Exporters say the demand fordiscounts from overseas buyers — who are witnessing a sharp decline in business because of the current global financial crisis — is one of the reasons for the dip in India’s exports this October despite the depreciation of the rupee.
With foreign portfolio investors taking away more than $14 billion from India this calendar year, the local currency lost more than 22 per cent of its value against the US dollar. This was expected to benefit Indian exporters by enabling them to price their products at lower dollar prices and at the same time earn more in rupee terms.
But exporters say it has not worked out like that. Instead, overseas clients are demanding hefty discounts.
“In the textile and garments sector, foreign clients are asking for discounts in the range of 10-15 per cent”, says Ajay Sahai, director general, Federation of Indian Export Organisations (Fieo), an umbrella body of Indian exporters. About 25 per cent contracts in these two sectors saw such a trend, he added.
This came in the backdrop of 14 per cent dip in exports in October, first time in more than seven years, as against 50 per cent increase in the same month last year.
Exports of textile products stood at $22 billion in 2007-08, as against the world market estimate of $530 billion. But the Indian textile industry, with a size of $45 billion, is among the top three foreign exchange earners along with gems and jewellery and IT sectors.
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Agreeing with Sahai’ views, the president of the Delhi Exporters Association, SP Agarwal, who has interest in textiles and handicrafts sectors, said, “We have no choice but to comply.”
Even the engineering goods sector, which comprises more than 20 per cent of the Indian export basket, is witnessing pressure from their overseas clients to reduce prices.
“Demand for discounts ranges between 5 and 15 per cent. This started once the rupee crossed the 48 level against the dollar in October,” said Rakesh Shah, the member of a task force set up by the Engineering Export Promotion Council to assess the impact of the global slowdown on the sector. According to him, most of this pressure is coming from the United States, which accounts for 20 per cent engineering goods exports.
However, some exporters see an opportunity in this trend. “This was expected as overseas clients are also facing pressure on their end to have a price advantage. We should remember that our competing countries in the apparel sector like Bangladesh, Sri Lanka and Egypt enjoy price benefits ranging from 16 per cent to 29 per cent on account of lesser import duties charged (on their products) by developed economies. Under the current circumstances, it is imperative that Indian exporters across all sectors retain their clients,” said Sudhir Dhingra, CMD, Orient Craft, a leading garment exporter.
Some say that more than the pricing pressure, issues like waning in overseas markets of the United States are a matter of more concern.
“Exporters of knitwear in Tirupur had to increase prices by about 10 per cent as raw material costs rose about 20 per cent. As a result, we have seen a drop of 20-25 per cent in orders in the September-November period. To make things worse, there are long power cuts. From next January, we are likely to see job losses in this region.” said A Sakthivel, president of the Tirupur Exporters’ Association, which represents about 600 exporters in the region.