Depreciating rupee has prompted overseas textile and apparel importers to re-negotiate their contract terms to get a pie in higher realisation by Indian exporters. New contract orders are being deferred till Indian currency stabilises.

Since August 11, the day China's Yuan first depreciated, the rupee has fallen by over 3.37% to trade at 65.50 against the dollar early Monday. The Indian currency has depreciated by 5.28% so far this year.

Normally, depreciation in rupee results into higher realisation of export driven products from India without raising their prices. As a consequence, global importers get an opportunity to re-negotiate their price of the product for which they had already contracted earlier.

"Yes. New buyers have started re-negotiating contract terms and prices. Normally, overseas buyers have started inducting a new clause in the contracts which keeps re-negotiation of price open. Old customers, however, have not intervened yet. Clients that had negotiated apparel import terms, have deferred their orders by two-four weeks, which may get prolonged till the rupee stabilises," said Rahul Mehta, President, Clothing Manufacturers Association of India (CMAI).

India exports around $41 billion worth of garments and apparels annually and hence, re-negotiation in contract terms and prices makes huge difference in exporters' overall realisation. The impact has been severe since the Chinese currency Yuan was devalued on August 11.

New overseas customers, meanwhile, have started fixing up apparel price in dollar term with a condition of the rupee to remain at the current level. In terms of sharp currency fluctuations, however, the price would be re-negotiated, said Mehta.

R K Dalmia, President of Century Textiles and chairman of the Cotton Textiles Export Promotion Council (Texprocil), believes that the benefit for Indian textile exporters would depend upon the currency fluctuations in competing country.

"In case of Indian exporters compete with their counterpart in China, we would not get much benefit due to Yuan devaluation. If we are competing with Bangladesh, we will get some benefit. But, since overall Asian currency has depreciated due to Yuan devaluation, Indian exporters would not get the benefit which they could otherwise have got, had Yuan not been devalued," said Dalmia.

In fact, overseas textile importers have gone into 'wait and watch' mode which is not good for business. For a smooth business, stability in the rupee is required for long term sustainability, he added.

Overall textile exports rose a marginal 5.4% to $41.4 billion in 2014-15 as compared to $39.3 billion in the previous year. Echoing similar response, D K Nair, Secretary General, Confederation of Indian Textile Industry (CITI), believes that overseas importers who are confident about the product and quality, have started re-negotiating price and contract terms.

Depreciating rupee is good for textile exporters. Indian exporters with deep pocket who can resist price re-negotiation for higher realisation may continue to resist, said Nair.

Source:- business-standard.com