Apparel exporters face additional Rs 7K cr cost

In the wake of rising interest rates across industries, textile exporters have also taken a hit. With both pre-shipping and post-shipping rates at an all time high for textile exporters, the industry is bearing additional costs worth over Rs 7000 crore per annum in exports.

What's more, the industry is also reeling under the removal of interest subvention on exports, says the Apparel Export Promotion Council (AEPC).

"The minimum rate in pre-shipping and post-shipping credit that textile exporters avail is around 7.5 per cent. Till September 2010, the apparel exporters were enjoying a two per cent subvention which had eased availing of working capital. However, not only was the interest subvention removed in September last year but interest rates have also risen gradually. In fact, recently interest rates reached as high as 12-13 per cent which has left apparel exporters reeling under additional costs," said Praveen Nayyar, senior vice chairman, AEPC.

While the concept of interest subvention of two per cent was removed long back, the recent hike in interest rates have resulted in additional costs of Rs 7000-8000 crore for the industry.

Moreover, while the minimum rate on pre-shipping and post-shipping credit is around 7.5 per cent, banks have been hiking interest rates, especially in the last few months.

Elaborating on the costs, Chandrima Chatterjee, director - economic and consultancy, AEPC said, "Around 50 per cent of the Rs 50,000 crore apparel exports turnover goes into working capital. Hence, the impact of hike in interest rates would be on approximately Rs 25,000 crore. With over 60 per cent exporters availing credit for working capital, the industry has been bearing additional costs of Rs 7,000-8,000 crore in recent times."

The impact on working capital for apparel exporters also comes at a time when there has been a drop in exports in volume terms.

"While there has been growth of 4.6 per cent in apparel exports in value terms, in volume terms the same has dropped by 6-7 per cent," added Nayyar.

According to AEPC, while 30 per cent of apparel exports go to the US, around 50-60 per cent of apparels are exported to the European countries.