The apparel industry, which is one of the largest employment generators of the Indian economy, had made a comeback in 2005, posting record production and exports growth, fuelled by the opening of new opportunities after removal of quotas. From a gradual decline in the growth rate in 2006, exports have actually stared falling in 2007. The first actual decline in exports to US was reported in January 2007. The trends in exports to US is an important indicator of the overall health of the sector as it accounts for 35% of apparel exports from India.

February 2007 has seen 2.9% decline in exports to US in quantity term. This can be largely contributed to the 1.05% appreciation in rupee during February, 07 compared to January, 07. The appreciation is detrimental to the exporters, it makes the exports costlier forcing suppliers to move to lower cost sourcing destinations or shifting the imports from India to lower value goods. This is evident from the decline in quantity terms and the 10.5% decline in unit value realization of apparel exports to US during January 2007, compared to January 2006.

Shifting to low cost suppliers by importers is logical given the fact that the rupee appreciation comes at a time when most of our competing countries have witnessed currency depreciation. Comparing the exchange rates for April 2007 to April 2006 reveals that while the rupee appreciated 5.5%; Pakistan rupee, Turkish lira, Indonesian rupiah and Hong Kong dollar depreciated against US$ by about 1.3%, 0.72%, 2.3% and 0.72% respectively. The Chinese Yuan has appreciated by 7.24% but it has other built in advantages, as result of which Chinese exports of clothing have been rising.

Secondly, the unabated rupee appreciation is expected to be a huge revenue loss to the apparel exporters. The recent appreciation is expected to reduce export receipts of apparel exporters from Rs 20484 cr in the first half of 2006-07,  to Rs 19181 cr during second half of the year, given the same rate of exports. This is a dip of 6.3% in export revenues. However, the losses will be more given the quantitative decline in exports being witnessed in this quarter.

Mr. Vijay Agarwal, Chairman Apparel Export Promotion Council (AEPC) expressed his concerns over the appreciation in the value of rupee in a letter issued to the Textile, Commerce and Finance Ministers. Mr Agarwal said,the currency appreciation loss is usually borne by the exporter, at the cost of reducing profit margins, which are already low for the apparel exporters. The exporters are already burdened with disadvantages like rigidities in labour laws that restrict the garment industry to SMEs, high transaction cost that negates other cost advantages available to the sector and infrastructure weaknesses which have been infusing production inefficiencies in clothing industry.

On behalf of the textile industry Mr. Agarwal has urged the government to help curb further appreciation of rupee to ensure restoration of competitiveness of the industry and fulfillment of export targets. The industry also seeks government support for lowering cost of capital and improving infrastructural bottlenecks to ensure long term growth of exports from this sector.