AEPC concerned over CIT Group filing for bankruptcy

Indian garment exporters could get severely impacted as thousands of small and medium-sized businesses in the United States face financial difficulties and could go out of business after lender CIT Group Inc filed for bankruptcy protection in one of the the biggest corporate failures in US history.

Nearly 80 per cent of Indian exporters service small US vendors. "Given their very high exposure to smaller vendors, the impact on Indian firms may be significant," said AEPC chairman Rakesh Vaid.

"It is definitely going to impact India''s exports to the United States which is our largest destination." Most importantly, he said, credit terms may worsen and thereby impact Indian exporters.

Of the 10.17 billion dollar annual garment exports out of India, nearly three billion dollars are to the United States. CIT is the largest factoring firm to the apparel sector, responsible for an estimated 60 per cent of factoring in the US apparel and footwear industry. Giants such as Liz Claiborne Inc, one of the reported clients of CIT, may not be so badly hit with other financing options in banks.

But the smaller companies will get deeply impacted, especially due to lack of option for financing. As per Standard & Poor's estimate, CIT lent about four billion dollars to US apparel manufacturers and retailers last year.

The November 1 Chapter 11 bankruptcy wraps total liabilities of 64.9 billion dollars. It came after the collapse of German retail group Arcandor -- which owns the Karstadt department store chain and Quelle mail order firm -- in June because the banks had cut off all sources of credit.

Ever since the global economic recession began in second half of last year, many retailers like Steeve and Barry’s along with Mervyns have faced a financial blow. Pacific Sunwear, Lane Bryant, Fashion Bug and Catherines closed over 150 under-performing outlets.

Foot Locker wound up 140 stores and Ann Taylor closed nearly 120 outlets. Others like Eddie Bauer, Cache, Talbots, J Jill, Gap Inc, Goodbye Levitz, Home Depot, Macy’s, Pep Boys, JC Penney, Lowe and Office Depot as well scaled down operations due to falling sales.  

AEPC asks govt to hike drawback rates for offsetting losses due to rising rupee
The government must immediately hike duty drawback rates to offset the losses of exporters due to appreciating Indian rupee value. The drawback rates should be increased from 8 to 10 per cent at present to 13.25 per cent of the FoB value.

"The rupee has already strengthened by 10 per cent," said AEPC chairman Rakesh Vaid who recently met finance secretary Ashok Chawla and wrote to the ministers and secretaries for finance, commerce and textiles besides the deputy chairman of Planning Commission.

"The industry, financial institutions and experts are expecting that it will further strengthen upto 12 to 15 per cent in few weeks, thereby making our exports less profitable and less competitive." The export orders for spring-summer 2010 have already been finalised by Indian exporters. These orders have been procured against competitive prices by countries like China, Bangladesh and Sri Lanka.

"China has been able to offer much better prices since it has increased drawback refunds many times in the past one year from 11 to 17 per cent of the FoB value," said Mr Vaid adding the country will not be in a position to touch an export performance beyond nine billion dollars. In 2008-09, apparel exports out of India totalled 10.17 billion dollars.

Mr Vaid said the Foreign Trade Policy for 2009-14 reflects that five to seven per cent of state duties are not refunded to garment exporters while all industry duty drawback rates are determined. Thus the AEPC has made elaborate presentations on these lines before the government's drawback committee.

He said the United States and the European Union, which constitute a majority of Indian garment exports, are still reeling under the global economic recession. The government's efforts to penetrate new markets of Latin America, the Middle East and the Oceanic countries are on. "But it will take a long time before we set our foot firmly in these markets," said Mr Vaid.

The apparel export industry provides employment to 3.5 million workforce directly and about three million workforce indirectly, which is next to agriculture sector. It earns foreign exchange to the tune of Rs 50,000 crore annually.

World Apparel Convention held in New Delhi
The 25th World Apparel Convention was held from November 18 to 20 amid changing economic environment and dynamics in the clothing industry.

The annual mega event was held in New Delhi for the first time. The theme was: Future of Fashion Through Consolidation and Collaboration.

Industry experts debated a wide range of challenges being faced by the global clothing industry. The convention was jointly organised by the International Apparel Convention and the Clothing Manufacturers Association of India.

The IAF International Designer Award Show for 2009 was hosted by the Apparel Export Promotion Council (AEPC).