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Target of $ 25 billion garment exports by 2010: Is it feasible?

M K Panthaki

The garment industry in India has come a long way. Between 1995 and 2000, the industry increased its volume of production at a compounded growth rate of 5.8 per cent and the value of production at 11.6 per cent.

On the other hand, growth in the overall volume of garment exports has been ahead of production by almost 50 per cent, whereas, it has been slower by 50 per cent in terms of value.

An estimate of value of exports during the financial year 2000-01, by an auditor, works out to Rs 29,407.01 crore i.e. $ 6.22 billion (at an exchange rate of Rs 47.25).

The government is aiming for a target of $ 25 billion to be reached by 2010. Judging from the compounded export growth of 4.5 per cent, exports will reach a figure of only $ 8.62 billion by that year. In order to achieve this target, it is essential to plan for an increase in production since, at the present growth rate, the industry will be able to achieve only 33 per cent of the target set.

While laying out the plan, it will be well to remember that currently export value is around 25 per cent of the production value. Even assuming that the rupee holds steady at Rs 45 over the next 10-year period, the export target to be achieved is Rs 1125 billion by 2010 as against the current Rs 250 billion. This calls for a 3.5 times increase in exports i.e. an increase of Rs 875 billion which will have to come out of fresh units to be set up for the purpose.

As on January 1, 2002, there are around 65,500 units with a minimum of 10 machine each and contribution to exports was Rs 26,700 crore or Rs 267 billion. Since value of exports constitute around 25 per cent of value of production, it will be fair to say that about 16,500 units are on an average contributing Rs 267 billion towards exports. With this as the base, and allowing for a 20 per cent growth in domestic production, approximately 3 lakh units will have to be set up with a total of 45 lach machines to achieve the targetted production in domestic and export markets.

A target of this order would call for availability of land of the order of 3100 acres of contiguous urban land along with infrastructure in the shape of motorable roads, continuous electric supply, good lighting and sanitary facilities, etc. The feasibility of such a project would require spreading over the required land across several states of India so as to generate additionally, uniform employment opportunities.

The success of such a project could be achieved by setting up of regular townships, complete with quarters for workers and staff, educational facilities for children, polytechnics, well developed food and clothing markets, recreational facilities, machinery spares, market yards, regular transport facilities to the nearest railway station as well as a clean and green environment. The idea is that those working in these townships do not have to distract themselves from their daily activities and that they devote maximum time to the working of units in the township.

Setting up such townships will call for huge financial resources which should be made available by the state government concerned. The state government should make the required land available at a very concessional price since the returns accruing to the state in terms of revenue and employment generation will make it worthwhile.

So far as the setting up of units in the township is concerned, obviously after the infrastructure is in place, that will be the concern of individual entrepreneurs, assisted of course by the ongoing schemes of the government in the shape of TUFS or capital subsidy scheme.

Quite obviously, the setting up of such townships is not the work of a single day. In the meanwhile, steps have to be taken to ensure increasing foreign exchange returns for the country. To achieve this, the following options are available:

• Option 1 : Improvement in productivity by 25 per cent.
• Option 2 : Production of value-added garments by a) embellishments to garments — embroidery, use of superior fabrics, use of laces, toggles, network, etc, and/or b) switching production over to sportswear, healthwear, industrial garments, institutional garments for hospitals, police, security, military, etc.
• Option 3 : Diversifying production to accommodate winter wear/autumn wear/rain wear.
• Option 4 : Diversifying production to high value garments like suits or bathrobes or nightwear garments or wind cheater/anoraks.

Under option 1, re training of labour to achieve the desired increase in labour productivity will be necessary. Keeping pace with technology development so as to save on operating costs and speed up production can also help deliver results. A change in layout plan so as to ensure smooth and quick passage from one operation to another is yet another way to improve productivity.

Even if we are able to improve prouductivity by 25 per cent say from 12 pieces/mc/day to 15 pieces/mc/day (which certainly is not a tall order), our foreign exchange earnings would swell to $ 6.97 billion. This fact merely emphasises the scope for improvement with the existing machines but with improved productivity.

Options 2 (a) and to some extent 2 (b) are already in operation in most units to add value to garments. The positive effects of these can be seen from the rise in unit value realisation during the months of 2003 as compared to the previous year and particularly, so after May 2003 when the volume of exports has been declining as compared to that in the corresponding months of the preceding year, as will be seen from the table.

It is clear from the table that Indian garments have fetched 9 per cent more foreign exchange during the first eight months of 2003 as compared to that of 2002. When this is considered against the backdrop of falling volume, especially after May 2003, the conclusion is clear that the higher earning is due to high value garments with better added value exported in 2003 than in 2002. There is, however, no room for complacency. This is only tbe beginning and much more needs to be done. The opportunities for increasing unit value of exports become obvious since such high value garments command as high a price as $ 12 for anorakas, $ 9 for suits; $ 5 for bathrobes or nightwear. Even if we can increase our unit earnings by $ one over the current year unit value, our foreign exchange earnings would reach $ 7.5 billion from the current $ 5.8 billion.

Option 3 is the one that the industry needs to concentrate upon. This is for two reasons namely:

(a) It will provide the industry with an all-year presence in international markets. As of now, India is considered a supplier of only spring/summer garments.

(b) The industry has been always complaining of an idle labour force during the lean season which generally is April to September corresponding to winter bookings overseas. On this ground, the industry advocates for being permitted to get rid of such idle labour during the slack season for being re-recruited during the busy season. Until such time as labour reforms are initiated by the government, the industry would do well to undertake manufacture of winter wear/rain wear garments, some of which also form part of sportswear like garments for ski-diving wind surfing, rock climbing, etc.

Finally, the domestic sector must seriously apply itself towards exports. It would do well to remember that less than one year from now, India will be an open market for garments. So also will Indian have opportunity to find new markets, especially in Asia with free trade agreements being signed by India with countries in the ASEAN region. EU too is keen on a zero tariff arrangement with India for textiles. The domestic sector will thus have to compete in quality and price with imports. It is clear that beginning 2005, there will be practically no distinction between domestic sales and exports. The quality of garments available to Indian consumers from the domestic sector will have to be on par with that of imported garments for sheer survival of the domestic industry. With an improvement in the economy and consequently in the standard of living, accompanied by rising family income, there will be an increasing number of consumers in the middle level income group with surplus purchasing power for whom quality will be a great determining factor.