Small Exporters hit hard by Rising Rupee

As the cry for help due to the rising rupee becomes louder from various industry quarters, Finance Minister is under increasing pressure to intervene and provide monetary and fiscal relief.

The Finance Minister P Chidambaram on Thursday met textile exporters in the presence of public sector banks and took the pleas of garment exporters on board.

The government has tailored a specific export package for the sector increasing the duty rebate called drawbacks. It will cost the Finance Ministry about Rs 5,000 crore but exporters say it is simply not enough.

The duty rebate will give exporters a saving of about three per cent of their revenues. But this is nothing compared to the 20 per cent hit they have taken because of the stronger rupee.

Small players most hit

"It is only large players that are able to manage costs to some extent as well as diversify into the branded segment. Small players dominate the textile and apparel sector with high volumes and low profitability, where the real cutting back is taking place," said Premal Udaani of Kaytee Corporation.

The Indian garment exporters are finding it tough to compete in the American market especially at a time when the US economy has started slowing down. If an Indian shirt was selling for $10 in the US last year, now because of a stronger rupee it costs about $12.

The net result is that India's textile exports sector, which is the biggest single employer outside agriculture, has started cutting back on jobs and even laying off workers.

"Tirupur, Mumbai and Delhi have been witnessing factory closures and the workers are being sent on extended leave. It is tough to give a figure but over the last 3 to 4 months, I would say about 70,000 people have been let go and about 70,000 have not been hired so directly or indirectly employment is affected," said Rahul Mehta, President, Clothing Manufacturers Association of India.

Duty drawback

"The duty drawback is the only genuine measure otherwise there has been no real benefit given. The smaller players are simply shutting shop. This is the worst possible time for the textile industry in India," Udaani added.

The Indian textiles also have to compete with cheaper products from Pakistan, China and Bangladesh where exporters face a much more liberal tax structure.

The companies say old customers in the US are now considering switching loyalties, which would mean that India's export slowdown could last for a very long time.

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