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Domestic industry gears up for future challenges

M K Panthaki

The domestic garment industry like its textile counterpart, comprises organised as well as the unorganised sector. The unorganised sector largely consists of job workers who carry out jobs given by their principals, under their supervision. The organised sector generally consists of unit having a minimum of 10 sewing machines under one roof. This sector also covers large brands having in the vicinity with overseas partners. The organised sector is, by and large, updated with modern technology, has economies of scale, is cost-competitive and is in a position to execute orders on time.

The garment industry produces over 100 varieties of garments for different end-uses. Additionally, a section of the industry concentrates on manufacture of ethnic garments, or what are traditionally called "India Items".

Exports of textiles (including garments) from India are worth around US $14 billion of which the share of garments is close to US $6.5 billion. The country is aiming at an exchange earning of US $50 billion by 2010. At the current rate, the country bids fair to reach the target.

For people of a country of the size of India, the per capita consumption of garments, even after accounting for ethnic garments consumption is barely 6 pieces per annum whereas in countries like US (much smaller in population than India), it is close to 100 pieces per year. Thus, the scope in India is vast.

Reforms and the future

The industry (including garments) is just emerging from the shadows of a debilitating quota system, a system which only skewed production for as long as 10 years without any reward in return.

The Government of India is going full steam on economic reforms. To begin with, the government has steadily raised the ceiling for investment in plant and machinery of a unit from Rs 1 crore to Rs 4 crore for the unit to be considered as a unit in the small-scale sector. In so far as garments are concerned the government, realising its potential, has removed both the woven and knitted sectors from the limits fixed for the small-scale sector. This has resulted in investments flowing into this sector. Expansion of units by adding to capacity or by mergers are in full swing.

Amalgamation are the order of the day in the woven garment sector. Backward and forward integrations in the spinning and knitted garment sectors are in evidence, both with the object of ensuring a steady supply of inputs as well as to add value. The Foreign Direct Investment (FDI) has been permitted in the garment sector in the shape of joint ventures. FDI in retail is almost on the cards but, for the present, the franchise route is favoured.

Economic reforms have increased the spending power of the middle-income group which is growing bigger by the day. Consequently, purchasing power is on a high with malls, department stores, discount stores, all springing up in various parts of the country.

The consumer today demands value for money. Quality is of prime importance and the consumer is prepared to pay a price for it.

The government has been divesting of its resources sunk into various state-owned companies and utilising the released resources to improve infrastructure, reform rural economy, undertake electrification of villages, provide clean drinking water to rural folk and generally uplift the rural economy and rural agriculture. Considering the fact that almost 60 per cent of India's population lives in the villages, this new-found thrust will generate a demand for goods on a scale which cannot be fathomed. The industry has to move in syn to meet this growing demand.

Privatisation has become a bye-word today in the economy of the country. Cheap loans are being made available to meet the basic needs of shelter. The demand for these loans has outstripped available resources of banks. With this need having been met, attention has turned toward other basic needs namely, food and clothing. It is here that the textile and garment industries have to play their due role.

Inflation has been under strict control and is currently hovering around 5 per cent. Import duties are being increasingly brought down. Currently, these are around 15 per cent, down rom a high of over 130 per cent only a decade earlier.

India is being sought after as a major destination by international retailers. Even China which until recently was greatly favoured, is now occupying a back seat compared to India. Availability of resources, adequate skilled labour at competitive cost, increased purchasing power, the bulging of the middle income group with disposable incomes, reduced transaction costs, improving rural economy helping to create a surge in demand for both consumer and durable goods, heavy investments in machinery by the textile and garment industries are all good omens for a robust economy.

The positive trends in the economy are further accentuated by an expected 35 to 40 per cent FDI in the retail sector. International retailers are vying to set up shop in India. They are unnerved by the fact that exports of Chinese garments into the developed countries especially in the US have reached such a crescendo that the American garment industry is consistently pressuring the US government to re-impose quotas as per the Agreement entered into with China at the time of its accession to the WTO. EU too is concerned about the surge in Chinese textile imports.

Back home, efforts of the government of India to ensure that the fruits of economic reforms percolate down to the village level are bearing fruit. The entry of FMCG into the rural areas is a sure sign of the improvement in the purchasing power of the rural folk. Literacy is on the rise in rural areas and that has further contributed to a better standard of life.

The industry was sincerely praying for labour reforms. Here again, the government has put its best foot forward. Even the Left Unions have taken careful note of the fact that their survival is intricately linked with the prosperity of the industry. To begin with (and to soft pedal the issue) the government has made is first move by labour reforms in Special Economic Zones (SEZ) of the country. Nightshift working for women has also been approved. This will contribute towards a rise in production without additional investment. Hopefully, these will be fore runners for large-scale Labour reforms. The earlier these come into force the better. These will bring in their wake, the setting up of huge garment factories to reap the benefits of economies of scale. The Indian garment industry will then be cost competitive not only in he fashion segment but also in the bulk business sector which will give China a run for its money.

Meanwhile, the Indian textile industry is not sitting idle expecting the fruits of economic reforms to fall into its laps. It has already devised a vision for investments of Rs 1,40,000 crore to be achieved by 2010.

The garment machinery manufacturers the world over will be keen to be part of the vision orientation. In turn, the domestic players will be compelled to reach out to all sections of the industry so as not to be left behind.

This massive investment is expected to create 12 million jobs of semi-skilled and unskilled labour, of which 4 million will be absorbed by the garment sector.

Prospects for an investor

The vision plan makes it obvious the direction in which the industry is addressing itself. Quite obviously, the processing and finishing sectors are to play a significant role. Next on the agenda are installation of high-speed automatic looms with the latest innovation to produce fault-free fabric.

Technical textiles is another virgin area offering tremendous scope in road building, aircraft bodies, irrigation projects, polyolefin sacks, jute and food sacks, solid waste and industrial hazard waste management, awnings, scaffolding nets, hoardings, jute carpet backing, stuffed toys etc, all of which have a potential to touch Rs 42,000 crore by 2007-08.

Circular knitting machines for knitting elastic fabrics using non-elastic fibres like steel, copper, silver wire or glass fibre, as well as for manufacture of seamless garments like underwear, pantyhoses, tights, socks, gloves, T-shirts, jerseys, full-length and half-length hosiery, etc. the cost of operation of which is lower than that of flat-bed machines, with low investment on inputs, low costs and high output affording the consumer comfort, stretch ability, transfer of heat, etc, are very much in demand and have a bright future.

Non-woven is yet another area for production of thermal as well as protective fabrics/garments. Production of micro-fibre yarn is another area of opportunity. Opportunities are unlimited for a serious investor in the textile and garment industry in the country. The advantage of an early bird is too good to be missed.

(The author is director, CMAI)