parks) scheme is targeting huge infrastructure development with seven parks across India. Each park is spread across a minimum of 1,000 acre area and will have world-class industrial infrastructure which would attract cutting age technology and boost FDI and local investment in the textiles sector. Apart from 1,000 acres of land for one such park, the Ministry will look at some important things like nearby availability of raw material, all kinds of infrastructure including port, road and rail connectivity, water and power availability, and incentives of states amongst others. Each park is expected to generate 1 lakh direct and 2 lakh indirect employment. So far, MoT have received 17 proposals from 13 states, including Madhya Pradesh (4) and Karnataka (2).

A fragmented supply chain and poor infrastructure remain old challenges for the Indian apparel industry. PM MITRA is definitely going to overcome these issues. Similarly, PLI will help to strengthen MMF and technical textile base and it’s the need of the hour as India has a lot of potential in both segments.

China+1 is a big supporting factor

Due to recent negative developments like Xinjiang cotton ban by US, negative activities against global retailers, and most recently fresh lockdown imposition in China, buyers are now following the China+1 Policy. The main impact can be seen on China’s export to its largest apparel export destination, USA.

Data also strengthens the same as in the US apparel import values, China’s share was US $ 27.37 billion in 2018, which reduced to US $ 24.88 billion in 2019 and went on to shrink to US $ 15.15 billion in 2020. Even in 2021, China felt the heat in its apparel supply chains and the country concluded the year with US $ 19.60 billion, as per OTEXA, though up from 2020. This means China ended up losing around US $ 7.77 billion in its export values to USA as compared to 2018 figures and around US $ 5.28 billion as compared to 2019 figures.

Good orders are with India and more buyers are in the pipeline

All these developments have built strong sentiments in the favour of India. Besides, post-Covid revenge shopping across all the major markets has increased apparel demand. At the same time, political tension in Sri Lanka has also diverted orders to India.

Hence, most the Indian exporters have good orders in their hands. Top to mid-level exporters across India agree on this that they have enough orders as of now.

Also Read: Shahi Exports (India) starts construction of new factory

Ajay Agarwal, MD, RK Industries, Chennai says, “Our current order booking is full and we are quite optimistic about 2-3 seasons as the global market opens up and things turn back to normal.” Ajay is hopeful of about 20 per cent growth in FY ’22-23. Almost similar is the opinion of many other companies about order booking as well as growth expectations.

Few of the global brands and retailers have announced that they will increase sourcing from India. In the last few weeks, top officials of Superdry, K-Mart, Australia were on a factory visit and confirmed that their sourcing will increase from India. Few more from buying community also confirm the same but refuse to say it openly.

Raja M Shanmugham, President, Tirupur Exporters’ Association (TEA) tells, “A renowned brand of EU recently visited Tirupur and assured that in next one year, his sourcing will be 20 per cent more compared to pre-Covid level.” As per him, the China+1 policy is a major reason that buyers’ are increasing their sourcing base in India. The same was strengthened by many other exporters.

Vimal Shah, President, Garment Exporters Association of Jaipur (GEAR) was recently in Japan for a sourcing event and he met many such buyers who confirmed that they are reducing sourcing from China and shifting orders to India. Japan is a major market for Jaipur-based exporters. “Buyers are very well aware that compared to Sri Lanka, Pakistan and few other countries, India has political stability, strong economy and they can place orders in India without any worry.”

Delhi and Noida–based Paramount Products, a leading high fashion ladies garments (woven), has also added prestigious brands like Target, Kmart, George and Kaibi. The company is sure to achieve at least 15 per cent growth.

And industry believes that all this will have a positive impact in future also as Dr. A Sakthivel, President, FIEO says, “Strong demand and healthy order booking will further help in boosting the country’s exports in the coming months particularly with increasing procurement by brands across the world. We were losing out to our competitors in these countries as they were having FTAs. We now have a level playing field. Owing to all these factors, Indian apparel exports will see impressive growth in the coming months.”

Expansion for medium to top-level 

With enthusiastic sentiments and good order booking, apparel exporters are further geared up for capacity enhancement. There are many companies that have recently completed expansions while few have started construction of new factories. Narendra Goenka, Chairman, AEPC says, “I strongly believe that large buyers, new buyers are now looking at India and we need to increase the capacity.”

In discussion with Apparel Resources (AR), nearly every company showed a positive response on the issue of expansion.

Like Noida-based Maral Overseas extended its capacity to double last year and has planned for 30 per cent extension this year. Overall, it has increased by about 800 machines and the expansion is mainly for existing customers like Blair, Scheicoor, adidas, Joy and AEO.

RK Industries currently has a capacity of  4,50,000 pieces per month mainly and it is in the process of expanding its capacity by about 30 per cent by setting up two new manufacturing facilities with an overall investment of about Rs. 75 crore. The expansion is mainly to cater to the demand from the existing customers (American market) and also to build the capacity so that the company can take advantage of any new customers which come up.

Gurugram-based Paramount Products has added a new manufacturing unit with 500 machines and an additional capacity of 1.5 lakh pieces per month. The company working mainly in Europe is having a total capacity of 10,00,000 garments per month.

Quality Knit Wears has also increased its production capacity by 35 per cent in one of its factories. The company feels the latest expansion comes as a strategic decision, and gradually, it will go for more capacity building to cater to global buyers’ shift towards India, especially Tamil Nadu. Amrutesh Jaghuva, ED of the company says, “We previously used to make 110,000 pieces in one of our Madurai-based factories and, with this expansion in kidswear, our capacity has gone up to over 140,000 pieces per month.”

Having operations in Madurai and Tirupur, Quality Knit Wears, with its strategic expansion plans for its clients located mainly in Italy and Spain, has taken its turnover to nearly Rs. 100 crore in FY ’22 from Rs. 75 crore in FY ’19.

Noida-based Affordable Exports recently added 100 machines and will add 125 machines in the next 2 months. After this, the company will have a total of 400 machines. Similarly Moissanite Apparels, Noida also added 200 machines four months back and now has a total of 900 sewing machines.

Vimal Shah also confirmed that Jaipur’s exporters are also in the process to expand their capacities and it will fast track in the coming months.

The expansion is not only by apparel exporters but also by the other stakeholders of the textile supply chain like Bhilwara, a well-known woven fabric hub, which has made many such announcements. Similarly, Vardhman and some other textile giants have also made such announcements.

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Cost Concern Continues

Amidst this positivity, when exporters are on their toes to grab the orders and fulfil the same, the issue of high cost and raw material security (price as well as the availability of raw material) is still mounting challenges. Whatever claims are made by various stakeholders regarding the removal of import duty on cotton, the majority of the industry feels that this step is taken very late and despite this, there will be a scarcity of cotton and cotton yarn.

Not only this, allied factors contributing to high cost like the increased price of PNG unlike earlier, no credit buying of raw material and liquidity crunch are reasons of worry for many exporters. And more or less, these challenges are for all, across the country. And these factors are hurting the overall profitability. Rajiv Kapoor, Director, Affordable Exports says, “Buyers are still following the system of releasing payment after 15 days of receiving shipment while we have to buy every raw material in cash payment, so there are no chances to manipulate the fund.” He further adds that at the same time, few buyers are asking for 90 days of credit which is very difficult for medium-level exporters.

Vivek Saxena, MD, Moissanite Apparels adds more on the same, “First, we shifted diesel to PNG-based boilers and invested for the same but now cost of PNG has increased by almost Rs. 12 per kg and now we don’t have any option but to bear the cost. So overall cost from everywhere is increasing and hampering the profitability.” He further adds that expansion is just to maintain the business as overheads are increasing and it is not going to add much profitability.

Another exporter shares that still the majority of the mid-level staff have not got any increment post-Covid and looking at inflation, it is high time when staff looks for increment. “The moment companies will give whatever increment to their professionals, it will be another cost pressure on them and this is also unavoidable to keep the talent to themselves.”

Exporters are also of a strong view that most of the buyers are not even ready to pay the increased price of fabric and after a lot of discussion and efforts, they are bearing a certain part of this, and in some cases, they are reducing order size also.

While there is a different opinion also on reduced profitability by an industry stalwart who does not wish to be quoted, “Profitability of 5-7 per cent is the rule of the game and it is a reality that industry should accept and work accordingly.”

Important points to take care of

As this is a critical time from every aspect, it becomes highly important to focus on some specific points so that India can make its export growth story continue.

At a larger level, there is a need to focus more on new markets or the countries, where India has less share. Dr A Sakthivel insists on the same and says, “Indian exports of textile and apparel products have been growing steadily, but they have been limited to only a few markets. The higher share of global trade that is envisaged can be attained only if Indian exporters also start looking beyond traditional products and markets. Specific strategies for achieving a significant share would need to be evolved for individual countries such as Japan, China, Brazil, Russia, Israel, etc.”

He further adds that the product mix would need to be tailor-made for each major market, and overall more focus on MMF is also required. This would need to be worked out by the Ministry of Textiles in partnership with the Indian industry.

Raja M Shanmugham believes that as the EU’s economy is under pressure due to the ongoing Russia-Ukraine war, order sizes have been reduced. Though it is a short-term situation, looking at the uncertainties, exporters, who are mainly working with the EU, should have a proper strategy to remain ready for any situation.

Vivek Saxena shares a similar kind of experience, “We were approached by few interesting buyers of Sweden and Finland but looking at the continuous war, we have fear factor to add buyers from this region.”

Milton John, MD, Cotton Blossom India, Tirupur suggests that looking at the raw material issue, exporters need to focus on blends and not just 100 per cent cotton.

As recently India had trade agreements with UAE and Australia, and soon the same is going to be with the UK, there will be naturally more orders from these countries in near future. So the combination of more orders, the high price of raw materials and no credit buying facility will further increase the existing liquidity crunch. In this scenario, exporters have to be more prepared about the working capital.

Few of the exporters also feel that the most difficult resource right now for apparel manufacturing is getting the workforce and middle management. This challenge becomes primary with expansion and growing business.

“Right now, there is no such point but we are concerned that with the growing business, there may be labour shortage in the NCR Region,” says Sanjay Janghala, Business Head of Maral Overseas. 

“Operation excellence is an area we need to focus more on, if you can meet the shorter lead times, cost requirement and maintain quality, then you don’t have to worry about orders. It is a suppliers’ performance-driven market right now,” says Dharmendra, VP Operations, Paramount Products. 

In the right direction… 

The policymakers are on their toes to ensure India’s textile export will reach US $ 100 billion by 2030. Industry leaders believe that orders are coming from around the globe and the exporting industry is set to see historic all-time high in the coming months also. So it is right to say that the Indian apparel export industry is on right track for long-term sustainable growth.

A chunk of the industry strongly feels that Indian apparel exporters are on the long-term growth trajectory with the biggest question mark being the cotton price and availability of workforce.

Narendra Goenka also believes that although the industry is now on a good track, raw material security is not just taken care of by the removal of import duty on cotton. This is one step but still, there would be yarn shortage. There would be a delay regarding order booking for next spring season as exporters have difficulties in price quoting. “Once this issue of the raw material gets fully solved, then only we will be on the perfect track,” he concludes.

Leading apparel exporters geared up for huge expansion under PLI

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