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India’s apparel sector hit due to subdued demand from key countries

Growth in India’s apparel exports may stay muted for a consecutive year in FY17, as demand from key importing countries remained subdued. With global apparel trade dipping by one per cent to $432 billion in 2016, apparel exports, according to the Apparel Export Promotion Council’s (AEPC’s) estimates, are likely to close at $17.3 billion in 2016-17, up by roughly two per cent from $16.9 billion last financial year. The industry clocked exports worth $15.5 billion from April 2016 to February 2017, a growth rate of just 0.6 per cent over the last year, reveal AEPC figures.

Slow demand hits exports The major reason for the dip is low demand from importing countries. Exports in value terms declined, following an increase in the share of man-made fibre-based apparels, which are lower in value vis-à-vis cotton apparels. This in turn was caused by improved competitiveness of polyester vis-à-vis cotton in the past few years, says ICRA.

Apparel exports to the US grew two per cent in 2016. While this growth is modest compared to previous years, growth quantum is satisfactory in the backdrop of a one per cent decline in import quantity. Explaining the situation ICRA says in its March update that apparel export quantity to the European Union (EU) is estimated to have grown six per cent in 2016, compared to five per cent in total apparel import quantity of the EU. ICRA report suggests given the weak trend in global apparel trade, domestic market-focused apparel manufacturers are expected to perform relatively better than exporters for second consecutive year in FY17. However, with temporary pressures being observed in domestic consumption owing to demonetization, the gap between growth rates is likely to narrow significantly. Thus, compared to an estimated revenue growth of 10 per cent for domestic market-focused players, the revenues of exporters are expected to grow by nine per cent in FY17 for the entities in Icra's sample set," it said, while adding the operating profit margins of the domestic market-focused apparel manufacturers remain higher than the apparel exporters.

In FY16, too, domestic players had reported a much higher growth rate of 14 per cent vis-à-vis six per cent growth rate achieved by exporters. Overall, FY16 and FY17 have been years of weak growth for apparel manufacturers compared to the recent past, wherein the revenues of both apparel exporters and domestic players grew at a CAGR of 13-14 per cent during 2011-2015 said the report.