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‘The actual shine will come once we start functioning in the quota free regime’

Even as the textile industry has bounced back with vitality, the looming quota phase-out can take it to new highs. However, while it opens up immense opportunities for lucrative business, any shortcomings in the quality department will be sure to backfire. In a no-holds barred interview, Mr O P Lohia, managing director, Indo Rama speaks to Sapna Dogra on why he believes the actual ‘India Shining’ will come in the post-MFA world. Excerpts.

In the past one-year or so, the textile industry has shown signs of recovery. This has been well reflected in the terms of the textile stocks gaining ground in the capital market. Overall sentiment is also upbeat. Is the textile industry actually shining? Your comment?

The economy on the whole can be said to be on the upswing currently. The textile industry has recovered in the past year and this buoyancy is here to stay. Rather it will get further enhanced as the world market opens up. With initiatives such as bringing down of the short-term interest rate, India is becoming a rational market. I think the industry has just started looking up. The actual shine will come once we start functioning in the quota free regime post December 2004. However, we need to build up scales and integrate our domestic textile industry before we become geared to tap the world opportunities.

The 2004 deadline for quota phase-out is only a few months away. Is the domestic industry fully prepared to enter this phase?

While it is clear that in the quota free regime, India is poised to be one of the major beneficiaries, the extent of the benefit will depend on the domestic industry’s competencies. We need to gear up our production capacities in order to be able to meet the demand the world over. More importantly we have to align the duties on the synthetic and natural yarns to be able to harness the export markets to our full potential. In the last couple of years, the government seems to be quite serious about resolving issues that have affected heavily the domestic textile industry in terms of its efficiency in facing global competition.

Are you satisfied with the way things have moved so far, particularly as regards implementation of policies?

The government realizes the importance of improving the efficiency of the domestic textile industry whereby it may improve its competitive position in the global market. A beginning towards this end was made last year when it introduced the CENVAT chain across the textile value chain. However, we still have to achieve a lot and time is short. Important initiatives still pending are restructuring of excise duties at the same level of 8% across all fibres and yarns (cotton, polyester, nylon and viscose) in order to provide a level playing field, and Introduction of a positive custom duty differential of 10% between polyester and its raw materials purified terephthalic acid (PTA) and mono ethylene glycol (MEG) which currently attract the same duty of 20%. Even as the government has decided to play the role of facilitator, the industry in overall terms has not been very proactive in adapting to the changing condition.

The pace of technology upgradation has not been up to the mark if one goes by the figures of the Technology Upgradation Fund (TUF).......

While the government has set up a Technology Upgradation Fund, this has not triggered the foreseen positive response from the industry. Obviously, there is more than one factor that encourages the industry to invest in new capacities or upgrade existing facilities. Reforms need to push development in the areas of infrastructure, transportation, power and labour. Weak infrastructure and high transaction cost have been taking their toll on your competitive edge.

Recently there are some efforts to resolve this issue by way of creating Apparel Parks and similar other projects. But the progress towards this end has been very slow. What approach one should adopt to overcome this limitation?

As I mentioned earlier, development of infrastructure, transportation, power and reforms in our labour laws will give an impetus to investment by the industry and its participation with the government in creating and developing apparel parks.

Where do you see the Indian textile industry in the next five years time? Are we able to sustain/increasing our share in the global market?

In the coming years, the Indian textile industry will be a world leader. With the phasing out of the quotas, India stands to be the second largest beneficiary, after China. We will gain at the expense of Japan, Korea and Taiwan. The markets in US and EU will open for us and being one of the most cost efficient manufacturers, we stand to gain tremendously. The world textile trade is expected to more than double in the next 10 years from the current level of about $350 bn to $ 850 bn. India’s textile and clothing exports stand at $14 bn, with 85 per cent being accounted for by cotton. Cotton availability is under pressure and if we plan to tap the emerging opportunities in the global market, the only substitute to this natural fibre is synthetics. Hence, we have a tremendous scope.

With growing competition, it has been observed that trade blocs/preferential trade agreements are going to rule the future trade. Where do you position India in this context?

Although India has become a dialogue partner of ASEAN, it has practically no voice in the world’s major trading blocs. There is a pressing need to align the country with various trading blocs and extract Most Favoured Nation (MFN) benefits from major trading partners such as the USA and the EU.

How is the polyester business shaping up currently, both globally and on the domestic front? What sort of growth do you foresee in the near future? What strategy should a player adopt to successfully position itself in the long run?

Globally, polyester consumption is higher than cotton, indicating that polyester is the ‘fibre of the future’. Asia accounts for 75% of the world’s polyester production. Seven of the top 10 global polyester players are found in Asia. India’s polyester production capacity is around 1.6 million tons which makes it one of the largest manufacturers in the world. There are no constraints on the availability of raw materials essential for producing polyester fibre in India.

Our business strategy is to establish a dominant market share by building and strengthening customer relationships, consolidating key accounts and undertaking aggressive marketing.

Please throw some light on Indo Rama’s future plans?

We have recently undertaken capacity expansion at our Butibori plant near Nagpur which shall increase our current production capacities from 300,000 to 600,000 tonnes per annum. For this, Indo Rama has tied up with Zimmer AG, a Germany based engineering company for technology. On completion, our plant will become the largest single location plant in the country. This step has been taken keeping in mind the emerging opportunities in the domestic textile industry. Internal processes are geared towards increasing productivity, aimed at taking advantage of the emerging opportunities I have mentioned earlier.

Your message to the industry?

The textile industry is poised for very high growth. We need to get our act together in order to strengthen our prospects. I would suggest that our domestic players build on their competencies in preparation to 2005 which will see increased acceptance and demand for our products.