Exporters run into rough weather as US, Europe demand dries up

India’s exports have taken a knock with demand crashing in several developed world economies as record-high inflation and its stiff monetary antidote dent consumer sentiment.

Many exporters say their factories are running at 25-50% capacity or have reduced the number of shifts to one from three earlier due to muted demand from the US and Europe.

Despatches are delayed and order books have shrunk to 1-1.5 months from six months earlier, they told ET.

“While the Indian and African markets are doing fine, the orders from the US and EU are not encouraging,” said Onkar Singh Pahwa, chairman and managing director, Avon Cycles. “Our plant dedicated for the US and European markets is running at 50% capacity.”

Ludhiana Hand Tools Association president SC Ralhan said the production schedule was reduced from three shifts to one as many manufacturers are running lower capacities.

“We expect the situation to remain grim till the Russia-Ukraine war is on. There is a 15% decline in our exports in the April-August period as compared to last year,” he said.

India’s merchandise exports contracted 1.2% to $33 billion in August, the first drop since November 2020.

Inventory Pile-up

Exports of cotton yarn, fabric made-ups, and handloom products among others crashed 32.3% from a year ago.

Engineering goods shipments dropped 14.6% in the month.

In its World Economic Outlook report released in July, the IMFs estimated global growth at 3.2% for 2022 compared with 6.1% in 2021. Garment exporters said that the prolonged war has devastated demand from Europe, stranding most global retail clients with high inventory, depressing demand from India.

Steep inflation and record-high energy prices are accentuating the demand slowdown.

“Many manufacturing units are giving 2-3 days off to their workers every week,” said Raja M Shanmugham, president, Tiruppur Exporters’ Association. “Earlier, the regular shifts used to be eight hours but now it is tough to run even one shift as there is not much demand.”

Credit Limit

The association has sought an increase in credit limit to 50% from 30% under the Emergency Credit Line Guarantee Scheme.

“Despatches are delayed and new orders are not coming. So we are running at 50-60% capacity, which used to be 85% earlier,” said Sanjay Jain, managing director, TT Ltd, a garment manufacturer. Indications are that orders will get hit in the next few months on recessionary fears and high interest rates in developed markets, said Rafeeque Ahmed, chairman of Farida Group, one of India’s largest shoe manufacturers and exporters.

The group supplies brands such as Adidas, Clarks, Marks & Spencer, Debenhams and Bally Shoes.

The Engineering Export Promotion Council attributed the slowdown in exports to lower demand from China and recessionary trends in major economies in the West along with the export duty on certain steel goods, including stainless steel products.

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