Rating agency ICRA on Tuesday said though domestic apparel exports are expected to remain in the positive zone during rest of the year, there are multiple threats looming which could slow down the pace and make it challenging for exporters.
India's apparel exports have revived during the current financial year, growing by about 4 per cent year on year during first 4 months of the 2019-20, after two consecutive years of de-growth, by 3-4 per cent per annum in the previous two fiscal.
"External environment for India's apparel exporters remains challenging amid a pick-up in activity on several free trade agreements among the key trading nations, which has intensified competition from nations having a cost advantage over India," Jackstay Roy, senior vice-president and group head, Corporate Sector Ratings, ICRA, said.
ICRA further said in terms of region-wise trends, the growth in India's apparel exports during the first four months of the current fiscal was primarily driven by a 7 per cent increase in exports to the US market, while exports to the key European and the UK markets declined during the period.
In addition to a general slowdown in EU's import demand amid weakening of currency, India's position in the EU market has been adversely affected by the preferred access to key competing nations such as Bangladesh and Vietnam by way of free trade agreements.
Given the headwinds, ICRA expects Indian apparel exporters to grow at a slower pace in the near term.
However, despite moderation from a healthy 14-16 per cent growth in 2018-19 and first quarter of the current fiscal, pace of growth for the larger domestic apparel exporters is expected to remain comfortable at 8-10 per cent during 2019-20, it said.
Renegotiation of apparel realisations by key buyers amid a slowdown in retail demand and continued competitive pressures from peer nations together with high raw material costs and higher air freight charges are likely to put a pressure on margins.
The impact though, is expected to be cushioned by the transitory increase in export incentives till December 2019, post the replacement of Rebate of State Levies (ROSL) with Rebate of State & Central Taxes and Levies Scheme (ROSCTL), it said and added as a result, large exporters may report range-bound operating margins vis-a-vis last year.
ICRA also noted that continued access to export incentives remains crucial for the Indian apparel exporters to garner a larger pie of the global apparel trade.
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