Textile margins will be under pressure

The world order has changed while you were partying. The quota regime in the textile sector is history.

However, those who have been weaving a colourful dream for the Indian textiles industry will be in for a rude shock: Margins will take a 2-5 per cent beating as competition will hot up in the global market.

This will offset much of the good effect of the expected 10 growth in exports owing to the abolition of quotas.

Signs of a rise in volumes are already showing up. In the first 10 months of calendar 2004 (between January and October), every components of the textiles industry "" be it apparel, yarn, home texiles and fabric "" recorded volume growth over the comparable period of last year.

The combined total exports, during the period, stood at Rs 82,938.88 crore against the previous period's Rs 73,920.99 crore, represening a 12.91 per cent growth.

However, players in all segments believe that margins will shrink owing to competition from other countries, mainly from China, to sell their products in the US, the European Union and Canada.

Apparel makers will take the maximum hit in margin, while fabric makers will feel the least as this segment will record the lowest drop in margin. However, players across the segments will be hit and on an average margins will be halved.

Amit Goyal, president, Confederation of Indian Apparel Exporters, the apex body of ready garment exporters, said : "An apparel exporter would be hit by a 5-10 per cent drop in margins." Now they enjoy a 15-20 per cent margin.

Arvin Poddar, president, Federation of All India Textile Manufacturers, pointed out that fabric markers, which enjoy 5-7 per cent margin now, would have to forgo half of this.

"The end of the quota regime will lead to a manifold increase in competition. Only those exporters who can supply quality products at a competitive price would be the winners," Goyal added.

According to Poddar, new players in the world market will offer products with a lower price tag, leading to a situation where purchasers will demand more from sellers. Indian textiles companies will have to offer better products and some other value-added services.

India exports nearly $5.50 billion worth of apparel each year. The growth is limited owing to the import restrictions. The US, the largest importer of apparel, has a import limit of men's shirts from India of 34,62,019 dozens a year.

This has been exhausted in October. Other categories such as T-shirts and pants are expected to be exhausted in the next couple of days. These figures show that there is a greater demand for Indian goods.