Indian apparel makers have sought government intervention to stabilize the rupee, which has been rising in recent months, in stark contrast to the situation in other countries that compete with India in exporting garments.
“Other countries started taking recourse to depreciating their respective currencies during the last one-and-a-half years, whereas Indian Rupee got appreciated,” complained Apparel Export Promotion Council or AEPC, an organization of exporters.
According to the data compiled by the AEPC, the Chinese Yuan depreciated by 13% against the dollar in the last 12-18 months, Bangladesh Taka by 6% and Vietnam Dong by 7%. The Indian rupee, however, has risen by about 6% in the last 3-5 months.
The rupee has risen against the dollar even as the dollar has risen against most other currencies due to strong flows of foreign institutional investor (FII) money into India’s stock markets.
Foreign investors are seen to be bracing for a big bull run in India’s stock market as the India’s prime minister Narendra Modi is seen coming back into power in 2019.
The AEPC said foreign inflows do not have to mean a strong rupee. “China got highest FDI during this period and still they resorted to depreciate Chinese Yuan just to protect their exports and employment,” it said.
“Exporters are not able to book orders due to over-valued rupee as apparel exports are highly price-sensitive,” said Ashok Rajani, Chairman AEPC.
Quoting Reserve Bank of India figures, he said the rupee was over-valued by 18% in Feb 2017.
“Now it is almost 20%. It calls for a carefully considered strategy and more pragmatic approach to arrest the rise of rupee in overall interest of export endeavor and boosting employment in our country.”
The growing cotton prices and rupee appreciation will nullify the intended impact of recent export stimulation packages and also weaken India’s position against its competitors, he added.
In June last year, the government announced financial and investment incentives for the garments and apparel sector, besides critical labour flexibilities, with an aim to generate 1 cr additional jobs and $30 bln additional exports.
The sector is one of the largest employment generators in the country — especially in states like Karnataka and Tamil Nadu and for rural women. It is estimated to employ 10.5 crore persons — about 15% of the country’s workforce — directly and indirectly.
According to AEPC, each Rs.100 crores of apparel production generates Rs 30 crores of labor income.
“Despite Govt.’s intentions and support to the industry, exports are hardly picking up. The primary reason is strong rupee and depreciation of currencies of our competing countries like China, Bangladesh and Vietnam,” it added.
The second factor worrying apparel makers is rising cotton prices.
Cotton prices have increased by 24.7 per cent on an average, across all categories, in the last one year, the AEPC said.
“Some categories have seen hike of up to 35%,” the organization said.