Free trade agreements signed between major consuming countries and manufacturing countries pose a major challenge for Indian apparel exporters. This threat comes even as the growth in exports moved back to the positive zone after two years.
Continued access to export incentives remains crucial for the Indian apparel exporters to garner a larger pie of the global apparel trade, though recent measures announced by the central government have provided some relief.
After a fall in exports for the last two consecutive years, apparel exports were up 4 per cent in the last four months of this fiscal.
As per an ICRA note, though domestic apparel exports are expected to remain in the positive zone for the rest of the year, there are multiple threats which could affect the pace of growth make it challenging for apparel exporters.
In terms of region-wise trends, the growth in India’s apparel exports during the first four months of the current fiscal was primarily driven by a 7 per cent increase in exports to the US market, while exports to the European and the UK markets declined by 2-3 per cent during the period.
In addition to a general slowdown in EU’s import demand amid weakening of currency with euro depreciating by 4 per cent against USD in first half of this calendar year, exports to the EU market have been adversely affected by the preferred access to competing nations like Bangladesh and Vietnam, by way of Free Trade Agreements (FTAs).
These include Comprehensive and Progressive Agreement for Trans-Pacific Partnership between 11 nations, including Vietnam, which had come into force for seven nations by January, and EU-Vietnam Free Trade Agreement, which was signed this June.
These could make it increasingly difficult for India’s apparel exporters to maintain their competitiveness in the EU, its largest market, which accounts for 35 per cent of India’s apparel exports.
Challenging environment
Jayanta Roy, Senior Vice-President, ICRA, said that external environment for India’s apparel exporters remains challenging amid a pick-up in activity on several FTAs among the key trading nations, which has intensified competition from nations having a cost advantage over India.
“Apart from challenges in the EU market, retail trends in the US also remain unencouraging, which could exert additional pressure on the order flow for India’s apparel exporters going forward,” added Roy.
Retail sales of clothing and clothing accessories in the US have remained flat during last eight months, following a comfortable growth of 4.6 per cent in 2018. Besides affecting order flow, this could potentially result in renegotiation of realisations as well as elongated receivable cycle for the exporters.