Game Has Changed, but India Not Playing Russian Roulette Yet

Oil crisis, rising cotton prices, stagnating growth — too many factors at play now, some interconnected, others having a cascading effect this way or that — all these put buying agents in an unenviable position as they need to deal with two sides of the manufacturer-brand equation, in the backdrop of US sanctions on Russia.

Subir Ghosh

20 April 2022

4 minutes

Long Story, Cut Short

Buying consultants need to cautiously work together in intelligent ways to achieve overall growth and benefits for both the export community and customers.
Emergency measures by the government to remove import duties on raw cotton is a laudable support measure.
A global sourcing agency has to review and juggle several countries. Geo-political events impact different regions differently and it tries to minimise losses in some regions while maximising gains in the others.

The way the game used to be played before the coronavirus pandemic changed it all with its consequent lockdowns, supply chain issues and cashflow crunches today seems distant memory.

What has made life more complicated for buying houses is that there are too many other factors that are also at play now, some of them interconnected, others having a cascading effect this way or that: oil crisis, rising cotton prices, stagnating growth. The Russia-Ukraine war has made the entire terrain difficult to tread. All these put buying agents in an unenviable position as they need to deal with two sides of the manufacturer-brand equation, in the backdrop of US sanctions on Russia.

Vishal Dhingra, President of Speciality Merchandising Services and Chairman of Buying and Sourcing Consultants, agrees about the tightrope walk. “Not only we are bound towards our clients, but equally towards our factories. We are always trying to bring a semblance to quality and pricing at both ends. For the client we are constantly feeding them with the raw material pricing, labour costs, shipping costs, etc, and for the factory we are trying to teach them economies of scale, better inventory management and better production techniques and investment in updated technology.”

According to Sanjeev Jain, President and CEO of Noida-based TQM Global Buying, the whole outlook has changed since the COVID-triggered crisis. And now, “the Russia-Ukraine war has created uncertainties and insecurities among European buyers and the problem has started to reflect on oil prices—petrol and diesel being the mother of energy sources for the industry. In the coming days, Ukraine being a source of many metals, the prices of raw materials are expected to rise manifold thereby crippling the already affected sector.” There are too many factors to keep an eye on.

“As a global sourcing agency, we have to review and juggle several countries in our bag. Geo-political events impact different regions differently and we try to minimise losses in some regions while maximising gains in the others,” says Venky Nagan, retired Chief Executive Officer of the Hong Kong-based Asmara Group. The rising cotton prices are one. “Due to the domestic cotton crop and supply drop, drop in Chinese imports and freight cost escalations, cotton costs shot up during 2021. However, the emergency measures by the government to remove import duties on raw cotton is a laudable support measure,” says Nagan.

He believes, “The Indian readymade garment (RMG) exports sector has benefited because customers realised that India is the second largest cotton production country in the world after China. Besides, China as a country was re-positioning its economic strategy to a domestic--first policy. Global customers realised these implications and decided to pitch strongly for India.” Nagan adds a cautionary note here: “Simultaneously, China was voluntarily reducing its RMG exports and the Indian government was encouraging the industry through ‘incentives’ to add more power to a cotton industry which was already number two in the world.”

Among recent “incentives” are the removal of tariff for six months on raw cotton imports and approval of lucrative Production Linked Incentive (PLI) Scheme projects.

Nevertheless, there is a need to stride carefully. Jain argues: “As buying consultants, we should cautiously work together in intelligent ways to achieve the overall growth and benefits for our entire export community and customers. We are witnessing an upward trend in business of late and we should focus on the long-term situation and look past the current global situation as the pricing of raw materials will come down, freight will settle down, and the negative situations will get better.”

But, MS Alam, President and CEO of Global Sourcing India, based out of Moradabad in Uttar Pradesh, is not exactly on the same page as he feels ground realities at home are a tad different. “There is a decrease in the production of goods, the goods are not going out on time, and prices are touching the sky, due to which there is a considerable amount of losses.” He minces no words.

Of Russian Buyers and Indian Sellers

Shortly after the Russia-Ukraine war broke out with the US and its NATO allies imposing sanctions on Russia and its President Vladimir Putin (as also a host of Russian billionaires, banks and companies), there was a suddenly a spate of news reports about Russia turning to India for garments. This was lent credence to with simultaneous reports of an exodus of Western brands out of Russia.

So, is there any ring of truth to the “prospects” of Russia being the new market for India?

Dhingra feels it is too early to comment, “but given our past history with Russia it certainly opens up that market to our industry. Now, with the rupee-ruble trade back on the table, it is matter of time before we start shipping them in large quantities. Geographically too, Russia is much closer.”

But Nagan feels that’s dicey. “It is well and good to collaborate with Russia to strategically buy oil/gas at cheaper prices / cheaper currencies. But it is fraught with danger to export garments to Russia for the next three years as the country is bankrupt, their currency is devastated, and they are debarred by the SWIFT payment systems. Therefore, to export to Russia is worse than to export to Afghanistan. Please do not export to Russia even at 2x prices. Observe and revisit the space in 2024.”

Even Jain thinks it is too early to comment, but contends that Russia has not been all that affected by US sanctions. “After many US brands exited from Russia, local Russian companies have been already taking them over and running the show as if nothing happened. They are literally not at all affected till date by these sanctions. But, for our trade, it is too early to conclude that Russia is now looking at Indian manufacturers and brands, though there might be a slight shift. But there are many deterrents to this (Russia-India) trade if it has to grow—the biggest one being the Russian mafia which controls most of their trades.” For Alam, however, “Russia is not as big a market for us as Europe or the US. But yes, we should also work with Russia.”

It is true that Russia has not traditionally been a big market for Indian apparel, but it would be interesting to see how things work out, if at all. Many would keep fingers crossed on this count.