Rupiah Fall Hits Cotton Yarn Exports From India, Pak

Cotton yarn exports from India and Pakistan have been badly hit by the sharp decline in the value of the Indonesian rupiah because of which Jakarta is offering stiff competition to shipments from the sub-continent, industry experts said yesterday.

"Yarn exports from India and Pakistan are in serious trouble in view of competition from Indonesia, whose currency value depreciated by 20 per cent recently," leading exporter and Vardhaman Mills chairman-cum-managing director S P Oswal said.

In view of the financial crisis in Indonesia, Jakarta was trying to export all cotton yarn that was being produced there, he said. "There is also a slump in the domestic garment sector in Indonesia," he added.

 

Exports to the south-east Asian market have been badly hit. The region accounted for over 45 per cent of Indian yarn exports in 1997. Yarn exports to the region declined by 80 per cent during November-December last, but was reduced to a trickle in January. Oswal said the conversion cost for Indonesian mills had also declined considerably in view ofthe fall of the rupiah. "Wage costs for Indonesian mills have declined in terms of dollars to 20 a month from 50 to 60 six months ago," he said.

With Indonesian prices being viewed as the benchmark in the south-east Asian region, exports from India and Pakistan faced pressure.

"Markets of Hong Kong, Thailand, Malaysia, South Korea and Japan are non-quota markets, where India could not be assured of any fixed share," he said. In view of the severe competition, prices of Indian yarn declined by 15 per cent in dollar terms and were expected to dip further during the next three months, Oswal added.

Indian mills were sandwiched between rising cotton prices and falling returns. "Cotton prices will have to be regulatedl," Oswal said.

Oswal said the Reserve Bank of India's intervention to halt the slide of the Indian rupee against the dollar had aggravated the situation for exporters. "The rupee could have stabilised at 40/40.50 against the dollar, which would be manageable to us. But the measures have backfired, leading to firming up of the rupee," he said.

Industry sources, however, termed the situation as a passing one, saying cotton stocks with Indonesia would hardly last for two months.

"Indonesia is not a cotton growing nation. That means they will have to import soon and it will not be viable given the decline of the rupiah," they said.

Terming the situation as bad, Indian Cotton Mills Federation secretary general M P Gajaria said one way to make exports competitive would be to augment supply of cotton by importing it.

"Imports are the only remedy to be competitive as they will be cheap. Besides, imported cotton are trash free and we can also get three to four months' credit," he said.