The Fall and Fall of the Mid­dle East

Un­der­stand­ing the im­pact of the Mid­dle East­ern strife on the In­dian ap­parel in­dus­try

Apparel - - Contents December 2014 -

Ac­cord­ing to a May 2014 re­port by Cor­po­rate Cat­a­lyst In­dia, the tex­tile sec­tor in In­dia con­trib­utes about 14 per cent to in­dus­trial pro­duc­tion, four per cent to the gross do­mes­tic prod­uct (GDP), and 17

and ap­parel share in world trade from the cur­rent

THE TEX­TILE AND CLOTH­ING SEC­TOR IS YET TO RE­COVER FROM THE SHOCKS OF DOWN­TURN THAT HIT IT IN 2008 AND THE VI­O­LENCE THAT HIT THE MID­DLE EAST IN 2010 HAS BEEN ITS UN­DO­ING.

How­ever, there are few in­dus­tries in the coun­try that have seen as many highs and lows as the tex­tile in­dus­try of In­dia. One of the old­est and most well-known sec­tors of In­dian in­dus­try, the Tex­tile & Cloth­ing (T&C) sec­tor, is yet to re­cover from the shocks of the down­turn that hit it in 2008 and the vi­o­lence that hit the Mid­dle East in 2010 has been its un­do­ing. With this, the T&C in­dus­try took a fur­ther beat­ing, leav­ing it un­able to come to terms with this.

SEEDS OF DOWN­TURN SOWN

As the eco­nomic re­ces­sion of 2008 jolted economies around the world, the United States and Euro­pean Union re­mained amongst the most se­verely im­pacted. As one of the pri­mary des­ti­na­tion mar­kets for the In­dian gar­ment in­dus­try, the re­sult of this down­turn on our trade was ev­i­dent. In the mean­time, coun­tries such as Bangladesh, Sri Lanka and China also shot to promi­nence on the global T&C in­dus­try map due to the ad­van­tages they en­joyed on ac­count of cheap labour and the mass pro­duc­tion sale. To counter the dry­ing up of tra­di­tional mar­kets, the In­dian in­dus­try soon be­gan scout­ing for newer mar­kets. Soon, re­gions of the Mid­dle East were iden­ti­fied and the In­dian in­dus­try had found a new trade part­ner. How­ever, this suc­cess story was short-lived. The Arab up­ris­ing in the spring of 2010 put paid to all the ex­pan­sion plans mapped out by the In­dian play­ers.

THE BE­GIN­NING

Be­tween 2010 and early 2011, the first bursts of re­volt were sparked in Tu­nisia with the masses threat­en­ing to over­throw the crony cap­i­tal­ist regime of the Ben Ali govt. Un­der pres­sure from the cit­i­zens and un­der dan­ger of a mas­sive revo­lu­tion, power fi­nally changed hands. This suc­cess­ful ex­am­ple led to peo­ple across the re­gion tak­ing mat­ters into their own hands. And soon coun­tries like Egypt, Al­ge­ria, Jor­dan, Iran and Ye­men be­gan to follow suit.

As a re­sult of this wide­spread un­rest, most es­tab­lish­ments such as re­tail and man­u­fac­tur­ing units were shut through­out the du­ra­tion of the protests. Tourists also fled the coun­try and di­rec­tives were is­sued by most gov­ern­ments, ad­vis­ing against travel to the re­gion. As a re­sult, the in­come sources in most of th­ese re­gions dried up.

RE­SUL­TANT OIL CRISES SPARKED OFF

The di­rect im­pact of the protests was the short­age of crude oil avail­abil­ity which im­pacted man­u­fac­tur­ing economies uni­formly, the world over. The strug­gling gar­ment in­dus­try that was slowly limp­ing back while sur­viv­ing was not co­cooned from this ef­fect ei­ther. In­crease in the price of almost ev­ery­thing, right from ma­chin­ery and raw ma­te­ri­als to trans­port left the in­dus­try badly dam­aged in this blood­bath.

To­day, how­ever, it is a dif­fer­ent sit­u­a­tion. Speak­ing about the on­go­ing crises, Dr Arun Singh, Se­nior Economist, Dun & Brad­street In­dia says, “The fall­ing crude oil prices in the mar­ket have ad­versely im­pacted the economies for the OPEC coun­tries. As a re­sult, the trade bas­ket of the Mid­dle East has sig­nif­i­cantly gone down, thus also im­pact­ing rev­enue.”

AS A RE­SULT OF THE ON­GO­ING MID­DLE EAST CRI­SIS AND THE RE­SUL­TANT CRUDE OIL PRICE FLUC­TU­A­TION, MAR­KETS ACROSS THE WORLD HAVE RE­FLECTED CON­SUMER SEN­TI­MENT.

RAW MA­TE­RI­ALS IM­PORT

While the Mid­dle East is a sig­nif­i­cant des­ti­na­tion for the In­dian T&C in­dus­try, cer­tain re­gions are also im­por­tant source mar­kets. Nine per cent of the raw wool de­mand for the in­dus­try was met by im­ports from Syria and some other coun­tries. The strife over the past five years has re­sulted in mas­sive short­fall in the im­port quan­ti­ties. As a re­sult, In­dia is de­pen­dent on other and more ex­pen­sive source mar­kets, thus hik­ing its in­put cost. This di­rectly af­fects the stand­ing of the In­dian con­sign­ment in a com­pet­i­tive and price­sen­si­tive in­ter­na­tional mar­ket­place.

IM­PACT ON THE MAR­KETS

As a re­sult of the on­go­ing Mid­dle East cri­sis and the re­sul­tant crude oil price fluc­tu­a­tion, mar­kets across the world have re­flected cus­tomer sen­ti­ment. The im­pact of this vo­latil­ity on the ru­pee has also been dis­as­trous, where we are cur­rently trad­ing at

R61 per dol­lar ex­change rate. This, once again, has led to pres­sure on the quan­tity of im­ports and their value. The ris­ing in­put costs, once again, have ren­dered the In­dian man­u­fac­tur­ing in­dus­try at a dis­ad­van­tage in the in­ter­na­tional mar­ket.

MOV­ING FOR­WARD

With the resur­gence of the tra­di­tional mar­ket to its once-upon-a-time glory which is a seem­ingly dis­tant dream and with the fall of the new mar­kets which is a global re­al­ity, the In­dian T&C in­dus­try is brac­ing it­self for a new jour­ney.

“The new Gov­ern­ment at the cen­tre has re-fo­cused its en­er­gies on an old In­dian dik­tat – ‘Look East.’ The reg­u­la­tors have now suited up to set forth and ex­plore th­ese old and un­ex­plored ter­ri­to­ries. Th­ese are ex­ist­ing mar­kets that we have not es­tab­lished trade links with, for the gar­ment sec­tor,” states Dr Singh.

The ‘Look East pol­icy,’ for­mu­lated in 1991, has once again come un­der fo­cus with Ex­ter­nal Af­fairs Min­is­ter, Sushma Swaraj, ver­bal­is­ing the ‘Act East pol­icy’ dur­ing her visit to Viet­nam. The Gov­ern­ment’s thrust on lever­ag­ing from the vi­brancy and dy­namism that the South­east Asian economies are en­joy­ing is ev­i­dent.

The con­tin­u­ing ad­verse con­di­tions that have im­pacted the per­for­mance of the tex­tile in­dus­try for long have forced the reg­u­la­tors to look in­wards. Changes are be­ing brought about on a grass­roots level to make the in­dus­try more sus­tain­able. A R100 crore ven­ture cap­i­tal fund to pro­vide eq­uity support to start-ups in the tex­tile sec­tor, an In­te­grated Skill De­vel­op­ment Scheme for sub-sec­tors of the tex­tile in­dus­try such as hand­i­crafts, hand­loom, jute, ser­i­cul­ture, etc., are only some of the mea­sures be­ing un­der­taken by the Gov­ern­ment to support the sec­tor.

Soon, the tex­tile and cloth­ing in­dus­try of In­dia should be on the path to resur­gence.

THE ROAD AHEAD

With strong do­mes­tic de­mand and ris­ing in­ter­na­tional con­sump­tion in new mar­kets, the fu­ture of the In­dian tex­tile in­dus­try looks promis­ing. With ris­ing dis­pos­able in­comes and re­stored avail­abil­ity of raw ma­te­ri­als from newer source re­gions, the In­dian mar­ket­place looks set for a re­haul. Ac­cord­ing to statis­tics by the In­dia Brand Eq­uity Foun­da­tion, the or­gan­ised ap­parel seg­ment is ex­pected to grow at a com­pound an­nual growth rate (CAGR) of more than 13 per cent over a ten year pe­riod.

In­dia Rat­ings & Re­search Pvt. Ltd. (a Fitch company), has also im­proved its rat­ings for the cot­ton sec­tor from neg­a­tive to sta­ble, which is pri­mar­ily driven by im­prov­ing rev­enue prospects in the newer ex­port economies.

EX­TER­NAL AF­FAIRS MIN­IS­TER, SUSHMA SWARAJ, VER­BALISED THE ‘ACT EAST POL­ICY’ DUR­ING HER VISIT TO VIET­NAM.

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