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Changing scenario of Indian textile industry - I

The Indian textile industry is regaining its lost glory in the post-MFA era. It's been a long wait for the industry to prove its capabilities to rest of the world. Competition is tough both on the home and international fronts. With changing scenario, there are immense opportunities for us provided we work our strategies and be proactive, says Rushin H Vadhani

With the phasing out of quotas, textile trade under the WTO would bring about changes in the manner in which business would be conducted. There will be more challenges for the industry under WTO. Because then, the whole world will be a global village and thus there will be more competition. To survive in this framework, exporters have to maintain quality consciousness and price competitiveness. The elimination of quantitative restrictions would compel exporters re-engineer their approach towards international trade as dependence on their quota-profile would no more be an advantage over new competitors, whether domestic or foreign. The present accessibility to the international market has to be utilised to maximum extend.

Indian textile manufacturers have to enhance their productivity and exert extra efforts for improving quality to meet international customer expectations. They have to develop infrastructure, inculcate better training methods to their workers and other employees to work as per the international industrial norms. The financial sector has to be more flexible and strikes, and shutdowns have to be banned in this industry. If a unit shuts down for a day, it is not only that the unit will lose money, it will also lose the faith of its foreign customers. So not only one unit, but also the country itself is adversely impacted. For an export-oriented industry, there has to be a separate labour law. And there has to be consistency in implementation of the policies. Various customs points have their own interpretations and things depend on the attitude of the persons at the chair.

Effects of globalisation

• Trade barriers mean high prices for consumers. Consumers do not get the benefit of competition among countries that leads to the best values in way they buy. Decreased competition may allow domestic firms to charge higher prices.
• Domestic producers that cannot successfully compete in the world market are not entitled to special protection from imports by the government. *Nations affected by restrictive import measures taken by a country may retaliate against what they consider to be protectionism and thus damage the export prospects of other companies.
• Jobs may be saved in one industry only to be lost in another when foreign countries retaliate by buying less from a country.
• Firms that rely on imports would be less able to compete and would lose business.
• Erecting barriers to restrict the products of other countries creates political ill with countries with whom we may need to work on other matters in future.

The industry today has a 20 per cent share in the country's total industrial production and a 34 per cent share in its total exports. It is the largest industrial sector employer, providing occupations to over 26 million people. Second in the world textile industry in terms of capacity, Indian textile exports rank 12th among the top 15 exporters of textiles in the world.

Even though availability of cheap labour is supposed to be the major competitive advantage for India, developed countries are able to garner substantial market share given their high operational costs. Germany (8%), Italy (8%), US (6.4%), France (4.8%) were amongst top 15 exporters, according to the International Trade Statistics - 2000. And, Asian tigers China, Korea, Taipei, Japan, and even Pakistan considered by India, as its toughest competitors were securer of higher positions with percentage share of 8.8 per cent, 7.9 per cent, 7.4 per cent, 4.5 per cent and 3.1 per cent, subsequently.

Changing global trade scenario

Developing countries with both textile and clothing capacity may be able to prosper in the new competitive environment after the textile quota regime of quantitative import restrictions under the multi-fibre arrangement (MFA) came to an end on January 1, 2005 under the World Trade Organisation (WTO) Agreement on Textiles and Clothing. As a result, the textile industry in developed countries will face intensified competition in both their export and domestic markets. However, the migration of textile capacity will be influenced by objective competitive factors and will be hampered by the presence of distorting domestic measures and weak domestic infrastructure in several developing and least developed countries. The elimination of quota restriction will open the way for the most competitive developing countries to develop stronger clusters of textile expertise, enabling them to handle all stages of the production chain from growing natural fibres to producing finished clothing.

"Globalisation" is an opportunity for us to make substantial export growth. There is a perceived threat that outside players will come in and dominate our economy. Our industry players have always had a defensive strategy being second movers. This has to change. It's high time that we should adopt aggressive strategy and have to take the first move. So, what are the issues need to be tackled? Is there a way out of it? Like any other industry, textiles too have its various parameters on which we can evaluate. The major issues in focus are: investments, raw material sourcing, production, research & development, marketing and supplies. Economical production, quality maintenance and assurance of international standards, product innovation, adaptability to changing tastes of consumers in importing nations, showing active participation and interest in issues of international concern are some of the areas we have to work upon. We have to delve into these issues, firstly, by analysing them separately and then in totality.

Investments

The mood in the Indian textile industry given the phase-out of the quota regime of the multi-fibre arrangement (MFA) is upbeat with new investments flowing in and increased orders for the industry as a result of which capacities are fully booked. As a result of various initiatives taken by the government, there have been new investments of total Rs 50,000 crore in the textile industry in the last five years. Nine textile majors invested Rs 2,600 crore and plan to invest another Rs 6,400 crore. Further, India's cotton production increased by 57 per cent over the last five years; and 3 million additional spindles and 30,000 shuttle-less looms were installed. The industry expects investment of Rs 1,40,000 crore in this sector in the post-MFA phase. A Vision 2010 for textiles formulated by the government after intensive interaction with the industry and export promotion councils to capitalise on the upbeat mood aims to increase India's share in world's textile trade from the current 4 per cent to 8 per cent by 2010 and to achieve export value of US $ 50 billion by 2010. Vision 2010 for textiles envisages growth in the Indian textile economy from the current US $ 37 billion to $ 85 billion by 2010; creation of 12 million new jobs in the textile sector; and modernisation and consolidation for creating a globally competitive textile industry.

Production

Our production efficiency levels are abysmally low with most of our units running under capacity even though we are the largest industrial employers in the world with a work force of over 26 million people. Most of the machines are manual and less sophisticated as compared to South and East Asian competitors. Per capita efficiency per hour is miserable. Labour that appears to be cheap is only a false picture.

Low efficiency levels can also largely be attributed to our difficult labour laws that interfere with day to day running of production houses. But still these issues have gone unnoticed in our "Textile Policy 2000" which fails to take any decisions on sick mills, textile labour, excise and customs duties. No steps for relaxing labour regulations have taken place.

One cannot see any rationale in why the handloom sector is given privileges of all kinds in excise, customs and export incentives. This attitude only deters our entrepreneurs from investing in power technology machinery and processed textiles. Thus there has been substantial shift from grey fabrics to processed modern fabrics. But our contribution in this segment stands very low. In order to induce more technological inputs, the government has allowed import of capital goods under EPCG (export promotion capital goods) scheme at a concessional duty. Even though government introduces some good schemes like TUF but due to their inability to be implemented fully, they are rendered impractical. Of late many units have closed down, many are running under massive losses and many of them due to all above factors have started thinking of shifting their base to China.

(To be continued)

(The author is with ATE Marketing Pvt Ltd)