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GST, Demonetization and Rupee Appreciation – The three musketeers to Indian apparel exports

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India’s apparel exports growth might remain flat for the rest of the year or might just see some sluggish growth owing to the popular demonetization, implementation of GST and the rupee appreciation against the dollar this year.

As there has been a significant rise in the raw material prices and disruptions in the entire value chain due to GST, the industry experts expect nothing but a single digit growth in the Indian apparel exports for this year.

Mr. Rahul Mehta, the president of CMAI (Clothing Manufacturer’s Association India limited), said that the rise in the minimum wages of the laborers across the industry and appreciation of rupee against a dollar is the main cause of this slow and sluggish growth in the apparel exports this year.

The Indian currency has appreciated to ₹ 64.2 against the dollar as compared to ₹ 66.5 last year. YOY (year on year) the rupee had been on the depreciating trend from the last six years, but now the currency has taken a U-turn. India had posted approximately $17 Billion exports in the financial year 2016-17.

For the current year as per the report by AEPC (Apparel Export Promotion Council), Indian exports marginally increased by about 5% which amounted to $6.9 Billion in absolute numbers for the quarter April-July.

Mr. Mehta said that he was expecting a growth of anywhere around 15% in apparel exports this year but the increase in raw material prices, rise of wages of the laborers, rupee appreciation and the implementation of GST has left the market a bit sluggish. Also as there have been no positive sentiments globally and no signs of revival have only led to increasing in the woes.

The global apparel trade demand has been very gloomy, which eventually has led to cheap exports from India since the major importers have been on a sit and watched mode. Until the situation and the sentiments stabilize, India’s exports are expected to remain a bit volatile.

Jayanta Roy, Senior vice-president and group head of the corporate ratings in one of the largest rating agencies, ICRA, said that though India has witnessed some phase of growth in year and a half, the trend more or less has been volatile and has failed big time to inculcate confidence both among the importers and the exporters.

Thus a sustained growth in the apparel exports remains a challenge for the domestic market. The challenges have only multiplied in the previous month’s thanks to the appreciation of the rupee. The appreciation of the rupee has made the Indian market look less competitive as compared to its global counterparts.

As per ICRA’s report, the apparel and fabric industry has been facing a lot of blows due to the disruptions caused due to demonetization and the successful reform of goods and services tax. Mr. Roy added that though the De-growth happened, the fabric sales volume in the first quarter of the year was higher than the aggregate overall nationwide production de growth that was nearly 1% as most everyone tried to clear their inventories before when Goods and Service Tax was to be implemented from 1st July 2017.

Although various hedging instruments in place did cover for the profitability of the export-oriented players, the stable appreciation or the strong rupee to dollar did expert somewhat pressure on the pricing ability and therefore on the demand and gain in the market. Despite the raw material prices rising, the overall revenue of the fabric production houses as per ICRA’s report grew by approximately 4% in the first quarter of 2017-18, which eventually means higher de-growth in overall sales about the overall production volume.

De-growth in economics means that one would downscale production and consumption, which would eventually increase the overall human well-being and thus ultimately enhance ecological conditions and the capital.

The report expects the financial risk of Indian exporters and the domestic manufacturers to remain constant shortly as the profitability has gone down, the debt levels are expected to remain somewhat constant or come down.

The capital intensive apparel industry is expected to be more focused on capitalizing on the existing assets and thus undertaking less debt which would mean they would have less debt taking capacity in the near term.

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Anand Narayanaswamy works as a journalist based in Trivandrum, India. After unsuccessfully completing the company secretary course, Anand decided to step into software and technology route. More recently, he had a great interest in exploring about the Goods and Services Tax.

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