Following tough competition from China and South Korea as well as lack of incentives, many Indian textile exporters are unwinding their positions from traditional markets like the US and the EU. These exporters are now focussing on markets like Japan, the Latin American countries, New Zealand and Australia.
“The US market is a comfortable zone and a better bet for all of us as it offers good quality and quantity potential for textile exporters. However, due to incentives withdrawn by the Indian government, our battle with countries like China and Korea has become even tougher,” said a senior official from Nahar Spinning Mills Ltd.
According to the Apparel Export Promotion Council (AEPC), during the first half of the current financial year (April to September 2009), Indian garment exports tumbled 7.3% compared to last year. In October, the country's apparel exports were hit severely and declined by 17.6% to $603 million over the year-ago period.
Indian apparel exports to the US, the world's largest market, declined by 6.5% to $2.27 billion during January to September this year compared to $3.1 billion in the same period a year ago. However, during the same period, China's exports to the US increased by 2% to $17.20 billion while Bangladesh's exports rose 2.4% to $2.70 billion.
"The government must introduce fiscal relief measures to save garment exports out of India," said AEPC chairman Rakesh Vaid, adding that there are fears of the industry suffering collateral damage. "Stimulus packages and other steps announced so far have had negligible impact on the Indian apparel industry. These measures were either release of withheld benefits or the restoring of benefits withdrawn earlier."
With weak US markets and despite marginally better recovery signs from EU countries, the Indian textile industry is not expecting higher margins, said an official from the Synthetic and Rayon Textiles Export Promotion Council (SRTEPC).
Accordingly, the trend is likely to continue for another two to three years with a 2% drop in exports to these nations, the official from Nahar Spinning added.
Textile exporters from India are not against the idea of exporting textiles to the newer markets like Japan, Latin American countries, New Zealand and Australia but would have preferred to enjoy their earlier privileges which the government has withdrawn, he said.
The government has provided better pricing for the newer markets and with less competition, the textile exports to these markets will increase, the official added.
“We have just started (exports) and have not rigorously entered these markets as we are to still studying and understanding them,” the Nahar Spinning official said, adding that it would take at least another six months to a year to do well in these markets.
The National Payment Corp of India (NPCI), an organisation set up by the Reserve Bank of India (RBI), is planning to acquire the National Financial Switch (NFS) from the Institute for Development and Research in Banking Technology (IDBRT), in a bid to create more resources for itself to facilitate retail payments.
According to informed sources, the deal could be sealed by next month. Financial details, however, were not disclosed.
NFS, which facilitates routing of ATM transactions through interconnectivity between bank switches, is also the largest network of shared ATMs in the country. The acquisition could prove to be a bonus for NPCI, which has been entrusted by the central bank to start a new domestic card payment system in the country that can handle both debit- and credit-card transactions.
The idea of a domestic card payment system is meant to compete with Visa and MasterCard, who have a virtual duopoly in card transactions worldwide and charge Indian banks a hefty fee for associating with them. Domestic card companies, till date, do not have any other option but to affiliate or tie up with foreign card companies, especially the two mentioned above, so as to enable them to spread their services globally.
“The idea is to route all the domestic transactions through the domestic switch only,” an official from a State-run financial institution told Moneylife.
The bidding process for the payment gateway has already begun and the potential bidders for creating the technology would include Wipro and Infosys and other Indian IT companies and world switch operators, the source added.
While declining to comment on the time-frame for completing the domestic payment system, the source said, “It will be very difficult at this point for us to comment on how long it would take. It would be planned as soon as possible.”
However, according to sources from NPCI, setting up of a domestic payment system or gateway would take at least two to three years for implementation.
“We have not yet decided on the transaction charges but it would be nominal compared to what Visa and MasterCard charge,” a government official said.
Currently NFS charges two kinds of fees—one for cash withdrawal on which it charges Rs18 per transaction plus service tax and for balance inquiry banks pay Rs8 per transaction and service tax.
Industry sources are very optimistic about the domestic card payment system and its ability; many believe that the transaction process would become much faster. —Aaron Rodrigues
Countries look to park their funds in the yellow metal due to a falling US dollar and diminishing yields from government securities
The month of December 2009 is expected to be very exciting for gold lovers, bullion dealers, speculators and central banks as the International Monetary Fund (IMF) is set to sell an additional 190 tonnes of gold. India is seen as the leading suitor while smaller countries are expected to jump into the gold-buying fray.
Early last month, the RBI bought 200 tonnes of gold from the IMF for over $6.70 billion.
After India’s big purchase, Sri Lanka announced that the country had bought 10 tonnes of IMF gold for about $375 million while Mauritius purchased 2 tonnes for $71.70 million. This created speculation that almost every country is keen to increase reserves by buying the yellow metal on the back of a declining US dollar.
Speaking on the RBI’s purchase of gold, J Moses Harding, head of global markets group, IndusInd Bank, said that the purpose of the central bank’s investment in gold may have been to re-balance its investment portfolio for better returns.
Mr Harding also said that it does not make sense to hold most investments in low-yielding bonds (issued by the US or other developed countries) and as a strategy, RBI should look at spreading its investment portfolio across different asset classes and across currencies.
Since gold prices are already up by 15%-20% since the RBI’s purchase of gold, it is not sure whether the rally in gold would sustain over the longer term—beyond three-five years—and investments at the current level should be
short term in nature, he added.
The global markets expect gold prices to cross $1,200 per ounce since prices began rising from the September 2009 low of $992 per ounce. Speculations that central banks would purchase more gold to hedge against the falling US currency and fears about inflation in the year 2010 have driven prices upwards.
According to Mr Harding, the weak dollar and low interest rate regimes in developed economies will keep the bull phase of gold intact for an extended period of time. But it is very difficult to set a target as gold is trading at levels not seen before (after a sharp fall from $1,030 to $680 per ounce since March-October 2008), registering a 75% rally since October 2008, he said.
Mr Harding also feels that the yellow metal is now in safe haven due to weak (and uncertain) equity markets across the globe and low yields on bonds. Also, the performance of the real-estate market is under a cloud as a quick global economic turnaround is not expected, he added.
History indicates that gold prices have always been riding on the movement of the US dollar. Hence, investors need to be very cautious when it comes to investment in gold from here on, as gold prices are being clearly driven by the depreciating US dollar. If the greenback shows strong signs of appreciation in the future, a correction in gold prices is probably likely.
Despite the fact that gold prices have made new highs globally, the demand in India still remains suppressed.
According to provisional data released by the Bombay Bullion Association (BBA), India’s gold imports have declined to around 18 tonnes for November 2009, compared to the 34 tonnes the country had imported the same month last year. In October 2009, the country had imported 48 tonnes of gold, a rise of 45% compared to 33 tonnes in the corresponding period last year due to sharp rise in jewellery demand and a pick-up in investment.
In November 2009, Minerals & Metals Trading Corporation (MMTC) had picked up 15.13 tonnes from the global market as against 10.42 tonnes in the same period in 2008-2009. In the first ten months of 2009, gold imports were 156.9 tonnes, down 59% from 383 tonnes in the same period in 2008, as per BBA data. Again, gold imports till November this fiscal remained low at around 400 tonnes, compared with 635 tonnes in the same period last year.
-Swapnil Suvarna [email protected]