20-06-2014, 02:31 PM
Indian Textile Industry
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The textile industry is the largest industry of modern India. It accounts for over 20 percent of industrial production and is closely linked with the agricultural and rural economy. It is the single largest employer in the industrial sector employing about 38 million people. If employment in allied sectors like ginning, agriculture, pressing, cotton trade, jute, etc. are added then the total employment is estimated at 93 million. The net foreign exchange earnings in this sector are one of the highest and, together with carpet and handicrafts, account for over 37 percent of total export earnings at over US $ 10 billion. Textiles, alone, account for about 25 percent of India’s total forex earnings.
India’s textile industry since its beginning continues to be predominantly cotton based with about 65 percent of fabric consumption in the country being accounted for by cotton. The industry is highly localised in Ahmedabad and Bombay in the western part of the country though other centres exist including Kanpur, Calcutta, Indore, Coimbatore, and Sholapur.
The structure of the textile industry is extremely complex with the modern, sophisticated and highly mechanised mill sector on the one hand and the handspinning and handweaving (handloom) sector on the other. Between the two falls the small-scale powerloom sector. The latter two are together known as the decentralised sector. Over the years, the government has granted a whole range of concessions to the non-mill sector as a result of which the share of the decentralised sector has increased considerably in the total production. Of the two sub-sectors of the decentralised sector, the powerloom sector has shown the faster rate of growth. In the production of fabrics the decentralised sector accounts for roughly 94 percent while the mill sector has a share of only 6 percent.
Global Scenario
The textile and clothing trade is governed by the Multi-Fibre Agreement (MFA) which came into force on January 1, 1974 replacing short-term and long-term arrangements of the 1960’s which protected US textile producers from booming Japanese textiles exports. Later, it was extended to other developing countries like India, Korea, Hong Kong, etc. which had acquired a comparative advantage in textiles. Currently, India has bilateral arrangements under MFA with USA, Canada, Australia, countries of the European Commission, etc. Under MFA, foreign trade is subject to relatively high tariffs and export quotas restricting India’s penetration into these markets. India was interested in the early phasing out of these quotas in the Uruguay Round of Negotiations but this did not happen due to the reluctance of the developed countries like the US and EC to open up their textile markets to Third World imports because of high labour costs. With the removal of quotas, exports of textiles have now to cope with new challenges in the form of growing non-tariff / non-trade barriers such as growing regionalisation of trade between blocks of nations, child labour, anti-dumping duties, etc.
Nevertheless, it must be realised that the picture is not all rosy. It is now being admitted universally and even officially that the year 2005 AD is likely to present more of a challenge than opportunity. If the industry does not pay attention to the very vital needs of modernisation, quality control, technology upgradation, etc. it is likely to be left behind. Already, its comparative advantage of cheap labour is being nullified by the use of outmoded machinery.
With the dismantling of the MFA, it becomes imperative for the textile industry to take on competitors like China, Pakistan, etc., which enjoy lower labour costs. In fact the seriousness of the situation becomes even more apparent when it is realised that the non-quota exports have not really risen dramatically over the past few years. The continued dominance of yarn in exports of cotton, synthetics, and blends, is another cause for worry while exports of fabrics is not growing. The lack of value added products in textile exports do not augur well for India in a non-MFA world.
Textile exports alone earn almost 25 percent of foreign exchange for India yet its share in global trade is dismal, having declined from 10.9 percent in 1955 to 3.23 percent in 1996. More significantly, the share of China in world trade in textiles, in 1994, was 13.24 percent, up from 4.36 percent in 1980. Hong Kong, too, improved its share from 7.06 percent to 12.65 percent over the same period. Growth rate, in US$ terms, of exports of textiles, including apparel, was over 17 percent between 1993-94 to 1995-96. It declined to 10.5 percent in 1996-97 and to 5 percent in 1997-98. Another disconcerting aspect that reflects the declining international competitiveness of Indian textile industry is the surge in imports in the last two years. Imports grew by 12 percent in dollar terms in 1997-98, against an average of 5.8 percent for all imports into India. Imports from China went up by 50 percent while those from Hong Kong jumped by 23 percent.
Global factors influencing textile industry
The history of the textile and clothing industry has been replete with the use of various bilateral quotas, protectionist policies, discriminatory tariffs, etc. by the developed world against the developing countries. The result was a highly distorted structure, which imposed hidden costs on the export sectors of the Third World. Despite the fact that GATT was established way back in 1947, the textile industry, till 1994, remained largely out of its liberalisation agreements. In fact, trade in this sector, until the Uruguay Round, evolved in the opposite direction. Consequently, since 1974 global trade in the textiles and clothing sector had been governed by the Multi-fibre agreement, which was the sequel to an increasingly pervasive quota regime that began with the Short-term arrangement on cotton products in 1962 and followed by the Long-Term arrangement. After the successful conclusion of the Uruguay Round in 1994, the MFA was replaced by the Agreement on Textiles and Clothing (ATC), which had the same MFA framework in the context of an agreed, ten year phasing out of all quotas by the year 2005. The section that follows takes a brief look at the history of these protectionist regimes as also a more detailed look at the MFA and the ATC.
Conclusions
To effectively tackle the situation India needs to invest in research and development to develop new products, reduce transaction costs, reduce per unit costs, and finally, improve its raw material base. India needs to move from the lower-end markets to middle level value-for-money markets and export high value-added products of international standard. Thus the industry should diversify in design to ensure quality output and technological advancement.
The weakest links in the entire chain are the powerlooms and the processing houses. The latter especially are very important because they are responsible for the highest value addition in the manufacturing line. A powerloom co-operative structure could be evolved for pooling of common services and functions such as quality testing, marketing, short-term financing, etc. Further, because of the geographical proximity enjoyed, a cluster approach can be adopted.
The government also needs to make policy changes like dereserving the small-scale sector so that it can achieve economies of scale and adopt a synergistic approach.
Handlooms by their very nature can adopt a strategy of "niche” marketing. In this respect, export promotion, common credit and marketing facilities and more significantly publicity are important areas for co-operation. Here too, a co-operative structure would be useful though government agencies should be involved because of their outreach. Newer and more innovative forms of involvement are required where decentralisation should be a key element.
India has made little attempt to forge partnerships – in equity, technology and distribution in overseas markets. The newer nuances of global apparel trade demand joint control of brand positioning, distributing and quality assurance systems.
The Indian textile industry has recognised the need for a cradle-to-grave approach when tackling environmental issues i.e. eco prescription should be applied right from the stage of cultivation to spinning to weaving to chemical processing to packaging. Here especially there is great scope for private -public partnerships.
A great deal of work has been done by Indian trade and industry to comply with ecological and environmental regulations, and so Indian garments can adopt an appropriate label signifying a distinct quality.
Efficiency and output of handloom and powerloom sectors also needs to be increased. The clothing sector needs the support of high quality and cost-effective cloth processing facilities. Modernisation of mills is a must.
Human resource is another area of focus. The workforce must be trained and oriented towards high productivity.
The business environment of the future will be intensely competitive. Countries will want their own interests to be safeguarded. As tariffs tumble, non-tariff barriers will be adopted. New consumer demands and expectations coupled with new techniques in the market will add a new dimension. E-commerce will unleash new possibilities. This will demand a new mindset to eliminate wastes, delays, and avoidable transaction costs. Effective entrepreneur-friendly institutional support will need to be extended by the Government, business and umbrella organisations.