This blouse from BRB Fashions is made of cotton and features plastic bead trimming.

Despite the slowdown last year, suppliers have bright prospects in the near future mainly because of forthcoming trade deals between India and the EU.

After delivering strong performance over the past three years, exports of garments and textiles in India dropped in fiscal year 2012-2013 because of unstable demand in traditional markets.

Shipments of apparel from April 2012 to March 2013 went down nearly 6 percent to $12.9 billion. This was after the line recorded an 18 percent growth in the period before. Unsteady sales in the EU, specifically in the first two months of 2013, significantly affected overseas revenue. Deliveries to the association from January to February amounted to $1.1 billion, lower by 6.5 percent from the same period last year. Similarly, income derived from the US dipped by 7.2 percent to $571 million. These two markets account for about two-thirds of India’s garment turnover.

Revenue from textile exports also saw a substantial decline last year. Sales in 2012-2013 totaled $31.7 billion, down 5 percent YoY. The amount was below the national government’s target of $39.6 billion. In 2011-2012, the sector registered a 20 percent expansion.

Aside from sluggish demand in the EU and the US, intense competition from other sourcing centers contributed to the drop in turnover. Bangladesh and Turkey are steadily increasing their market share in major destinations because of lower prices and affordable wages. The former is also benefiting from the preferential access given by the EU. India and the association are still finalizing details of a free trade agreement, which is expected to raise apparel exports to the bloc by 30 percent.

Competitive advantages

KCS Fabrics produces 75:25 polyester-acrylic fabric.

One of the industry’s strong areas is the ready availability of raw materials. India is one of the world’s leading supply hubs for cotton, jute and wool. The Cotton Association of India estimated total cotton production for the October 2012 to September 2013 season to exceed 41 million bales. The country also boasts a fast-growing synthetic fiber industry, thereby ensuring stable stock of polyester, rayon, acrylic and nylon. Because most components can be procured from domestic vendors at a lower price, companies can turn them into high-value goods. This allows enterprises to earn more profits.

Another strength possessed by the sector is the presence of a deep labor pool in the handicraft industry. Data from the All India Artisans and Craftworkers Welfare Association indicate that there are about 13 million people employed in the line. The sector benefits from the widespread availability of artisans who are proficient in various manufacturing steps such as weaving and embroidery. As such, suppliers can easily subcontract some of the production processes that require their expertise. Companies also hire skilled workers to highlight traditional themes in their releases, thereby strengthening competitiveness against their rivals.

Acceptance of small orders is another advantage enjoyed by the sector. A number of enterprises allow MOQs of 30 pieces for garments and 100m for textiles. Other sourcing hubs require at least 100 pieces.

Challenges

Finding new foreign buyers is identified as the main difficulty affecting the line. Clients from financially troubled markets tend to look for suppliers offering more economical products to protect their profit margins. Others purchase less in terms of volume and frequency. Some customers previously sourcing from India are turning their attention to Cambodia, Laos and Bangladesh. Makers in these supply zones enjoy zero export tax because of their free trade agreements with the EU. Currently, the bloc levies 9.6 percent import duty on garments and textiles from India.

To cope, domestic enterprises are shifting their focus on alternative destinations such as Latin America and Africa, particularly South Africa, Kenya, Nigeria and Ghana. They are also boosting their domestic presence for better business prospects.

Intense price competition is likewise cited as a major hurdle. Because locally made apparel and fabrics are priced higher compared with those from other sourcing centers, manufacturers are finding it hard to establish long-term partnerships with overseas buyers. India is losing orders from customers in traditional markets to China, Bangladesh, Pakistan, Turkey, Vietnam and Cambodia. Quotes of products from these countries are at least 5 percent lower.