Shrinking Bottomlines

The next few days will reveal whether the boom time for Indian garment exporters is over for good. Contrary to the trend over the past decade, the country's garment exports--worth Rs 14,000 crore last year--are in the threes of a dramatic decline in growth rate. While the period between January and April 1994 had seen garment exports rise by 15.5 per cent in rupee terms, they increased by a mere 4.1 per cent during the same period this year. The signs are ominous because March is peak time for exporters.

The figures have not improved since . According to the Apparel Export Promotion Council (AEPC), January and July, a 7 per cent increase was witnessed which is roughly half of last year's growth rate. Surprisingly, exporters find even these dismal figures too optimistic. "Almost everybody has seen a 25 per cent slump in business. Besides, orders for next year are fewer," says Sudhir Kharbanda, director of the Delhi-based Span India. Some exporters even feel that business is down by 40 per cent.

Add to that the intense pressure on prices and the rise in costs. "If I sold a garment for $10 last year, the same buyer wants it for $9 this year," says Rahul Setia of the Delhi-based Kanika Exports. Simultaneously, inflation has pushing manufacturing costs Between January and July last year, garment exports rose by 0.64 per cent in terms of volume, which translated into a 14 per cent increase in dollar terms. During the same period this year, they increased by 7.3 per cent in terms of volume, but the dollar-term rise was a mere 7.6 per cent. "Net margins are down from 20 per cent to less than 10 per cent. Sometimes, we are forced to export at cost. In fact, the Europeans who never operated on a target price basis, now set a price and ask us to match it or leave it. Last year saw the market for high-priced garments being hit in Europe, this year even cheaper garments have been hit," says Kharbanda.

However, the AEPC is less pessimistic. "Agreed, the market is bad, but not as bad as the exporters make it out to be," says D.K. Nair, AEPC Senior director. "The exporter is using two main parameters to judge the market. First, the fewer number of buyers approaching him in comparison to last year and secondly, the rock bottom quota prices. The recession apart, there are other reasons for this. The importers had overstocked last year and didn't feel the need to make fresh purchases. As far as the quotas are concerned, we have been releasing the First-Come-First-Served been I quotas at strategic times to ensure that up. there is never a quota shortage."

Nair feels that demand will not stay depressed for long and the importers will place their orders later in the season, by the end of October. While not sharing his optimism, the exporters agree that buyers are delaying the placement of orders till the last minute and negotiating harder on prices, as they themselves are unsure of the demand next summer.

But the implications are far more long-term than whether Europeans are going to splurge on dressing up in the summer of'96. The basic structure of the Indian garment export basket may have to change. "Till now, highly stylised, medium- to high-priced garments have dominated India's exports," says Setia. "But the volume market is now turning out to be a high-growth area."

A significant fallout of this is the emergence of south India as the preferred region for the setting up of manufacturing units. Reason: the south is much cheaper, not only in terms of the cost of labour, but also in terms of land prices and other infrastructure. Span invested Rs 8 crore last year in its factory near Madras to churn out 2,000 shirts daily.

The recent slump in the rupee against the dollar does not seem to have helped garment exporters yet. And exporters have gone into the last week of October with their fingers crossed.

But whatever this week has in store, exporters are more or less resigned to much tougher times ahead. Kharbanda is not being a false Cassandra when he says: "The times of booming profitability are over. It's time we increased productivity cut overheads and improved quality."