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Estimating the missing links in garment exports

M K Panthaki

The Apparel Export Promotion Council (AEPC) whose primary responsibility, was to publish authentic figures of exports of garments from India, had all along, been doing so on the basis of endorsements of shipping bills for all types of garments (whether to quota countries or otherwise) submitted by exporters. This was mandatory. However, for some reason or other, AEPC discontinued endorsing shipping bills, except for quota countries, since October 2000. This missing links have started since then. Export policies of the government, thereafter, have been based only on exports to quota countries. This obviously has its limitations, the principal one being whether exports to quota countries are at all indicative of an overall trend. According to AEPC, total exports of apparel stood at Rs 20,834.03 crore in 1998, Rs 22,915.15 crore in 1999 and Rs 25,852 crore in 2000. As against this, the exports to quota countries stood at Rs 11,290.28 crore, Rs 11,704.56 and Rs 14,695 crore, accounting for 54.2 per cent, 51.1 per cent and 56.8 per cent, respectively.

Estimate for 2000

The high percentage in the calendar year 2000 is due to the fact that exports to non quota countries were not recorded by AEPC since October 2000. with a view to estimate such exports, it would be fair to consider the published figure of “others” for the year 2000 i.e. Rs 11,157.24 crore as representing the figure of exports for January to September. Although actual exports during the last quarter i.e. October to December, are at a peak, even a straight line estimate for non-quota exports during the calender year 2000 yields of Rs 14,839.13 crore.

Thus, an estimate of these exports during the calender year 2000 is: Restricted: Rs 14,695.00 crore

Others: Rs 14,839.13 crore

Total: Rs 29,534.13 crore

Percentage of restricted to total: 49.8 per cent

It will thus be observed that the percentage of exports to quota countries has been going down from 54.2 per cent in 1998 to 51.1 per cent in 1999 and now to 49.8 per cent in 2000.

Exports on financial year basis

Since the government policies are all based on financial year (April/March) exports, it would be interesting to see the trend. Total apparel exports for the April-March period stood at Rs 22,208.79 crore in 1998-99, Rs 23,989 crore in 1999-2000 and 24,214.39 crore in 2000-01. During the period, exports to quota countries stood at Rs 11,956.60 crore, Rs 12,278.64 crore and Rs 14,644.99 crore, accounting for 53.8 per cent, 51.2 per cent and 60.5 per cent, respectively. Here again, it will be necessary to estimate exports to other than quota countries for 2000/01. We have seen in the above estimate that exports to quota countries is 49.8 per cent of total exports in the calender year 2000. Working on that basis, an estimate of total garment exports during 2000/01 exports will work out to Rs 29,407.61 crore. Thus estimate for 2000/01 exports will be:restricted Rs 14,644.99 crore; others Rs 14,762.62 crore and total Rs 29,407.61 crore. This percentage of restricted to total i.e 49.8 per cent compares favourably with 53.8 per cent for 1998/99 and 51.2 per cent for 1999/00.

Exports during 2001/02

As per figures published by AEPC, exports to quota countries were valued at $1973.6 million at an exchange rate of Rs 47.4 This works out to Rs 9,354.86 crore.

Total garment exports for 2001-02, published by DGIS, Calcutta were Rs 23,797.55 crore. Thus, exports of garments in 2001-02 were: restricted Rs 9,354.86 crore, others Rs 14,442.69 crore and total Rs 23,797.55 crore.

Based on the above fact, total exports can be estimated at Rs 29,407.61 crore for 2000-01 and Rs 23,797.55 crore for 2001-02. During the period, exports to quota countries stood at Rs 14,644.99 crore and Rs 9,354.86 crore, accounting for 49.8 per cent and 39.3 per cent, respectively.

The steep fall in exports during 2001-02 over the previous year, was only to be expected. The introduction of excise duty on garments in the 2001 budget created turmoil in the entire industry, more so due to the fact that it was ill planned and lacked proper thought so much so that initially even export production was brought within its net. It required strong protests from the industry, and a complete shut down of the entire industry from job workers to retailers for almost a month, for the government to announce some halting and half hearted concessions. In the process, several export orders were lost and this is well reflected in the final figures of exports.

Declining share of restricted garments

The share of restricted garments has come down steadily from 53.6 in 1998-99 to as low as 39.3 per cent by 2001-02. Does it make sense to frame an export policy on 39 per cent of total exports?

A monthwise comparison of exports of restricted items in 2002 and 2003 brings this in sharper forms. (See Table)

The euphoria witnessed in the first quarter was chiefly due to diversion of export orders from China to India consequent upon the unfortunate SARS epidemic that gripped Far East Asia and later spread to South East Asia. Despite this, the fact remains that, month for month, the trend in 2003 has been a declining one compared to 2002. What is worse, is that even before half the year 2003 had gone by, the trend actually turned negative.

Since, however, exports of garments on the whole have been positive in 2003, it is clear that the share of restricted items will fall well below even 39 per cent that was achieved in 2001-02. One shudders to think of the position, post 2004.

It is most unfortunate that despite this depressing find, both the ministry and AEPC continue to rely on exports of restrictive items to frame future policies.

Contribution from the industry

The industry itself is gearing up to go in for high value added products. It is this alone that is sustaining exports. This will be evidence from the unit value earnings during 2003 and 2002.

Over the eight month period, there has been an almost 10 per cent increase in unit dollar earnings in 2003 as compared to 2002. This is the contribution of the industry in continuously looking for exports of items which command a higher unit value.

Government initiative

This is in spite of the lacklustre assistance from the government in denying the industry tax rebate on export profits or even in calculated attempts to reduce the rates of drawback in spite of the handicaps that Indian exports suffer from due to transaction costs and appreciation of the rupee, both of which are taken care of by the governments of competing countries like China.

The Chinese government has held the yarn rock steady against the dollar, whereas the Indian rupee has appreciated by well over seven per cent. So also in the case of transaction costs, this is even now 7-10 per cent of export revenue, whereas it is as low as two per cent to three per cent elsewhere.

Again in the matter of bank finance, an Indian exporter cannot expect an interest rate lower than eight per cent, whereas this is only six per cent for China.

On above few counts alone, an Indian exporter starts with a handicap of around 15 per cent. It is only the innovative nature of the Indian industry and exporter that has helped the country to survive these odds.