Ailing Apparel Exporters Look to Russia for Respite.

Russia may offer a lifeline for Indian apparel exporters hit by overexposure to the slow-growing economies of Europe and the US. Exports to Russia are seen growing at 30-40% over the next two years.

“The Russian economy is doing well compared to Europe and customers are also fashion conscious,” said Vinod Kumar Saraogi, managing director of Meridian Apparels Ltd, which exports apparels for women and children and is based in Tamil Nadu’s garment hub, Tirupur.

Indian clothing manufacturers shipped garments worth $120 million to Russia in 2010, or 1% of the total $11 billion. That compares with the 70% share of Europe and the US.

The Apparel Export Promotion Group (AEPC), which held talks with its Russian counterpart several times last year with plans for yet another meet in September, hopes to see exports to Russia touch $170 million in 12-24 months.

“It is the best time to diversify into countries like Russia as the duties are standard for all countries,” said A. Sakthivel, president of the Tirupur Exporters’ Association. Sakthivel’s Poppys Knitwear Pvt. Ltd has seen sales remain stagnant at `250 crore for the last three years.

To some extent, Japanese demand buoyed Indian garment exports, which rose 4.4% last year after a 2.1% drop the previous year, according to AEPC data. That followed a February free-trade agreement that removed tariffs on several items, including clothing.

But with Japanese orders typically taking several months to come through, Indian garment makers are hopeful that Russia will pick up the slack.

Russia levies the same 20% duty on all countries, including Bangladesh, which has overtaken India in the global export market in recent years helped by lower labour costs and custom duty waivers in key European and American markets.

That has helped Bangladesh take a 4.5% share of world garment exports, compared with India’s 3.5%, according to a report by credit rating agency Crisil.

Moreover, the Russian economy is expected to log 4% growth this year and the next, according to the Organisation for Economic Cooperation and Development (OECD). While this growth rate isn’t spectacular, it compares favourably with that of Europe and the US, which together account for 67% of global garment imports.

Garment makers such as Meridian have been forced to cut prices as exports revenue slipped 10% over the last two years to `125 crore. The 22-year-old Meridian has already made a push into Russia through French customer Groupe Auchan SA, which is rapidly expanding in that country.

P. Sundararajan, managing director of SP Apparels, another Tirupur-based exporter, is optimistic about Russia’s economic prospects but unsure about its political stability.

Last month, 80,000 Russians staged a protest—the largest Moscow has witnessed in two decades—against allegedly rigged parliamentary elections held earlier in December.

Garment trade growth could also hinge on much-needed improvements in Russia’s legal system and the reduction of a high level of government involvement in business.

“There is a need to reduce pervasive state involvement in the economy, fight high levels of corruption and strengthen the weak rule of law,” a December 2011 OECD report said.

Source : livemint.com