Exports wasn’t Anil Peshawari’s forte. But in 1999, this chartered accountant decided to take the plunge and start a garment export business. Come today and he has been successful in establishing Meenu Creation, a 100% export-oriented company that boasts of an annual turnover of Rs.300 crore. In an interaction, Peshawari shares lessons that experience has taught him and other thoughts on textile exports business.

Interview by Manishika Miglani | May Issue 2017 | The Dollar Business

TDB: You have been in the business for almost 19 years. How did you start?

Anil Peshawari (AP): In the 1990s, I was a chartered accountant and some of my clients were into the business of garment exports. Taking a lead from them, in 1999, I started my own business. Initially, it was a small setup with about 25-30 workers and 40 sewing machines. Luckily, we received our first export order from Stradivarius, a clothing company based in Spain. They ordered women wear worth Rs.2 lakh. This gave me confidence and, gradually, we ventured into other European markets, followed by the US market. In the first year our turnover was Rs.35 lakh and in FY2016 we clocked a turnover of Rs.290 crore.

TDB: Considering the unpredictability of business environment in US and EU, do you plan to explore new markets?

AP: No, we are focused on expanding our presence in US. However, I must mention that South America looks interesting. The only reason why we aren’t tapping into South America is because they are finding it difficult to import products from other countries, which is a direct impact of their currency devaluation. Also, they are trying to manufacture either within the country or procure from neighbouring countries with whom they have trade treaties.

TDB: What about currency fluctuations in India and China?

AP: Between 2007 and 2015, the Chinese currency appreciated by almost 24%, and during the same period Indian currency depreciated by about 45%. The net effect was that we got an advantage of around 70% over China – just on the account of currency. Despite this huge advantage, India could achieve only 10% of China’s total exports. We are not doing anything constructive to boost exports. Instead, we are trying to control the value of the currency artificially, due to political reasons. Also, in the last two years, the Chinese currency has depreciated by 19% while Indian currency has depreciated by 7%, and that is a cause for serious concern. The government is not ready to understand that if this trend continues for a few more years, we might lose all our business to China. The industry will face a complete shutdown and millions of workers will lose their jobs.

TDB: What other challenges does the industry face?

AP: India has a certain limitation when it comes to fabrics. We do not have the required yarns, technology and machinery. This is because the sector has done poorly over the last few years and proper investments have not been made.

TDB: What government intervention would the textile industry require to improve the business climate?

AP: For exports, the government should take care of all the red-tapism and bureaucracy barriers involved in the clearance of goods. Also, it should see that control by the inspector raj (government regulation in non-essential areas) is restricted. There should be relaxation with respect to the laws related to Provident Fund (PF) and Employment State Insurance Scheme (ESIS). For instance, the government should ensure that the employees work for a minimum of 30 days before they can avail the benefits provided under these schemes. This is because workers tend to quickly jump from one company to the other, making accounting of their salaries a difficult task.

TDB: Both India and EU seem to be keen on an FTA. Do you think an FTA will boost exports from this sector? 

AP: Of course, it will help the industry – but we may have missed the boat! Even though negotiations have been going on for sometime now, I don’t see the EU-India FTA happening anytime soon. It might take a couple of years for the agreement to see the light of the day – if things go smoothly. The agreement could not happen earlier due to a variety of reasons – when we asked EU to give us duty concessions, EU asked us for duty concessions on automobiles and wines and we did not agree. We will need to compromise somewhere to sign the FTA. EU’s economy has slowed down. They aren’t as liberal as they used to be in terms of duty concessions. So, even if they agree to give some benefits, they would need their pound of flesh. What our government doesn’t realise is that it is not a matter of only increasing exports through these pacts, but that they will help generate more employment. The textile sector is the one of the few sectors that provide employment to uneducated masses in large numbers. Doubling the export value also means doubling the number of people in this sector. In my opinion, if the agreement happens now, it will double our export to Europe, which constitutes 40% of the total exports from our industry.

TDB: What makes other countries more competitive than India?

AP: Take Bangladesh as an example. It is way ahead of us for numerous reasons. Bangladesh imports fabric from India, but garment exports constitute a major chunk of their GDP. I must add that since they do not have other significant industries, garment exports have become the country’s single focus. Wages in Bangladesh are also about 40% lower than India, and as a less-developed country it also enjoys duty-free access to EU.

TDB: What is the biggest change the industry has witnessed over the years?

AP: When we started, our customers and partners did not ask us to fulfil any social compliance, which we are subject to in the present times. Now it is impossible for the industry to employ anyone who is below the age of 18 as we stand the risk of our orders getting cancelled or the company getting blacklisted. We are also monitored in terms of timely wage payments to our workers as per the law and are subject to regulatory audits by our customers.

Complying with these regulations is important while dealing with large companies abroad. Initially, we were unaware of the significance of these laws and regulations, but now we follow them by choice because it has become very important for export-oriented companies like ours. Something that we have realised over the years is that if we keep our employees happy, they are likely to be more productive and that in turn will help us generate better revenues.


TDB: Did demonetisation affect the garment industry?

AP: Yes, it impacted us in a positive way. Now, all our workers have a bank account and that has solved all our problems related to wage payments. That said, there was no reason why demonetisation would have a negative impact on our business. Our buyers have nothing to do with the situation in India. Our supply chain constitutes of players from organised sector and we have always used banking channels for payments.

TDB: How will Goods and Services Tax impact the business going forward?

AP: Goods & Services Tax (GST) is good as a concept. But as of now, it lacks clarity. We don’t know if GST will be applicable to fabrics, which has been a tax-free item so far. But, if it does fall under the new tax regime, it will be a big challenge for the industry. Another challenge with GST would be applying for refunds at a later stage. This is bound to increase our working capital requirement by almost 30%, which is not a good thing for this already-struggling industry. The government has fixed a 60 days time-frame, to release the refunds. Considering the loop-holes in our system, this timeline might not be met. We already face many challenges in the release of drawbacks, so we can’t expect these problems to not exist in GST. I think it will be like demonetisation where the government will have to keep making adjustments.