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Denim Industry in India is very large, with installed a capacity in excess of 1.75 Billion Meters per annum. Since domestic consumption cannot absorb this capacity, the export of Denim from India becomes very important, so as to ensure optimal capacity utilization.
Current Status of Indian Denim Exports:
The exports data for the two HS Codes viz. 52094200 (Cotton Denim) & 52114200 (Poly Blended Denim) show that the Denim Fabric exports have grown by 8% CAGR over last 5 years (2016 – 2020). The growth comes mainly from Poly Denim Segment which has grown at the phenomenal rate of 23% CAGR. However the growth of Cotton Denim fabrics has stagnated over the same period.
% Share of Poly Denim exports in the total Denim Fabric exports basket has grown from 27% (2016) to 46% (2020) over last 5 years. (Data source https://tradestat.commerce.gov.in/eidb/default.asp)
Why Poly Denim Exports are increasing:
The popularity of Poly Denim Fabric Exports has grown due to following reasons:
Most important, the Poly Denim Fabric is far cheaper in price as compared to the Cotton Denim Fabric.
Stretch Fabrics have become popular in apparel use in a very big way, as they offer far better comfort on flexing of the body parts.
Poly Stretch Denim offers much better performance parameters in terms of superior stretch, better retraction and lower distortion as compared to Cotton Stretch Denims.
The stigma attached to the Polyester Fiber on account of discomfort it gives to the body, due to inferior moisture / sweat absorption has been overcome to a great extent thanks to the quantum leap in Polyester manufacturing technology & innovation over the years.
Honestly the consumer is not able to differentiate between these two fibers when blended intelligently into the fabric.
The consumer today wants a great fit and comfort in the garment, rather than type of fabric used to manufacture it. Hence most brands have increasingly started using Polyester Fabrics.
Which are Prime Destinations for Indian Denim Fabric Exports?
If one looks at the data to understand, which are major countries to which Denim fabric is being exported from India, they have to be the ones who are converting Fabrics into Garments at a very competitive price.
Why Bangladesh is a major export destination for Indian Denim Fabrics?
It can be observed from the above analysis, that Bangladesh is the major destination country to which roughly 50% of the Denim Fabrics exports happen from India. This is due to following reasons:
Bangladesh enjoys a GSP+ status with the European Union which allows duty free export of Garments into the EU. This gives an advantage of roughly 10% on the Garment FOB Prices to them.
Bangladesh offers extremely competitive Fabric to Garment Conversion rates due to low labor costs.
The Garment factories offer large economies of scale as employing large labor force at a single location to make a big factory is not a problem due to very flexible labor laws in terms of hire & fire policies.
Bangladesh is a next door neighbor to India and shares its land borders with us. Therefore most of the goods are exported to Bangladesh from India by the road transport, thereby reducing the lead times, as compared to other countries which essentially require a sea shipment.
Why Denim fabric exports to Bangladesh are sliding down since last two years?
Exports of Denim Fabrics to Bangladesh from India have been consistently sliding down over last few years. This is due to following reasons:
Bangladesh is rapidly integrating backwards in the Textile manufacturing value chain, by setting up Fabric manufacturing capacities on a large scale.
Given a choice, most of the Garment stitching factories prefer to use local fabrics, as it helps them reduce the lead times further as they need not undergo the hassles of imports, in terms of opening the LCs and custom clearance.
Since the age of Denim Mills in Bangladesh is far younger as compared to India, they happen to have newer and better technology & highly productive manufacturing set ups, when compared to the majority of Indian Denim Mills. This further reduces their input fabric costs in a Garment.
They are producing equivalent quality Denim Fabrics as compared to India, thanks to the new technology.
The Land customs border to Bangladesh through the Indian state of West-Bengal continues to be a big problem in terms of inefficient systems and delayed custom clearances.
What can be done to improve Denim fabric exports from India?
FTA between India and the EU has been stuck for more than one decade now, as some sectors like Automobiles; Wine & Liquor, etc. want protection from duty free imports. As a result trade with EU in all the other sectors has languished at a sub optimal level.
Since Textile sector is the 2nd largest employer of workforce after the agriculture in the country, it is very important that some out of box thinking is done by the government to boost its export competitiveness by engaging the EU & USA for a textile specific FTA. This will bring Indian Textile Exporters at par with competing countries like Bangladesh, Sri Lanka, Pakistan, Egypt, Colombia, etc. which enjoy various kinds of FTA / PTA with the EU & USA.
Since Bangladesh is a big Garment Conversion center for our fabrics, Government of India should make efforts at bilateral level to remove bottlenecks to ensure speedy custom clearances of export shipments through the Bengal Land Border. Movement of export consignments though the River Transport should also be considered.
To become self-sufficient in Garment manufacturing in India, Government should make efforts to make policies that encourage setting up large factories in the organized sector, which offer economies of scale, thereby improving the productivity & cost competitiveness of the garment manufacturing in the country.
Archaic & Rigid Labor Laws in India should be changed at the earliest, as these have discouraged setting up of Large Scale Factories in the labor intensive sectors like Garment Manufacturing. The Industrial Dispute Act was amended during the emergency period in 1976, when the chapter VB was inserted to prohibit Layoff and Retrenchment of workforce for any factory employing more than 300 workers. Due to no exit route available for the factories who wanted to close down for some reason, the following changes in business environment took place in the country starting in the 1980s:
Entrepreneurs started setting up multiple small units employing less than 300 workmen at different locations, rather than setting up a large factory under a single roof. This resulted in lack of economies of scale thereby making cost of production very high due to lower productivity.
Trade Unions became very aggressive while negotiating and asked for unreasonable wage hikes, as they knew that the owners could not close down their large units. The entrepreneurs dithered to investment & modernize further in their existing setups, and looked for opportunities to file for bankruptcy under BIFR in order to avoid prosecution, leaving the workforce high & dry.
This is the main reason why more than 90% of workforce in Textile sector is employed in the informal sector and not the formal sector in India.
Most of big mills in erstwhile centers like Mumbai, Ahmedabad, Kanpur & Coimbatore have closed down their shutters and new pockets of de-centralized setups employing un-organized labor have come up e.g Surat, Bhiwandi, Malegaon, Tirupur, etc.
It should be understood that one cannot fight in the international market place with these fragmented unorganized manufacturing setups. If we were to increase our exports, we need to have large manufacturing plants on the lines of China, Bangladesh, Sri Lanka, etc.
Conclusion:
India needs to put up its act together by re-vamping its laws pertaining to Land & Labor and also moving fast in putting in place an FTA / PTA with EU & USA.
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