Emerging Markets: A Vital Need For Indian Exporters

For nearly a decade, India’s apparel exports have been stuck in a rut, barely budging from US $ 16 billion plateau. Despite a meagre 1.1 per cent increase in 2022-23, the sector struggles to regain its 2017 peak of US $ 17.4 billion. One of the key factors contributing to India’s recent sluggishness in apparel exports has been its excessive reliance on limited markets, notably the US and the EU, which together account for approximately 70 per cent of the country’s apparel exports. While the US and EU markets are substantial, they also attract attention from every manufacturing destination due to their volume. This dependence exposes Indian exporters to every tremor in these traditional markets.

Moreover, the majority of manufacturing countries servicing this market operate on a mass production model, whereas India distinguishes itself with its focus on techniques and the ability to fulfil small order quantities. That’s why the sector desperately needs to spread its wings.

Official data highlights that Indian apparel exports declined to US $ 12.19 billion from January to October ’23, marking a substantial downturn of 13.29 per cent from US $ 14.05 billion recorded in the same period of 2022. In the US market, the apparel shipment saw a decline of 20.58 per cent to US $ 3.90 billion in the mentioned period, whereas exports to the UAE fell 6.25 per cent to US $ 1.18 billion in the January-October ’23 period.  UK – the third top destination for the Indian apparel export industry – saw a 12.12 per cent drop in its apparel imports from India that amounted to US $ 945.21 million in January-October ’23 period.

The sluggish exports can be attributed to the fluctuation in the global economic scenario, wars and inflationary pressures in the key economies worldwide. In fact, the US economy is still coping with the 3Is – Inflation, Inventory levels and Interest rate hikes. The economy of the euro area teetered on the brink of recession in the latter part of 2023.

Meanwhile, a report by a Delhi-based think tank states that India’s exports to the European Union (EU), worth US $ 37 billion (including textiles), could be impacted due to the trade bloc’s proposed Carbon Border Adjustment Mechanism (CBAM), a policy tool that will levy a carbon tax on imports of products made from the processes which are not environmentally sustainable and other green initiatives.

The Apparel Export Promotion Council of India (AEPC), the official body of apparel exporters in India, recognises the glut in exports. “We are vigilant of the fact that India’s apparel exports have been constant to the tune of 3-4 per cent of global export share during past 3-4 years and hence AEPC has been very proactive to take the existing exports of US $ 16-17 billion to US $ 40 billion by 2030,” said Apparel Export Promotion Council of India (AEPC) Chairman, Narendra Goenka.

Strategies for boosting exports

To address the sluggish exports, the council has implemented various measures aimed at bolstering exports through diversification into new markets.  These include the establishment of an in-house Market Intelligence Cell to monitor import trends anticipated for 2030. Additionally, the industry will receive guidance for a gradual transition towards technical textiles, MMF and newer product categories like workwear and uniforms—products with high international demand. The focus extends to market and product diversification, acknowledging the heavy reliance on EU and USA for exports. AEPC aims to guide the industry toward new markets in Free Trade Agreement (FTA) countries such as Australia and the UAE, alongside Latin America and Africa. This involves redirecting trade events under MAI (Market Access Initiative) to emerging markets, conducting webinars and facilitating capacity-building programs.

However, the proposed suggestions are not novel and it remains unclear whether they will have any tangible impact.

Trade pact with Australia helps boost exports

One of the ways in which the government and the industry is hopeful of fuelling export is through Free Trade Agreements (FTAs). India has so far signed 13 free trade agreements (FTAs), including the CEPA (Comprehensive Economic Partnership Agreement) with the UAE, the ECTA (Economic Cooperation and Trade Agreement) with Australia and six preferential trade agreements (PTAs) with various trading partners.

The ECTA is already bearing fruit! Between April and November 2023, India’s exports to Australia surged to US $ 5.87 billion, marking a 14 per cent increase compared to the preceding year. This stands out significantly as India’s overall exports witnessed a decline during this period. The textile industry emerged as a key beneficiary of this agreement, which came into effect on 29th December 2022.

In 2020-21, India’s overall textile and apparel exports to Australia stood at US $ 392 million. With 70 per cent of textile products and 90 per cent of apparel facing export duties, the ECTA presents a significant opportunity. Elimination of these duties is estimated to propel exports to US $ 1,100 million within the next few years.

Analysing India’s export growth to Australia for April-October 2023, Tapan Mazumder, Additional Director General of Foreign Trade, identified cotton clothing excluding kurtas and salwars (US $ 5.12 million), skirts and dresses made from non-silk materials (US $ 7.15 million) as categories with significant potential.

Experts say Australia also holds promising potential, particularly in home textiles such as bed and bath linen, curtains, pillow covers, quilts, cotton bags and ready-made garments, along with items like carpets and flooring for market expansion. Indian exporters can also leverage their strength in producing Spring and Summer products to seize new opportunities. India excels in manufacturing Spring and Summer products but faces limitations in producing winter goods. Consequently, Indian factories operate below full capacity during the production of winter items. Australia, being in the southern hemisphere, experiences a lean season for Indian apparel factories during its Spring and Summer, creating an opportunity for mutually beneficial collaboration.

Some of the top brands of Australia:  Cotton On Group, General Pants, Just Group, Ralph Lauren Australia, Sussan Group, Accent Group, Rip Curl

Exporters must look beyond FTAs

The CEPA signed in May 2023 eliminates import duties on Indian goods exported to the UAE, potentially fuelling Indian apparel exports. Although Bangladeshi competitors gain duty-free access through their LDC (Least Developed Country) status.

The President of the Clothing Manufacturers’ Association of India (CMAI), Rajesh Masand said, “Indian apparel have been taking huge strides within the GCC countries and African markets. Apparel imports in these two regions valued at US $ 11.46 billion and US $ 4.85 billion respectively in 2022. Indian apparel exports to these regions were US $ 2426 million and US $ 913 million making India’s contribution a solid 21 per cent and 19 per cent. And, an added incentive to source Indian apparel is also the fact that imports from India are duty-free due to the benefits offered by CEPA (Comprehensive Economic Partnership Agreement).”

Amongst UAE-based retail chains, Lulu Group anticipates the apparel segment to reap the biggest benefits from the CEPA agreement. “Opportunity for Indian brands is boundless, world is taking notice of the ‘Make in India’ initiative which has gained tremendous momentum in recent years. UAE has been a valued partner to India. Lulu Group has been importing high-quality apparel from India for all our hypermarkets in GCC,” stated Ashraf Ali, Executive Director, Lulu Group.

However, despite the tall claims, India’s apparel exports to the gulf nation have not seen a major boost. This only underscores the point that international trade extends beyond tariffs, emphasising that the perceived significance of tariffs in boosting exports is sometimes overly exaggerated. The landscape of international trade is becoming more intricate, with numerous other factors coming into play. Our exports need to be well-aligned with continuously changing demand.

Manufacturers we spoke to indicated promising prospects for specific product categories in the UAE. These include T-shirts, singlets, vests of cotton, knitted or crocheted, men’s or boys’ trousers, bib and brace overalls, babies’ garments and clothing accessories made of cotton, knitted or crocheted. Additionally, T-shirts, singlets, vests of textile materials, knitted or crocheted and men’s or boys’ shirts of cotton show potential in the market.

Meanwhile, negotiations for a free trade agreement with Oman are currently in progress. Oman currently imposes a 5 per cent customs duty on ready-made garment (RMG) products.

Japan remains untapped

Despite being the world’s fourth-largest garment importer, Japan, at just under 5 per cent of global apparel imports, hasn’t lived up to its potential as a key post-USA/EU export destination for India. Despite zero-duty access granted through the 2011 India-Japan Comprehensive Economic Partnership Agreement (CEPA), India’s RMG exports to Japan, once ranking 11th, slipped to 12th by 2022, with the overall trade balance also deteriorating. With a meagre 1 per cent share of Japan’s US $ 25 billion garment imports, Indian RMGs need to better align with Japanese demand. Currently, only one of India’s top five RMG exports features amongst Japan’s top five import items, highlighting a critical mismatch.

In stark contrast, Chinese RMG exports to Japan are closely aligned with Japanese demand.  As per industry experts, as a short-term strategy, the focus for India should be on products that already hold a substantial share in India’s exports and demonstrate decent demand in Japan. This includes items like knitted T-shirts and vests made of cotton and other materials, as well as trousers and shorts made of cotton for both women/girls and men/boys.

For a long-term approach, emphasis should be placed on the development and export of products that are highly sought-after in Japan. Examples of these include knitted cardigans, jerseys, pullovers made of cotton and man-made fibres (MMF), as well as men’s or boys’ trousers made of synthetic fibres and windcheaters made of MMF. Japanese are known for their meticulous attention to detail and insistence on perfection. It’s important for Indian manufacturers to revamp their operations and adopt latest practices.

Sivaramakrishnan Ganapathi, Vice-Chairman and Managing Director, Gokaldas Exports Limited, manages production of 36 million garments annually, shipping them to over 50 countries. He stated, “Japan has a lot of potential due to its growing rapport with India. Several Japanese retailers are planning to reduce dependence on Chinese suppliers to build more resilient supply chains.”

Giving his two cents, A. Manivannan, VP-Marketing, Penguin Apparels (Pvt.) Ltd., a readymade garment manufacturing company serving the men’s, children’s /infant’s and women’s apparel markets, said, “There’s an immediate need to invest and build capacity in man-made fibres for use in fashionwear, sportswear and utility outerwear. These include finished polyester fabrics and nylon fabrics. The addition of these capabilities will really help in growing export volume.”

Some of the top brands of Japan: Uniqlo, Yohji Yamamoto, Muji, A Bathing Ape (BAPE), WTAPS, Blue Blue Japan, Sacai, Auralee, Undercover, Miyagi Hidetaka

South Korea has huge potential

South Korea too presents ample opportunities, with its apparel market expected to reach a sales figure of US $ 39.36 billion by 2024.The market is further projected to grow at a CAGR of 0.22 per cent from 2024 to 2027.

According to statistics released by global market research firm Statista, women’s apparel is the market’s largest section, with a market volume of US $ 19.45 billion in 2024, followed by menswear with a revenue of US $ 16.25 billion and kidswear valued at US $ 3,654 million. South Korea’s fashion business is growing, with a significant commitment to streetwear and Korean celebrities impacting fashion trends.

South Korean SPAs (specialty retailers of private label apparel) garnered popularity amongst consumers amidst the economic recession induced by high interest rates and increased material prices. Customers in South Korea are aware of SPA brands as being ones that offer reasonably priced, well-made clothing. Because fashion trends change fast, consumers in their ’20s prefer to purchase clothing from SPA brands. Many believe that it is better to buy reasonably priced clothing for each season rather than spending a lot of money on luxury brands and falling behind in terms of style. As per Statista, the South Korean SPA market, which was valued at ₩ 20.6 trillion in 2022, is predicted to grow to ₩ 22.7 billion by 2077.

Some of the top brands of South Korea: ADER Error, Hyein Seo, We11done, KYE, Gentle Monster, YUUL YIE, Wooyoungmi, Goen Jong, Andersson Bell, Minjukim