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In the new quota free international textile trade regime India stands to gain a lot. Starting this year, the world ended a 40 year old system that capped the poor countries exports to rich nations. The transition from the quota-bound Multi Fibre Agreement on Textiles and clothing was worked out by the World Trade Organisation (WTO).
With the end of the quota system, a new world order in textiles trade is setting in. And, the Indian textiles industry is expected to grow manifold, helped by outsourcing and brand building or retailing prospects.
Faster Growth
India’s share of global trade is expected to grow the fastest, as its current quota allocation is among the lowest. As per conservative estimates, India’s textiles sector is tipped to grow annually at 21 per cent to $50 billion by 2010.
According to McKinsey, once the quotas are dismantled, India will push its share from four per cent to 6.5 per cent by 2008 in the $250 billion global fashion garments market. Some estimates suggest that in the US, India’s textile market share would leap from four percent to about 15 per cent and in the European Union from five per cent to nine per cent. Most designers and apparel and textile manufacturers are expanding production capacities to meet the growing demand.
The industry, with around 20,000 garment makers and tens of thousands of textile units providing jobs to millions, accounts for about a quarter of the country’s export earnings and around four percent of its gross domestic product.
Quality and productivity are buzz words, if the Indian industry is to benefit from the opportunities thrown up due to the dismantling of the quota regime.
Opportunities
Officially, India is aiming at a target of $50 billion by 2010. Commerce Minister Kamal Nath expects 50 per cent growth in exports to quota free US and EU markets in the first year. Textile Minister Shankarsinh Vaghela projects India’s apparel exports to double in next 2 years. He points out that India will benefit from lifting of quotas immediately while China, projected to be the biggest beneficiary, will be able to enjoy that opportunity only two years hence.
Advantage India
Industry representatives believe India’s exports could well surpass official target of $50 billion by 2010. A PHDCCI study validates the optimism and predicts India could increase its share to US textiles market to 15 percent, nearly 4 times the 2002 level of 4 per cent. In EU’s garments market, India’s share could raise to 10-13 per cent from 6-9 per cent now. The study reveals India has an edge over China and South East Asia in labour cost in textiles and clothing. As a proportion of total cost, labour cost in India is only 6 per cent, compared to 10 per cent in China, 19 per cent in Mexico, 22 per cent in Thailand, 29 per cent in Turkey, 51 per cent in South Korea and 69 per cent in Germany. Only Indonesia has a lower labour cost of 5 per cent.
India has, capital cost advantage. Proportion of capital costs to gross output is 6.7 per cent in India in textile and 7.8 per cent in garment making, while those in China are 12.2 percent and 12 per cent respectively.
India also enjoys raw material advantage as World’s third largest producer of cotton, second largest exporter of cotton textiles among low-cost countries and fourth largest exporter of synthetic yarn and fabric. India’s other advantage is in quality of labour – its traditional apparel-making skills are added at value-adding tasks such as embroidery, mirror work and beading.
Design is a source of competitive advantage. NIFT has nearly 1,000 graduates passing-out a year and Indian designers are making an impression.
No wonder the US International Trade Commission report sees India as a major alternative source to China. “Retailers and apparel suppliers acknowledged that India is likely to remain competitive after quota removal because of its large, relatively low-cost labour force, a large domestic supply of fabrics, and industry’s ability to manufacture a wide range of products”, the report says.
The policy environment has been made friendly with funding and tax breaks. The industry has responded in ample measure. Garment manufacturing clusters are emerging and a slew of new apparel parks are being set up. From the park in Surat to factories in Delhi and in established clusters like Tirupur, industry is cranking up capacity.
Investments
The organized sector, making up 10 per cent of the Indian textiles, industry has heeded the signs early with larger player having integrated operations, covering the value chain from fabric to garments. Arvind Singhal, Chairman KSA Technology, said “At present, exports are at around $ 15 billion and the domestic market is around $ 15 billion, giving an output of around $30 billion. By 2010, there are optimistic projections to take this to $85 billions, but the question is can we do it. The players will have to have a careful look and will have to consider investment decisions, look at competing countries and buyers”.
While foreign direct investment (FDI) is a funding option, industry should be able to get it. There is unanimity that over the next 3-4 years, investments of around $20-30 billion are required.
Over the last two years, actual investments have been only around $2 billion. A proactive government policy in the last two years saw excise payment made optional for the complete value chain in the natural fiber segments of cotton, silk, and wool. The duty bound regime announced in the last budget also provided a level playing field to the organized and unorganized sectors.
The domestic industry is now beginning to gear up with a consolidation being inevitable. Only some organized players have taken pre-emptive steps and investment. Overall, we have not really moved forward. Overseas customs will demand volumes and source only from larger players capable of executing them. The smaller players supplying brand owners abroad will have to reconsider larger domestic players.
The textiles industry has to ready itself for a paradigm shift. It is important to realize that we are now moving from an era of subsidies to reality and the best way forward is to go in for value addition and move up the value chain.
Several developing countries such as India, Thailand, Bangladesh, Indonesia, Srilanka, Pakistan, East European countries and Turkey are all becoming sizeable producers of readymade garments. It is clear that many countries having premier positions in the apparel manufacturing are going to be the backbone of developing countries, which can provide cheap labour, inexpensive manufacturing facilities and raw materials.
India’s thrust into apparel production started in the early 80s in the wake of the liberalization, received a big impetus during economic reforms in the early 90’s and during the last two decades, has moved to the Tenth position, in the World’s export of apparel. However, when compared to China, in terms of value, it is still only 5 per cent of China’s apparel production.
The apparel industry is the second highest foreign exchange earner, next only to IT. India is also a large source of cotton production, is traditionally strong in textiles, has ample human resources and is ideally suited for garment manufacturing due to limited investment cost. There is little doubt that India is going to be a strong apparel producer, both for the export and domestic markets. The government of India has recognized the apparel industry as a key growth area.
India Textile Vision
The national textile policy 2000 envisions the garment export sector at $50 billion US dollars by the year 2010, provide cheap investment sources through the textile up-gradation fund, increase cotton productivity by over 50 per cent, encourage setting up world class textile processing and garment units and dereserve the garment industry, which has so far been limited to the small scale sector. These initiatives, apart from a plethora of incentives provided by State Governments hope to provide the necessary foundation required for this industry to be a key industry in the Indian scenario. These initiatives will no doubt go a long way in imparting the Indian textile sector certain advantages to compete globally.
*Freelance Writer
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