What started as a thread cleaning unit 40 years back is today a well-known name in the garment export business, shipping garments worth Rs.130 crore to countries across Europe and America each year. In an interaction with The Dollar Business, H. K. L. Magu, Managing Director of Jyoti Apparels and Vice Chairman of AEPC, talks about his journey so far apart from discussing the challenges the industry currently faces.

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

TDB: Your annual revenue from exports is about Rs.130 crore. Which are your biggest export markets?

H. K. L. Magu (HKLM): We export to US, Canada, Europe, Korea, South America and South Africa, with US being our biggest market. Our total revenue from exports is Rs.130 crore, out of which Rs.70 crore comes from US, Rs.40 crore from Europe and the remaining Rs.20 crore from the rest of the world. Our clientele in US includes American Eagle, Jones Apparels, Bands of Gypsies and Dillards, etc. And in UK, we supply to Superdry, Dorothy Perkins, Next, John Lewis and New Look. Our other renowned clients are Monoprix (France), K&L Ruppert and Soyaconcept (Denmark) and Falabella (South America).

TDB: A lot of exporters from your sector are exploring new markets. Do you have such a plan in the short term?

HKLM: US and Europe are saturated markets, so we definitely need to find new markets. We believe Latin America, Africa and Australia hold huge potential and offer great opportunities to Indian exporters. Of late, we have been doing a fair bit of business with importers from Chile, Columbia, Peru and Argentina. In fact, we plan to soon upgrade our machinery and infrastructure, to cater to an expected 10% increase in exports orders from these countries.

TDB: Is the company also planning to expand its product portfolio?

HKLM: We are planning to get into technical textiles, an emerging area that is set to grow at a rapid pace. India isn’t actively exporting technical textiles even though there is a huge demand for the product in the global market. Currently, we are in the process of product development and see opportunities for technical textiles, mostly in Germany, Italy and France. Our revenues will grow 5-7% y-o-y once we enter this segment.

TDB: The global textile market has not looked very exciting in recent times. How are you coping with the situation?

HKLM: The textile and garment industry has slowed down considerably on account of the slump in the global economy. Further, over the last few years, US market has also been sluggish. This has affected India’s exports of textiles as US is a major market for us. On the contrary, EU has witnessed a marginal rise. And while India’s export to the UAE saw some growth last year, this year hasn’t been too good. All in all, exporters have been facing uncertainty. However, the government has stepped in with several relief packages that are helping us sail through these tough times. For instance, the Ministry of Textiles has come up with a special package of Rs.6,000 crore for garment exporters, whereby a rebate on state-level duties, to an extent of 3.5% of FOB value, has been granted. In addition, we are entitled to certain tax benefits if a new employee works with us for 150 days or more in a year. The government has also been very liberal when it comes to Amended Technology Upgradation Fund Scheme (ATUFS). The capital investment subsidy has been increased from 15% to 25%. All these schemes have helped us stay afloat.

TDB: But then, such relief packages will not last forever?

HKLM: Yes, as per a WTO directive, these aids will be abolished after two years. They are being doled out by the government to ensure a level-playing field for Indian textile exporters. But, going forward, once these schemes have helped us establish a foothold in the global market, we are sure we will be able to hold on to our market share.

TDB: Please shed some light on the labour-related problems faced by the Indian textile and apparel sector?

HKLM: Labour migration is one of the biggest challenges being faced by the sector. The sector lacks a permanent workforce, which is typically the basis of a stable work-environment. For instance, Delhi receives labourers from states like Bihar and Orissa, who leave the city once their tasks are completed. The exit policy of labourers also needs to be changed. We have approached the government on several occasions for coming up with a trade-friendly labour exit policy, but the issue hasn’t been addressed as yet.

A lot of countries have this mechanism in place, leading to an efficient manufacturing environment. For example, in US, the exit policies make for a very quick change of guard in case the performance of the worker is not up to the mark. We need to have a similar policy framework in India to strengthen the business environment. However, I must say that India has a big advantage when it comes to the cost of labour. Labourers in India are paid around $5-6 a day, whereas in Europe they are paid $8 per hour. Also, India now has trained labourers with the government’s skill development programme going on in full swing.

TDB: So you believe that ‘Skill India’ initiative has had a positive impact on the apparel and textile sector?

HKLM: After agriculture, the garment sector generates the largest number of jobs in India. Thanks to ‘Skill India’ initiative, today we have about 170 centres, established by Apparel Training and Design Centre across India, which provide training to unskilled labourers. These centres can turn a grass-cutter into a tailor in 45 days. We have one such centre in our manufacturing plant located at Manesar. So, yes, the programme has hugely benefitted our industry.

TDB: What is your opinion about India’s current foreign trade policy?

HKLM: In India, to get into exports business, there are way too many documentation protocols and procedures to be followed. For example, manufacturers planning to get into exports must first apply for Importer Exporter Code (IEC), which itself is a huge task. Once IEC is acquired, the same has to be registered at the Customs. The procedure is not only time consuming, but one also has to spend around Rs.10,000-12,000 to complete the formalities. Small businesses cannot bear such hurdles. And lest we forget, our industry also works on thin margins in a competitive environment. We face stiff competition from China, Bangladesh, Vietnam and Cambodia. We have been pitching for an easier, trade-friendly, process to the Ministry of Textiles, Ministry of Finance and Ministry of Commerce for the last 20 years and now, at long last, the government has started taking steps in this direction.

TDB: When it comes to ease of doing business, are you satisfied with initiatives of the present government?

HKLM: So far, we are very happy with the steps Modi’s government has taken to improve the overall business environment in the country. The government has been putting a lot of efforts in this direction and we are hopeful that more such changes will be implemented before this government’s tenure ends in 2019.

TDB: The government plans to increase contract labourers monthly wages to Rs.10,000. Will it affect exports?

HKLM: Demand for textile and garments peaks between October and February, and is about 30% more than the rest of the period. Because of this proposal to increase wages, the industry will be wary of engaging more labour to meet the peak-time requirements as it will become further difficult for us to compete with Bangladesh and China, that already have a cost advantage. Also, considering low profit margins, many exporters might go out of business as their products would cease to be viable.

TDB: Besides cost advantage, what factors help China and Bangladesh dominate the global market?

HKLM: Chinese products score over Indian products because they use modern machinery and have more trade friendly policies. Also, workers in China get paid according to the number of pieces they produce, thus linking their salary directly with their productivity. But in India, workers are paid a salary without accounting their overall productivity. Speaking about Bangladesh, their wages are one-third of the salary that we pay in India. Also, the productivity is 1.5 times higher than in India because they make only the basic items whereas we are into value-added products.

TDB: What should the government do to improve the situation?

HKLM: We want the government to improve infrastructure. In India, it takes about 72 hours to cover 1,500 km. On the contrary, it takes only 20 hours to cover the same distance in Europe. If something can be done about this, exporters will save a lot on transportation costs.