Analysts fear lack of capacities will compensate surge in orders.
Beijing’s announcement over the weekend to go ahead with exchange rate reforms and make the yuan more flexible has made the Indian textile export industry hopeful of a level playing field and expect more orders in the coming months.
However, a majority of the exporters are apprehensive about the extent to which China will implement its announcement and let the yuan appreciate.
“The announcement is definitely in the positive direction and if it is backed up by action, it will benefit India quite substantially, as its exports will become more competitive. But one has to see to what extent they back their announcement with action,” said D K Nair, secretary general of the Confederation of Indian Textile Industry (CITI).
China is the largest exporter of textiles and allied products in the world, while India ranks seventh.
Along with its high productivity and supportive labour laws, China’s stance of not letting the yuan appreciate to assist its exports has helped it to maintain its lead in the global trade. Its foreign exchange position allowed exporters to quote prices which have consistently been the most competitive in the world.
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In the last few months, many importing countries have indicated a desire to reduce their dependence on Chinese imports.
“We are very happy that they (China) have decided to float their currency and it will provide us with a more level playing field. We hope it’s a long-term thing and will help us in the long run. They are still better than us in productivity and pricing, but in the long run it will benefit us,” said Premal Udani, chairman of the Apparel Export Promotion Council (AEPC) and chairman of the Mumbai-based Kaytee Corporation.
Indian apparel exporters feel the Chinese yuan can appreciate around 10 per cent within a week, making their exports more expensive by 5-6 per cent. Given that the difference between Indian and Chinese cost of apparel is in the range of 10-15 per cent across various categories, Indian exporters will adopt a wait-and-watch strategy in order to formulate better pricing strategies.
“We will have to adopt a wait-and-watch strategy. In any kind of appreciation, there’s a limit to which the buyer can absorb and it can only be clear later how much the buyer can absorb in this case. But given that we will be more competitive, more buyers will look at India,” said Praveen Nayyar, managing director of Delhi-based Dimple Creations.
Others, while maintaining that China’s new policy, if implemented, is bound to benefit India with a consistent increase in export orders, have expressed apprehensions about the Indian industry’s capability to tap into such an opportunity.
“Today, the pricing difference is not that great and some big players are actually very competent. The real problem is the lack of production capacities in India. That’s the only caveat and we might not be able to realise the potential of such an advantage,” said Prashant Agarwal, vice-president of consultancy firm Technopak.
Agarwal reasons that the situation is similar to that in 2005 when the quota system was dismantled and China took over massive orders as it had been building capacities three years in advance. Indian capacities are not high enough to compensate the surge in orders deflected from China.