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Indian textile industry in the context of globalisation

M K Bardhan

The economic weather of the world has drastically changed over the last decade or more, Western capitalism triumphing over the erstwhile Soviet communism. The developing countries, stunned by the demise of the Soviet Block, went to the opposite extreme of unbridled capitalism. Two major trends have clearly emerged on the international scene. The first one is the radically changing international economic environment, increasing globalisation of economies and new international trade regimes that focus on technology. The other trend is speed, power and direction of new generic technologies which are already showing wide economic impact.

These trends are unfolding in terms of liberalisation drives or opening up of economies to private and foreign investment flow and of technologies. There are many countries in the developing world, the erstwhile Soviet bloc as well as communist countries like China and Vietnam who have embarked upon such programmes to accelerate economic development. On the technology arena, some of the changes that are taking place include efforts to force scientists into market place by slashing the operating budget.

The developed countries, IMF, World Bank, transnational corporations, etc have channelised a market driven economy and recommended the same for the developing nations. The end of Cold War and consequent rethinking on geo-political and economic realignments in the economy of the world, together with the growing regionalisation of the world trade based on technological drive and the successful cohesion of the Uruguay Round of negotiation for rewriting world trade order are among the major changes and challenges that dominate the current international economic environment.

The world is witnessing mind-boggling changes in the economic and technological scenarios of unprecedented magnitude. The new emerging technologies have made impact on all sectors of economic activities: Basic needs, economy, governmental needs, primary industry, secondary industry and tertiary industry. Capital and labour are no longer mainstay for development. Traditional natural resources are no longer a dependable strength for a nation, for technological advances have sidelined their value by making available superior alternatives. Emerging technologies will bring new economic opportunities to these who are ready to master them.

Man-machine interface is closing in to determine economic growth and development. Traditional technologies are being transformed drastically to raise productivity and enhance quality to boost added value to economy. Industrialised countries are beginning to show preference toward control of market and distribution chain rather than own manufacturing. Manufacturing as well as service activities are shifting to developing countries of the south, under the auspices of MNCs and TNCs. Markets are demanding newer goods and shorter product life cycle, which imply importance of competitive research and development. Trade in services is now as important as trade in commodities in the global market.

Skilled technicians and professional human resources have emerged as a highly tradeable commodity. In other words, economic viability and sustainability of any nation will be determined in global dynamics in this century and beyond by its access to technology. Patent laws, new regimes like WTO, TRIPs, TRIMs, and PBR, etc will determine such dominance or access to technologies.

Where India stands

For four decades under license-permit-raj, Indians lived with an economic environment where supplies fell short of demand, resulting in a seller’s market. Competition, if at all, was limited to a few areas only. There was neither compulsion nor incentives to do better. The development and progress in free economy due to globalisation, with competitive environment left India way behind in the quality and competitiveness of its goods and services. Control on production, licensing restrictions along with high protective walls had fostered monopolistic trends within Indian industries, made it import intensive and inward looking.

Technological revolution that had spread from advanced nations was missed by the Indian industry, in general. Indian products were considered poor in quality having little acceptability abroad. Import was more than export. Huge accumulated foreign debts, negative balance of payment, unmanageable fiscal deficit, pressure from World Bank, IMF and donor countries, etc forced India during the last decade to a reform programme resulting in liberalisation, market economy and opening up for foreign investment. Self-reliance in today’s world does not mean that we make everything. It means ability to earn foreign exchange to pay for all the imports. This made a big difference in the meaning of self-reliance, as understood so long by the policy makers who considered self-reliance was import substitution by indigenous production. As a result, our foreign exchange reserve today swelled to an extent, which could not be imagined a decade back.

The new world order of market driven economy has changed the Indian scenario drastically. In many sectors including textiles, Indian companies are not just forced to compete with each other, but also with foreign multinational companies entering the huge Indian market in post WTO scenario. Progressive reduction of physical and fiscal barriers to import have made superior imported goods available to Indian customers, at a price lower than what is available from Indian manufacturers. This has happened already in capital goods, consumer durables and now it is the turn for consumer goods like textiles too.

It was expected that a window of opportunity would open up for the industry to become globally competitive and reach out for global market which is much larger than the domestic market alone. In the last one decade of liberalisation, it has not been so. To become competitive within a reasonably short period of time, the Indian industry will essentially need to upgrade and develop its own technology. In most areas of production, the Indian industry has indigenised the technology without improving it or has been following outdated or obsolete technology imported relatively cheap. Our textile industry has already presented a picture of obsolescence in capital equipment, in quality, productivity, technology and skills. On the top of it, the effort to modernise the industry under TUFS allows old machineries with certain residual life, which will consequently lead to the cycle of obsolescence continuing. Besides, TUFS focuses on machineries and equipment, not the upgradation of technology as such.

The point is that the Indian textile industry should get a long term flow of technology and modernisation instead of ‘technological snap-shots’, so that it can learn how technological development is driven over time to combat the global competitive market.

Indian textile industry contributes about 20 per cent to the world spindleage of 166.36 million and three per cent to the world rotorage of 7.81 million and has the second highest spindleage in the world after China. It has also the highest loomage (including handloom) in the world and contributes about 64 per cent to the 8.9 million world loomage. It is the largest producer of jute, second highest producer of silk, third largest producer of cotton and cellulosic fibre/yarn and fifth largest producer of synthetic fibres/yarn. Despite the textile industry’s strong presence in the world textile economy in terms of production of textile products, its share in the global trade is a meagre 3.11 per cent, while China with a comparable raw material base enjoys a trade share of 13.75 per cent. The reason for such low share lies in the fact that our export products are predominantly low value items and our insignificant presence in manmade textiles which predominate the world textile trade with a 70 per cent share. The world textile trade will be integrated by the end of 2004 as a result of the process of gradual phasing out of the tariff barriers by WTO, as envisaged.

Consequently competition in domestic and global market has intensified and is likely reach the level of the ‘survival of the fittest’ in the next few years. Are we ready yet? Besides, there is an implied threat, particularly from export-led economies, that our domestic market may face destabilisation, albeit the fact that the free market offers unbridled opportunities. Modernisation, productivity, quality and price will decide who will survive in post-MFA regime.

(The author is director, Silk and Art Silk Mills Research Association)