Textile exports hit by rising Re

KOLKATA: It’s a double whammy for the Indian textile industry. Losing ground in international markets, in face of competition from China ever since dismantling of the quota regime, Indian textile exports has been put in the red by the appreciating rupee.

The industry feels the export target of $25 billion set by the union commerce ministry will not be met, if rupee continues to gain strength. In 2006-07, total India textile exports (readymade and cloth) stood at $ 19 billion. A strong rupee will make it extremely difficult for the industry to recover lost ground in major markets like Australia and New Zealand, where export growth had hit big speedbreakers, even before the rupee started gaining.

According to a Reserve Bank of India report, the profitability margins for the textile sector in the first half of 2006 was 5.9%. However, according to textile industry estimates, for every 1% rupee appreciation, there is a decline of 1.2% in profitability.

Since September 2006, the rupee has appreciated 14% and 7.5% since January 2007. Even raising invoices in other currencies has not helped, since the rupee appreciated 4.2% against the euro, 7.8% against the yen and 5.4% against the pound sterling, currencies of major global buyers of Indian textiles.

“The volatile appreciation of the rupee since  the second half of 2006 till date, has put the textile industry in the red by 6.1%,” Siddharth Rajagopal, executive director of the Textile Export Promotion Council of India (Texprocil) said.

Textile exports to the US, the largest market for  textile related products, increased 28.85% from China in the January-March, 2007 period. The figure went up by a mere 4% for Indian exporters, according to industry data. According to analysts, Arvind Mills and Alok Industries get 50% of their revenues from exports, Gokaldas exports 100% and imports 50% of raw materials. If the rupee appreciates further, analysts forecast cuts in revenues of Arvind by 56%, Alok Industries by 27% and Gokaldas by 7.5%.

China ‘s currency appreciated by 3.8% in March-April, 2007, Pakistan ‘s rupee depreciated by 1%, while Bangladesh ‘s taka appreciated by 0.5%. In the same period, the Indian rupee appreciated by a substantial 8%.

It seems exporters are adept at handling a 5-6% currency fluctuation in a year. “If the volatility affects rival exporting countries as well, we can manage. However, this time, with only India hit, exporters are worried,” said an industry insider.

Companies, it seems, are looking to balance things out by taking advantage of the strengthening rupee to hedge out their foreign currency liabilities by locking their gains at the current level. However, Rajagopal commented: “How much of forward contracting can one do?”  Last year, the export target was $19 billion.  Overall, textiles exports, excluding readymade garments, grew 9% in 2006 to $7,621 million from $ 6,977 million.