Apparel and fabric industry in knots over sluggish exports, demonetisation woes: ICRA

New Delhi [India]: Credit rating agency ICRA on Friday noted that the global apparel trade remains under pressure, having contracted for the second consecutive year in CY2016, owing to subdued demand conditions in the key importing countries.

While the volumetric growth remained marginally positive, primarily aided by a recovery in demand from Europe, the realizations experienced a decline.

Further, the latest trends point to a modest recovery so far in CY2017.

Mr. Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA said: “Amidst the weak and volatile phase in the global apparel trade, India’s apparel exports remain flat and unencouraging, growing by a tepid one percent (in USD terms) for the second consecutive year in FY2017.

This trend, however, needs to be looked into in conjunction with the declines in global apparel trade in value terms during the period.”

The pace of growth for the other Asian apparel exporters like Bangladesh, Cambodia, and Vietnam has also moderated during the past two years, though they continue to grow at a relatively better pace vis-a-vis India.

Nevertheless, scrapping of the proposed Trans Pacific Partnership (TPP) has weakened prospects for Vietnam, which augurs well for India, as the risk of increased competition from Vietnam has abated to an extent for now.

Given the weak trend in global apparel trade, the domestic market-focused apparel manufacturers are expected to perform relatively better than the exporters for the second consecutive year in FY2017. However, given the temporary pressures observed in domestic consumption owing to the demonetisation process, the gap between the growth rates is likely to narrow significantly.

“Overall, growth for apparel manufacturers has been relatively weaker at eight to ten percent during FY2016 and FY2017 compared to the past few years, wherein the revenues of both apparel exporters and domestic-market focused players grew at a CAGR of 13 percent to 14 percent during 2011-2015,” Roy added.

The subdued off-take by apparel manufacturers, in addition to meager fabric exports, continue to weigh on fabric demand as well. Accordingly, India’s fabric production remained tepid in H1 FY2017 with a modest growth of two percent, following a flat production trend in FY2016. Further, the demonetisation drive increased the challenges faced by this highly fragmented and unorganized segment of the domestic textile industry as is reflected by a six percent de-growth in fabric production during Q3 FY2017. This in turn is expected to constrain the total fabric production and is likely to result in around one percent de-growth in FY2017. (ANI)