Tiruppur knitwear hub in doldrums

Employees sew clothes at the Estee garment factory in Tiruppur

The Tiruppur knitwear hub accounts for 46% of India’s exports in the garments sector. It has been under severe stress due to the “twin blows” of demonetisation and GST.

The multi-crore industry, facing crisis after crisis, might bleed soon if the government doesn’t step in and take remedial measures to save the ever-growing sector from the challenges – external and internal – it faces currently, exporters in the Tamil Nadu town say.

According to the exporters, India is losing out to smaller countries like Bangladesh, Sri Lanka, Cambodia and Ethiopia which have free access to key markets like the EU and US. Moreover, cheaper price for end-products, cost-effective labour and free access to key markets have forced buyers to prefer these countries and reduce purchase orders from Tiruppur.

Additionally, buyers who import apparels from these countries do not need to foot an additional 10% expenditure on duty as is the case with India.

Another issue that exporters are unhappy about is the government’s decision to withdraw the 4% merchandise exports from India scheme (MEIS) incentive retrospectively from March 2019. This, they argue will result in massive losses, running into several crores.

The slump in orders has forced several manufacturers to scale down their operations leading to losses in crores of rupees.

Take the case of Santex Inc, a leading exporter in Tiruppur. The company’s factory in Sri Lanka has witnessed an exponential increase in orders while the purchase request for its unit in India by the same buyer has come down by half.

“My client is based in the EU. He has halved the purchase order for 2021 in India but has increased the number in Sri Lanka by more than half. I gained in Sri Lanka, whatever I lost here. It helps that I have factories in both countries. Spare a thought for an exporter who is solely dependent on his unit in Tiruppur. He would have lost half his order,” M Ravichandran, Managing Partner, Santex Inc said.

Cut in production

Several exporters contacted by DH echoed these sentiments, stating that they have scaled-down production as many buyers have reduced the scale of the orders.

“Countries like Sri Lanka, Myanmar, Cambodia and Vietnam have increased their share in the international market as buyers prefer them. At the end, it is cost which matters the most and buyers are price-conscious. So, they go for the price that is low which impacts us in Tiruppur,” a leading exporter said.

Tiruppur Exporters’ Association (TEA) President Raja M Shanmugham said that it was a “major concern” that India, despite boasting of a huge workforce and being the largest producer of cotton, is losing out to Bangladesh in the apparel sector. He stressed on the need for better policy, such as establishing a board in Tiruppur for promotion of knitwear products.

“We need to finalise and operationalise FTAs withthe EU and the US. The level playing field in the industry needs to be ensured by the government. Once a level playing field is established, players’ competence would judge the winners. We badly need subsidies from the government, else we would be outdone by other countries,” Shanmugham said.

The situation would only worsen as Tiruppur manufacturers will now compete with Vietnam too after a free trade agreement( FTA) between EU and Vietnam was operationalised a fortnight ago.

Factors like a slump in orders and lack of incentives threaten to increase losses for an industry which has registered comprehensive growth since 2010. The exports touched the Rs 26,000 crore mark in 2016-17. It has not been able to register any increase since due to implementation of demonetisation and GST.

While exports fell to Rs 24,000 crore in 2017-18, the industry recovered, and exports hit Rs 26,000 crore in 2018-19. However, this year, a drop in exports is expected as net exports have reached only Rs 18,660 crore in the first nine months (April-December) of the fiscal.

“We may reach the Rs 24,000 crore mark by March, which will be down by Rs 2,000 crore year-on-year. If we continue to suffer losses like this, the industry may not survive for long. This is occurring despite favourable international market conditions,” another exporter said.

Withdrawal of incentives

He said Tiruppur manufacturers would lose at least Rs 1,000 crore if the MEIS is withdrawn retrospectively and the incentive under the replacement scheme, ROSL, doesn’t come on time.

“Withdrawing an incentive in retrospective is disastrous for this industry. As we survive on thin margins, withdrawing the incentive from March 2019 would only result in losses. We take orders by signing an agreement with buyers at least one year in advance. We fix the price considering the incentives. If it is withdrawn suddenly, we end up losing money,” a leading exporter said.

S Sakthivel, Executive Secretary of TEA, said the cost of manufacturing in Bangladesh is 15-20% less compared to Tiruppur. “Shortage of labour is a problem for manufacturers in Tiruppur. Wages are double when compared to these countries. Bangladesh has grown exponentially in the sector,” he said.

While India’s exports stood at $17 billion in the past five years, Bangladesh has clocked $38 billion. “They are more efficient as well. Manufacturers in Bangladesh have early bird advantage,” Sakthivel said.