Bangladesh edging out India in garments

ASIA FOCUS

NEW DELHI : India's garment exporters are fast losing cost-competitiveness to other countries in Asia as recession-hit retailers in the United States and Europe have started looking for new sourcing destinations.

Industry leaders and government officials say Vietnam is on the verge of overtaking India in apparel exports. Bangladesh did that six months ago.

Other countries such as Cambodia, Indonesia, Sri Lanka and Pakistan are also gaining strength. The reasons are obvious: these countries are able to supply products for less due to low labour cost and better economies of scale.

China remains the frontrunner with US$115.2 billion worth of garment exports annually with India at $9.7 billion. Interestingly, Bangladesh is expected to reach $11 billion in the 12-month period from July 2008 to June 2009, up from $10.7 billion in the previous 12 months.

But remarkable is the story of Vietnam which exported garments worth $1.8 billion in 2001, $4.7 billion in 2005 and $7.2 billion in 2007. In the current financial year, the forecast is $8.4 billion, rising past $10 billion the following year.

In contrast, India exported apparel worth $5.6 billion in 2001, $8.6 billion in 2005 and $9.7 billion in 2007. The figure is estimated at $8.8 billion for the current financial year due to sliding sales in importing nations and may reach $9.2 billion in the next.

For India, the United States _ which imports $70 billion worth of textile products every year _ is the largest market, accounting for nearly a fourth of ready-made garments exported.

Data compiled by the Apparel Export Promotion Council (AEPC) shows that Indian exports of ready-made garments to the United States tumbled 3.71% during January to October 2008 to $2.66 billion while Vietnam's jumped 22.51% to $4.44 billion and Bangladesh's were up 10.15% to $2.94 billion.

Bangladesh has now taken the fifth position, which was previously occupied by India, in the list of largest garment-exporting countries to the United States, pushing India to the sixth position.

''On an average, Bangladesh has large factories than India and they are more productive and have low labour cost, which is helping them in attracting buying nations,'' said Devangshu Dutta, chief executive officer of 3rd Eyesight, a consultancy firm. Incidentally, Bangladesh has duty-free access to the EU and Canadian markets, so the landed cost of products works out much cheaper.

India's labour rates are 129% higher than in Bangladesh _ 62 US cents per hour compared with 27 cents, according to the AEPC.

China has always been a rival for Indian exporters and continues to remain the largest supplier to both the US and Europe. Since customers have recently started avoiding China due to labour problems and high cost of production, the business has shifted to alternative sources such as Bangladesh as they are more competitive, productive and deal in large volumes, said Mr Dutta.

Another point of view for Bangladesh and other countries such as Vietnam, Indonesia, Cambodia and Sri Lanka _ which are doing well in export of apparel despite the ongoing global financial turmoil _ is that they get cheap fabric from China and also support their manufacturers. ''All integrated textile countries are facing this problem what India's going through today,'' said D.K. Nair, secretary general at the Confederation of Indian Textile Industry (CITI).

India has to establish large factories and strengthen its fabric production in order to create economies of scale to deal with the current problems, added Mr Nair. About 97% of fabric production in India lies in the decentralised sector.

The US safeguard restriction on imports of Chinese textiles and apparel expired on Dec 31 while the US import monitoring programme on shipments from Vietnam ended on Jan 19.

Indian exporters are now demanding flexibility from the government in terms of increasing duty drawback rates to 14.65%, interest-free loans for investment in machinery and availability of export credit at international rates.

''In the face of economic slowdown, we have not become competitive though business is there,'' said H.K.L. Magu, managing director of Jyoti Apparel. ''It is going to the discounted markets such as Bangladesh which is the only country that can produce textile items at least 20% to 30% cheaper than China.

Indian exporters now say there will be not much business beyond March. Jyoti Apparel's order book today stands at 200 million rupees. Mr Magu says fresh orders have declined dramatically and the units will be working at half capacity if things don't improve.

Rahul Mehta, president of the Clothing Manufacturing Association of India (CMAI) said orders for the next season are not coming and it will be very difficult for India to catch up with Bangladesh unless the right kind of policies are put in place.

Calling the two stimulus packages announced by the government extremely disappointing, most exporters are of the view that there was virtually nothing in those packages and they only talked of releases of previously committed funds as incentives.

India has to find the gaps in the existing infrastructure and fix the problems, said Mr Dutta. Seeing the contraction in demand in the West, the federal textile ministry has written to the finance ministry, seeking restoration of duty drawback rates to help garment exporters.

With parliamentary elections scheduled to be held in April to May, deputy chairman of the Planning Commission Montek Singh Ahluwalia recently said the government needs to take urgent steps to help garment exporters.

Already, 500,000 workers have lost jobs in the past six months as exporters are facing cash losses with profit margins of 6-7% eroded. So far, the industry has been insulated by the rupee's fall against the US dollar by about 19% in 2008, making Indian exports cheaper for buyers overseas.

But now, exports could fall sharply in coming days as local manufacturers come under pressure to cut prices. ''We hope the government will announce a relief package before the announcement of elections. Otherwise by the end of March, about 1.5 million people could lose their jobs,'' said AEPC chairman Rakesh Vaid.

Textile and garment exports, which contribute close to 8% of India's exports, began contracting in August after the global financial crisis froze credit markets and sent developed economies into recession.