Apparel exports face global, domestic headwinds: Icra

Mumbai: The pace of growth in country’s apparel exports will depend on the industry’s ability to wade through the new taxation and export incentive regime and intense global competition, says a report.

While transition to the new taxation and export incentive regime has posed liquidity challenges for the industry, intense competitive pressures in the global market, particularly in light of impending trade agreements and foreign currency movements, pose additional challenges, rating agency Icra said in its report today.

The agency also pointed out that uncertainty on the apparel exports to the UAE looms, in light of inexplicable trends witnessed in the recent months.

“The accommodative stance taken by the government by way of upward revision in export incentives in November 2017, has addressed one of the issues that the segment is facing.

However, sustainability of growth remains contingent on how the scenario on the other fronts pans out,” said Jayanta Roy, senior vice-president and group head, Icra.

Post upward revision in export incentives, India reported a 6-20 per cent growth in apparel exports to key nations like the US, the UK, Germany, France, Spain during November-December 2017, the report said.

However, despite this, the overall apparel exports were down by 1 per cent in the first month of FY18, it added.

According to Icra, the decline has been primarily driven by the sharp dip in exports to the UAE market.

UAE had emerged as one of the prominent apparel export destinations for India, with its share increasing to 23 per cent in FY17 from 12 per cent in FY14, the report showed.

Particularly for the 10-month period ending June 2017, India’s apparel exports to the UAE had grown at a sharp pace (56 per cent), it said, adding that it equally declined fast by 45 per cent since June 2017.

Excluding the trade with the UAE, India’s apparel exports are estimated to have stood 3-4 per cent higher in the first 10 months of FY18.

As for the global scenario, apparel trade has remained subdued for the third consecutive year, expanding by just 1 per cent in calender year 2017 on a low base, following a 2 per cent and 5 per cent decline witnessed in 2016 and 2015, respectively.

Ray said the competitiveness of the Indian apparel exporters will also depend on the movement in foreign exchange rates.

“This remained a key challenge last year, with the Indian rupee appreciating by 3 per cent in CY2017 compared to 1-3 per cent depreciation in currencies of other key apparel exporting nations, that is China, Bangladesh and Vietnam,” he added.