India textile and clothing trade sees boost from yuan move

India's growing textile industry is set to gain from China's currency revaluation, but output constraints and higher costs are an obstacle for the sector that accounts for a quarter of the country's export earnings.

 

India would be able to grab some market share from China, trade officials and analysts said, as Chinese exports will become costlier if the yuan keeps appreciating after Beijing loosened its decade-old peg to the U.S. dollar last month.

 

"Everybody is investing in capacity. We don't expect a gain all of a sudden, but it will be positive," said G. Frank, a leading independent garment exporter from southern India.

 

Both India and China are set to benefit after the expiry on Jan. 1 this year of a 40-year-old system of quotas on developing countries' textile exports, paving the way for a massive shift in production to low-cost countries.

 

India's share of the world market is seen doubling by 2010 from 4 percent currently, several studies have shown. The country unveiled plans last week to set up 25 large textile parks at an estimated cost of $144 million, which New Delhi hopes will draw in private investment of $4.25 billion.

 

But modernisation is slow in India's textile industry, where 35 million workers make it the country's second-largest employer after farming. Clothing suppliers are unable to match volumes that China's exporters handle with ease.

 

"If today someone asks me to supply 2 million T-shirts of a particular variety in two months, I can't do it, because we don't have the capacity," said Asit Parikh, general manager at Indian trading house Adani Exports Ltd.

 

"But the Chinese can definitely do it."

 

China commanded a 20 percent share of global textile trade before the quotas ended and experts have said its share could rise to as much as half.

 

Excluding fabric costs, China can produce a pair of denim jeans, for example, at least 30 percent cheaper than India because its labor and power are less expensive, industry officials in India said.

 

TEXTILE EXPORTS

 

India exports textile products including yarn, fabrics and garments mainly to North America, Norway and the European Union.

 

The value of its textile exports in 2004/05 is expected to have grown to $15 billion from last year's $13 billion. For the year to March 2006, the Confederation of Indian Textile Industry forecasts textile exports could cross $16 billion.

 

India hopes the revaluation of the yuan will help. China increased its value by 2.1 percent on July 21, widely seen as the first step toward further appreciation after Beijing abandoned its currency's peg to the dollar.

 

Top global players are already sourcing more textiles in India. Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research) and GAP Inc. (GPS.N: Quote, Profile, Research) have started large-scale product procurement from India, said Ajay Sahai, acting-director general of the Federation of Indian Export Organization.

 

"These companies work with four- to five-year plans. They know that sooner or later China will have to revalue its currency more, because the 2 percent revaluation will not satisfy the United States," he said.

 

Adani Exports is also expecting more orders from China.

 

"We can compete better with their domestic industry. After the appreciation of the yuan, their imports from India have become cheaper," said Parikh, whose firm sells cotton yarn and unprocessed fabric to China.

 

Trade between India and China totaled more than $13 billion in the year to March 2004, nearly three times India's trade with Japan.

 

But Adani's Parikh said everything would depend on how the Indian currency, the rupee, behaves in the months ahead.

 

"If the Indian rupee does not appreciate, then we have an advantage. But if there is any appreciation of the rupee, then the benefit goes," he said. The rupee hit a six-year peak of 43.1150/1350 against the dollar a day after China revalued its yuan, but aggressive central bank intervention drove it back.

 

It has been holding around 43.50 in the past two months despite the dollar's bounce overseas and widening trade and current account deficits due to robust foreign capital flows. ($1=43.50 rupees)

 

China scraps export tariffs on textile goods

 

China on Monday scrapped its export tariffs on 17 Chinese-made textile products subject to the European Union's new trade restrictions.

 

It is the fourth time China has re-adjusted its export tariff on textile products this year.

 

Experts hope the measure will help Chinese textile producers remain profitable, especially after the appreciation of the Renminbi, which will further eat into the bottom line of textile companies.

 

It is estimated that 30 percent of China's 19 million textile workers will lose their jobs because of trade barriers set by the EU and the United States.

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CIAe Newsroom

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