Growth in Capacity in the Organised Mill Sector
SOURCE: Annual textile report, ministry of textiles, 2002-03
2.2 Powerloom Sector
The decentralized Powerloom sector plays a pivotal role in meeting the clothing needs of the country. Production of cloth as well as generation of employment has been rapidly increasing in the Powerloom sector. Its contribution to the total cloth production of the country was to the extent of 59.9% during 2001-2002. Powerloom fabrics also successfully compete in the global market and contribute significantly to the export earnings of the country. Therefore, to encourage new and incremental powerloom exports, the Government has earmarked a specific export quota of fabric and made-ups to quota countries covered by the Multi - Fibre Arrangement (MFA) for powerloom manufacturers since the year 1992. Starting with 3%, it was enhanced to 5% in the year 1993 and further to 10% in 1998. It is now enhanced to 15% for the years 2000 – 2004.
Growth in the Powerloom Sector
The estimated number of powerlooms in the decentralized sector in the country till 30th September 2002 was 16.75 lakhs as below:
SOURCE: Annual textile report, ministry of textiles, 2002-03
2.3 Handloom Sector
The Handloom sector constitutes a timeless facet of the rich cultural heritage of India. As an economic activity, the handloom sector occupies a place next only to agriculture in providing livelihood to the people. However, the sector is beset with manifold problems such as obsolete technologies, unorganized production system, low productivity, inadequate working capital, conventional product range, weak marketing link, overall stagnation of production and sales and, above all, the competition from the mill sector.
Handloom Exports
The importance of the handloom sector in the national economy is well recognized particularly from the point of view of its contribution to textile exports. On account of having the advantage of flexibility of small production run, uniqueness, constant scope for innovation, eco friendliness, adaptability and, above all, the element of rich artistry, this sector has the potential to contribute towards export earnings in a big way. Export of handloom has, therefore, been identified as a “Thrust Area” for the overall development of the sector. The Government is exploring the possibility of making optimal use of the resources to enhance production capabilities of exportable handloom products.
2.4 Handicrafts
The Handicrafts sector enjoys a special significance in the country’s economy in terms of employment generation as well as earning of foreign exchange through exports. Estimates based on the population census, survey (NSSO), NCAER survey and other studies and information available for the unorganized cottage industry sector reveal that the annual growth rate of employment (both direct and indirect ) in the handicrafts sector could be around 2.5%. During the 9th Five Year Plan, employment in the handicrafts sector increased from 52.92 lakhs in the year 1997-98 to 56.99 lakhs in 2000-2001. Out of the total work force in this sector, women constitute 46.8%, SC/ ST (37.11%) and minority (23.89%).
Exports of Handicrafts from 1997-98 to 2002-03 (April-December 2002)
(Rs. in crores)
SOURCE: Annual textile report, ministry of textiles, 2002-03
2.5 Woollen Textile Sector
The Woollen Industry in the country is small in size and widely scattered. 40% of the woollen units are located in Punjab, 27% in Haryana, 10% in Rajasthan; the rest of the States account for the remaining 23% of the units. A few of the larger units are located in
Maharashtra, Punjab, U.P., Gujarat and West Bengal.
The Woollen Industry presents the following scenario:
(Source: DGCI&S, Calcutta for c,d,e)
The Woollen Industry in India broadly falls under two sectors: -
(A) Organised Sector:
(i) Composite Mills
(ii) Combing Units
(iii) Worsted and Non-Worsted Spinning Units.
(iv) Machine made Carpet Manufacturing Units.
(B) Decentralised Sector:
(i) Hosiery and Knitting
(ii) Powerloom
(iii) Hand Knotted Carpets, Druggets and Namdahas
(iv) Independent Dyeing, Processing houses.
2.6 Jute Sector
The Jute Sector has been playing an important role in the economy of the country, especially of the eastern region. About 4 million families are dependent on cultivation of jute and mesta and about 2 lakh workers get direct employment in the jute industry.
Production of Jute Goods
In’000 MT
SOURCE: Annual textile report, ministry of textiles, 2002-03
Export performance and Related Development
Export during 2001-02 at 148.2 thousand M.T valued at Rs. 613.32 crores was lower by
41.9 per cent (approx.) in quantity and by 34.2% as compared to those to the same period of April-March’ 2000-01.
Actual Export of Jute Goods from India
Quantity in ’000 M.T.
Value: Rs/ crores
SOURCE: Annual textile report, ministry of textiles, 2002-03
2.7 Sericulture
India continues to be the second largest producer of silk in the world and has the distinction of producing all the four varieties of silk. In 2001-02, mulberry accounted for 91.3%, eri 6.7%, tasar 1.4% and muga 0.6% of the total raw silk production in the country. Sericulture is an important labour-intensive and agro-based cottage industry, providing gainful occupation to more than five million persons in the rural and semi-urban areas in India. Of these, a sizeable number of workers belong to the economically weaker sections of society. There is substantial involvement of women in this industry.
Silk Exports
Total silk export earnings during the years 2000-01, 2001-02 & 2002-03 (April to July) were as follows:
2.8 Apparel/ Clothing
The total apparel market in India, including tailored and ready-made goods, is estimated to be U.S. $20 billion. More than 50% of the Indian market is for traditional wear (sari, dhoti, salwar, etc.), which does not go into fabrication or is tailored at home. The western apparel sector market is around U.S. $9 billion, of which exports accounted for more than U.S. $5.5 billion in 2000-01. The $3.5 billion domestic market is essentially in urban areas, where the consumption of ready-made apparel has risen significantly in recent years.
Ready-made apparel accounts for only 20% of the domestic market (with revenues of $1.05 billion). Given the low penetration of ready-mades, most of non-urban India still depends on custom tailoring as the major source of apparel. However, brands account for nearly two thirds of the ready-made apparel segment. Overall, apparel consumption has grown at a pace of 5-6%.
3. RAW MATERIALS OF THE TEXTILE INDUSTRY
3.1 Cotton
Cotton is one of the major crops cultivated in India. It accounts for more than 75 % of the total fibre consumption in the spinning mills and more than 58 % of the total fibre consumption in the textile sector.
Production and Consumption
During the last five decades, the production of cotton increased from 30 lakh bales of 70 kgs each in 1950-51 to an all time high of 177.90 lakh bales (170 Kg each). There has also been a substantial rise in area under cultivation from 58.91 lakh hectares in 1950-51 to a record high of 93.87 lakh hectares in 1998- 99. The average yield has also risen from 88 kgs in 1950-51 to a high of 330 kg in 1996-97. One of the reasons for low yield in India as compared to world average of about 600 kg/hectare is that 65% of the area under cotton cultivation is rainfed.
Data on Area, Production, Yield and Consumption of Cotton
3.2 Man-made Fibre and Filament Yarn Industry
The man-made fibre & yarn industry comprises fibre and filament yarn manufacturing units of cellulosic and noncellulosic origin. The production of man-made fibre is expected to increase by around 7% during 2002-03 as compared to the production during 2001-02. The production of viscose staple fibre, polyester staple fibre and acrylic staple fibre during 2002-03 is expected to increase by 11%, 5% and 8% respectively as compared to 2001-02.
Installed Capacity and Production af Man-Made Fibre/Filament Yarn
(In Mn Kg)
Imports of Man-Made Fibre / Filament Yarn
(In Tonnes)
Export of Man-Made Fibre / Filament Yarn
(In Tonnes)
4. POLICY INITIATIVES TAKEN BY THE GOI
New opportunities for growth are continuously being created as the global market becomes increasingly accessible to trade. Several initiatives for modernization and attracting new investments for growth have been taken to create the necessary environment for attaining the objectives of our Textile policy, which include development of a strong and vibrant textile industry capable of producing quality cloth at acceptable prices, contributing increasingly to the provision of sustainable employment and economic growth of the country and competing with confidence for an increased share of the global market.
The last decade has been characterized by the progressive relaxation of policies imposed on the textile industry and a greater emphasis on improving efficiency and competition. An important turning point in the development of the textile industry is the Textile Policy of 1985, which began to relax some of the restrictive policies handicapping the textile industry.
A second milestone is the far-reaching economic liberalization program of the GOI beginning in 1991, which placed major emphasis on export-led growth. In line with the general policy of liberalization, several measures were undertaken to reduce controls and bring about greater transparency in the textile sector. The textile industry was de-licensed as per the Statement of Industrial Policy of 1991 and the Textile Development and Regulation Order of 1992.
Further reforms were also pursued on the fiscal front. The tax differentials between and within the weaving sectors and between cotton and man-made fibers were reduced.
The GOI supported the structural adjustment of poorly-performing government-owned mills and the exit of nonviable units. Unfortunately, this resulted in only limited success. The Board for Industrial and Financial Reconstruction (BIFR) was constituted under the Sick Industrial Companies Special Provisions Act of 1985 to decide on the fate of ‘sick’ enterprises. The question was weather to liquidate or rehabilitate them. The Industrial Development Bank of India (IDBI) created a Textile Modernization Fund Scheme in 1986 to meet the modernization needs of ailing textile mills. This involved modernization assistance at concessional interest rates. In addition, a Textile Worker’s Rehabilitation Fund Scheme (TWRFS) was established to provide a safety net for workers affected by the closure of mills.
The Textile Policy of 1985 also marked the beginning of the reduction of the bias against man-made fibers. The 1985 Textile Policy included the flexibility to reduce fiscal levies on man-made fibers and yarns and intermediates used as inputs for their production. This was intended to facilitate the increased absorption of man-made and blended fabrics for which consumers displayed increasing preference.
In 1991 the GOI recognized that the restructuring of public sector enterprises under structural adjustment would be accompanied by redundancy and unemployment. As a consequence the National Renewal Fund (NRF) was created. The NRF consists of three funding instruments:
- Financing of voluntary retirement schemes (VRS)
- Designing and implementing retraining projects to impart new skills to workers to reduce the period of involuntary unemployment, and
- For initiating unemployment insurance.
According to VRS guidelines, money from the NRF is meant to finance 45 days of pay for every year of completed service evaluated at the latest salary. Under the NRF scheme for retraining and redeployment, a worker is provided Rs. 40 per day for fifty days while attending vocational training programs like auto repair, carpentry, welding, tailoring and driving.
The Ministry of Textiles is continuously reviewing the export scenario in order to identify measures that would enhance the export competitiveness of Indian textiles and clothing in the rapidly changing external environment, particularly in the post 2004 period when the quota regime will be dismantled.
Some of the steps taken are:
- Introducing a growth oriented fiscal duty structure, which primarily entails a nondiscriminatory fiscal policy, broadening of the tax net, overall reduction of excise duty and establishment of CENVAT throughout the value-addition chain.
- Freeing the industry from controls and restrictions, which are no longer relevant – like dereservation of garments from the SSI sector.
- Facilitating large-scale investments in technology and modernization, principally through the TUF Scheme by need-based, user-friendly modifications.
- Setting up of Integrated Apparel Parks, which will enable the de-reserved readymade garment industry to set up modern units with state-of-the-art infrastructure.
- Development of adequate infrastructure at major textile and apparel sectors through the Textiles Centres Infrastructure Development Scheme.
- Modernization of the weaving sector – by introducing at least 50,000 new shuttle less looms and conversion of 2.5 lakh plain looms to automatic looms by 2004 through funding from the TUFS.
To further the mission of the government to strengthen the textile industry, the National Textile Policy 2000, was formulated.
The objectives of the policy are to-
- Facilitate the Textile Industry to attain and sustain a pre-eminent global standing in the manufacture and export of clothing;
- Equip the Industry to withstand pressures of import penetration and maintain a dominant presence in the domestic market;
- Liberalize controls and regulations so that the different segments of the textile industry are enabled to perform in a greater competitive environment;
- Enable the industry to build world class state-of-the-art manufacturing capabilities in conformity with environmental standards, and for this purpose to encourage both Foreign Direct Investment as well as research and development in the sector;
- Develop a strong multi-fibre base with thrust of product upgradation and diversification; Sustain and strengthen the traditional knowledge, skills and capabilities of our weavers and craftspeople;
- Enrich human resource skills and capabilities, with special emphasis on those working in the decentralized sectors of the Industry; and for this purpose to revitalize the Institutional structure;
- Expand productive employment by enabling the growth of the industry, with particular effort directed to enhancing the benefits to the north east region;
- Make Information Technology (IT), an integral part of the entire value chain of textile production and thereby facilitate the industry to achieve international standards in terms of quality, design and marketing and;
- Involve and ensure the active co-operation and partnership of the State Governments, Financial Institutions, Entrepreneurs, Farmers and Non-Governmental Organisations in the fulfilment of these objectives.
GOI’S Thrust Areas
In furtherance of the objectives, the strategic thrust will be on:
- Technological upgradation
- Enhancement of Productivity
- Quality Consciousness
- Strengthening of the raw material base
- Product Diversification
- Increase in exports and innovative marketing strategies
- Financing arrangements
- Maximising employment opportunities
- Integrated Human Resource Development
Foreign Investments and Modernization
Foreign investment and market presence is negligible in India’s textile and apparel sector. Until the mid 1990s, foreign companies were not allowed in manufacturing and marketing activities in the domestic market. Overall, there is a low level of modernization in India in most elements of the clothing and textiles value chain, especially in weaving and in garmenting. Among powerlooms, which produce nearly 60% of the fabric output, less than 1% is a shuttleless loom. Even among the organized mill sector, less than 6% have shuttleless looms. These levels are much below those of several developed and developing countries, which have seen a high replacement rate of old looms with modern shuttleless looms; more than 80% of looms in Taiwan, Korea and the U.S. are shuttleless. Even in Pakistan, 62% of its looms are shuttle less, indicating how important that country regards modernization of its weaving sector.
In the apparel sector as well, India has a much lower investment in special purpose machines, which perform specific functions and add value to the product. Very few export establishments have invested in cutting machines or finishing machines. In comparison, other Asian exporters have invested heavily in special purpose machines that provide higher quality and productivity, thereby ensuring high throughput as well as realizing high unit value. The combination of scale and modernization has resulted in big business volume (organized retail chains) shifting to China, flanked by Hong Kong and Taiwan, both offering excellent linkages to the mainland. Meanwhile, Indian units are forced to deal with smaller order volumes, given their inability to organize large volume production systems under the present state of the sector.
5. INDIA’S MAJOR COMPETITORS IN THE WORLD
The structure of the Indian textile industry is both complex and unique. It represents a sharp contrast to the textile industry in other countries and can be characterized by several aspects.
- It employs co-automated technology.
- A dualistic manufacturing structure dominated by a fast expanding decentralized or unorganized small scale manufacturing segment and a declining, vertically-integrated, large-scale composite mill segment exists
- The textile industry is dominated by cotton as a primary raw material.
- Existence of a large public sector, which is composed mainly of nationalized and ‘sick’ mills that have been taken over by the government.
- Predominance of the small-scale sector. This might be seen as a major advantage, for example, in comparison to China.
While the Indian textile companies are capable of producing very small amounts of cloths for its clients China is only able to produce large quantities. Like this India can establish its company production in this niche of the market. During the last decade, the industry displayed rapid growth in output and exports. But existing structural weaknesses and the current regulatory environment will increasingly hamper the industry's ability to sustain this performance.
To understand India’s position among other textile producing countries, it is necessary to look at its export rates in detail. Although the textile industry contributes 9% of GDP and
35% of foreign exchange earnings, India’s share in global exports is only 3% compared to China’s 13.75 % per cent.4 Expressed in U.S. Dollars, India’s exports value $10 billion, in sharp contrast to China’s $77 billion. And while India is still concerned with its “fine-tuning” policy, China seems to have its sights on a more strategic dimension.
It is believed that China is vacating the ‘commodity’ end comprising yarn and grey fabric, and moving into high value processed fabrics, with sizeable investments in value-added processes. Meanwhile, India is still in the phase of upgrading at the commodity end.
In addition to China, other developing countries are emerging as serious competitive threats to India. Looking at export shares, Korea (6%) and Taiwan (5.5%) are ahead of India, while Turkey (2.9%) has already caught up and others like Thailand (2.3%) and Indonesia (2%) are not much further behind. The reason for this development is the fact that India lags behind these countries in investment levels, technology, quality and logistics. If India were competitive in some key segments it could serve as a basis for building a modern industry, but there is no evidence of such signs, except to some extent in the spinning industry.
6.SWOT ANALYSIS OF THE INDIAN TEXTILE INDUSTRY
6.1 Strengths
- Highly trained manpower-technical and managerial. India has a competitive advantage because of the low wage rates in this labour intensive industry.
- High availability of all raw materials (India is one of the largest producers of cotton yarn in the world and there is a good availability of other fibres like silk, polyester, viscose).
- Availability of wide varieties of cotton fibre and has a fast growing synthetic fibre industry.
- India is highly competitive in spinning and has a presence in all parts of the value chain.
- India accounts for 24 per cent of the world’s installed capacity of spindles and is one of the largest exporters of yarns in international market. The industry contributes about 25 per cent share of the world trade in cotton yarn.
- The apparel industry is one of India’s largest foreign exchange earners, accounting for 12 per cent of the country’s total exports.
- The constituents of garment industry are very diverse in terms of their size, production facility, the type of apparel manufactured, the quality of output, fabric requirement, price sensitivity, etc.
6.2 Weaknesses
- A major gap in Indian textile industry is its fragmented industry structure with a dominance of small scale. Small scale leads to the problem of productivity.
- The industry is highly dispersed and unorganized on account of government policies that restricted the entry of large players in manufacturing woven garments and several items of knitwear such as socks, inner wear, and woollen apparel.
- Foreign investment and market presence is negligible in India’s textile and apparel sector.
- There is a low level of modernization in India in most elements of the clothing and textiles value chain, especially in weaving and in garmenting.
- Another disadvantage is that there are wide variations for different lots of output. This could hinder India’s success in becoming an important participant in the mass market for clothing. China’s clear advantage is its ability to provide consistent quality over huge volumes of a single item of clothing.
- Transparency is another concept that has proven to be difficult to implement in India. The government has not been a good role model in this regard, and many businesses have had equally poor business practices.
- The fragmentation of supply base also creates barriers in achieving true integration between the various links in the supply chain. This creates issues of lack of control and lack of consistent or reliable performance.
- Another regulatory disadvantage is the historical reservation of manufacturing for very small companies
- Excise and other tax imbalances. The political diversity of India's 35 states and Union Territories, and a coalition of ruling parties has led to slow progress in rationalising these imbalances due to debate and discussion.
- India has a global logistics disadvantage due to its geographic location. Unlike its competitors Mexico (for the US), Turkey (for the EU), and China (for Japan and the US West Coast), India is distant from all the major markets.
6.3 Opportunities
- In the next decade, India’s textile industry is likely to do much better. As the domestic fibre consumption is low, there is potential for increasing domestic consumption in tandem with the projected GDP growth of 6-8 per cent and this would lead to the growth of the domestic textile market at about 6-7 per cent per annum.
- India can also capitalize on opportunities in the export market. A competitive industry has the potential of achieving export earnings of $ 34 billion by 2010. Specialized textile parks, apparel parks, EOUs and EPZs have been set up with improved infrastructure.
- The apparel parks operate as Special Purpose Vehicle and are run independently by entrepreneurs. Government support has ensured that key policy changes in the fiscal regime have been made in the past two years, which would ensure rapid increase of clothing consumption as well as the fibre consumption.
- A single rate will now be prevalent throughout the country. The industry is being modernized through a special scheme that has set aside US $ 5 billion for investment in machinery.
- Wal-Mart, Levis, Gap, JC Penny, Marks & Spencer, and other foreign labels are buying more and more garments and fabrics from India. Wal-Mart lone bought $ 200 million in the last year and it intends to increase this to $ 3 billion in the next year. European giant GAP is also outsourcing apparel from India. Singapore based Crocodile International has announced its plans to invest an additional/ $.52 million.
- India is also developing design skills that cover different fabrics and different markets. Indian fashion designers are making their name abroad. The Indian silk industry, which is known for its finery and masterly brocades, are also a great strength to the textile industry.
6.4 Threats
- Competition in the domestic market- The industry is likely to face competition from cheaper imports; this will adversely affect domestic industry and lead to more consolidation.
- Ecological and social awareness- There is bound to be mounting pressure on our industry to follow global environmental laws and labour laws. Standards like SA 8000 are becoming commonplace and issues relating to child labour etc are very sensitive internationally. There is urgent need to improve these practices.
- Regional alliances-As India does not enjoy the comfort of being part of many regional groupings it loses out on the concessional tariffs that the members enjoy.
- In one word ‘China’ is a threat that is looming large over India. Even smaller players like Sri Lanka and Bangladesh are proving to be tough customers.
7.IMPACT OF WTO ON THE INDIAN TEXTILES SECTOR
In this section we take a look at the post-WTO scenario of the Indian Textile Industry, which will herald from January 1, 2005. On this day the Multi Fibre Agreement (MFA) will cease to exist and will be replaced by the Agreement on Textile and Clothing (ATC). After this day, India will be free to import and export textiles at will without any Quota restrictions. While the quota removal will lead to an expansion of India’s clothing exports and textile imports, the extent of trade expansion will depend significantly on India’s implementation of trade-enhancing domestic reforms.
7.1 Overview
World trade in yarn, textiles and apparel has been regulated by the Multi-Fiber Arrangement (MFA) since 1974, the sequel to an increasingly pervasive quota regime that began with the Short Term Arrangement on cotton products in 1962. The MFA framework provides for imposition of import quotas by developed countries on the exports of these products from developing countries. The quotas are usually negotiated bilaterally under threat of unilateral restraints by the importer. The quotas can discriminate by fiber and by function: typical examples are ladies’ cotton blouses, gents’ shirts, etc.
MFA was an instrument under the garb of which, developed nations protected their domestic textile industry by imposing quotas on imports from other countries. However, in 1995, a new agreement, Agreement on Textile and Clothing (ATC) was signed. This was aimed at phasing out the MFA over a decade. Thus, in effect, on December 31, 2004, the quota regime would die a silent death, and countries would be free to trade.
7.2 India’s Textiles Trade Background
Indian textiles is an integrated sector, as the industry not only grows its own raw materials (cotton, jute, silk and wool) but also processes the same into high value products like fabrics and garments. India exports a large portion of its textile produce. Despite quota restrictions, Indian textile exports have grown at a CAGR of over 17% in the period FY93 to FY01.
India: Textile Exports
Source: Ministry of Textiles
Our main competitors in the textile sector include countries like China, Bangladesh, Indonesia, Sri Lanka and Pakistan. Like India, these countries too are cost-effective textile producers due to the advantage of lower labour costs, which account for a significant portion of the cost of converting fabrics into garments. The major markets for India have been the US and the EU (despite having quota restrictions). UAE, Japan and Switzerland are amongst the top non-quota export destinations.
India has entered into bilateral agreements with USA, Canada, EU etc., exports to which account for a major share of total exports of Indian textiles. The Ministry of Textiles is operating Garments and Knitwear Export Entitlement (Quota) Policy 2000-2004 and yarn, Fabrics and Made-ups Export Entitlement (Quota) Policy 2000-2004 for distribution of quotas imposed by USA, EU and Canada. The break up of quota allocation under various systems for export of yarn, readymade garments and other textiles is given in the table below.
PERCENTAGE OF ANNUAL LEVEL DISTRIBUTION (As on 31-10-2000)
System Yarn and Fabric {other Made- Made-up Ready-
SOURCE: Ministry of Textiles
As indicated in the table, the available quotas are distributed under different systems of allocations such as Past Performance Entitlement (PPE), First Come First Served Entitlement (FCFS), Manufacturers Exporters’ Entitlement (MEE), Non-Quota Entitlement (NQE), Powerloom Exporters’ Entitlement (PEE), New Investors’ Entitlement (NIE) etc. Export Entitlement (Quota) Policy in respect of garments and knitwear is implemented by Apparel Export Promotion Council (AEPC) and Wool & Woolen Export Promotion Council, whereas in the implementation of Export Entitlement (Quota) Policy in respect of Yarn, Fabrics and Made-ups, two Export Promotion Councils namely Cotton Textiles Export Promotion Council and Synthetic & Rayon Export Promotion Council are involved.
The various advantages that the Indian Textiles Sector enjoys in the world market are:
- A huge, relatively inexpensive and skilled labour force
- It has impressive design expertise
- It is among the world's largest producers of yarns and fabrics
- It produces a wide range of apparel articles
- A particularly competitive source for home textiles (bed linens, towels, etc)
7.3 Effects of the removal of MFA on the Indian Textiles Sector
The phase out of the quota regime by 2005 would boost the fortunes of the domestic textile industry. One big advantage for India, in fact the whole of Asia, would be from outsourcing. Post-2005, manufacturers in the US and EU will look at lowering costs by outsourcing garments from countries like India. Currently, Asia contributes to over 1/3rd of total US textile imports.
Beside this, the effects could be:
- Overall increases in demand for textiles should raise demand for cotton and create new export opportunities for the United States.
- China is expected to become the "supplier of choice" for most US importers (the large apparel companies and retailers) because of its capacity to make almost any type of textile and apparel product at any quality level at a competitive price.
- But over-dependence on one supplier is strategically bad in international trade. So, US importers will also tap other low-cost sources, particularly India, which also has a very large manufacturing base for textiles and apparel and a large supply of relatively low-cost skilled labour.
- India is likely to remain a competitive supplier to the US in the post-quota period and is considered by many US firms to be the primary alternative to China. However, as with China, it is expected that competitiveness will diminish over the long run as domestic economic growth increases competition for the inputs used by the Indian textiles and apparel sector.
- The countries, which have been using their quotas fully in the years preceding 2005, will probably increase their exports after that date.
- Countries, which are not able to fill their present quotas, are unlikely to benefit from a market opening.
- Similarly, the countries, which have been exploiting the liberalized categories since 2002, especially in the US markets, stand a chance to succeed even after the full phase-out.
7.4 Some of the key drivers and trade parameters that will determine exports of textiles and apparels after 2004 will be:
- Regionalization of trade in textiles and clothing
- Anti-dumping and countervailing duties
- Increased customs checks to ensure that trans-shipment activities do not take place
- Rigorous application of ethical standards to prevent child labour or 'sweatshops'
- Compulsion to adapt eco-labels
Thus in conclusion, while the quota removal will lead to an expansion of India’s clothing exports and textile imports, the extent of trade expansion will depend significantly on India implementing trade-enhancing domestic reforms.
8. INDIA’S PERFORMANCE IN THE KEY MARKETS
8.1 USA:
In 1999-2000, India's total commodity exports earned $38 billion, of which exports of textiles and garments were worth $10 billion, of which the US accounted for about $ 2.2 billion. In the year 2003, textiles products, comprising apparel, made-ups, carpets and silk and cotton yarn, formed the second largest group of export items at $ 3.34 billion compared with $ 3.13 billion in 2002, and registering a 6.71 per cent growth. In that sense, the US is an important market for India and there is huge potential for growth. India still is performing very well in ladies cotton woven dresses and blouses but faces competition from Malaysia, Mexico, Pakistan, Bangladesh. It also retains its competitive position in gent’s cotton woven shirts and cotton fabrics.
However the typical challenge being faced today towards the exports to our key markets are the longer lead times. Several of our competing countries have substantially shorter transit times to Europe and USA, which are our main markets. Non availability of direct sailing vessels and excessive government holidays (currently about 160 days a year including Saturday and Sunday's) also lead to a lot higher transit times from Indian ports. Most of Indian Garment exports being fashion garments, have very limited shelf life, hence it is important for us to device ways to deliver it to our customers in the quickest possible time.
One way of overcoming this problem is by giving all apparel shipments the status of perishable items, so that it can be custom cleared on top priority, 24 hours a day and 365 days a year, this will put export shipments on sailing vessels or flying aircrafts, without any waste of time, to match or shorten the lead-times to various foreign destinations.
The industry has to invest in state-of-the-art processing plants, to supply the fabric to the garment exporters, and also to get better realizations on fabric exports. Indian fabric exports to US has no future. Quotas have indeed protected fabric exports to US
Indian made-ups however have an excellent prospect in the US market
8.2 EU: Trends in performance
Source: Computed from GTIS data base
The Textiles and Clothing sector assumes great significance for India especially in the context of European Union. Textiles is India’s largest manufacturing sector with around 18 per cent share and the EU is one of it’s leading export markets. For the Accession countries too textiles and clothing is an important sector with great dependence on Western Europe. These countries have always enjoyed an unrestricted, duty free access to the EU market and Indian exports have all along been subject to quota restrictions. The opportunity for Indian exporters may arise when this sector undergoes changes under the Agreement on textile and clothing. According to the agreement, with effect from 1st January 2005, there would be no restriction (quota) for any category in any country including India. However the accession countries would still have an advantage over India since our exports would attract a GSP tariff ranging from 4% to 11%.
The main competitors of EU in the various segments are countries like China, Turkey, Romania, Morocco, and Bangladesh. China’s competition is bound to affect India in the post 2004 stage. •Back loading & integration of sensitive products expected to cause havoc in trade in post-transition period.
Consequently, non-tariff protectionist measures will rise; likely to detriment India owing to concentration in sensitive products
There needs to be large scale restructuring in the form of consolidation in this fragmented market for this sector to be able to cater to large orders. In order to cater to an enlarged market, it is necessary for India to amend its existing labour laws and also invest more heavily on upgradation of technology in this sector.
8.3 CHINA: A THREAT TO RECKON WITH
Indian textile companies have tried to focus on niche markets within the wide area of fashion clothing such as low volume production and manufacturing of a high variety of outputs and colors. The flexibility in the Indian production system is suited to meet this type of demand and therefore, demand and the characteristics of the production system are mutually reinforcing. The disadvantage of depending on fabricators is that there are wide variations for different lots of output. This could hinder India’s success in becoming an important participant in the mass market for clothing. China’s clear advantage is its ability to provide consistent quality over huge volumes of a single item of clothing. For example, Chinese companies can easily produce uniforms but Indian companies are faced with major difficulties. Indian garments lacked consistency and uniformity in quality.
Furthermore, the average quality in India is still below the middle price range although it has already improved over the last years. China engages in dumping practices that India is simply not able to compete with. This is mainly due to the low labor costs in China.
It is interesting to note that all countries with successful garment exports have a much lower level of subcontracting than in India. Apparel firms in India subcontracted 74% of their output, compared with only 11% for Hongkong, 18% for China, 20% for Thailand, 28% for South Korea and 36% for Taiwan. As a result, these countries have a wider base of exports and, not surprisingly, they have done very well in the market for large volumes of uniform products. Apparel firms are more productive in East Asian countries in comparison to India. This results from larger investments in machinery, even for low-wage China. Within machinery investment, Indian firms tend to invest more in sewing machines; investment in processing and special machines forms a very small part of the total.
Some Indian companies are well aware of this problem. They try to invest in modern machinery but they often face a contradictory situation. These companies lack the money for long-term investments because the cost of labor is comparatively high in India. But if they fail to invest in modern processes they will be unable to compete on a global scale in the future. But, unfortunately, there are also many companies that do share these concerns.
The Textile Industry is a very unorganized industry. There is no planning for the future so the industry is moving from crisis to crisis. Nobody really has an idea about were the industry will stand after the next 10 to 20 years. There are so many problems and challenges that we will have to face. As the costs for machinery is, for example, very high and the cost for labor in comparison to China is also very high, many companies have only old machines. This leads to the problem of delays in the supply chain and product deliveries, which goes hand in hand with low quality.
Within India, policy makers may have been prepared to accept a slow pace of reform in the textile and clothing sectors in the past when opportunities were more restrictive. However, to continue in this vein would mean missing out on potentially much greater direct gains from productivity improvements. In addition, it would expose these industries to the much larger risk of losing ground in a fiercely competitive world market. Finally, as trade barriers start to fall in India and elsewhere, the industries will also face substantially increased competition in their home markets, which lends a sense of urgency to domestic policy reform.
The textile industry in India is one of the few industries, which has the potential to emerge as a truly global player. The government has partly embarked on a role as an industry-friendly and proactive “facilitator”. Recognizing the fact that industry needs a concerted strategy and time-bound action plan to convert its core competencies in availability of all major raw materials, skilled manpower, managerial competence and entrepreneurial skill to a competitive strength as a producer and supplier of top quality textiles at competitive prices while protecting its domestic turf, the government has initiated the policy measures as outlined above. With the growing awareness in the industry of its strengths and weaknesses and the need for exploiting the opportunities and averting the threats, coupled with the government’s catalytic role, the Indian textile industry has the potential to scale new heights, in the globalized economy. For this to happen, the industry, the State Governments and the Central Government have to work in close coordination and cooperation in order to introduce the necessary political steps that still have to be taken.
9. SUGGESTED STRATEGIES TO ENHANCE EXPORTS
A tough future awaits the Indian textiles and apparel industry in the wake of a quota free market in 2005 after the MFA dispensation. It is clear that because of this there will be a disturbance in the flow of international trade in textiles and apparel. Competition will be rife and China is expected to become the "supplier of choice" for most US and EU importers (the large apparel companies and retailers).
In such a situation the industry must do its best to protect existing markets and make inroads into those of its rivals, mainly from China. Keeping this in mind following are some of the issues faced by the Textile Industry which we believe need to be tackled if India wants to expand its Textile Export base in the coming years. The main issues have been highlighted and suggested strategies to tackle the same have been proposed which we believe will enhance Indian textile exports.
9.1 Issues to be tackled by the industry:
- Improve competitiveness of the Indian textile industry so as to compete in a quota-free trade scenario
- Develop the infrastructure base, especially power availability to
textile and apparel units
- Work towards removing the anomalous disparities in the tax structure that distort the competitiveness of the organized sector-manufacturing base
- Enhance productivity and economies of scale by removing investment
barriers
- To develop quality consciousness in manufacturing
- Undertake technical upgradation so as to overcome inefficiencies in
production
- Strengthen the raw material base and undertake product diversification
- Promote FDI in garment retailing
- Develop an efficient sourcing strategy to get inputs at cost-effective rates
- Remove regulatory roadblocks and fragmentation in the industry
In light of the above issues that plague the industry, it is important to concentrate on quality and excellence as the hallmarks of future textile export strategy, especially in view of the current globalisation and the gradual dismantling of tariff barriers under the WTO. Only those units, which are globally quality and cost competitive, will survive in the emerging environment and to that extent the following strategies will help enhance our Textile exports
9.2 Strategies to enhance exports:
- Reduce the import duty on textile and apparel to infuse competition in the domestic market, which would, inter alia, drive up demand for higher and better clothing
- Rationalize excise duty structure across the entire value chain from fibre to garment retailing. Levying of moderated, uniform VAT should be the long-term objective.
- Allow textile and apparel cluster areas to set up distributive generation model for power
- Remove policy-bias against synthetic fibre/yarn. Rationalize excise duties on synthetic fibre to bring it in line with cotton fibre. Lower customs duty on raw materials used in manufacture of synthetic fibre/yarn
- There exists a plethora of regulations like Cotton Control Order, Essential Commodities Act, which need to be critically reviewed in view of their limited usefulness
- Simplify the operational procedures for bonded warehousing schemes
- Setting up of private bonded warehouses to facilitate bulk exports for large departmental stores
- Develop port infrastructure to handle large containerised vessels.
- For higher value added exports, conglomeration approach is one technique for acquiring sustainable and global competitiveness. Right from availability of primary raw material, to spinning, weaving, processing and garment-converting units, along with the testing labs, etc. should be developed in a compact geographical area, for which a demarcation of some form and substance is already existing
- Strategic alliances have become crucial in the textile and clothing sectors in view of the growing number and scope of PTAs. Government needs to design its policies for Indian companies investing abroad in consonance with this reality.
- Pursue labour reforms on a priority basis. These reforms are required in the areas of legal, social and trade unions
- Re-orient TUFS scheme to provide targeted subsidy for the processing and weaving sectors
- Benchmark with competitors in other countries
- Adopt e-applications to sell and to exchange information
- Ensure that one set of WTO trade barriers is not replaced with another
- Sectoral associations, together with the government, will have to shoulder more responsibilities to ensure that their members follow the rules and comply with international quality and environmental standards
- Facilitate the development of apparel parks and set up R&D units to assist development of new products
- Locate different components of manufacturing in places of competitive advantage. Use information technology and communications to manage the supply chain and operations. This requires management of a different kind – in global sourcing of materials and marketing, on-line, real time supply chain systems and virtual manufacturing management
- Redirect low growth items from traditional markets to new markets of Middle East and Africa, where high growth awaits
- Create a trading house that acts as a single-point contact for large buyers in overseas markets and redistribute it to individual firms in India
- Industry associations should publish country-specific reports emphasizing the textile and apparel markets, consumer behaviour, issues and information on how to do business in each of the countries
- Enter into trade agreements with other countries at bilateral/ multilateral levels
- Proactively promote Brand India in all international forums and trade meetings, workshops, seminars and conferences
- At the national policy level to create financing schemes for improvement of infrastructure and upgrading of processing technology
- At the regional and sectoral levels to encourage collective action to tackle problems common to the textile cluster
- At the enterprise level to stimulate greater management commitment to process efficiency, cleaner production and social responsibility; and
- Along the supply chain, developing new relations and partnerships with clients.
10. CONCLUSIONS AND RECOMMENDATIONS
India’s textile sector is currently poorly organized by virtually any standard. It will probably succeed in being the major domestic provider for products for this market, but will have a difficult time moving up the value chain to the international market. It appears to be moving in the right direction for increased competitiveness on quality, management practices, and eventually cost but it still has a long way to go before it catches its main global competitors
With the gradual dismantling of tariff barriers under the WTO, only those units, which are globally quality and cost competitive, will survive in the emerging environment.Though the tariff barriers are slowly coming down under the WTO, there still are many non-tariff barriers imposed by the importing countries, which inter-alia includestringent quality, environmental and social standards.The Indian textile industry needs to prepare itself to face these challenges so as to increase its share in global trade
On the one hand, export access to the most lucrative industrial markets is increasingly controlled by powerful buyers who prospect the globe for low wage labor, and on the other, a few dominant countries, such as China, appear to have cornered the major share of global apparel supply. Regional pacts such as NAFTA, EU, and ASEAN further lock in producers proximate to the largest markets into tariff advantages that are denied to others.
Hence, regionalisation of trade in textiles and clothing, anti-dumping and countervailing duties, increased customs checks to ensure that trans-shipment activities do not take place, rigorous application of ethical standards to prevent child labour or 'sweatshops' and compulsion to adapt eco-labels, will be some of the key drivers and trade parameters determining exports of textiles and apparels after 2004
In such a scenario countries need to develop an action plan and a strategic approach to plan the challenges ahead. Our recommendations on the basis of our in-depth analysis of the sector are as follows:
- Ensure that one set of WTO trade barriers is not replaced with another
- Sectoral associations, together with the government, will have to shoulder more responsibilities to ensure that their members follow the rules and comply with international quality and environmental standards
- Information technology should be applied to sell the product and also to gather information and to exchange it
- Improve the market responsiveness - understand consumer trends, address buyer needs
- Achieve optimal utilisation through rationalisation of products and outsourcing
- Obtain international certification for quality, systems and processes
- Organising seminars to create awareness in overseas markets
- Undertake capital restructuring
- Reduce finance burden through swapping of high cost debt with low cost debt
- Facilitate entry to new markets and new products
- Eliminate system anomalies
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Provide financial incentives for eg Re-orient TUFS scheme to provide targeted subsidy for the processing and weaving sectors
- Frame standards for quality and actively promote the players to undertake certifications from international agencies
From the above it is clear that while the industry can legislatively demand proper policy input from the government in an attempt to improve its competitiveness abroad, the initiative for modernisation and innovation for improving competitiveness has to come inter alia from the industry. This requires management of a different kind – in global sourcing of materials and marketing, on-line, real time supply chain systems and virtual manufacturing management. Above all, it requires operating discipline and organizational commitment to resources and talent.
REFERENCES
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Centre for Monitoring Indian Economy (CMIE), World Economy, October 1994
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Export-Import Bank of India, The Uruguay Round Agreement: Implications for Indian Exports, Occasional Paper No. 28, March 1994
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Export-Import Bank of India, Indian Garment Exports: Implications of the MFA Phase-out, Occasional Paper No. 34, February 1995
- GATT, Trade Negotiations Committee, Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, MTN/FA, 15 December 1993.
- KPMG report on the textile industry
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Reforms on the Indian Cotton and Textile Sectors: a General-Equilibrium Approach” Review of Development Economics, 7(3), 343-359, 2003
- Kathuria, S. and A. Bhardwaj, “Export Quotas and policy constraints in the Indian textile and garment industries,” Policy Research Working Paper 2012, World Bank, Washington DC, 1998
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Gokhale, Chander and Katti, Vijaya, Globalising Indian Textiles: Threats and Opportunities, Tecoya Publication, Mumbai, April 1995
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Tewari, Meenu. 1999. “Successful Adjustment in Indian Industry: The Case of Ludhiana’s Woolen Knitwear Industry.” World Development.
