THE COTTON TEXTILES EXPORT PROMOTION COUNCIL

(Sponsored by Government of India)

Telephone: 022-23632910/11/12  Fax:  022-23632914  Email: info@texprocil.org  Website: www.texprocil.org

EServ/APR 2007                                                            April 27, 2007

PRESS RELEASE

Appreciation of Rupee Taking Toll on Textile Exports

The Indian Rupee soared to its highest level in nearly ten years trading at Rupee 40.66 to a dollar as on 26^th April 2007. The Rupee has appreciated from trading at a level of Rs.44.19 to the US Dollar on 6^th March 2007 to the present level of Rs.40.66 to the US Dollar as on 26^th April 2007, recording an increase of around 8% over this period.  This increase has had a direct bearing on export realizations contributing to a slowdown in exports. 

Rupee vis-à-vis Competing Currencies:

As is well known, India's major competitors in the field of textiles and garments are China, Pakistan, Bangladesh and Indonesia.

Table below gives the movement of various competing currencies against US$ during the period 6^th March 2007 – 26^th April 2007.

Value of Currency against US$

(source : Go currency.com)

As can be seen, the Indian Rupee has appreciated the maximum of around 8% compared to the other competing currencies during the period from 6^th March 2007 to 26^th April 2007.

The Chinese Yuan, on the other hand has appreciated by 0.08% during this period, while the Indonesian Rupiah has appreciated by 1.63%. The Bangladeshi Taka has appreciated by 0.49% while during this period, Pakistan Rupee has remained stable.

Worsening Export Performance:

The profit margins in textiles and garments exports are relatively lower than other commodities.   The appreciation in the value of the Rupee has thus already started blunting the competitiveness of the Indian textile sector leading to declining exports in major markets like USA.  Consequently the target of US $ 25 billion set for the T&C sector for the year 2007-2008 is unlikely to be achieved.

Along with a severe pressure on prices, high interest costs, growing cost of inputs on account of rising inflation, high transaction costs on account of poor infrastructure, the appreciating rupee is not only making exports from India highly uncompetitive in world markets but has also resulted in exporting firms, losing money heavily, instead of making it

Analysis of Import Trends in USA

An analysis of import trends in Textile and clothing products in the US market for instance shows that while imports from India during  the year ending February 2007 increased by 4%, imports from China continue to dominate the market despite quota restrictions with an overall increase of 28.85%.   China now accounts for 30.5% of the US market share against 5.28% for India.  Imports from other competing countries like Vietnam grew by 16.58%, Pakistan by 8.16% and Bangladesh by 20.64%.

In the case of Cotton apparel, on the other hand, imports from China for the year ending February 2007 grew in volume terms by 82% and from India by 2.3%. Imports from other competing countries like Vietnam grew by 54.39%, Pakistan by 54.39%, Pakistan by 11.69%, Bangladesh 6.4%.

As can be seen from the above, India’s competitive advantage is being steadily eroded, compounded in recent months by the unpredicted appreciation of the Rupee against the US Dollar.

Impact on Textile and Clothing Sector

The Impact of the appreciating Rupee has been most severe on the textile sector for the following reasons: -

Þ    Unlike other sectors the import intensity in the Textile and Clothing sector is very low (Less than 3%)

Þ    Growing competition from low cost suppliers like China, Bangladesh, Vietnam, Indonesia has put severe pressure on prices

Þ    Rising cost Power and other utilities are severely constraining competitiveness

Þ    Rise in interest rates is resulting in a slowdown in capacity expansion and modernization programmes.

Þ    Existing contracts negotiated for deliveries during the months April-August 2007 are being cancelled and exporters are facing severe losses. 

Consequently urgent corrective measures need to be taken by the Government to arrest the slide in the Indian Rupee against the US $ failing which, its impact on the textile and clothing sector will become irreparable leading to: -

Þ    Projects approved under the Technology Upgradation Scheme (TUFS) not being completed.

Þ    No new Investments will be made in the sector as projects are becoming unviable.

Þ    Slow down in production and exports will result in loss of jobs.

Þ    No additional employment is likely to be created in the absence of Investments and loss of investor confidence.

Þ    Rupee appreciation is resulting in a rise in imports of cotton, leading to unviability of producing cotton indigenously, thereby adversely affecting procurement and livelihood of Farmers.

Þ    The sector will slide back into being a “Sun-set” industry from becoming a “Sun rise” industry, in the absence of new investments, declining profitability and rising costs.

(PREM MALIK)

CHAIRMAN