Looms Of Doom

• With further appreciation of the rupee against the dollar expected, textile export margins will be squeezed more
  
• Textile export target of $25 bn unlikely to be met with 22% dip having been witnessed so far this year
  
• Some 70,000 contract labour have been retrenched so far this year, and more job losses are expected

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n the fashion-obsessed times we live in, only wardrobe malfunctions seem to attract attention. Well, here's one, with stark implications for the apparel and the entire textile exports industry. Thanks to a rising rupee and reduced buying from the US, the export-driven textile sector has suddenly slipped up. It's seeking sops, reducing working hours and shedding staff. No one is betting that the sector will meet an export target of $25 billion this year, up from the $19 billion achieved in 2006.

The timing is terrible. India is yet to consolidate two years after global quotas on textile exports were eliminated. While it is struggling to increase exports—a 24 per cent growth in 2005-06 was followed by lower 7 per cent growth last year—investments are flowing in to build up scale and target niche, more lucrative markets. That's why the rupee rise has been a shock. "The steep 12 per cent rupee appreciation since April has hit the spinners and garment manufacturers the most,'' says D.K. Nair, head of industry body Confederation of Indian Textile Industry (CITI).

In contrast, currencies of competing countries, like China, Bangladesh, Pakistan and Sri Lanka, have either remained flat or depreciated against the dollar. "The Chinese Yuan has appreciated by 9 per cent over the past four years. There's been no time lag for exporters here to adjust,'' says Siddhartha Rajagopal of a trade body, Texprocil. The outcome: an average 22 per cent drop in textile and clothing exports so far this year.

And this has led to job losses. CITI estimates that by March '08, around 5 lakh workers, mostly contract and piecemeal wage earners, would have been laid off. Industry estimates put the current job loss at about 70,000. Of the dozen firms we spoke to, only one admitted to retrenching workers. That's because no one wants to highlight labour losses. Getting around inflexible labour laws, many garment units contract labour for execution of export orders, which normally take anywhere up to 45 days. In other words, they are outside the organised system. "Many small firms are shutting down and large units are downsizing at a time when India needs to scale up operations," says Gautam Nair, MD, Matrix Clothing, which has retrenched 300 workers since April.

Firms aver that laying off labour is a last resort. Working on smaller orders and margins, many textile and clothing units are trying to cut costs through greater efficiency and better technology. But that's not always enough. Many firms are turning down new orders as they are not lucrative enough. R.C. Kesar, director of Delhi's Okhla Garments and Textile Cluster, reveals that barring a few, most of its 70 manufacturing units are "working under capacity".

Some firms have even resorted to future contracts to hedge against further rupee appreciation. There are also attempts to shift to other non-dollar markets, but that's easier said than done—over 60 per cent of India's textile exports are dollar denominated. Agrees Sakthi Vel of the Tirupur-based Poppys Knitwear: "Japan, Australia and New Zealand are among markets where exporters are trying to increase focus, but it's tough going.'' There are many companies like Poppys in Tirupur (a major textile hub in Tamil Nadu) that are trying to operate on "no profit, no loss basis". Adds B.K. Patodia, MD, GTN Group, a big yarn exporter, "We're trying to keep the business going in the face of competition by cutting down our sale price. ''

The government is sensitive to the situation and keen that India doesn't lose its meagre 3.6 per cent share in the global textiles and clothing trade. Though the Union finance ministry has come to the exporters' rescue with cheaper lines of credit, the commerce ministry is seeking more. Commerce secretary Gopal K. Pillai says, "Besides the rupee appreciation, the textile industry is facing a problem of high interest rate and unrelated state taxes, around 6 per cent of manufacturing cost." The Union commerce ministry is hopeful its proposals for further cash compensation and credit facilities will be agreed to when the Cabinet takes it up soon.

The crisis highlights the inherent weaknesses in the industry: the need for labour reforms, infrastructure, investments in technology and machinery, diversification to synthetic and niche textiles segments and scaling up operations for mass production. "The government has to give some relief to ensure the industry does not bleed to death," says textile secretary Arvind Kumar Singh.

Industry watchers stress that the overall picture is not dismal. Investments have been strong—some Rs 65,000 crore in the past three years—and more is expected with the modified Technology Upgradation Fund Scheme coming into force from November '07. Prashant Agarwal of consultancy firm Technopak points to the estimated Rs 22,000 crore of investments in 2006-07 that underline a growing appetite for product development, design and efficiencies of scale. And after 2010, India can expect a sizeable jump in exports when all the 30 textile hubs proposed become operational.

And for some firms, the investments are paying off. Says Rajan Hinduja, executive director of the Bangalore-based Gokaldas Exports, which employs 53,000 workers in 46 units, "Top companies like ours are well-placed due to our focus on design and value-add clothing. Nonetheless, our bottomline has been hit." Then, there's the lure of the domestic market, where consumption is increasing. The future is bright—but first, the sector has to ride out this short-term crisis.