Rupee appreciation begins to pinch textile exporters as orders dry up

Orders are drying up for textile exporters because of rupee appreciation relative to the dollar and the weakening of competing currencies such as the euro and the Chinese renminbi.

This comes at a time when the Indian textile sector, the country’s second-largest employment generator, is facing pressure because of the introduction of the goods and services tax (GST) and increased global competition.

With their global peers becoming competitive owing to their depreciated currencies, Indian textile and apparel exports are becoming costlier, leading to a gradual shift in orders to other parts of the world.

"We have begun quoting three to five per cent higher prices after the rupee appreciated. This is turning away overseas buyers," said Premal Udani, chairman and managing director, Kaytee Corporation, and former chairman, Apparel Exporters Promotion Council (AEPC).

In the past one year, the rupee has risen to 64.15 against the dollar from 66.8 levels last August. The rupee has risen almost six per cent (4.15 per cent year- on-year) this year against the dollar. This is in contrast to six consecutive years of depreciation.

The textile and clothing (T&C) industry exports goods worth around $50 billion, and gets most of the payment in dollars.

Worst-hit among these would be the apparel industry, which has hardly seen growth in its $17-billion exports. The rise in the rupee against the greenback comes at a time when export margins in apparel are two to four per cent in dollar terms.

T Thirukumaran, managing director, Estee Exports, said that in the past two months his company had started feeling the pressure due to rupee appreciation.

With increased competitiveness due to weakened currencies, competing nations like Bangladesh and China have cut rates further, thereby attracting more buyers. Estee Exports has seen its overseas buyers seeking better rates from the company.

Industry sources say that goods from Bangladesh, Sri Lanka, and a few other countries are at least 10 per cent cheaper than in India.

While exporters have resorted to hedging against currency volatility, textile and apparel companies say the impact would be higher if the rupee sustains at the current levels. "So far there has not been much impact on us due to hedging. If the currency continues to remain at these levels, there could be impact in the medium term," said Jayesh Shah, director, Arvind Ltd.

Thirukumaran says most players are unable to hedge beyond a period. "One can hedge for three to six months, for which premium is not so high. You cannot hedge for a year because we cannot predict orders for a year," he said.

Thirukumaran's views find support in the knitwear hub of Tirupur, a tiny town in the southern part of Tamil Nadu and a textile-sourcing hub for multinational majors starting from Walmart to Ralph Lauren, Diesel to Tommy Hilfiger, and H&M to Marks & Spencer for decades.

The town has strong trade links with the US and European markets for long. Tirupur exports textiles worth more than ~25,000 crore annu- ally, nearly 55 per cent of which is in dollars. The average export rate per garment tends to be $2.5-3.

While some companies have hiked their prices by three to four per cent, A Sakthivel, chairman of Poppys Group and regional chairman of the Federation of Indian Export Organisation (FIEO), stated that the hike needed to be around seven per cent to compensate for the losses from currency fluctuation.

The other setback in hedging for textile and apparel exporters, said Sakthivel, is that at 30 per cent, forward contracts form a smaller share, while revised rates and spot negotiations account for the balance 70 per cent in equal measure.

Rupee appreciation comes at a time when there are concerns about availing of incentives and drawbacks after September 30 under the new GST regime.

Exporters are still seeking clarity on duty drawbacks, which could help them pass on benefits by one to two per cent to overseas buyers.

Further, pressure could rise for Indian exporters once Vietnam's FTA (free trade agreement) with the European Union (EU) comes into force in January next year. For this, Vietnamese exporters are likely to begin taking orders from October. Similarly, Sri Lanka has also bagged concession from the EU whereby it need not attract customs duty.