Carpet-makers weave a sad story

RUPEE RUBBLE PART - I

Siddh Nath Singh's godown in Mirzapur's industrial estate is full of carpets, which should have been on their way to buyers abroad. Singh is unsure if he should be shipping his pending orders as he would have to suffer loss, thanks to the appreciating rupee that has wiped out the margins which he had factored in while making the deal last year.

The 180-year-old carpet industry is facing an unprecedented uncertainty due to the strengthening rupee.

The problem has further aggravated by serious infrastructure constraints in the area, more popularly known as the carpet belt, which accounts for almost 65 per cent of the country's total carpet production. In 2006-07, the area did exports worth around $565 million.

"The dilemma is that if we do not honour the orders, the clients will be lost for ever, but if we send the orders, the loss would be too much," said Singh, who owns a firm called Carpet Handicrafts Export in Mirzapur.

The biggest overseas client for carpets is the United States and at least 70 per cent of the orders are invoiced in dollars. The net margins in the business are in the range of 5-12 per cent.

Almost 15 years back, the industry ran into rough weather after it was accused of employing child labour (Some exporters said it was done at the instigation of other Asian producers). More recently, after the sanctions against Iran, the carpet exports from the region had started growing at a fast clip.

The carpet industry in the Mirzapur-Bhadohi area has been growing at a rate of around 20 per cent for the last two years, making India the largest exporter in the sector across the globe. "This year, the industry will experience a zero growth rate or a decline," said Vishnu R Sharma, former chairman of the Carpet Export Promotion Council and managing director of Obeetee Pvt Ltd, one of the biggest exporters in the area.

On an average, the business is down by 20-30 per cent in the April-July period this year.

The only consolation for many exporters is that some of the foreign clients are willing to increase their price for the new orders.

"Many exporters have been told by their clients that they may be willing to increase the price. In some cases it could be as high as 7 per cent. While doing that, we will have to take cost cutting measures like decreasing the number of knots per square yard or the amount of wool that goes in to the making of a carpet. The foreign clients are okay with this arrangement," said Bholanath Baranwal, chairman, Bholanath International, located in Kachhawan near Bhadoi.

Industry insiders maintain that foreign clients still prefer India over other competing countries like China, Pakistan, Iran or even Nepal because of the variety.

"Around 60 per cent is hand tufted, while the rest comprises hand-knotted and even shaggy rugs and daris. In other countries, it is rare to find such a wide variety," explains Sharma.

Moreover, the industry is likely to cushion much of its losses because of the increase in drawback rates, announced by the finance ministry recently.

"In an environment where the entire margin is getting wiped out, any kind of relief is welcome. It may help us in doing business on a no loss-no gain basis," said Singh.

The industry employs more than 20 lakh people from more than 10 districts in Uttar Pradesh and four districts from Bihar and Madhya Pradesh.