Why a carpet maker in UP is worried about Brexit

By: | Updated: July 17, 2016 6:36 AM

Handicraft sector worried weak economic sentiment in Britain will hit exports

Two senior officials associated with the government-backed export promotion councils for both handicrafts and carpets told FE that people running small and medium enterprises have started approaching them with queries on Brexit and how it will affect them. (Reuters)Two senior officials associated with the government-backed export promotion councils for both handicrafts and carpets told FE that people running small and medium enterprises have started approaching them with queries on Brexit and how it will affect them. (Reuters)

The deftness is immaculate as he pulls out a woollen carpet from a heap of rugs and points at its tight knots and short pile. He shares how a certain Englishman was floored by the teflon-like quality of his hand-knotted carpets that resist stain and repel mildew better than the most. Yoginder Kumar, a carpet manufacturer from Uttar Pradesh, is no stranger to warm compliments from foreigners. His business has been on a roll as well — he exported carpets worth Rs 73 lakh in 2015 (mostly to the UK), a massive leap from just Rs 3,62,000 six years ago. Recently in the national capital to participate in a small fair, he seemed a bit worried though. He concedes Britain’s decision to pull out of the EU has potential to hurt his business.

There are others who share his concern. Two senior officials associated with the government-backed export promotion councils for both handicrafts and carpets told FE that people running small and medium enterprises have started approaching them with queries on Brexit and how it will affect them.

Beneath the fear lies the fact that the UK makes up for 16% of Indian carpet exports and is the biggest market after the US. The situation is not very different in the overall handicraft segment as well. Britain accounts for just over 8% of India’s handicraft exports, and is its second-biggest buyer of such products.

The country’s handicraft exports grew 6% in the last fiscal to $3.2 billion, and those of carpet rose 9% to cross $1.5 billion — outpacing the performance of the overall textile and garment sector that witnessed a marginal decline in exports. While exports of these items are unlikely to fall in 2016-17 despite Brexit, it could put a lid on the growth in the exports, industry executives fear.

What worries these small-time exporters more, though, is not the political decision of the UK to exit the EU, but the accompanying uncertainties (Britain has two years to negotiate with the EU on terms of the pullout) that could slow down their economies, and and the weakening of their currencies. Already, between then—the closing of June 23, a day before Brexit—and now, while the rupee has appreciated 0.2% against the dollar, the pound depreciated 11.4% and the euro 3.5%. Also, against the rupee, the pound has weakened 11.6% and the euro 3.4% during this period.

This would make imports more expensive for Britain and the EU, and consequently, people there may tend to avoid
purchases of luxury items from abroad.

Rakesh Kumar, executive director at the Export Promotion Council for Handicrafts (EPCH), said the Brexit impact will “certainly be felt by handicraft exporters” as outbound shipments will be dearer. Moreover, handicraft manufacturers don’t depend on inputs (which will be cheaper in the case of an appreciation of the rupee) from overseas to make finished products, as the raw materials are mostly indigenous. “A lot will now depend on the future stability of the rupee/pound rate,” he added.

These export segments usually record robust growth when western economies are in good stead, as the US and EU—including the UK—are the major markets (they make up for roughly 80% of India’s carpets exports and 60% of handicraft exports, according to industry estimates).

The IMF recently said it expected the EU to grow by 1.6% in 2016 and 1.4% in the next year, down from its earlier predictions of 1.7% growth for this year and the next, saying Brexit could delay an economic recovery in the EU. Such a scenario could hurt the prospects for Indian carpet and other handicraft exporters as well. Applauding the good performance of the handicraft sector, including hand-made carpets, President Pranab Mukherjee had said in December that easier access to credit and promotion in domestic, as well as foreign markets, were required to boost the sector.

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