BackAmid global meltdown, some Indian companies hit pay dirt
Amid global meltdown, some Indian companies hit pay dirt
PremiumTemporary boost? Rashid Mirza, MD, Mirza International Ltd, says turnover has grown to Rs390-400 crore from Rs310 crore last year. Ramesh Pathania / Mint
New Delhi: Global economic distress following the turmoil in the US financial industry has proved to be a blessing to some exporters in India, at least for now, although overall growth in shipments abroad has begun to flag.
Exporters of goods such as garments, shoes, meat and fruit are profiting from higher demand as retailers in Europe move out of traditional sourcing centres in the continent—such as Portugal and Spain—to seek better value in lower-cost production centres such as India, Vietnam and Bangladesh.
The rupee’s steep depreciation is also benefiting exporters because it has made Indian products cheaper for foreign buyers, who are diverting orders to India from China after the yuan currency appreciated. The rupee has fallen almost a fifth while the yuan has gained 6.8% this year against the dollar.
Economists caution that the boost is temporary and the full impact of a slowdown in world trade would be felt next year. For now, though, exporters such as Mirza International Ltd aren’t complaining.
Mirza International makes 20,000 pairs of men’s and women’s shoes a day. This year, orders for its mid-price range have risen to 1.1 million pairs from 800,000. With new orders piling up, it’s set to add 2,000-3,000 workers on top of the 8,000 people it employs at factories near Kanpur and Noida, on Delhi’s outskirts.
“Indian manufacturers are kings of recession," Rashid Mirza, the company’s managing director, says at his south Delhi office, with its walls lined with boots, lacers and slip-ons.
He expects company turnover to grow to Rs390-400 crore this year from Rs310 crore last year. “Whenever there is recession," says Mirza, “people scale down to value-for-money products. The Harrods shopper will go to Selfridges. The Selfridges shopper will go to Marks and Spencer. Everyone is downpricing to keep their shops going. And it’s a good time to be in business."
Companies such as Steve Madden Ltd and Kenneth Cole Productions Inc that traditionally source their wares from Italy, Spain or Portugal, are turning to India to gain a price advantage.
Luxury label Burberry, which orders its women and men’s line from Europe, is in talks with Indian apparel maker Orient Craft Ltd. The Rs750 crore Orient Craft, one of India’s largest apparel exporters, says it has stopped taking orders because it cannot fill any more until March 2009.
With a total staff of 25,000 and 47 clients from Marks and Spencer to Marc Jacobs, it makes 100,000 pieces of garments a day from baby frocks to extra-large trousers.
“We cannot fulfil any more commitments despite adding new capacity at our plant in Rajasthan," says Sudhir Dhingra, managing director. “Opportunities are large as customers are moving away from China. Price is a big driver at this point and India can offer competitive prices."
To be sure, India’s export growth has begun to flag. In September, exports grew 10.4% to $13.7 billion (Rs65,349 crore), the slowest pace in 18 months, as recessionary trends in the US and Europe strengthened. That compares with a pace of 31% for the first half of the fiscal.
“Indian exports have been good and overall growth will be between 19-20%, helped by the favourable exchange rate," says economist D.K. Joshi, principal economist at rating agency Crisil Ltd. “But it has to come down sharply in the first half of next year due to correction in advanced economies, which will cause exports to dry up."
In its recent World Economic Outlook, the International Monetary Fund estimated that world trade volume, including goods and services, would slide to a growth pace of 4.9% this year from 7.2% last year and further drop to 4.1% in 2009.
Shipments of goods such as food and clothing, classified as necessities, aren’t expected to be as badly affected as accessories such as jewellery or handicrafts that are the first to be axed from a consumer’s shopping list when money is tight.
Ahmedabad-based Freshtrop Fruits Ltd exports grapes and pomegranates to Germany, the UK and Switzerland. “Ours is a recession-free activity," says Ashok Motiani, managing director of the Rs50 crore company that exported 4,000 tonnes of goods last year.
The Agriculture and Processed Food Products Export Development Authority, which shipped out goods worth Rs28,906 crore last year, expects 15% growth.
“Our impression is that exports have not been impacted as producers are getting better value in rupee realization," says S. Dave, director at the authority, who has held talks with 25 food companies. But handicraft makers are already feeling the pinch as foreign buyers hold back. In April-December 2007, the last period for which figures are available, handicraft exports fell 11.58% to Rs10,458.04 crore.
The Apparel Export Promotion Council expects an increase of 10-12% in shipments, against initial expectations of 20%, over last year’s overseas revenue of $9.4 billion. “We are still trying to assess which side it will go in terms of business. The currency is on our side," said Chandrima Chatterjee, joint director in the council’s economic cell.
Leather exports earned Rs14,000 crore last year and the Council for Leather Exports is targeting up to Rs18,000 crore this year. A bigger concern, says council chairman Mukhtarul Amin, is that 80% of the units in the industry belong to the small-scale sector which is finding it tough to raise funds at a time when liquidity is tight and inflation still high, although it has declined to below 11%.
“To say that exports are suffering now will be a wrong statement. But there is a global crisis and we can’t forget inflation, which is increasing costs," says Rakesh Shah, chairman of Engineering Export Promotion Council, which counts 13,000 companies as members.
Shah expects 30% of the 1.5 million people employed as contract labourers in the industry to lose their jobs.
Some exporters are counting their losses after hedging against the rupee’s appreciation, betting that the currency would extend its last year’s rise of 12% against the dollar. The rupee fell to a historical low of 50.29 against the dollar on 27 October, from around 40 a year ago.
Companies such as Shahi Exports, which supplies garments to US retail brands, Wal-Mart Stores Inc. and Macy’s Inc., have lost money. “The rupee’s rise is not benefiting us," says Harish Ahuja, managing director.
Still, he says, orders from retail brands have not slowed but increased by 10%. His problem, he says, stems from having made investments expecting even higher orders. “Our customers are placing month-to-month orders, which is creating a problem," he says.
Orient Craft’s Dhingra is more optimistic. When there is a recession, entire businesses cannot dry up, he insists, reckoning that the $400 billion world garment trade cannot decline by $100 billion, only by $10 billion at worst.
Clothes, he says, are more than a necessity, they are a passion in the West, and “it’s a cultural habit to go out shopping after Friday’s paycheque," whatever be the state of the economy’s health.
“An elephant," Dhingra adds," will remain an elephant, even when it falls sick."
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