Overseas textile importers seek a pie in higher realisation for Indian exporters

Renegotiate contract terms and price, defer new orders for 2-4 weeks understandably till rupee stabilises

The depreciating rupee has prompted textile and apparel importers abroad to renegotiate the terms of their contracts with Indian exporters. Now, new contract orders are being deferred till the Indian currency stabilises.

Since August 11, when the yuan started depreciating, the rupee has fallen 3.60 per cent to trade at 66.65 against the dollar early Monday. It has depreciated 5.52 per cent so far this year. Typically, depreciation in the rupee results in higher realisation of export-driven products from India. As a result, global importers re-negotiate prices of the products.

“Yes. New buyers have started re-negotiating contract terms and prices. Foreign buyers have started inducting a new clause in the contracts that keeps re-negotiation of prices open. Old customers, however, have not intervened yet. Clients who had negotiated apparel import terms have deferred orders by two to four weeks, which might be prolonged till the rupee stabilises,” said Rahul Mehta, president of the Clothing Manufacturers Association of India. In case of sharp currency fluctuations, prices would be re-negotiated, he added.

India exports $41 billion worth of garments and apparels a year. As such, re-negotiation in contract terms and prices makes a huge difference in the overall realisations of exporters. New foreign customers, meanwhile, have started deciding apparel prices in dollar terms, keeping the rupee at current levels.

R K Dalmia, president of Century Textiles and chairman of the Cotton Textiles Export Promotion Council, believes benefits for Indian textile exporters would depend on currency fluctuations in competing countries. “In case Indian exporters compete with their counterparts in China, we would not get much benefit due to the yuan’s devaluation. If we are competing with Bangladesh, we will get some benefit. But since other Asian currencies have depreciated due to the yuan’s devaluation, Indian exporters wouldn’t get the benefit they would have, had the yuan not been devalued,” said Dalmia. For smooth business, stability in the rupee is vital for long-term sustainability, he added.

Overall textile exports rose a marginal 5.4% to $41.4 billion in 2014-15 as compared to $39.3 billion in the previous year. Echoing similar response, D K Nair, Secretary General, Confederation of Indian Textile Industry (CITI), believes that overseas importers who are confident about the product and quality, have started re-negotiating price and contract terms.

Depreciating rupee is good for textile exporters. Indian exporters with deep pocket who can resist price re-negotiation for higher realisation may continue to resist, said Nair.