It has always puzzled me why do good clothes cost so much in India-recently my parents went to Singapore and purchased a T shirt made in Thailand for Rs 500, which would have cost me around Rs 800+ in India. One reason could be export pricing being applied to India, very much like an Ipad, with no thought for PPP. There is already pushback against brands like Zodiac who are now struggling to make profit. While analysts are bullish on the industry and have lead investors to bid up shares like Page Industries, Kitex, Ambika Cotton, Indocount, Arvind Mills etc to new highs, there are global winds in the offing which are not so favourable. The Zodiac online annual report does a good job of flagging this. Thats probably the only notable thing in the otherwise bland report
- The TRANS PACIFIC Partnership (TPP Agreement) is expected to come into force circa end 2017. Of the currently 12 participants, Vietnam and Malaysia are the two TPP members who can pose a serious threat to India’s export of clothing, due to tariff concessions, practically zero duty access, that they would get in the US market. Vietnam is already one of the fastest growing major exporters to the US market, even without any tariff concessions. Also relevant is that Vietnam is already in negotiation with the EU for a FTA, expected to be finalized by 2018.
- India’s own FTA with the EU, negotiations for which started in 2007, has not progressed substantially. In textiles and clothing there is already tentative agreement, that all customs duties can be abolished on both sides, but there are issues outside the Textiles space that remain to be resolved. While EU importers of India’s clothing are currently paying customs duty of 9.6%, many of our competitors, notably Bangladesh, have zero duty access. The FTA agreement is therefore of utmost importance, and can be a game changer. It needs to be signed at the earliest to harvest the competitive advantage that the economic package for clothing, announced in June 2016 by the Government of India envisages
- Britain’s decision to leave the EU is likely to add to the complexity. From India’s export, 37% or USD 6.25 B goes to the EU, from which 15% or USD 1.8 billion goes to the UK, the risk being recession/contraction of growth, as well as further depreciation of their currencies.
- China diversifying its supply base to service their customers out of low cost/tariff benefit countries and thereby, yielding less ground.
- In this decade of volatility, Forex volatility witnessed in the last few years constitutes a threat.
- How long will the global economy/consumer demand and the Indian consumer demand (including the additional constituent of fresh demand from the Demographic Dividend) take to revive? -
- The internal barrier to trade in India of Entry Permits needs to be extinguished forthwith.
While Point 1 & 2 may not emerge with the TPP almost dead, and Point 7 to be solved next year with the advent of GST, the danger is real.