FW
With the US President-elect Donald Trump’s saying he would reject TPP on his very first day in office, it has had a cascading effect. Business houses in South Korea who were looking forward to Vietnam’s ratification of the Trans-Pacific Partnership (TPP) are dejected and deeply disappointed.
The country is Vietnam’s largest provider of foreign direct investment (FDI) and the latter was poised to be one of the biggest gainers from the US-led trade deal involving 12 Pacific Rim nations. Though South Korea was not among the 12, the deal’s failure has hit the country’s industry and companies that have been struggling to maintain growth amid declining entrepreneurship and innovation.
South Korea’s largest business conglomerates, its famous chaebol, are long-term investors in Vietnam. They are attracted by low wages and the possibility of free trade with Asean members and TPP countries. However, the government of Vietnam has announced it will delay ratification of TPP, taking a wait-and-watch approach.
Indeed, Vietnam’s decisions first to join the deal and then delay ratification gave South Korean business houses a roller-coaster ride and a lot of companies rescheduled their investments, says Kim Bu-heung, leader of the international cooperation team at the Korea Federation of Textile Industries (KOFOTI) in Hanoi said.
A multimillion-dollar incentives package is helping attract Chinese garment makers to build a $20 million plant in Little Rock, Arkansas by the end of next year. In exchange for tax breaks and grants, Arkansas has been promised 400 new jobs over four years from the Tianyuan Garment Co in Suzhou Industrial Park.
One of the most significant perks the Arkansas Economic Development Commission (AEDC) given to Tianyuan is $500,000 towards training workers to work with highly automated robotic equipment. This is also significant because, according to a China Labour Bulletin report, a key issue for China’s government officials is the extent to which the country’s labour market can provide employers well-trained workers they need. In other words, there is a skills gap in China.
AEDC’s incentive package includes five years of ‘Create Rebate’ program, a benefit of about $1.6 million. The program provides annual cash payments of up to 5 per cent of a company’s annual payroll for new, full-time, permanent employees. For Tianyuan, it would be 3.9 per cent. It also includes a tax back program, a benefit of about $134,000 which provides sales and tax refunds on the purchase of building materials and taxable machinery and equipment. A $1 million Infrastructure Assistance Grant for building improvements and equipment at the site. Support for 20 work visas for the company’s employees among others
"Though value addition by the woven sub-sector is much lower than that of knitwear, it is the largest foreign currency earner for Bangladesh. The country earned $14.73 billion from woven garment exports while knitwear fetched $13.35 billion in the last fiscal year FY2015-16. Earning from RMG sector stood at $28.09 billion, 80 per cent of the total export earnings in the last FY, reveal data."
Though value addition by the woven sub-sector is much lower than that of knitwear, it is the largest foreign currency earner for Bangladesh. The country earned $14.73 billion from woven garment exports while knitwear fetched $13.35 billion in the last fiscal year FY2015-16. Earning from RMG sector stood at $28.09 billion, 80 per cent of the total export earnings in the last FY, reveal data.
However, Bangladesh's woven garment sub-sector, unlike the knitwear, has failed to enhance value addition to the desired level over the years mainly due to the former's large dependence on imported fabrics. Woven garment makers are now able to add value to the extent of 35 to 40 per cent as they still need to import around 60 per cent of their fabrics requirements from abroad. Local textile millers, on the other hand, supply nearly 90 and 95 per cent of the required yarn and fabric to knitwear industry.
Bringing textile heritage to the to fore
Entrepreneurs are increasingly moving towards backward linkages, especially in accessories, fabric for denim items and washing segment. Still larger part of the requirement of fabric is met with imports as the industry is huge capital intensive while scarcity of power is also a major obstacle to drawing investment in the sub-sector, they observed. Huge investment is required to set up a woven fabric unit while a knitwear unit can be established with comparatively less money, explains Faruque Hassan, Senior Vice-President, Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
Lack of fresh investment due to power shortage is marring the fortunes of the industry. There is also a suspension on gas connection to new industrial units, knowing that gas supply is a must for fabric manufacturing for its sustenance. However, the country enjoys duty benefit in many of its major markets including European Union though fabric for woven items is imported. The government provides cash incentive for using local raw materials, which helps flourishing of the backward linkage industry for the knitwear sector.
Changing Scenario
Recent years have seen improved scenario due to the integrated growth of spinning units with growth of country's stitching capacity and increased demand for yarn and fabric. There are some new additions in the knitwear such as lingerie and sportswear. Value addition is majorly happening in denim with around 30 fabric companies having their base in the country. There are 413 yarn manufacturing mills that spin 2,250 million kms of yarn annually, 792 fabric manufacturing units including 30 denim and 22 home textile with 2810 million metres capacity and 240 dyeing units having fabric processing capacity of 2720 million metres, according to BTMA. The country imported about 5.5 million bales of raw cotton in 2015.
Domestic companies are capable of meeting the demand for accessories like zippers, buttons, labels, hooks, hangers, cartoons, thread, by upto 90 per cent, helping the country reduce its dependence on imports. Bangladesh initially imported accessories from China, Hong Kong, Singapore, Japan and India. The backward industry contributes 15 per cent to the total garment exports.
The handloom and handicraft sector in India is looking for new markets and opportunities. Global companies are willing to tie-up with Indian weavers and artisans. While most exports to global markets registered a decline, export of handicrafts continued to grow at 17 per cent.
A MoU has been signed with 20 e-commerce companies to engage with artisans and weavers in different handloom and handicraft clusters and help them market their products directly. This will go a long way in ensuring the clusters get the right price for their product as they are able to sell their product directly to the consumer.
Steps are being taken for skilling weavers, giving them design inputs, quality raw material, tools and upgrading their looms to empower them so that they continue to remain engaged in this craft. At design workshops weavers and artisans are informed about current market trends and the demands of the market.
Many weavers and artisans have become workers and laborers in the hands of traders or exporters. They get paid wages on a daily basis on whatever work they do a day, so instead of selling their craft and talent, they are now selling their labor. As a result, this has disinterested the young generation.
Textile mills and cotton-weaving powerlooms in Ichalkaranji, better known as the Manchester of Maharashtra, are facing a strange situation. Since demonetisation, cloth traders have been offering them payment only in invalid currency. Mills unwilling to accept such payment face the threat of cancelled orders.
Since mills have no option but to refuse, contracts worth more than Rs 100 crores have been scrapped. The demand for chemicals at the looms has gone down drastically due to cancellation of orders. The nearly 1.25 lakh looms in the town were expecting good business after the bountiful monsoon this year and had secured orders from north India and Karnataka. But their expectations have been shattered.
In just 15 days, the daily turnover at the textile hub has fallen from Rs 45 crores to Rs 13 crores. In turn workers at these units haven’t got their wages. There are more than 80,000 workers engaged in the looms and the yarning, sizing and processing units. Most of these workers are from Uttar Pradesh and Bihar. Ichalkaranji is a major textile hub in the country and sends ready made clothes to Ahmedabad, Mumbai, Madhya Pradesh, Delhi, West Bengal and Karnataka. It has thrived on the booming cotton trade that caters to the needs of major national and international brands.
Tamil Nadu’s Tirupur cluster is pressing for the right infrastructure such as a world-class design studio, a research and development center and an incubation centre for technical textiles. It feels these infrastructure facilities will facilitate rapid growth of not only the existing textile business but also enable its foray into the niche segments creating quantum growth opportunities to the industry.
The cluster is interested in having a focused and dedicated agency for the knitwear sector, similar to the silk or the coir board, which could serve as a catalyst for rapid growth of this segment.
Tirupur is the knitwear capital of the country with a 46 per cent market share in knitwear exports. It aims for a turnover of Rs lakh crore by 2020 from the present Rs 35,000 crores. Exporters say housing and hostel facilities will attract and retain skilled laborers. They are also looking forward to the implementation of the Factories (Amendment) Bill 2016, which would benefit the garment sector and will be helpful to fulfill buyers’ compliances.
The cluster argues since apparels are essentials, they should attract a lower slab rate under GST considering that the cumulative tax on textile products, including the non-availability of input tax credit on the inter-state purchase of cotton and other raw materials, presently comes to only around 7 to 8 per cent.
Ludhiana, best known for its woolens, is now a picture of gloom post demonetisation. The city’s small and medium textile enterprises (SMEs) were one of the first victims of the systemic shock. Across the region, SMEs, which have an annual turnover ranging from Rs 25 lakh to Rs 10 crores, have seen massive dips in production, which most unit owners pegged at 80 per cent.
The demonetisation has had a cascading effect on this sector. Liquidity crunch brought on by the move caused demand to plummet in retail markets, and orders stopped almost overnight. The Rs 50,000 weekly withdrawal limit from current accounts has also made it difficult to pay workers; most of them daily-wage migrant labourers. So much so, that many of them are now leaving town.
Government data shows that the knitwear industry in Ludhiana employs close to 3,80,000 people. Between 70 to 80 per cent of all woolen garments supplied to North India comes from this town. A majority of these units deal with traders in the unorganised sector across – small retailers who do not access the banking infrastructure and depend on cash for their transactions. The traders also do not pay Value Added Tax and their transactions are therefore unaccounted-for.
The timing of the demonetisation has been fatal for the garment industry. Textile units which produce winter garments count on the September-November period to boost profits and the smaller units get 80 per cent of all their revenue in this season. This makes them extremely vulnerable to big-ticket reforms that could have a short-term fallout in these months.
Mumbai is ready to host the next edition of ITME. Twenty four product launches, 1,050 exhibitors, 38 countries, 17 chapters and 11 exhibiting halls the six-day fair, is the largest and apex exhibition for textile machinery and technology in India and one of the most awaited business event for textile industry members. The exhibition will be held at Nesco grounds, Goregaon, Mumbai from December 3 to 8.
Gujarat and Karnataka, two key states with a strong presence in textiles will be participating as state partners. This once in four years mega event is also supported by Department of Heavy Industry, Textile Ministry, and the government of India. The government of Maharashtra is also the state partner. That makes the exhibition the most important platform for the government officials and the industry members to interact and work together.
This is the only textile engineering exhibition with a strong presence and participation from both state and central governments where the idea of ‘Make in India’ in textile engineering segment shall be promoted to visitors and also propagate government schemes and incentives for the textile industry in India. India ITME Society is four-decade old non-profit organisation with a vision to support the industry through exhibitions facilitating investments and joint ventures and technology transfer. Foreign and domestic business visitors, academicians, research scholars, government officials from Philippians, Myanmar, Bangladesh, Srilanka, Iran, Turkey, Brazil, Indonesia, Poland, Malaysia etc.
It is known to all, that the denim fabric manufacturing industry is the sunrise industry of India. This has been proved by the fact that in the last decade, it has been growing at a healthy 15 per cent CAGR. Currently, the industry has an annual installed capacity of 1.4 billion meters which is supposed to be the world’s second largest after China. The sales turnover of the industry is estimated to be around Rs 15,000 crores, provides employment to approximately 4, 00,000 workers, besides the indirect employment.
However, with currency demonetisation the industry has been paralysed and 50 per cent capacity has shut down. The denim fabric is washed before it can be marketed, these upstream activities are majorly done in the unorganized sectors located in the SSI hubs of Gandhinagar and Tank Road, Delhi, Ulhasnagar in Mumbai and Bellary near Bengaluru. Since these hubs mainly deal in cash, they therefore have shut down due to the cash crunch. As 85 per cent of the fabric is sold in domestic market they are badly hit.
Experts fear, since upstream activities of garment sewing and washing in SSI hubs will take a while before they can change to working smoothly with the banking system, they are not foreseeing any short-term recovery of the market in the near future. This has led to shutdown of denim mills that has resulted in a loss of jobs. Considering the grave situation of the denim industry, it is likely that the government may announce immediate enhancement in present duty drawback rates and also extend some more benefits under focus product and focus market scheme so that mills can competitively try to shift to the export market.
The Bangladesh commerce minister Tofail Ahmed has said that the US excluded his country from duty privileges on political grounds, an assertion the US Ambassador to Bangladesh Marcia Bernicat publicly disagreed with. The minister said the US has reinstated Bangladesh's Generalised System of Preferences (GSP) status despite fulfilling all the 16 conditions laid out by the Obama administration in 2013.
After having met Bernicat to announce the postponement of this year's Trade and Investment Cooperation Forum Agreement (TICFA) meeting earlier scheduled for December 13, Tofail said there is no reason other than a political one for not giving back GSP to Bangladesh. Bernicat has said America absolutely disagrees that there was a political basis for GSP suspension.
The Obama administration suspended GSP status in the aftermath of the Rana Plaza building collapse, citing serious shortcomings in workplace safety and labour rights. Tofail said he does not agree with the claims that workers' rights in Bangladesh have not improved since the suspension of GSP.
Bangladesh amended labour lasw in July 2013 to allow workers full freedom of association at the factory level. But labour activists say they still face restrictions in entering factory premises and the government has failed to register their unions, which would have otherwise given them the legal right to represent workers.
