Lankan and Chinese constraints to generate strong revenue growth for Indian ready-to-wear manufacturers
India’s textile industry has rarely done so well. While apparel exports recorded over 30% growth in fiscal year 2021-22 (April-March) with cumulative shipments of Ready Made Garments (RMG) for the period at 16,018.3 million billion, strong export demand aided by Sri Lanka-China constraints as well as solid domestic demand is expected to drive revenue growth for RMG manufacturers by 16-18% this fiscal year.
The main export markets for Indian textiles and garments are the United States, the European Union, parts of Asia and the Middle East. Among these markets, the United States holds the maximum share of 26.3% for knitwear, followed by the United Arab Emirates with 14.5% and the United Kingdom with 9.6%.
The current global market size for synthetic fiber (MMF) garments and garments is around $200 billion, with India’s share of $1.6 billion accounting for only 0.8% of the global market total MMF, the latest data from the Clothing Export Promotion Council shows.
Externally, factors such as the depreciation of the rupee and the continuation of export-related incentive programs will provide additional benefits to export players on the road ahead, leading to growth in RMG manufacturers, shows an analysis of 140 such manufacturers — with an overall revenue of Rs 20,000 crore — by CRISIL Ratings.
“Export demand is expected to increase by at least 12-15%, despite last year’s higher base, as foreign players continue to diversify their supplier base in light of the economic crisis in Sri Lanka and the new wave of Covid in China, which has disrupted supply chains,” says Anuj Sethi, Senior Director, CRISIL Ratings.
The depreciation of the rupee and the continuation of export-related incentive schemes are additional benefits for export players in the way forward, according to an analysis of 140 RMG manufacturers with an overall income of Rs 20 000 crore, by Crisil. Nomura expects China’s dollar export growth to slump “due to severe disruptions to factory operations, road transportation and port congestion following the worst wave of COVID-19 and the most severe closures since spring 2020.
India’s economic recovery has also supported the normalization of discretionary spending which, together with improving performance amid soaring commodity prices, should boost domestic demand. This demand within the country, which represents three quarters of that of the whole of the RMG, should grow by more than 20%, underlines Sethi.
RMG makers’ operating margin will improve 75-100 basis points year on year to 7.5-8.0% in FY 2022-23 – still below pre-FY levels pandemic 8-9%. While key raw materials such as cotton yarn and synthetic fibers are 15-20% more expensive, RMG manufacturers should be able to partly pass on input price increases to the rebound in demand and improving operating leverage, which will support overall profitability.
India has traditionally competed with Sri Lanka on the world market. However, unlike India, Sri Lanka is dependent on imports for its raw materials and its imports of textiles and textile products increased by 32.4% to $2.206 billion between January and September 2021. India is well placed on the raw materials front.
“The world’s greatest availability of cotton, jute, silk and woolen raw materials, supported by the world’s second largest spinning and weaving capacity, has provided the industry with an opportunity for domestic value addition 95%,” said Narendra Goenka, President of PEAC.
Another catalyst for the strong finances of the RMG industry would be the reduction of raw cotton tariffs from 10% to zero, which will significantly boost Indian exports of garments and garments by also softening the prices of yarn and fabrics , says chairman of the Federation of Indian Exporters Organization, A Sakthivel.
Moreover, India has recently increased its market share in garment exports to the United States and many countries, and the signing of CEPA with the United Arab Emirates and Australia will further accelerate it. Indeed, Australia has become an important export market for the Indian garment industry. Its textile and apparel imports have grown by 2% over the past five years and reached $6.3 billion in 2020.
India is among Australia’s top three suppliers of T&A products, with its share of Australia’s total textile and clothing imports amounting to about 5.5 per cent. With the recently signed Economic and Trade Cooperation Agreement (ECTA) between India and Australia, the Indian garment industry is poised for further development.
Canada too, as one of the major apparel importers, provides a prime export market for the Indian apparel industry. India is Canada’s eleventh largest export market and twelfth largest trading partner.
The Indian textile industry has witnessed positive developments such as the dominance of home textiles and favorable geopolitical currents encouraging the China Plus One sourcing strategy, which promises a brighter future. Favorable geopolitical currents like COVID-19 have exposed the fragility of global supply chains and heightened the need for global diversification, such as the China Plus One strategy.
A CII-Kearney study calls for aiming for a $16 billion increase riding China Plus One sentiment. Bangladesh and Vietnam need to be saturated given their limited geographical size, the situation places India in a favorable position to build the necessary capacities and infrastructures and become the alternative to China.
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