Export sops withdrawal hits textile players

AHMEDABAD: Just about the same time when they thought that everything was working out in their favour, came yet another damper. Even as the Indian textile industry awaits imported cotton to ease the price pressure from the commodity in the domestic market, exporters anticipate poor economic policies to stifle their prospects in 2008. Trailing behind most of its Southeast Asian counterparts in terms of growth in exports to the US, the recent move by the government to withdraw interest rate subvention on export credit is set to stagnate the prospects of the textile industry in 2008.

Exporters who were benefited in the post-quota regime, took a beating in 2007 after the dollar began to slide. The Indian textile exports at $20.5 billion fell short of the $25-billion target. Despite a global slowdown and a slump in consumption in the US — the country consumes 30% of Indian textiles — exporters hoped to revive business in 2008 by tapping the fashion-driven European market where it grew by 2.8% in January 2008 over the previous January.

But, everything doesn’t seem to be in order for the textile exporters.

In what is understood to be a measure to check inflation, the Reserve Bank of India on August 1 called off the export incentives it declared earlier in wake of rupee appreciation, with effect from September 30. Under the interest subvention scheme, the exporters were compensated for reduced profits because of strengthening rupee last fiscal and got a near 4.5% relief in pre-shipment and post-shipment credit in various sectors, especially employment-intensive sectors such as textiles and handicrafts.

The withdrawal will set the manufacturing costs reeling under pressure from all fronts — high prices of cotton and man-made fibres and shortage of power in the sub-continent, and global recession making consumers shy away from new spends — and increase their burden to an extent that their competitiveness in the global textile market will be affected severely, textile secretary AK Singh said.

India has already lost out Vietnam, Bangladesh and Cambodia in terms of growth in the US market during January-May 2008 over same period last year. The Bangalore-based Gokaldas Exports, which is the largest exporter of Indian textiles, recorded a turnover of Rs 990 crore in 2007-08 with exports down 20%,“The government’s decision will further cripple the exporters. We are finding it difficult to pass on the price hike to our global buyers who have the option to go to Bangladesh, which has silently pulled the rug from underneath our feet, Orient Craft CMD Sudhir Dhingra said.

The Confederation of Indian Textile Industry has sought that the interest subvention be continued up to March 31, 2009 without any changes to sustain export competitiveness of Indian players vis-à-vis their Asian counterparts, said CITI secretary-general DK Nair. “Pakistan has announced R&D assistance at 6% for garments, while China has increased the rates of VAT refund from 9% to 13% for synthetic textile products and 11% to 13% for others,” he said.

CITI chairman PD Patodia echoed him, saying that the add-on costs will further worsen the situation.“Exporters with pending orders cannot go back on their quotations despite the fact that the move to waive off interest rate subvention on export credit will directly add to their input costs. At a time when the industry is working out measures to cut costs and increase productivity, this move will be detrimental,” associate director, Technopak Advisors Pvt Ltd, Prashant Agarwal, said.