TEXTILE TRADE: INDIA GEARING UP TO MEET CHALLENGE
N.Vasuki Rao
India's textile industry is gearing up to meet the challenges of increased global competition when export quotas are phased out from 2005. These quotas provide textile manufacturers, particularly in the developing world, secure markets for exports to the United States and Europe, the world's main consumers. Once these quotas are abolished from 2005, there will be free for all in the global textile trade, and only the fittest will survive. Experts say the end of quotas will give a huge boost to sales of textiles and clothing, with estimates of world trade ranging from $6.5 billion to an overwhelming $324 billion.
Industry analysts opine that India stands a very good chance to grab one of the top spots provided both the government and industry join hands. "How much India gains in a quota-free regime will depend on how the industry upgrades itself," says D.K. Nair, Secretary General of the Indian Cotton Mills Federation. Nair argues that India is one of only three countries that have a strong textile chain, producing everything from fiber to finished apparel.
India's textile industry has a strong base. It accounts for more than 6% of the country's gross domestic product (GDP), 18% of industrial production and 25% of export earnings. India has about 2,900 textile mills with 38 million spindles, 1.5 million small power looms, 3.8 million handlooms and 12,400 processing factories. The industry together employs an estimated 11 million workers.
India is the world's third largest producer of cotton and cellulose fibre and yarn, the second largest producer of silk and fifth largest producer of synthetic fibre and yarn. India is the largest exporter of cotton yarn today, with 25% share of the world market. The bulk of Indian textile and clothing exports worth $13 billion consist of cotton yarn, fabrics, made-ups and cotton apparel, though products of man-made fibre are also catching up.
"Along with information technology, textiles is the other major area where India has the potential to become a world leader," says T.S.R. Subramanian, former Cabinet Secretary. "A major opportunity to be an important global player in this industry is opening up; we have to seize this opportunity."
Chintan Parikh, Chairman of the Indian Cotton Mills Federation, points out that the textile industry needs huge investments, especially in weaving, processing and garment making. The Indian government, in its national budget for fiscal 2004, has announced major policy changes, including rationalization of the duty structure, to encourage large investments in the sector. The Government is now trying to create world class state-of-the-art manufacturing capacities to attain and sustain a pre-eminent global standing in manufacture and export of textiles and clothing. Its policy is aimed at withstanding pressures of import penetration after 2005 when India will be forced to open its doors fully to textiles. The government wants India's share in the global textile trade to increase substantially.
Hitting this ambitious target will require considerable effort on the part of the industry. Many smart companies manufacturing textile products and apparel have already prepared themselves for 2005 and beyond. "India has geared up to face the new challenges," says Siddhartha Rajagopal, Executive Director of the Cotton Textiles Export Promotion Council. Indian companies are investing in new ventures and are also increasing their capacity. Government schemes like the Cotton Technology Mission and Technology Upgradation Fund are aimed at improving the production and productivity levels in the industry, he adds.
According to official data, as of February 2003, an amount of 121.5 billion rupees had been sanctioned and 103.3 billion rupees disbursed from the Technology Upgradation Fund. The government is allowing companies to import textile machinery at low rates of duty, and is encouraging states to set up apparel manufacturing parks to boost exports. It is also making its labour laws flexible so as to help apparel manufacturers to downsize in times of economic downturn.
In recent years, the world textile trade has undergone important changes that will have an impact on exports of developing countries such as India. These include expansion of North America Free Trade Area to include other Latin American countries, benefits granted under the African Growth Opportunities Act and the Caribbean Basin Initiative, the free trade agreement between the United States and Jordan and the United States and Singapore, the European Union's bilateral agreements and new rules of origin.
Rajagopal says India can become an ideal sourcing point for textile products for overseas buyers after 2005. A recent McKinsey study commissioned by the Cotton Textiles Export Promotion Council stated that the United States and European Union are likely to outsource almost 65 to 70 percent of finished made-up textile products. Accordingly, India with its raw material base, skilled work force, low conversion cost and strong economic and banking system is ideally placed to become a major sourcing point for textiles beyond 2005.
The author is a senior journalist based in New Delhi.
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