The recent devaluation of the yuan by China is becoming a serious concern for the spinning and garment industry. While the spinning industry is worried about further slowdown in demand at a time when players are over-dependent on China, apparel exporters anticipate competition getting intense with the Asian giant. "The growing dependence of the Indian spinning sector on China and creation of excess capacities in anticipation of growing demand has put the industry in jeopardy. The large players have bigger stocks and inventories and a slowdown in demand will impact us more," said Kamal Oswal, managing director of Nahar Industrial Enterprises.
Yarn exports from India have experienced a hit owing to dwindling demand from the Chinese market. On the other hand, slowdown in China had led to some apparel export orders shifting to India. However, industry players stated that it was too early to estimate the extent of impact by the devaluation.
Nevertheless, a deliberate devaluation of yuan is now hinting at things getting worse for the textile industry, say players. For instance, competition with China in apparel exports could worsen in the near future.
"China has devalued the yuan because the country is under pressure to better its exports. Competition with China is intense, but with the devaluation, China will become cheaper for American and European buyers. There will be some diversion of orders to China again now," said a senior official at Apparel Export Promotion Council (AEPC).
While import content in apparel as against export is much less than the industry average at 20 per cent, the increased raw material prices could nullify any immediate benefit that could have accrued for Indian apparel exporters from the Chinese currency devaluation.
Garment makers are also jittery that this could be a sign of increased competition from China again. "If by devaluating its currency, China is again focusing on exports and starts offering fresh incentives for apparel exports, then it will be a dangerous sign for us," said Rahul Mehta of Clothing Manufacturers' Association of India (CMAI).
S P Oswal, chairman of Oswal Group, also feels the devaluation of the yuan will have an adverse impact.
"The industry was not prepared for this shock. If the rupee remains overvalued, the merchandise exports will be severely affected. Like other countries, the Indian government should pursue the policies to boost exports and generate employment. The total textile export from China is $150 billion per annum, which is 10 times bigger than India. So, the Indian government should give a serious thought to improve our global participation," Oswal added.
Apparently, the textile sector in general, and the spinning mills in particular, have been under stress for the past few months due to two major factors: the delay in subsidy under the textile upgradation fund scheme and high cost of raw material (cotton).
The delay of subsidy for six months to one year added to the miseries of the textile mills, depriving them of cash flow. The high cost of cotton due to aggressive buying by the Cotton Corporation of India at minimum support price, jacked up the cotton prices making Indian cotton yarn uncompetitive in the global market. The devaluation of yuan has come as a last straw in camel’s back.
Kamal Oswal said the situation could be improved only through giving incentives for exports and ensuring lower input costs.
