India's garment industry has missed the 'coronavirus' bus. Once again

The virus in China and a withdrawal of EU concessions to Cambodia offer two major opportunities for Indian garment exporters - but none of them are in a position to gain

The troubled Indian garment industry is at the crossroads of a major opportunity owing to two crises in core producer markets of Asia. First, the Coronavirus outbreak in China has western markets eyeing alternative sources. According to rating agency Crisil, this could lead to $2-3 billion worth of incremental orders for Indian exporters in FY2021. In another development in August last year, European Commission partially suspended the “Everything But Arms (EBA)” trade programme for Cambodia for human rights violations. The programme gave that country duty-free exports to the EU and the withdrawal amounts to about one-fifth, or about $1.1 billion, of Cambodia’s annual exports to the EU.

Even if one per cent of these businesses were to come India, the country could add millions of jobs and foreign exchange earnings. T Rajkumar, chairman, Confederation of Indian Textile Industry, estimates that export of finished textile goods, clothing and fabrics can grow 20-30 per cent as a result of the Coronavirus crisis alone.  

So why aren’t the ports buzzing with Made in India garments? Ironically, the same problems that constrain Indian garment exporters: High labour cost, lack of capital and capacity.

“Enquiries may have started but with our current infrastructure and pricing, I am not sure if we are in a position to take advantage,” says Rahul Mehta, president of Mumbai-based Clothing Manufacturers Association of India. Today, Made in India garments are 10 to 15 per cent more expensive than those from competing nations. The industry suggests that the government urgently needs to step in.

The industry is already in a crisis of sorts after the government withdrew the Merchandise Exports from India Scheme (MEIS) from August 1, 2019. MEIS gave exporters of made-ups and garments a 4 per cent incentive on exports. Worse, all incentives under the MEIS that were granted to the exporters of made-ups and garments on exports till July 31, 2019, were to be recovered. Most garment exporters fall in the medium and small scale category, so this withdrawal, done to comply with World Trade Organization rules, hit their capacity to pay wages and salaries to workers.

The irony is that western buyers are ready to pay higher prices if orders are fulfilled on time. But exporters are not helped by the fact that the government is sitting on an estimated Rs 7,000 crore worth of delayed refunds and rebates on account of goods and services taxes and a scheme called Rebate of State and Central Taxes and Levies (RoSCTL).

Opportunity fraying at the edges 
 

• Crisil estimates $2-3 billion worth of incremental orders for Indian exporters in FY2021 from crises in East Asia

• Industry estimates export of finished textile goods, clothing and fabrics can grow 20-30 per cent as a result of the Coronavirus crisis alone

• Western buyers are ready to pay higher prices if orders are fulfilled on time 

• Government withdrew Merchandise Exports from India from August 1, 2019 onwards

• The government is sitting on an estimated Rs 7,000 crore worth of delayed refunds and rebates from GST and RoSCTL

• The average differential between a Made in India T-shirt and one made in Bangladesh is about 50 cents ($1.70 against $1.20) 

Raja M Shanmugam, president, Tirupur Exporters’ Association (TEA), says although exporters have started getting enquiries from the customers, but they are unable to convert them into orders because they lack the funds to buy raw material owing to these delayed refunds. “If we [exporters] win the confidence of the customers at this difficult time, we can capitalise this opportunity not only for short-term, but also for long-term,” he says.

Exporters urged the government to sign swiftly free trade agreements with EU and the UK, comprehensive economic partnership agreement with Australia and comprehensive economic cooperation agreement with Canada, so that Indian exporters get duty-free benefits. Today, most of India’s competitors —Bangladesh, Vietnam, Sri Lanka, Cambodia — enjoy duty-free status against the 9.6 per cent duty that India-made products face in western markets. Add in high interest and labour costs and the average differential between a Made in India T-shirt and one made in Bangladesh is about 50 cents ($1.70 against $1.20).

The fact is that India has been unable to benefit even earlier when rising costs saw China steadily lost about 5 per cent of its market share. Chinese manufacturers, however, diverted their operations to Vietnam, Sri Lanka and other low-cost East Asian countries and continue to dominate the global market. As a result, India gained only 0.5 per cent share. Therefore, as Sivaramakrishnan Ganapathi, managing director of India’s largest apparel exporter Gokaldas Exports, points out, “Short-term shocks do not translate to business opportunity. The competition among countries is competition among manufacturing ecosystems.”

China’s partial shutdown as a result of coronavirus means that Indian apparel companies will have to look for alternative sources of raw material (including local sources) to replace the Chinese business and this cannot be done very quickly as supply chains take time to build.

“In the short-term, there is a limited extent opportunity but China is also trying to bounce back and firms are indicating they may open soon and will make up for lost time,” Ganapathi adds.  The Make in India programme has just lost a giant opportunity.