Indian apparel industry witnesses faltering exports and increasing imports

by D K Nair

02-April-2018  |  10 mins read

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India exports less than one-third of its apparel production. However, the strength or weakness of the industry is often assessed in terms of its ‘export performance’. Our domestic apparel market is mostly serviced by our own industry and therefore, it does not face too much of competition there, at least so far. On the other hand, our share is less than 4% in the international markets and our exports face a very tough competition. That is why export trends become the index of efficiency for our apparel sector. Tiny countries like Bangladesh and Vietnam export nearly twice as much apparel as we do. Before going into the reasons for our relatively low share in global markets, let us look at the overall picture of our trade flows in apparel.

Trends in Trade Flows (US $ million)

Financial Year Exports % Change Imports % Change
2012-13 12949.32 327.45
2013-14 15003.87 15.87 431.00 31.62
2014-15 16847.20 12.29 524.37 21.66
2015-16 16984.08 0.81 581.93 10.98
2016-17 17469.43 2.86 595.47 2.33
2016-17 (Apr-Dec period) 12421.35 453.16
2017-18 (Apr-Dec period) 12368.58 -0.43 546.68 20.64

Our apparel exports grew by around 35% over the last five financial years. However, during the current year, there has been a negative growth as of December 2017. The present market conditions indicate that during the full-year, the negative growth will only be higher. Imports into the country, on the other hand, have increased by around 82% during the last five years and by 20.64% during April-December 2017. Indications are that the import surge will also grow further during the rest of the year.

Imports are not a major issue for the time being since at the current level of just over 1% of domestic production, they have not started threatening the domestic industry. But the rate at which imports are increasing indicates that these can pose problems over a period of time. There are also reports of illegal imports which do not reflect in the official data.

In the case of exports, in any case, our problems are serious and immediate. We could not achieve an export growth of more than 3% in any of the last three years, whereas our growth was more than 12% during the years before that. There are global and domestic reasons for the slackness in our exports during recent years and its escalation during the current year.

Global Challenges…

Our major export markets have been sluggish because of the slowdown in the global economy. During the year 2017, total imports of garments into the USA, which is our largest single export market, declined by 0.49% compared to their imports during the previous year. Traditionally strong players like China (-3.17%) and Bangladesh (-4.46%) had a significant decline in their share in the US imports, whereas we had a positive growth (+1.19%), though marginal. In fact, among their major suppliers, only Vietnam (+7.01%) and Mexico (+5.33%) had higher growth than India’s during the year. Foreign investments have helped both these countries – from the US in Mexico and from China in Vietnam. Chinese efficiency and Vietnam’s cost of production make a formidable combination which even Bangladesh with its very low wages finds it impossible to beat, let alone India with low productivity and relatively higher wages.

With the way the new administration is handling trade policy issues in Washington, things can only get worse in the immediate future. The talk of a trade war has been in the air for a few months now and some specific measures towards something like that have started coming from the USA. Meanwhile, India has already been specifically targeted by the Trump administration in the matter of export subsidies. Textiles and clothing exports are likely to be among the first victims since that is an area where India is fairly competitive and has significant presence in the US market.

The European Union is a larger market for apparel than the USA if taken as a single entity. The economy in Western Europe has not yet really got out of the financial turmoil of 2007-08. The problems in the Member States like Greece and political issues like the Brexit have only resulted in the continued economic slowdown in the region. Their imports have been growing, but only marginally in recent years.

Local Pains…

There is not much that we can do about the global trends, except that trade relations and trade agreements can perhaps be handled more efficiently. But the domestic reasons for the slackness in our exports of apparel are surely the issues that we should be able to address. Once GST comes into full play, the problems in inter-State transportations may ease significantly. But as of now, GST is a major problem for our apparel exporters since Input Tax Credits and GST refunds on exports are both running into huge backlogs. Rates of duty drawback and Rebate of State Levies (RoSL) have been scaled down, taking into account ITC and GST refunds, before ensuring that these credits are received on time. Further, roads, railways, ports and labour are some other serious issues that need immediate attention.

In the case of the workforce, we have problems in availability, quality, cost, productivity and discipline. Labour issues in the country are very complex and there is a lack of political will to address them. The present Central Government had initiated some baby steps towards labour reforms as part of the Special Apparel Package of 2016 and there was an expectation in the industry that this would be the beginning of meaningful reforms in the sector. However, even the steps announced as part of the package have not yet been implemented in full and no further measures have been initiated, except extending fixed time employment to the other industries. Given the hold that trade unions have in all our political parties, it is doubtful whether labour issues will be looked at comprehensively by any Government at the Centre or in the States in the immediate future.

Labour Issues – A Global Problem…

Apparel manufacturing is perhaps the most labour-intensive industry in the world. That is why the apparel industry has been shifting from countries where wages go up, to countries where cheaper labour is still available. Japan, the USA and West Europe had to phase out this industry when the wages increased. Currently, a major part of global apparel production happens in Asia. And within Asia, South East Asia including China are finding it difficult to sustain this labour-intensive industry and the focus is shifting towards South Asia. Africa is likely to be the next destination and some movements towards the region have already started.

But as an exception to this trend, Chinese outsourcing has built up a large, strong and sustainable textiles industry in Vietnam and it is not limited to the apparel segment. Hong Kong, Korea, Taiwan, Myanmar and Bangladesh are also attracting Chinese investments in the garment industry. India is being selectively excluded by China in their outsourcing activities, partly because of political issues and mostly because of the feeling that it is difficult to run labour-intensive industries here. This perception, which even domestic investors seem to share, needs to change since job creation is a primary requirement for economic growth in India. If there is a will to address this issue, it is not difficult to tackle it. A mere comparison of our labour laws and their implementation with those of our competing countries in Asia will help in understanding the areas where we need to improve.

The industry will always be more eloquent on the requirement of financial assistance of various kinds since that will benefit them immediately. But for building up a strong and sustainable industry, workable labour laws, transportation of global standards and ease of doing business are equally important. Raw materials are even more important but fortunately, that is an area where we are fairly competitive already.

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