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Volatility and Uncertainty in Exports: Salem An Overview
By
B. Nirmala Devi, (Ph.D),
Lecturer, VMKV Engineering,
Faculty of Management Studies
Vinayaga Mission University,
Salem
1. Introduction
The industrial policy proposal undertaken by the government since July 1991 have been designed to build on the past industrial achievements and it step up the process of making Indian industry internationally competitive. It also recognizes the strength and maturity of the industry and attempts to provide the competitive stimulus for higher growth. These initiatives have been to increase the domestic and external competitions which encourage dynamic relationship with foreign investors and suppliers of technology. There are some major industries that competitively entered the global market among which textiles industries is one of the major sector. It plays a vital role in the nation’s economy, both in regard with employment generation and earning of foreign exchange. Recently, inflation surge a far above the ground 13 year high and the expectation of its rate is driven up by unrelenting pressures that originated from international commodity prices particularly in the price of crude oil, edible oil and metals. It affects all the sectors directly or indirectly without leaving any one to respire freely and textile industries are one among them. The present study is focused on the environment of volatility and uncertainty in exports of textile industry located at Salem in Tamilnadu.
1. Statement of the Problem
Textile industries are one of the major sectors in India. Textile exports presently account for more than 1/3rd of the country’s total export earnings. It is one of the single largest earners of foreign exchange. The marvelous feature of the textile and clothing exports is its low import intensity as compared to other major export products. Inflation is a necessary evil for economic growth representing a state where the value of money falls considerably with the prices on persistent rise. Most of the industrial sector both private and public, household, are get affected due to inflation met by India which was not at all gone through before. The fluctuations and uncertainty – in the market environment, decline in production, decelerated growth – exporters and others problems (at micro level) lead instability among the textile exporters. The present study highlights the current scenario of the Salem exporters. The study took a span of period of 30 days commencing from 13th August 2008 -13th September 2008.
- Objectives:
- To study the effect of currency fluctuations faced by the textile exporters in Salem city.
- To study the market risks undertaken by the textile exporters in Salem city.
3. To give suggestions for restructuring the existing market environment.
4. Measurement of Tools:
Statistical tools like correlation and chi-square tests were employed along with bar chart and line chart to arrive at conclusion. Sources of data were collected from export garments situated at Salem city. The sample consists of 50 export garments in Salem. The nature of work of these organizations varied in three aspects namely (i) Production process: The weaving clothing, stitching or sewing process are held outside the industry (ii) Source of capital investment and (iii) Nature of exports (varied according to the capability of capturing export orders globally or from foreign countries).
5. Review of literature
In view of inflation many theoreticians and empirical research have come forward to propose or explain inflation in indifferent methods or strategies for managing its consequences. On a closer scrutiny of these perspectives, only few research findings were highlighted in the following section
Feldman and Gang (1990) study suggests that the simplest indictor was the money/GDP ratio, which measures the degree of monetization in the economy. Financial development was generally identified with the growth of the real size of the financial sector and in relation to GDP that supports textiles.
Liu and Woo (1994) recommended that a proxy for the degree of financial sophistication was the ratio of the long term to short term financial assets value. Money Supply (M1) is used as the short term financial assets value. The ratio of broad money to narrow money (M2/M1) should be positively related to a country’s level of financial development.
King and Levine (1993) study found that the ratio M2/GDP measures the overall size of the financial intermediary sector and were strongly correlated with both the level and the rate of change of the real GDP per capita. On the other hand, M1/GDP is not strongly associated with the level of economic development.
JF Outreville (2005) study views that human resources development can be promoted only at the expense of economic growth poses false trade off. The measures of financial development are positively correlated with real GDP per capita and with measures of human capital development and negatively correlated in most cases but not significantly with measures of political instability. Measures in regard with inflation, the real interest rate and monopoly power in the financial sector are all insignificant determinants of financial development.
6. Indian Textiles an Over View:
Industry group’s jute and other vegetable fibre textiles’ recorded a decline in production. Wool, Silk, manmade fibre textiles, textiles products, cotton textiles recorded decelerated growth in 2008 Global cotton prices, represented by the “Cotlook A Index”, were declined by almost 4% over march 2008. Cotton prices were higher by account 27%, year on year, in June 2008. According to the international Cotton Advisory Committee (ICAC), world cotton production is expected to decline by about 3% in 2008-2009 and therefore, world cotton stocks are expected to fall further by almost 9% to 11% million Tonnes. According to ICAC report, prices are expected to go up by 12% in 2008-20091. Sources taken from RBI Bulletin 2007.
Indian textile exports had shot up from 14.03$ billion in 2004-2005 to 20.25$ billion in 2007-2008. This hype built shows potential improvement in performance since 2004. Due to adverse effect in price and quality, combination brings the competitiveness’ of Indian textiles with China, Pakistan and Bangladesh. This leads steady inroads into India’s major market in the US.
The see-saw on interest subvention of 2% for pre-shipment and post-shipment credit for textiles readymade garments in the 1st fiscal part and additional subvention of 2% from Nov 1, 2007 shows a steady appreciation of the rupee till end-march 31-2008. But 4% interest subvention announced by RBI tantalized the textile industry to face a higher draw back rate2- source from Mr. Rakesh Vaid-Apparel Export Promotion council Chairman.
In order to support textile exports, fashion designers help them to compete in the international market. In addition to the existing National Institute of Fashion Technology (NIFT) centre at New Delhi, the major NIFT centres at Mumbai, Hyderabad, Calcutta, Chennai, Ghandhinagar also provide its substantial effort to increase export in the international market in an effective manner. Other than these, Universities and University Colleges’ also showed their innovativeness in their creation of export designs. To promote research and other scientific work, Ahmedabad Textile Industry’s Research Association, Bombay, South India Research Association, Coimbatore and Northern Indian Textiles Research Association, Ghaziabad are the four textile research associations registered under Societies Registration Act 1860 and functioning under the administrative control of the Ministry of Textile. The total employment in textile sector in estimated about 64.20 million more.
7. Reasons for Currency Fluctuations:
Current situation shows that the rupee depreciation vis-sa-vis US dollar had
fluctuation in the current fiscal leads to a salutary trend in Indian exports. A definite slow down in the US market where out of Rs 100 of exports, Rs 20 came from the US and this would down to Rs 15. This has been made good by diversifying export destination to Latin Ameirca, South East Asia and Asean region by India exporters in recent period.
The hurricane Gustav could be the first major threat to the US Gulf of Mexico oil fields and ports, since hurricanes Katrina and Rita in 2005. The hurricane which was developed from a Storm has its trail of destruction in Jamaica, Haiti and The Dominican Republic was headed towards the US after sweeping through Cuba. The Gulf is the source of 25% domestic oil and 15% of the natural gas. Due to it threat, the support of crude oil’s barrel price worth 10$ facing its resistance up to 125-132$ a barrel. This leads a great deal of currency fluctuations in the world market. In the mean time, the exchange rate of the rupee has exhibited appropriate flexibility in response to market conditions. Furthermore, the international currency markets also saw large changes in cross-currency rates. Due to this, the domestic Wholesale Price Indices (WPI) for most commodities had risen by a much lower extent than world level.
8. Analysis:
Hypothesis: Ho: High investment influence high market risk on sales
among the exporters
Table No:1
Global Sales
Investment
USA
Europe
UK
Sales
Mid. East
Australia
Others
< 5 crores
4
4
0
3
2
3
5Crores-10 Crores
5
3
4
3
2
2
10Crores-50 Crores
3
2
2
1
0
1
> 50 Crores
3
2
1
0
0
0
Total
15
11
7
7
4
6
Factor
Chi–Square Value
D.O.F
Table Value
Remarks
Global Sales
.998
15
7.61
Not Significant at 5% level
From the above table it is noted that the calculated Chi- Square value is less than the table value and hence the null hypothesis is accepted. It is inferred that “high investment influence high market risk on sales among the exporters”.
Table 2
Investment and Industry
The investment made by the Salem city exporters and the type of industry are given in the following table. The industry types are categorized into four types of viz., Partnership, Proprietorship, Private Limited and Others and their investments are categorized into below five crores, 5-10 crores, 10-50 crores, and above 50 crores.
Industry
Investments
< 5Crores
5-10Crores
10-50 Crores
>50 Crores
Total
Partnership
9
8
0
0
17
Proprietorship
4
5
1
0
10
Private Limited
5
6
2
0
13
Others
3
6
1
0
10
Total
21
25
4
0
50
The above table shows that the heavy investment was made by partnership industry. Next to this, private sector had more investment. On the other hand, proprietorship and others had the similar investments.
- Scope for Development:
Going for accredition of ISO 17020 certification solves the problems in the parameters like length, width etc. According to this certification, the buyers can assess the quality of products pertaining to count of warp and weft, dimension of the piece (length and width), weight/sq.m and fastness properties to washing, rubbing and exposure to sunlight etc. This certification will solve the problems of exports of quality level.
Penetration in foreign countries is another aspect of development in textile industries. If India’s engagement with Asean market took place, then it is possible for tetile exports to Japan, China, Korea, Newzealand and Australa. The remarkable thing is that the country enjoying FTA with Asean would pay zero duty. This is one of the golden opportunities for Indian textiles to global market widely.
Recently, China is facing tougher times with currency rise and closure of many units of textiles to reduce pollution levels in Beijing. Chinese textile exports saw a 2.4% fall from September 2007 to may 2008, while during the same perod, Inda way about 25 growths. Because Indian exporters push towards the markets in South Africa, Kenya and other African countries and also to South-East Asean nations like Thailand, Malaysia and Singapore.
Further, world cotton production is expected to decrease by 5% to 24.9 million tones in 2008-2009 due to declines in both area and yield. The US output projected to fall by more than one metric tonnes to 3.1 metric tones. Indian market will not remain insulated from overseas influences. In 2007-2208, domestic prices escalated by 30-35% with a shadow cast on the production prospect in India, The world may be starved of much needed cotton and India is expected to being supplying in recent years.
- Do all the items in the WPI list get affected due to international market volatility?
The domestic Wholesale Price Indices (WPI) for most commodities had risen by a much lower extent than world level. Deglobalization results in price rise in rubber and cotton at domestic price than world price. This benefit is realized by the Indian farmers at the expense of tire manufacturers and textile millers. The basic chemical and chemical products and transport equipments and parts in relation with manufacturing tobacco, beverages and related products are shown double–digit growth. Mining industry picked up by 5.6% as compared with 3.2% a year ago.
- Who is the benefactor of international market volatility?
Textile millers, mining industry, manufacturing of beverages industry, the farmers of rubber, cotton are the benefactors of market volatility.
- Do the Salem textile exporters get befitted due to international market volatility?
Yes, but all the exporters are not. By taking the market risk, the Salem exporters who are in the member of exporters association slowly start their penetration towards the markets in South Africa, Kenya and other African countries. On the other hand, few of the individual exporters, tries to get orders from Thailand, Malaysia and Singapore.
Their major risk is the rupee depreciation vis-sa-vis US dollar/Euro currency variations during the supply order cost, shipment cost and full settlement.
9. Conclusion:
-
Reference:
- Indian Economic General View, Finance India, March 2005.
- RBI Bulletin 2008, www.statistics of Indian Finance.com
- Feld Man and Gang 1990, “Financial Development and Price of Services”, Economic Development and cultural Change, Vol.38,2, pp341-352
- King and Levin 1993,”Finance, Entrepreneurship and Growth: Theory and Evidence”, Journal of Monetary Economics, Vol.32, pp341-352
- Liu and Woo 1994, “Saving Behaviour under Imperfect Financial Markets and the Current Account Consequences”, The Economic Journal, Vol.104, pp512-527
- Outreville 2005, ‘Finance Development, Human Capital and Political Instability”, Finance India, Vol XIX,2,pp481-492
Appendix:
Table no: 1
Types of Industry
TYPES OF INDUSTRY
S.no
Types of industry
No.of Respondents
1
Partnership
16
2
Propritorship
10
3
Private limited
13
4
Others
11
Total
50
Values of
Standard Deviation
2.64
Mean
20
Chisquare
0.641
Chart No: 1
Types of Industry
Table No:2
Sales Turn Over
Sales Turn Over
S.no
Sales
No.of Respondents
1
Less then 5 crores
17
2
5 crores to 10 crores
19
3
10 crores to 50 crores
8
4
More then 50 crores
6
Total
50
Values of
Standard Deviation
1.767
Mean
Chisquare
0.0185
Chart:2
Sales Turn Over
Table No 3:
Manpower
Manpower
S.no
Direct Employees
No.of Respondents
1
Upto 10
5
2
11 to 50
15
3
51 to 100
16
4
more then 100
14
Total
50
Values of
Standard Deviation
5.06
Mean
12.5
Chisquare
0.10408
Chart: 3
Manpower
Table no:4
Mode of Recruitment
Mode of Recruitment
S.no
Mode of Recuritment
No.of Respondents
1
Advertisement
18
2
References
9
3
Trade Union
9
4
Oters
4
Total
50
Values of
Standard Deviation
Mean
Chisquare
Chart: 3
Mode of Recruitment
Table No:5
Inhouse Training
Inhouse Trainig
S.no
Trainig constraints
No.of Respondents
1
Cutting
14
2
Stitching
12
3
Inspection
9
4
Packing
11
5
Others
4
Values of
Standard Deviation
Mean
Chisquare
0.128
Chart No:5
Inhouse Training
Table No:6
Risk Undertaking
Risk Undertaking
S.no
Types of Risk
No.of Respondents
1
Shipment
10
2
Quality of Product
7
3
Clour Variation
12
4
Processing Lead Time
10
5
Others
11
Total
50
Chart No:6
Risk Undertaking
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Source by nirmala devi.b
