Kochi: The rising rupee that breached the psychologically crucial Rs40 to $1 level last week is set to claim its first victim: a large number of the 350,000 or so workers in the textile town of Tirupur, in Tamil Nadu, may lose jobs as exporters are finding it difficult to keep the mills running.
The trouble for these workers actually started a few months ago with the steady rise in the rupee and exporters finding it difficult to increase volumes. Some textiles mills in this southern state have already started resorting to partial layoffs through reduction in production and doing away with their night shift.
In “Tirupur alone, around 7,000 employees have been rendered jobless and the situation can turn worse affecting the livelihood of the majority of the workers and their families,” says A. Saktivel, president of the Tirupur Exporters Association. Tirupur hosts around 6,000 textile units.
The rising rupee is drastically bringing down the export earnings when dollar income is translated into local currency. The Indian currency is Asia’s best performing currency this year, rising some 11% against the greenback. This means an 11% drop in earnings for exporters if the volume of exports and prices remain the same.
The knitwear industry in Tirupur, which had an export turnover of Rs11,000 crore during fiscal 2006-07, is set to see a 6-7% decline in volume of business this year, says Saktivel.
“The first half of this financial year has been pretty bad. With no new orders coming in, we are considering laying off people. There is no other option before us,” says Saktivel.
The industry so far has been trying to buy time for booking new orders and hoping that the rupee would stabilize. However, the local currency has strengthened further last week following the US Federal Reserve Bank’s decision to cut its policy rate by half a percentage point to 4.75%.
Some 2,500 of textile factories in Tirupur are into knitting, another 1,500 into garment manufacturing, some 700 into dyeing and 400 into embroidery, with the rest into printing. It is one of India’s largest textile clusters housing 100% export-oriented units. The first export consignment left Tirupur in 1978 and until 1985, annual exports were less than Rs10 crore. The turnover touched Rs1,000 crore in 1991 and since then it has growth 11 times.
Saktivel sees little chance of exports of garments and knitwear to the US going up. Admitting that the industry needs to accept the fact that situation may remain grim for sometime, he is lobbying for measures to help the industry tide over the crisis.
One of the measures the association has been asking for is a lowering of interest rate on the pre-shipment and post-shipment credit given to exporters. Right now, the exporters pay around 13% for such short term facilities.
P. Rajendran, president of the Madurai Spinners Association, says that with the rising rupee export earnings of textiles firms are going down, forcing them to cut down production and do away with night shifts.
According to him, a large number of retrenched workers from textiles mills in Karur, Tirupur and Coimbatore in Tamil Nadu are seeking jobs in Madurai, which houses 120 mills with combined annual revenues of around Rs1,440 crore. Madurai does not have any fully export-oriented textiles unit but exports still account for about 40% of sales.
He says apart from bringing down interest on bank loans, the government should also pare the duty on import of cotton from the 10% to 5%.
In order to offer relief to textiles mills, the government last week announced service tax benefits for transporting goods to the port as well as on port handling charges, but Saktivel is not convinced of the efficacy of such a move.
“The claim for refund of 12% service taxes for transport of goods from the inland container depot to the port of export and port handling charges will be negligible,” he says.
According to him, all services incurred by exporters including sourcing of raw materials should be exempted from payment of service tax. The government should also consider sops for exporters to offset the impact of various state taxes and levies, he says.