Garment exporters in Haryana bear Re rise brunt

Garment exporters in Haryana bear Re rise brunt
Moneycontrol.com, Indi

Gurgaon,near Delhi, in Haryana has one of the largest clusters of garment exporters in India. It has been hit by a triple whammy. The steep rise of the rupee, coupled with a us retail slowdown has been compounded by a sharp rise in minimum wages.

This factory has been afflicted by Dutch disease, the term economists use to describe exports becoming uncompetitive because of currency appreciation. Modelama still has six plants operating in Gurgaon, but has closed down one in nearly Manesar, laying off about 1000 workers. And it has put its expansion plans on hold as well and so have others like him

Sanjay Gulati, MD, Modelama Exports, says, “We had a plant in Chennai scheduled to start, which is shelved for the moment.”

Rakesh Vaid, MD, Usha Fabs,”The major hit in my company case, we had a major plant to move to a 150,000 sq feet air-conditioned facility. Factory is ready, machines are installed, but I am not making it operational.”

A bunch of exporters from Gurgaon and they had the same lament. It is as if their stories of distress were being mass-produced like the clothes they export. The sudden and steep rise of the rupee has taken them by shock and workers are also facing the brunt.

Gautam Nair, MD, Matrix Clothing, says, “We had to unfortunately lay off 300 workers after april which is when the sharp appreciation of the rupee happened.”

Vaid says, “We are serving customers at our cost. By end of this year, we are closing down two factories. We have reduced more than 1000 workers. Couple of factories have relocated to Bangladesh and Indonesia.”

Exporters in Haryana had an edge over their peers in Delhi, because of lower minimum wages. That gap was closed in July when the minimum pay was hiked massively in one go. One cannot grudge workers their due, certainly not to them that have little fat on them, but the hike came just when the industry was most vulnerable. the wage hike has had a ripple effect, even though the garment industry employs substantial numbers that earn more than the minimum.

Gautam Nair, MD, Matrix Clothing says, “Our industry requires a lot of unskilled workers and they are at the minimum wage level and those wages have gone up by 42 percent.”

If the US economy was booming, suppliers could have passed on some of the cost. But retailers in the US themselves are in a bind. They cannot increase prices, and with the removal of export quotas from January 2005, they are not bound to buy from India. They can shop around other countries for cheaper rates.

Ravi Dhingra, MD, Orient Clothing, says, “i used to sell at $4, I want four dollars sixty. My buyer is asking for 3.75.”

The distress is acute. It is real. Finance Minister P Chidambaram says the rise of the rupee is a fact of life and exporters will have to learn to cope. But if they cope by closing factories, and shifting production to Bangladesh and other countries, it will not do the economy any good. You cannot have a situation where investors are making money in the stock markets and workers in factories are losing jobs because of huge capital inflows. It is time the government woke up and smelt the coffee.