The Hindu Business Line : Tirupur garment exporters fear drop in demand

Unravelling?
The town’s year-wise export data reveals that volumes surged to Rs 11,000 crore in 2006-07 from Rs 8,500 crore the earlier year. They have dropped by over 15 per cent in 2007-08 to Rs 9,950 crore.

L.N. Revathy

Coimbatore, Nov.4

The ongoing economic turmoil in the US and the general slowdown in the European markets have dampened the hopes of the garment exporting community in Tirupur, which now fears a drastic drop in demand.

Most exporters work overtime during this part of the year to honour Christmas and New Year delivery commitments. But this year, they appear to be going slow, with US buyers either postponing orders or asking for shipment to be deferred.

No cheer on rupee front

The depreciation in the Indian currency against the dollar has failed to bring any cheer to the exporters since they had already hedged their currency in the Rs 39-41 range against the dollar, to stop the spiralling cost of inputs. Increased power cost has also eaten into their margins.

The town’s year-wise export data show that volumes surged to Rs 11,000 crore in 2006-07 from Rs 8,500 crore the earlier year. They have dropped by over 15 per cent in 2007-08 to Rs 9,950 crore.

“During 2006-07, we surpassed our target of Rs 10,000 crore. We had, at that juncture, set our sights on a modest 10 per cent growth in 2007-08. But the drastic slowdown in demand in our target markets abroad has affected our growth prospects,” said the President of Tirupur Exporters’ Association, Mr A Sakthivel.

There are about 6,250 units operating in Tirupur cluster employing about 3.2 lakh workers. And these comprise knitting units, dyeing and bleaching, fabric printing, garment making, embroidery, other ancillary units and compacting and calendaring units.

According to Mr Sakthivel, the order bookings have dropped by 7 to 8 per cent in the last few months.

Gloom factors

The Executive Director of Royal Classic Group, Mr Sivaram, while attributing the industry’s crisis to the financial panic syndrome in the US, said letters of credit (LCs) were getting delayed even for the existing orders.

According to him, some buyers were requesting to send the bill on collection basis. “This is scary, considering the reported bankruptcy cases being filed there, of shops being wound up, and so on,” he said.

While admitting that it is still early to predict the exact impact of the perceived recession in the US, Mr Raja M Shanmugham, Chairman, NIFT –TEA Knitwear Fashion Institute, said “no single factor is supporting the export cluster here. We have to compete on the price front from emerging countries such as Vietnam, Indonesia and Cambodia. The yarn rates and processing charges have shot up by 25 per cent at least in the past year and the duty draw back rate has gone up by 2.5 per cent. Besides these, the eight-to-ten-hour power cut and the high cost of diesel is further eating into our wafer-thin margin.’

“The depreciating rupee, instead of bringing cheer, is resulting in hollowness, a bleak future,” Mr Shanmugham said.

Keeping fingers crossed

The trio — Mr Sakthivel, Mr Shanmugham and Mr Sivaram — believe that the US turbulence will continue for at least the next six-eight months. “We will have to wait and see,” they said, when asked about the future of the knitwear industry.

“We are keeping our fingers crossed considering that 50 per cent of the knitwear produced here finds its market in the US,” Mr Sakthivel said.

According to him, the depreciating rupee to over Rs 49 to a dollar would not result in windfall profits as a majority of exporters had already hedged at around Rs 39 and Rs 41.

“There were apprehensions that the rupee would touch Rs 36 to a dollar. So exporters went ahead and booked orders months in advance, not anticipating a further slide of the rupee.”

Asked if they would re-negotiate the rates, Mr Shanmugham said “it is next to impossible as the rates have already been squeezed. At this juncture, we are crying for survival, not profit,” he added.

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