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Waiting for a pro-active package

Textile industry is waiting for the new textile package which has been promised by the commerce minister, Mr Kamal Nath, a month ago. The government is certainly keen to ensure that the post-quota era becomes an Indian era. That can happen only if the abolition of the quotas brings in its wake, all the best for the textile industry in the country. Several words of hopes have been expressed by the representatives of the textile industry that once the quota limitations are removed, the overall performance would augment - it could even double in the short term. So, while the industry is hopeful, the government is anxious that the hopes are translated into reality without difficulty. But, the official version also supports this. Take, for instance, what the Reserve Bank of India has to say. It recorded in its Annual Report for last year: “The dismantling of the Multi Fibre Agreement (MFA) import quotas in 2005 offers the textile sector significant opportunities to capitalise on the expansion of the overseas market”. That should be a message to all the segments of the economy including banking. The impression is that the industry is heading for brighter times and hence, it makes sense to support it on all counts. That message is equally valid to the government as well. Still, the RBI is cautious. It has recorded: “Competitive pressures will intensify and continuous improvement in product quality becomes imperative to defend the existing market shares”. This is a different way of saying that the industry has to keep on spinning to stay in the same place, let alone advance!

Quantitatively, the RBI has observed that the gains from the abolition of the MFA are estimates at about $2 billion every year for the South Asian region. India, therefore, can hope to gain a lot by this arrangement. Given that this is the official version of the RBI and to that the most significant wing of the government, one should expect that the new textile package should encompass the provisions that would help to translate this hope into reality. Although this is the same view of the industry itself, the RBI document is a proof of the line of thinking with the policy makers. Take, for instance, the warning given by the RBI. “Freer international trade in textile could expose vulnerability in the industry’s excessively fragmented structure, inferior technology, protection of the handloom industry and reservation of some textile segments for small scale industries”. This is also what the industry has been saying for long. And, the RBI has observed that the textile industry has taken some initiatives in this direction. So, it makes sense for textile industrialists to expect a workable package for the textile that would help the industry to stand high in the competitive world. This gains relevance because some of the measures taken by the government have displeased the industry. Thus, for instance, the Synthetic and Rayon Textile Export Promotion Council has pointed out that the 45 per cent across-the-board reduction in DPEB rates on a range of textiles is a major disincentive to the industry. More so, when the competing countries are taking steps to promote exports of their textile industry. An immediate impact would be the creation of a better place for China in the global market. So, the government should weigh carefully all its action in the post-quota regime because every wrong move could lead to not only immediate loss of millions of dollars, but permanent replacement of the industry in the global market. Already, China is supplying the goods in the world market at a price unimaginable for India. Whether the WTO would press into operation its provisions to study and stop the injurious incentives being given to China in its land is a different question. But, it is certain that India should take all necessary steps to ensure that there is no better leverage for its own competitors. Already, textile companies have started to appoint international experts and technically sound personnel to advise them on global competitiveness. All such efforts would be futile if not backed by a sound policy.

- P S Sundar