Demand from key importers and particularly, the United Arab Emirates, has gone down drastically, say exporters. The trend started last year with many new manufacturing units coming up in free market zones in the UAE, which now prefers to source raw materials from India as opposed to finished goods. The sharp decline has been greater than the increase in exports to the United States and European Union, India's largest markets.
The West Asia issue had been pointed out by an ICRA report earlier in the month as well, which had warned the negative growth of 4-5 percent in 2018-19 may continue in the next financial year as well. In the April-Jan period of 2018-19, total exports stood at $12.89 billion, down from 16.72 billion in 2017-18.
The Drip capital report makes particular note of the barrage of complaints by the United States at the World Trade Organization (WTO) against India's export incentivization schemes. As a result, apparel exporters face even more uncertainty about their future.
While China remains the largest exporter of apparel globally, its continuing loss of market share amidst a flight of jobs has meant that Bangladesh and Vietnam have established themselves as the next largest nations for exporting apparel, according to the World Trade Organization.
Rising imports from these nations have also eaten away at the competitiveness of smaller domestic players and the government raised import duties on more than 330 textile items in 2018.
“A substantial drop in the import duty was observed after implementation of the GST which has encouraged cheaper imports. Tuesday's decision does not positively impact the issue of imports from Bangladesh where there is a full exemption of basic customs duty and hence Chinese fabric is easily coming to India duty-free through Bangladesh in the form of garments,” said Sanjay Jain, chairman, Confederation of Indian Textile Industries.
Imports of apparel from Bangladesh have increased 44 per cent from $140 million in 2016-17 to $201 million in 2017-18, he added.
No new tech
However, the report stressed on immediate policy changes and interventions to give the sector a boost, since the country can't compete on lowering labor costs. It said both the Credit Link Capital Subsidy Scheme for Technology Upgradation, as well as the Technology Upgradation Fund Scheme should be expanded to incentivize apparel exporters to push exporters to adopt higher technology.
Ganesh Kumar Gupta, President, Federation of Indian Export Organisations said he has reiterated to the government his demand for urgent and immediate support including augmenting the flow of credit and better fiscal support.
It also identified four new markets for future growth – the United Kingdom, Chile, Israel, and Japan.