Appreciating rupee erodes margins of textile exporters

The currency has appreciated more than 5% against the US dollar in 2017, much more than some of its competing peers. In a four-part series, Business Standard looks at the impact of a strong rupee on India’s key export-oriented sectors, starting with textiles and apparels

The rupee’s appreciation by over 5 per cent against the dollar in 2017 is hurting exporters even as competition from Bangladesh, Vietnam and China has over the last several years subdued growth of Indian textile and apparel exports.

Exporters said the rupee’s strength had shrunk their margins and they were worried about further declines if the trend continued.

“Since this seems a temporary phase, we should be able to bear the impact. We will be able to calculate the effect on our margins if the rupee appreciation continues for some time,” says OP Lohia, chairman and managing director, Indo Rama Synthetics. Exports constitute 20 per cent of the company’s Rs 2,100 crore annual revenue.

The dearer rupee also makes yarn, fabric and garment imports cheaper, hurting local manufacturers. India’s textile exports are worth $50 billion, of which almost 70 per cent is dollar denominated.

Meanwhile, currency depreciation in some of India's competitor nations like China, Vietnam and Bangladesh make their exports more competitive (see table).

The apparel industry has hardly seen any growth in its $17 billion exports. Export margins in apparels tend to be 2-4 per cent in dollar terms, and the rupee appreciation has almost washed these away, say exporters.

"Exports are becoming uncompetitive and imports from Bangladesh and other competing countries are becoming cheaper. The impact on revenue will become critical in a month or so," says Rahul Mehta, president of the Clothing Manufacturers’ Association of India.

In the knitwear hub of Tirupur in Tamil Nadu, exporters fear they may lose orders to neighbouring countries. Tirupur is a sourcing hub for Walmart, Ralph Lauren, Diesel, Tommy Hilfiger, H&M and Marks & Spencer.

"We are at a 10-12 per cent price disadvantage. With the rupee appreciating this gap has widened by another 4-5 per cent,” says Raja M Shanmugham, president, Tirupur Exports Association. An exporter supplying to one of the top three retailers in the US says his buyer prefers cheaper Bangladeshi textiles. “I have let go of my margins but I am still unable to compete with Bangladesh's manufacturers,” he says.

With government support on all fronts, says another Tirupur exporter, apparel units in Bangladesh are doing everything to arrest the outflow of orders.

Indian textile companies have been caught off guard by the rupee appreciation and most of them have large exposure to dollar-based trade.

“The cost of production, including minimum wages, has gone up by 15-20 per cent, making our exports uncompetitive,” Mehta adds.

Shanmugham says the goods and services tax, which is expected from July 1, will have a further impact on exports as duty drawbacks will be curtailed, adding more pressure on the textile industry.

Balancing Act

• Rupee appreciation by 6-7% will shave off export margins of 4-5%
• With imports getting cheaper, domestic textile industry too becoming uncompetitive
• Apparel exports have more or less remained stagnant at $17 billion
• Price disadvantage of 10-12% worsens with rupee appreciation
• Over 70% of textile exports are in dollars
• Rising cost of production makes exports in euro and other currencies too uncompetitive

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