The ₹46,000-cr. hub faces testing times with thinning margins, declining overseas demand and relatively high labour costs

Tiruppur, a hub for knitwear, and its nearby areas, boast of a ₹46,000-crore annual apparel business and house the entire ecosystem that supports the industry.

Almost every street in this 159-sq.km. city witnesses some activity related to knitwear production.

Yet, all has not been well in Tiruppur for the past three years. Export growth is not up to the expected level, investments have been need-based, and there is a struggle to be price-competitive.

“We targeted annual business of ₹1 lakh-crore by 2020, including domestic sales. In the five years between 2012 and 2017, annual exports increased from ₹10,500 crore to ₹26,000 crore.

The growth was flat for the last two or three years. However, we are confident of reaching the target by 2022,” says Raja M. Shanmugham, president of Tiruppur Exporters’ Association (TEA).

His confidence stems from the recent announcement by the government that all embedded taxes in exports would be reimbursed.

The incentives that the industry received before implementation of GST through different schemes worked out to nearly 13.2%. This was reduced to 5.7% after GST, he says.

Thin margins

“Margins are thin for garment exporters. They can absorb the costs if the incentives were reduced by 3% to 4%. But when there is a drastic cut, it affects liquidity,” adds A. Sakthivel, vice-chairman of Apparel Export Promotion Council (AEPC).

So, why are government policies, and support, critical for garment exporters in Tiruppur? In supplier conferences, buyers give priority to countries that have GSP (Generalised System of Preferences) benefits.

Buyers compare Indian prices with those of Bangladesh, says S.K. Kathiresh, joint managing director of Carona Knitwear.

Bangladesh exports

Annual garment exports from Bangladesh come to about $37 billion, Vietnam clocks $27 billion, and from Cambodia exports $12 billion worth. According to AEPC data, clothing exports from India in 2016-2017 were $17.47 billion, $16.72 billion in 2017-2018, and in the current fiscal till January, exports were $12.8 billion.

Global race

The industry is witnessing a global race where there is more competition. Some countries have an advantage because of the GSP and the support from their respective governments. Buying trends are also changing.

Some brands have gone in for 16 seasons in a year and have a signature design for each season.

This means garments for each season need to be supplied on time. The exporting units need to adapt to these changes and go with the rhythm, says Mr. Shanmugham.

Despite the challenges, it is the inherent strengths of Tiruppur, and its focus on efficiency and technology that have helped it sustain exports for the last two years, according to Mr. Sakthivel.

The exporters are of the view that they will be able to bag orders if they are price-competitive.

Since countries such as Bangladesh and Cambodia have the GSP advantage, the Indian government’s support is crucial for the garment industry.

But, the recent decline in overseas demand has dampened this momentum. Focus on key three areas — incentivising technology upgrades, expanding to new markets, and product innovation — can turn the situation around.

Technology upgrades

India cannot compete on lowering labour costs. The focus should be on expanding schemes for technology upgrades and introducing more policies that incentivise apparel exporters to upgrade technology. Exporters must look to new and emerging markets.

Four markets show high potential for future growth — the U.K., Chile, Israel and Japan. They should identify products with high growth potential and leverage individual strengths such as technology innovation, a report by Drip Capital says.

The knitwear industry in Tiruppur is largely in the micro, small and medium enterprises (MSME) segment. However, its profile is witnessing gradual changes.

Of the 1,500-odd direct exporters, the number of exporting units with more than ₹100-crore turnover is more than what it was a few years ago and there are at least 20 units with more than ₹500-crore turnover.

The number of letter-head exporters has reduced drastically after GST, say industry sources.

The Apparel Export Promotion Council (AEPC) has a positive outlook for exports next financial year.

The opportunities are huge for apparel exports as consumers wear multiple attires in a day — for exercise, work, casual wear, and the like. Further, western brands are eyeing Asian markets for sales, mainly the Indian market. For apparel makers, the market is only growing with this trend.

After the recent announcement by the government on reimbursing embedded taxes, the sentiment is upbeat.

“We are signing orders now. Industries need more working capital. Similar to the 59-minute loan approval scheme for MSMEs, the government should introduce a scheme for working capital,” says Mr. Kathiresh.

Several common infrastructure facilities have been added by private players and those with government support. Mr. Shanmugham says the knitwear units will leverage on the opportunities in technical textiles soon.

Europe, a key market

A leading exporter and integrated player in Tiruppur says Europe is the key market for Tiruppur.

The EU and U.S., together, constitute 70% of the market for knitwear exporters.

Quality and delivery are important for exporters to gain the confidence of buyers. Prices can be negotiated. So, managements should focus on ensuring quality even when prices are under stress.

Changes for better operation and management processes need to be adopted by all stakeholders in the knitwear town for it to leap to the next growth trajectory.