Five Year Plans For The Textile Industry

INDIAN TEXTILE INDUSTRY UNIT II
FIVE YEAR PLANS FOR THE TEXTILE INDUSTRY

The economy of India is based in part on planning through its five-year plans, which are
developed, executed and monitored by the Planning Commission. The eleventh plan completed
its term in March 2012 and the twelfth plan is currently underway. Prior to the fourth plan, the
allocation of state resources was based on schematic patterns rather than a transparent and
objective mechanism, which led to the adoption of the Gadgil formula in 1969. Revised versions
of the formula have been used since then to determine the allocation of central assistance for
state plans.
An overview of India's Five Year Plans:
 1 First Five-Year Plan (1951–1956)
 2 Second Five-Year Plan (1956–1961)
 3 Third Five-Year Plan (1961–1966)
 4 Fourth Five-Year Plan (1969–1974)
 5 Fifth Five-Year Plan (1974–1979)
 6 Sixth Five-Year Plan (1980–1985)
 7 Seventh Five-Year Plan (1985–1990)
 8 Eighth Five-Year Plan (1992–1997)
 9 Ninth Five-Year Plan (1997–2002)
 10 Tenth Five-Year Plan (2002–2007)
 11 Eleventh Five-Year Plan (2007–2012)
35 GOPALAKRISHNAN DURAISAMY
First Five-Year Plan (1951–1956)

The first Indian Prime Minister, Jawaharlal Nehru presented the first five-year plan to the
Parliament of India on December 8, 1951.This plan was based on the Harrod-Domar
model. The plan addressed, mainly, the agrarian sector, including investments in dams and
irrigation. The agricultural sector was hit hardest by the partition of India and needed
urgent attention. The total planned budget of 2069 crore was allocated to seven broad
areas: irrigation and energy (27.2 percent), agriculture and community development (17.4
percent), transport and communications (24 percent), industry (8.4 percent), social
services (16.64 percent), land rehabilitation (4.1 percent), and for other sectors and
services (2.5 percent). The most important feature of this phase was active role of state in
all economic sectors. Such a role was justified at that time because immediately after
independence, India was facing basic problems—deficiency of capital and low capacity to
save.
The target growth rate was 2.1% annual gross domestic product (GDP) growth; the
achieved growth rate was 3.6% The net domestic product went up by 15%. The monsoon was
good and there were relatively high crop yields, boosting exchange reserves and the per capita
income, which increased by 8%. National income increased more than the per capita income due
to rapid population growth. Many irrigation projects were initiated during this period, including
the Bhakra Dam and Hirakud Dam. The World Health Organization, with the Indian
government, addressed children's health and reduced infant mortality, indirectly contributing to
population growth.
At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were
started as major technical institutions. The University Grant Commission was set up to take care
of funding and take measures to strengthen the higher education in the country. Contracts were
signed to start five steel plants, which came into existence in the middle of the second five-year
plan. The plan was successful.
Target Growth: 2.1% Actual Growth: 3.6%
Second Five-Year Plan (1956–1961)
The second five-year plan focused on industry, especially heavy industry. Unlike the
First plan, which focused mainly on agriculture, domestic production of industrial products was
encouraged in the Second plan, particularly in the development of the public sector. The plan
followed the Mahalanobis model, an economic development model developed by the Indian
statistician Prasanta Chandra Mahalanobis in 1953. The plan attempted to determine the
optimal allocation of investment between productive sectors in order to maximise long-run
economic growth . It used the prevalent state of art techniques of operations research and
optimization as well as the novel applications of statistical models developed at the Indian
Statistical Institute. The plan assumed a closed economy in which the main trading activity
would be centered on importing capital goods.
Hydroelectric power projects and five steel mills at Bhilai, Durgapur, and Rourkela
were established. Coal production was increased. More railway lines were added in the north
east. The Atomic Energy Commission was formed in 1958 with Homi J. Bhabha as the first
chairman. The Tata Institute of Fundamental Research was established as a research institute.
In 1957 a talent search and scholarship program was begun to find talented young students to
train for work in nuclear power. The total amount allocated under the second five-year plan in
India was Rs. 4,600 crore. This amount was allocated among various sectors:
 Power and irrigation
 Social services
 Communications and transport
 Miscellaneous
Target Growth:4.5% Growth achieved:4.0%
Third Five-Year Plan (1961–1966)

The third plan stressed on agriculture and improvement in the production of wheat, but
the brief Sino-Indian War of 1962 exposed weaknesses in the economy and shifted the focus
towards the [Defense industry]. In 1965–1966, India fought a [Indo-Pak] War with Pakistan. Due
to this there was a severe drought in 1965. The war led to inflation and the priority was shifted to
price stabilisation. The construction of dams continued. Many cement and fertilizer plants were
also built. Punjab began producing an abundance of wheat.
Many primary schools have been started in rural areas. In an effort to bring democracy to
the grass root level, Panchayat elections have been started and the states have been given more
development responsibilities.
State electricity boards and state secondary education boards were formed. States were
made responsible for secondary and higher education. State road transportation corporations
were formed and local road building became a state responsibility.
Fourth Five-Year Plan (1969–1974)

At this time Indira Gandhi was the Prime Minister. The Indira Gandhi government
nationalised 14 major Indian banks and the Green Revolution in India advanced agriculture. In
addition, the situation in East Pakistan (now Bangladesh) was becoming dire as the Indo-
Pakistani War of 1971 and Bangladesh Liberation War took Funds earmarked for the industrial
development had to be diverted for the war effort. India also performed the Smiling Buddha
underground nuclear test in 1974, partially in response to the United States deployment of the
Seventh Fleet in the Bay of Bengal. The fleet had been deployed to warn India against attacking
West Pakistan and extending the war.
Fifth Five-Year Plan (1974–1979)
Stress was by laid on employment, poverty alleviation, and justice. The plan also focused on
self-reliance in agricultural production and defense. In 1978 the newly elected Morarji
Desai government rejected the plan. Electricity Supply Act was enacted in 1975, which
enabled the Central Government to enter into power generation and transmission. The
Indian national highway system was introduced and many roads were widened to
accommodate the increasing traffic. Tourism also expanded.
Target Growth: 4.4% Actual Growth: 5.0
Sixth Five-Year Plan (1980–1985)
The sixth plan also marked the beginning of economic liberalization. Price controls were
eliminated and ration shops were closed. This led to an increase in food prices and an
increase in the cost of living. This was the end of Nehruvian Plan and Rajiv Gandhi was
prime minister during this period.
Family planning was also expanded in order to prevent overpopulation. In contrast to China's
strict and binding one-child policy, Indian policy did not rely on the threat of force. More
prosperous areas of India adopted family planning more rapidly than less prosperous areas,
which continued to have a high birth rate.
Seventh Five-Year Plan (1985–1990)
The Seventh Plan marked the comeback of the Congress Party to power. The plan laid stress on
improving the productivity level of industries by upgrading of technology. The main
objectives of the 7th five-year plans were to establish growth in areas of increasing
economic productivity, production of food grains, and generating employment. As an
outcome of the sixth five-year plan, there had been steady growth in agriculture, control on
rate of Inflation, and favorable balance of payments which had provided a strong base for
the seventh five Year plan to build on the need for further economic growth. The 7th Plan
had strived towards socialism and energy production at large.
The thrust areas of the 7th Five year plan have been enlisted below:
 Social Justice
 Removal of oppression of the weak
 Using modern technology
 Agricultural development
 Anti-poverty programs
 Full supply of food, clothing, and shelter
 Increasing productivity of small- and large-scale farmers
 Making India an Independent Economy
Based on a 15-year period of striving towards steady growth, the 7th Plan was focused on
achieving the pre-requisites of self-sustaining growth by the year 2000. The Plan expected a
growth in labour force of 39 million people and employment was expected to grow at the rate of
4 percent per year. Some of the expected outcomes of the Seventh Five Year Plan India are given
below:
 Balance of Payments (estimates): Export – 33,000 crore (US$6 billion), Imports – (-)
54,000 crore (US$9.8 billion), Trade Balance – (-) 21,000 crore (US$3.8 billion)
 Merchandise exports (estimates): 60,653 crore (US$11 billion)
 Merchandise imports (estimates): 95,437 crore (US$17.4 billion)

 Projections for Balance of Payments: Export – 60,700 crore (US$11 billion), Imports –
(-) 95,400 crore (US$17.4 billion), Trade Balance- (-) 34,700 crore (US$6.3 billion)
Under the Seventh Five Year Plan, India strove to bring about a self-sustained economy in the
country with valuable contributions from voluntary agencies and the general populace.
Eighth Five-Year Plan (1992–1997)
1989–91 was a period of economic instability in India and hence no five-year plan was
implemented. Between 1990 and 1992, there were only Annual Plans. In 1991, India faced a
crisis in Foreign Exchange (Forex) reserves, left with reserves of only about US$1 billion. Thus,
under pressure, the country took the risk of reforming the socialist economy. P.V. Narasimha Rao
was the twelfth Prime Minister of the Republic of India and head of Congress Party, and led one
of the most important administrations in India's modern history overseeing a major economic
transformation and several incidents affecting national security. At that time Dr. Manmohan
Singh (currently, Prime Minister of India) launched India's free market reforms that brought the
nearly bankrupt nation back from the edge. It was the beginning of privatization and
liberalization in India.
Modernization of industries was a major highlight of the Eighth Plan. Under this plan, the
gradual opening of the Indian economy was undertaken to correct the burgeoning deficit and
foreign debt. Meanwhile India became a member of the World Trade Organization on 1 January
1995.This plan can be termed as Rao and Manmohan model of Economic development. The
major objectives included, controlling population growth, poverty reduction, employment
generation, strengthening the infrastructure, Institutional building, tourism management, Human
Resource development, Involvement of Panchayat raj, Nagar Palikas, N.G.O'S and
Decentralisation and people's participation. Energy was given priority with 26.6% of the outlay.
An average annual growth rate of 6.78% against the target 5.6% was achieved.
To achieve the target of an average of 5.6% per annum, investment of 23.2% of the gross
domestic product was required. The incremental capital ratio is 4.1.The saving for invetsment
was to come from domestic sources and foreign sources, with the rate of domestic saving at
21.6% of gross domestic production and of foreign saving at 1.6% of gross domestic production.
Ninth Five-Year Plan (1997–2002)
Ninth Five Year Plan India runs through the period from 1997 to 2002 with the main aim
of attaining objectives like speedy industrialization, human development, full-scale employment,
poverty reduction, and self-reliance on domestic resources. Background of Ninth Five Year Plan
India: Ninth Five Year Plan was formulated amidst the backdrop of India's Golden jubilee of
Independence. The main objectives of the Ninth Five Year Plan of India are:
 To prioritize agricultural sector and emphasize on the rural development

 To generate adequate employment opportunities and promote poverty reduction
 To stabilize the prices in order to accelerate the growth rate of the economy
 To ensure food and nutritional security.
 To provide for the basic infrastructural facilities like education for all, safe
drinking water, primary health care, transport, energy
 To check the growing population increase
 To encourage social issues like women empowerment, conservation of certain

benefits for the Special Groups of the society
 To create a liberal market for increase in private investments
During the Ninth Plan period, the growth rate was 5.35 per cent, a percentage point lower
than the target GDP growth of 6.5 per cent.
Tenth Five-Year Plan (2002–2007)

 Attain 8% GDP growth per year.
 Reduction of poverty ratio by 5 percentage points by 2007.
 Providing gainful and high-quality employment at least to the addition to the labour
force.
 Reduction in gender gaps in literacy and wage rates by at least 50% by 2007.
 20 point program was introduced.
 Target growth:8.1% Growth achieved:7.7%
Eleventh Five-Year Plan (2007–2012)

The eleventh plan has the following objectives:
1. Income & Poverty
 Accelerate GDP growth from 8% to 10% and then maintain at 10% in the 12th
Plan in order to double per capita income by 2016–17
 Increase agricultural GDP growth rate to 4% per year to ensure a broader spread
of benefits & Create 70 million new work opportunities.
 Reduce educated unemployment to below 5%.
 Raise real wage rate of unskilled workers by 20 percent.
 Reduce the headcount ratio of consumption poverty by 10 percentage points.
2. Education
 Reduce dropout rates of children from elementary school from 52.2% in 2003–04
to 20% by 2011–12
 Develop minimum standards of educational attainment in elementary school, and

by regular testing monitor effectiveness of education to ensure quality
 Increase literacy rate for persons of age 7 years or above to 85%
 Lower gender gap in literacy to 10 percentage point
 Increase the percentage of each cohort going to higher education from the present
10% to 15% by the end of the plan
3. Health
 Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live
births
 Reduce Total Fertility Rate to 2.1
 Provide clean drinking water for all by 2009 and ensure that there are no slip-
backs
 Reduce malnutrition among children of age group 0–3 to half its present level
 Reduce anemia among women and girls by 50% by the end of the plan
4. Women and Children
 Raise the sex ratio for age group 0–6 to 935 by 2011–12 and to 950 by 2016–17
 Ensure that at least 33 percent of the direct and indirect beneficiaries of all
government schemes are women and girl children
 Ensure that all children enjoy a safe childhood, without any compulsion to work
5. Infrastructure
 Ensure electricity connection to all villages and BPL households by 2009 and
round-the-clock power.
 Ensure all-weather road connection to all habitation with population 1000 and
above (500 in hilly and tribal areas) by 2009, and ensure coverage of all
significant habitation by 2015
 Connect every village by telephone by November 2007 and provide broadband

connectivity to all villages by 2012
 Provide homestead sites to all by 2012 and step up the pace of house construction
for rural poor to cover all the poor by 2016–17
6. Environment
 Increase forest and tree cover by 5 percentage points.
 Attain WHO standards of air quality in all major cities by 2011–12.
 Treat all urban waste water by 2011–12 to clean river waters.
 Increase energy efficiency by 20%
 Target growth: 8.33% Growth achieved:7.9%
12th Five Year Plan

The 11th five year plan was a watershed period for the Indian textile and clothing
industry. In the backdrop of the complete abolition of MFA in the year 2005, Indian textile
industry was aspiring for a consistent and coherent policy approach which could stimulate
investment, capacity addition and employment generation. This objective had been partially
achieved during the current plan period which is coming to end in the year 2012. The free trade
in the sector had posed challenges and opportunities. On the one hand, the stiff competition from
the textile producing countries from Asia, prompted Indian companies to go for high capital
intensive investment for optimisation of production efficiency. The off take of investment credit
under Technology Up gradation Fund Scheme had intensified during the plan period albeit
lopsided flow towards spinning sector. But the entire value chain had benefitted immensely due
to this innovative scheme. The modified scheme had given more emphasis to the traditionally
weak and fragmented sectors, weaving and processing. The prospects of the industry would
remain weak if these two vital segments do not go for modernisation and up gradation.
The Organised Mill Industry in the Indian textiles sector consists of spinning mills
outside the SSI sector, composite mills and large weaving units, normally referred to as exclusive
weaving mills in government statistics. As of 2010-11, there are 1960 spinning mills, 185
composite mills and 183 exclusive weaving mills in the country. The number of spinning mills in
the organised sector has gone up by 23% during the last four years. The number of spindles and
rotors has gone up by 14% each and employment in the sector by 5% during this period.
Spinning Mills in organized sector
Spinning mills in the organised sector are world class both in terms of technology and
production efficiency. This sector is highly capital intensive and hence constitutes a major chunk
of total investments in overall textiles and clothing industry of India. Since the inception of
Technology Upgradation Fund Scheme (TUFS) in the year 1999, 33% of investments (Rs 67,000
crore so far) under the Scheme have taken place in the spinning sector. A good part of
investments under 'composite upgradation' is also on spinning; therefore the share of spinning
sector in TUFS investments is actually over 50%.
At the time of Independence, over 70% of fabric production in the country was in the
organised sector. With government policies targeting the growth of decentralised sectors,
production of woven fabrics shifted to the power loom sector and knitting shifted to SSI units
over the decades. Currently, the share of organised industry in fabric production is less than 4%,
in spite of a positive trend during the 11th Plan Period.
Production of yarn in organised sector: Indian spinning capacity constitutes 20 % of world
spindles and 9% of world rotors. Out of the installed capacity of around 45 million spindles and
7.5 lakh rotors, the organised sector accounts for 90% of spindles and 70% of rotors.
Organised mills also have a share of 90% in total production of spun yarn in the country. The
share of Indian textile industry in the world production of spun yarns is over 13%, which is the
largest after China. The total number of spinning mills has increased by 23% during the initial
four years of 11th Five Year Plan (11th FYP).
The installed capacity expanded by 14% during the same period. With continued
investment in modernisation, the production efficiency of our mills and quality of Indian yarn
have also gone up during this period, which is reflected in the increasing global demand for
Indian yarn. Cotton yarn production by organised mills in the country has increased by 18%
during this period. Though blended and non cotton yarns have substantially lower share in
production, they have also registered impressive growth of 15% and 12% respectively during
2007-11.
Production of Fabrics in Organized Sector
Fragmentation of manufacturing units is the most serious impediment to production of

quality fabrics in adequate quantity and large lots in the country. During the era of
decentralization initiated by government policies from the 1960s, small units with government
support were the natural choice for most of the new textiles entrepreneurs. Over the following
decades, the number of composite mills and exclusive weaving units decreased and production
shifted, mostly to the power loom sector. The government policies favouring small scale
operations over the decades led to certain structural weaknesses in the fabric sector. Although
India has the highest number of looms among textile producing countries of the world, only 5%
of our looms are shuttleless, as against 16% share they have in global loomage. However, with
economic liberalisation, introduction of TUFS and abolition of the bilateral quota regime, there is
a trend of revival in organised fabric production in the country in recent years.
The review of the actual performance during first four years of 11th FYP period reveals that
targets for most segments were missed by huge gaps. Some of the targets were apparently too
ambitious. But the achievements could have been better, with proper coordination between the
government and the industry in the policy space.
Policy Framework
Indian Textile and Clothing industry, which could have been a major beneficiary of the
liberalized global textile trading system, has not been able to achieve its true potential in terms of
growth and export earnings. In addition to external factors like global slowdown and rising input
prices, internal issues including inadequate policy support from government had affected the
growth. While additional export incentives were introduced for the textile and clothing industry
in most countries for meeting the challenges of global slow down, in India export incentives
were scaled down. The absence of flexible labour policy, serious infrastructural constraints like
power shortage and transport problems and large transaction costs have already been putting
export industry at a disadvantage. The T&C industry, unlike other manufacturing sectors, is
operating in highly competitive global markets where pricing plays a vital role in expanding the
market share. Competing countries from Asia have gained significantly in the global markets
during recent years. In the domestic market also, the advantages that the Indian industry had in
the form of raw material and skilled labour force have been waning. Raw material prices have
been fluctuating sharply in recent months, mostly in response to global trends. Measures are
required to ensure fibre security to the textile sector. In the case of workers, both availability and
skilling are major issues that have to be tackled together by government and the industry. T&C
industry can achieve higher growth if the constraints are minimised through effective and
coordinated action by all the stakeholders.
Need for New Approach

The traditional knowledge of the industry and traditional approach of government to the
development of this sector during the last 50 - 60 years have already achieved most of their
potential. Our ability to achieve a quantum jump in this industry during the 12th Plan Period will
substantially depend on the ability of both the industry and Government to adopt innovative
approaches to the development needs of this sector.
The general approach of policy makers with reference to our long textile value chain has
been to support weak units to survive rather than to create conditions in which inefficient
production can be replaced with efficient manufacturing facilities. In the context of substantial
unemployment in the country, the priority has been to sustain employment irrespective of the
health of the industrial units. There have been several policy measures that manifest this
approach. To cite afew, government funds were pumped for a long period into the closed or
hopelessly loss making units of National Textile Corporation, simply for paying salaries to their
workers. This has now changed because NTC has been allowed to sell most of their loss making
units and generate huge funds from sale of the land held by several of their mills. Government
funds and policy measures like the Hank Yan Packing Obligation and Handloom Reservation Act
continue to be used for sustaining inefficient handloom units because of the need to protect the
livelihood of lakhs of very poor handloom workers.
During fiscal 2010-11, government placed export restrictions on cotton yarn produced by
world class spinning units of the country in order to help garment units to survive and sustain
their large workforce, though they were already getting cotton yarn at prices substantially lower
than what their competitors were paying in all other garment producing countries. All these
measures have compelling social objectives. But sustainable solutions to the social problems that
these measures have been unsuccessfully trying to address for decades have to come from
retraining and redeploying commercially unviable labour force to areas where they can
contribute to the economy positively.
Policy makers need to reconcile with the reality that heritage and craft can be sustained
only in museums and not in the market place. Workers employed in commercially unviable
segments need to be rehabilitated and redeployed in more viable segments and government funds
should be used for this purpose, rather than for subsidizing their current unviable activities.
Financial Performance of Textiles Industry
Most of the mills under organized sector had invested for capacity expansion and
modernisation in anticipation of high increase in demand in post quota period and also during
11th FYP. Capacity build up has been highly leveraged, mainly driven by interest compensation
under TUFS. However, the modest increase in production of yarn at a CAGR of around 4%
during the initial four years of 11th FYP, has resulted in under utilization of capacities, inadequate
absorption of fixed costs and weak debt coverage indicators. Textile industry recorded sales
growth at a CAGR of 8.0 per cent during the first three years of 11th Five year plan period.
Despite the positive sales growth and increase in production, during the first two years of the
plan period, that is, during 2007-08 and 2008-09 the organised mills faced heavy losses with
negative profits. Only with demand recovery in global markets during 2009-10, the sector has
started to make some moderate profits. Net profit (PAT) to average capital employed ratio has
turned positive during 2009-10 at 1.5 from negatives. But still it is very low to sustain and
incentivise the investments required in this sector.
Investments for modernisation and technological upgradation

The overall growth of the industry in terms of capacity addition, productivity and export
earnings was satisfactory during the 11th five year plan period. However in order to sustain the
growth, textile industry needs more and sustained investments both in modernisation and
capacity addition. Adequate and focussed measures will have to be taken to accelerate the
process of modernisation of the weak segments of weaving and processing. This is essential for
ensuring enough demand for yarn and for making the value added segments like home textiles
and garments globally competitive. The unexpected suspension of TUFS assistance during 2010-
11 had affected the momentum of investment in the textile sector and the recent resumption of
fresh sanctions under the scheme would hopefully revive investments, in spite of the temporary
problems that the industry is currently facing. Attracting foreign direct investment is another area
that needs focussed attention. The FDI in Textile and Clothing sector during the year 2010
accounted for only 0.77 percent of total FDI in the country, as against 1.7 percent during 2005-
06. The total FDI in Textile and Clothing sector was US$ 1.11 billion. Countries like China,
Bangladesh and Vietnam get more FDI in a single year than India has accumulated over the years
in this sector. Among other things, ensuring reasonable profitability and setting up a transparent
and predictable policy framework are essential requirements for attracting FDI.
Operation of TUFS
Technology Upgradation Fund Scheme (TUFS) is a unique initiative of government that has led
to huge investments in the textile and clothing industry during the last 12 years. Investments
have been especially high in the capital intensive sectors as can be seen from the following table.
Need for renewal of TUFS during the 12th Plan period Textile and Clothing industry is a
unique manufacturing sector which has considerable social linkages. The direct and indirect
employment potential of the industry is one of the highest and the growth of the industry would
undoubtedly lead to rural economic development. Indian industry needs huge investment to meet
the growing global requirement of T&C products. The capital intensive segments like spinning
and the weaker segments of the value chain like weaving and processing need extensive capacity
building and modernisation in the coming years. Competing countries from Asia had resorted to
mass scaling up of volume in the RMG segment and they are gaining substantially in the global
market. There are indications that China is facing serious problems in the textile and clothing
sector because of increasing wages, power shortage and pollution issues relating to its textile
processing. Currently China has over 30 per cent of world trade in textile products and India has
around 4 per cent. Since we have the second largest vertically integrated textile industry, India
has the greatest potential for taking over the market shares that China may be forced to vacate in
the Western countries in the coming years. For achieving this potential, India has to continue the
process of investments in all these segments and therefore the vital support of TUFS for
investments needs to continue in the 12th five year plan period.
Raw Material Policy

A. Cotton: India is the second largest producer of cotton in the world, next to China with a
production of 31.2 million bales during the year 2010-11, accounting for 20 per cent of the world
production. Since the launch of Technology Mission on Cotton by the Government of India in
February 2000 and introduction of BT seeds from 2002, significant achievements have been
made in increasing cotton production and yields. Cotton production, productivity and the area
under cotton substantially improved during the 11th Five Year Plan period. Cotton production
increased from 30.7 million bales during 2007-08 to 31.2 million bales during 2010-11and area
under cotton increased from 9.4 million hectares to 11.2 million hectares during this period. It is
extremely important to ensure that government policies relating to pricing and trade in cotton do
not prevent the domestic industry from getting full advantage of home grown cotton.
In the case of cotton, an important factor which affects the availability to the domestic
industry is the low Cotton Stock-to-Use ratio. Cotton Stock-to-Use ratio in India is much lower
than the world average which is resulting in high price volatility. The Stock to Use ratio of cotton
in India has come down significantly in recent years because of excessive exports. During the
year 2009-10, China, Pakistan and Turkey had Stock-to-Use ratios of 34%, 35% and 31%
respectively as against India's 13%. Indian Cotton stock-to-use ratio for 2010-11 has become at
around 5%.
This brings cotton prices with more volatility and uncertainty for cotton users. This is a
very alarming situation and needs to be addressed effectively. Cotton prices have increased
tremendously in recent years following the global trends. While this is welcome from the point
of view of increased income to cotton farmers, it is necessary to ensure that mills are in a
position to consume the high cost cotton. Proper banking arrangements are necessary for this.
Indian cotton textile industry needs working capital assistance package (@ 7% interest rate with
10% margin money and nine months credit period). Since domestic consumption is over 80% of
cotton production, working capital assistance to Indian mills will be helpful both to the mills and
cotton farmers. There is tremendous scope for further growth of our textile industry and by the
end of the 12th plan period, the industry would be able to consume the entire cotton produced by
the country and convert it into yarn and final value added products. Proper and competitive
funding of cotton purchases by mills is an essential requirement to realise this potential. There is
a need for effective hedging mechanism for cotton. Indian commodity exchanges do not have
effective futures trading in cotton where the buyers can hedge the risk of price uncertainty.
Currently, multinational traders take full advantage of the New York Exchange and Indian cotton
traders and the industry are not in a position to compete with them. Therefore, it is essential to
review the cotton hedging mechanism in India and to make it effective.
B. Man-made Fibres: we have substantial and increasing production of manmade fibres. Excise
and customs duties and export incentives on fibres have to ensure that the textile industry of the
country get full benefits of our manmade fibre production and we are able to establish a large
textile industry based on manmade fibres. Currently, our manmade fibre consumption is
insignificant in comparison to our potential and policy initiatives can bridge this cap. Avoidable
export incentives, import duties and antidumping duties on manmade fibres have been restricting
access to manmade fibres at competitive prices for the domestic textile industry.
Technical textiles are the emergent sector in the country. This is going to be more viable
in organised textile mill sector. There is high need to promote the fibre production for technical
textiles and also ensure the raw materials for technical textiles duty free. Fibre security for the
textile sector needs focussed attention, since the strength and growth of the entire value chain
depends on it.
Handloom Reservation Act
The Handloom Reservation Act and Handloom Reservation Order issued under the Act
prohibit the organized sector and power loom sector from producing 11 specified products, so
that hand loom sector alone can produce them. If it is viable to produce these in the handloom
sector, the reservation is not necessary. If it is not viable, the reservation is unjustified.
Hank Yarn Obligation
The Hank Yarn Packing Obligation order was issued under the Essential Commodities
Act during 1970's duringthe quota regime. Though the economy was liberalised in the year 1991,
this obligation still exists. Under the Hank Yarn Obligation Order, 40% of the cotton yarn
produced by all spinners in the country should be packed in hanks which are for the use of
handloom industry. Only yarn produced for exports and hosiery yarn are exempted from this
obligation. It is a well known fact that nearly 40% of the hank yarn produced in the country is
actually consumed by the power loom industry and not by handloom sector. In such a situation,
continuing such an obligation will only add to the woes of the spinning industry.
Labour Laws
Textiles and clothing sector is the most labour intensive manufacturing industry all over
the world and will remain so even after the highest possible automation. Therefore, flexible
labour laws are essential for the smooth functioning of this sector. Currently applicable labour
laws in the country were established partly before Independence and partly immediately after
Independence. The economic growth and industrial development during the last 50 years demand
substantial changes and liberalization in the labour laws.
Some of the major areas where labour reforms are urgently required are given below:
 Ban on employment of women workers between 7 pm and 6 am should be removed
where adequate transport and security arrangements are made available to women
workers.
 Factories should be allowed to work beyond 48 hours a week, on the basis of the work
load and time lines to be met by the unit.
 Employment of temporary staff for seasonal or temporary work should be facilitated.
 Labour Law Enforcement Authorities in terms of Sections 8, 9 & 10 should be allowed to

inspect a plant only once in a year to avoid unnecessary harassment. In case of any
urgency they should be routed through the District Collector. Such Inspections are not
mandatory for ISO 9001 Certified Companies. The Company should itself provide
authenticated certificate by any of the Chartered Accountants/Chartered Engineers or any
other third party of repute.
 The Industrial Disputes Act, 1947 is applicable throughout the country. However, some of
the State Governments have also enacted separate laws on the same subject. In order to
bring uniformity, it is advisable to have a single law on the subject of industrial relations
applicable throughout the country, though labour is in the concurrent list of the
constitution of the country.
Skill Development
Textile sector is the most labour intensive segment of our manufacturing industry. Since
this is the basic nature of this industry, the industry can create another 10 million additional jobs
in the next five years, if proper policy framework is available for development of this sector.
However, availability of workers will be a major issue. Training facilities for them will be
another important aspect to be tackled. A raw agriculture hand can be converted into a textile
worker within a period of two to four months. The skill sets required are also not very
complicated. However, the magnitude of the requirement of workers and their training makes
skill development a very important area for ensuring proper development of the textile sector.
Textile Ministry has already launched a scheme for assisting skill development for the sector.
The National Skill Development Corporation has also been assisting such initiatives in various
sectors, including the textile industry. The industry organizations have to take full advantage of
these facilities to ensure that trained man power is available to the industry in sufficient numbers.
Infrastructural Support
For an industry like textiles which has a long value chain, the impact of infrastructural
bottlenecks is serious and burdensome. These include infirmities in the areas of power, ports and
internal transportation. Power deficit is often hindering the optimal production in textiles
industry in many parts of the country. In house power generation by organized mills are
escalating cost and making operational cost uncompetitive in comparison with international
players. Therefore, coal, gas and fuel oil need to be made available to textiles manufacturers at
competitive rates. The delay and transaction cost involved in inter-state movement of goods is
another major impediment that has been affecting the manufacturing industry for transportation
of raw materials and intermediate products on one side and finished products on the other.
Effective measures are required to ensure seamless movement of goods without any hold up at
state boarders.
Consolidate weaving operations
Shifting of weaving and processing from organized sector to the decentralized sector was
majorly the result of government policies. This has affected production efficiency and concerted
efforts are required to reverse this course. Scale is the strength in weaving and processing
operations in countries like China and this has been assisting their tremendous growth in
garmenting. In India, the limited availability of large lots of fabrics has been discouraging
scaling up of garmenting operations. More than 80% of the fabrics used by our garment industry
come from the powerloom sector. Nearly 80% of our garmenting units have subscale operations.
Consolidation of weaving and processing activities will help in improving consistency of quality
in fabrics and supply of large lots of quality fabrics which are mostly being imported by our
garment exporters at present. This will also help establishment of large garment units for mass
production of basic and regular wear garments. These are product segments where our garment
industry has very little presence now.
Financing of consolidation and special package for T&C Industry

Consolidating fragmented textile units into organized industrial units would need
substantial investment in land, building and machinery. Liberal term loans and working capital at
affordable interest cost would be a positive encouragement for this to happen. In order to assist
the process of consolidation and establishment of large production facilities, some kind of
investment allowance need to be introduced for projects beyond a stipulated size. Accelerated
depreciation may be one means for implementing this.
In order to assist the growth of exports, measures are necessary for refunding all central
and state level duties to exporters of textile products. Since duty structures have not been
undergoing substantial changes in recent years, stipulation of drawback rates for a period of 3-5
years is feasible. This will provide some stability to the rates and help exporters to negotiate
export contracts keeping these in mind. Interest subvention for export credit is another
requirement in order to offset the higher interest rates prevailing in the country.
********
THE CONCEPT OF GATT

GATT
The most important trade-liberalization activity in the post-World War II period has been through
the General Agreement on Tariffs and Trade (GATT), which began in 1947 with 23 members and
now has more than 100 members- GATT has given the world a basic set of rules under which
trade negotiations take place and a mechanism for monitoring the implementation of these rules.
The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating
international trade.
GATT and WTO trade rounds
Name Start Duration Countries Subjects Achievements
covered
Geneva April 7 months 23 Tariffs Signing of GATT, 45,000 tariff
1946 concessions affecting $10
billion of trade
Currency April 5 months 13 Tariffs Countries exchanged some
1949 5,000 tariff concessions
Turkey September 8 months 38 Tariffs Countries exchanged some
1950 8,700 tariff concessions, cutting
the 1948 tariff levels by 25%
Geneva January 5 months 26 Tariffs, $2.5 billion in tariff reductions
II 1956 admission of
Japan
Dillon September 11 26 Tariffs Tariff concessions worth $4.9
1960 months billion of world trade
Kennedy May 1964 37 62 Tariffs, Tariff concessions worth $40
months Anti- billion of world trade

dumping
Tokyo September 74 102 Tariffs, non- Tariff reductions worth more
1973 months tariff than $300 billion dollars
measures, achieved
"framework"
agreements
According to its preamble, its purpose was the "substantial reduction of tariffs and
other trade barriers and the elimination of preferences, on a reciprocal and mutually
advantageous basis." It was negotiated during the UN Conference on Trade and
Employment and was the outcome of the failure of negotiating governments to create the
International Trade Organization (ITO). GATT was signed in 1947 and lasted until 1994,
when it was replaced by the World Trade Organization in 1995. The original GATT text
(GATT 1948) is still in effect under the WTO framework, subject to the modifications of
GATT 1994.
Uruguay September 87 123 Tariffs, non-tariff The round led to the creation of
1986 months measures, rules, WTO, and extended the range of
services, trade negotiations, leading to major
intellectual reductions in tariffs (about 40%)
property, dispute and agricultural subsidies, an
settlement, agreement to allow full access for
textiles, textiles and clothing from
agriculture, developing countries, and an
creation of extension of intellectual property
WTO, etc rights.
Doha November ? 141 Tariffs, non-tariff The round is not yet concluded.
2001 measures,
agriculture, labor
standards,
environment,
competition,
investment,
transparency,
patents etc
Main Objectives of GATT

By reducing tariff barriers and eliminating discrimination in international trade, the GATT aims
at:
 Expansion of international trade;
 Increase of world production by ensuring full employment in the participating nations;
 Development and full utilisation of world resources; and
 Raising standard of living of the world community as a whole.
However, the articles of the GATT do not provide directives for attaining these objectives. These
are to be indirectly achieved by the GATT through the promotion of free (unrestricted) and
multilateral international trade.
Fundamental principles of GATT

1. Trade should be conducted in a non-discriminatory way;
2. The use of quantitative restrictions should be condemned; and
3. Disagreements should be resolved through consultations.
In short, members of GATT agree to reduce trade barriers and to eliminate discrimination in
international trade so that, multilateral and free trade may be promoted, leading to wider
dimensions of world trade and prosperity.
Functions of GATT
1. Reduce international restriction
2. Reduce tax problems
3. Development in international trade
Policies of GATT
1. Non discrimination policy
2. No quantitative restrictions
3. Opinions
Most-Favored-Nation Clause
To belong to GATT, nations must adhere to the most-favored-nation (MFN) clause. MFN means
that if a country, such as the United States, grants a tariff reduction to one country—for example,
a cut from 20 percent to 10 percent on wool sweaters from Australia—the United States would
grant the same concession to all other countries of the world. The MFN applies to quotas and
licenses as well. Although MFN was initially intended to be unconditional, countries have
always made exceptions to it. The most important exceptions are as follows:
 Manufactured products from developing countries have been given preferential treatment
over products from industrial countries.
 Concessions granted to members within a trading alliance, such as the European
Community (EC), have not been extended to countries outside the alliance.
 Nations that arbitrarily discriminate against products from a given country are not
necessarily given MFN treatment by the country whose products are discriminated
against.
 Nonsignatory countries are not always treated in the same way as those that grant
concessions. Countries sometimes stipulate exceptions based on their existing laws at the
time of signing a GATT agreement.
 Exceptions are made in times of war or international tensions. The first exception
provides that most industrial countries grant tariff preferences to developing countries
under the Generalized System of Preferences (GSP). Under the second exception, the
United States and Israel agreed in 1985 to remove all tariffs on each other’s products
without giving the same benefits to other countries. Under the third exception, the United
States does not grant MFN treatment to a number of countries in the former communist
bloc. Under the fourth exception, only countries signing GATT’s Government
Procurement Code (nondiscrimination against imports in government procurement) are
granted automatic permission to bid on public works contracts open to foreign bids.
Under the fifth exception, Switzerland excludes agricultural trade. Finally, under the last
exception, the United Kingdom suspended MFN treatment to Argentina as a result of the
two countries’ being at war in the South Atlantic.
GATT-Sponsored Rounds
GATT’s most important activity has been the sponsoring of “rounds” or sessions named for the
place where the round begins, which have led to a number of multilateral reductions in tariffs and
nontariff barriers for its membership. The process of granting reductions is across the board: In
other words, countries may agree to lower all tariff rates by a given percent, but not necessarily
the same percent by all countries, over some specified period of time. Given the thousands of
products traded, it would be nearly impossible to negotiate each product separately and even
more difficult to negotiate each product separately with each country separately. Nevertheless,
each country brings to the negotiations certain products that it considers exceptions to its own
across-the-board reductions. That a series of negotiations have resulted in vast tariff reductions
indicates not only that countries are committed to work jointly toward freer trade but also that
tariffs are the easiest trade barrier to tackle.
The Tokyo Round, for example, resulted in an overall reduction in tariffs, including a
reduction between the United States and the EC by 35 percent each way, and a reduction of 40
percent by Japan on U.S. imports into Japan. In spite of these tariff reductions, the primary thrust
of the negotiations involved grappling with the increasingly important and complex nontariff
barriers, especially in five specific areas: industrial standards, government procurement,
subsidies and countervailing duties, licensing, and customs valuation. In each of these five areas,
conference members agreed on a code of conduct for GATT nations.(33)
The Agreement on Industrial Standards provides for treating imports on the same basis as
domestically produced goods. Similarly, the Agreement on Government Procurement calls for
treating bids by foreign firms on a nondiscriminatory basis for most large contracts.
The Agreement or Code of Conduct on Subsidies and Countervailing Duties recognizes domestic
subsidies as appropriate policy tools whose implementation, however, should avoid any adverse
impact on other countries. Export subsidies are prohibited, the only exception being agricultural
products. This agreement also spells out procedures regarding the possibility of using
countervailing duties against a second country if the first country believes its domestic firms are
being harmed by the second country’s subsidy.
The Licensing Code commits members to simplify their licensing procedures
significantly and to treat both foreign and domestic firms in a nondiscriminatory manner.
The Customs Valuation Code calls for either C.I.F. or F.O.B. valuation (invoice value with or
without transportation and insurance included) and bans certain types of valuation methods, such
as basing valuation on the selling price of a product in the importing country. The specific
procedures were discussed earlier in the chapter in the section on customs valuation.
GATT as Monitor
There is general agreement that tariff-reduction agreements are difficult to enforce. There
are simply too many subtle means that countries use to circumvent the intent of negotiations.
Furthermore, there is one important area on which participants have been unable to agree: the use
of temporary safeguards against severe domestic disruptions caused by expanding imports.

GATT still allows safeguard measures that can reverse the injurious effects of increases in
imports that, in turn, result from trade-liberalization moves. In such a situation the injured nation
may cancel a previously negotiated action that liberalized trade as long as the country feels that
this move is necessary to prevent further injury, particularly in the form of increased
unemployment in the affected industry.
In practice, very few safeguards have been imposed under the new GATT rules. However,
there have been a number of “voluntary” limitations on exports, such as the example of Japanese
limits on auto exports to the United States discussed in the opening case. A voluntary restraint
can circumvent GATT agreements because neither the importing country nor the exporting
country complains to the GATT Council in Geneva (the organization’s ruling body), and GATT
can do nothing without a complaint.
What can GATT do if there are complaints? First, it investigates to determine whether the
allegations are valid. If the complaints are valid, then countries may pressure the offending party
to change its policies. In extreme cases, other GATT members could rescind MFN treatment
from the violating country; however, such a measure has not become necessary. The mutual
commitment to cooperate has been sufficient to gain widespread compliance with GATT
directives. For example, the United States eliminated custom-user fees after the GATT Council
investigated complaints from Canada and the EC; and Japan lifted quotas on eight processed-
food products, which had raised complaints in the United States.
GATT Limitations
The Office of the U.S. Trade Representative estimated that only about two-thirds of the 1989
world trade of $3730 billion was covered by GATT regulations; i.e., one-third of trade is in
products that countries make exceptions to their across-the-board reductions in restrictions.
About half the noncov-ered trade consists of services, such as financial services, which remain
highly protected in many countries. Two other areas of importance are agricultural products and
textiles and apparels.
The Uruguay Round began in 1986 and disbanded without an agreement by its target date
at the end of 1990. Although by 1992 the negotiations were underway again, the experience of
the four years of GATT Uruguay Round negotiations exemplifies the growing difficulty of
reducing trade restrictions through globally oriented trade agreements. At the core of the problem
are the facts that the less-sensitive concessions have already been made and that attention has
moved toward services and away from products. Other problems include the fact that talks
become more cumbersome as more countries become signatories of GATT and the growing
expectation on the part of industrial countries that LDCs should also make trade concessions. For
example, the United States has urged Europe to remove barriers to the freer flow of agricultural
products; and Europeans have urged the United States to remove its dumping legislation, its
safeguards against imports that might violate U.S. patent protection, and its textile-import
limitations. These are all areas of such high domestic sensitivity that politicians seem unlikely to
yield to international pressures during negotiations. The area of services is so complex that there
is as yet little agreement even on how to commence negotiations. Trade in many services
involves the potential movement of people internationally, such as in construction and the
professions. One immediately encounters immigration issues and difficult licensing requirements
and opinions over qualifications.
GATT and the World Trade Organization
In 1993, the GATT was updated (GATT 1994) to include new obligations upon its
signatories. One of the most significant changes was the creation of the World Trade
Organization (WTO). The 75 existing GATT members and the European Communities became
the founding members of the WTO on 1 January 1995. The other 52 GATT members rejoined the
WTO in the following two years (the last being Congo in 1997). Since the founding of the WTO,
21 new non-GATT members have joined and 29 are currently negotiating membership. There are
a total of 157 member countries in the WTO, with Russia and Vanuatu being new members as of
2012.
Of the original GATT members, Syriaand the SFR Yugoslavia has not rejoined the WTO. Since
FR Yugoslavia, (renamed to Serbia and Montenegro and with membership negotiations later split
in two), is not recognised as a direct SFRY successor state; therefore, its application is
considered a new (non-GATT) one. The General Council of WTO, on 4 May 2010, agreed to
establish a working party to examine the request of Syria for WTO membership. The contracting
parties who founded the WTO ended official agreement of the "GATT 1947" terms on 31
December 1995. Serbia and Montenegro are in the decision stage of the negotiations and are
expected to become the newest members of the WTO in 2012 or in near future.
Whilst GATT was a set of rules agreed upon by nations, the WTO is an institutional body.
The WTO expanded its scope from traded goods to include trade within the service sector and
intellectual property rights. Although it was designed to serve multilateral agreements, during
several rounds of GATT negotiations (particularly the Tokyo Round) plurilateral agreements
created selective trading and caused fragmentation among members. WTO arrangements are
generally a multilateral agreement settlement mechanism of GATT.
MULTI FIBRE AGREEMENT (MFA)
The complete phase-out of the Multifibre Agreement would undoubtedly throw open new
markets for the Indian textile sector. At the time our domestic manufacturers would be subject to
free trade and open competition from international companies. To prepare themselves for the
impending international competition and attain higher standards of quality in textile products,
our domestic manufacturers would have to adopt modern technology. Keeping this fact in view
the government has stepped in at the right time by launching the Technology Upgradation Fund
Scheme which aims at boosting investment in modern machinery and adoption of state-of-the–art
technology by our textile manufacturers. India has also been making efforts in coordination with
other developing countries for further liberalisation of international trade in textiles.
Agreement on Textiles and Clothing (ATC)
Before knowing the ATC, it is worthwhile to know about the Multi Fibre Agreement
(MFA), which entered into force in 1974. It extended the coverage of the restrictions on textiles
and clothing from cotton products to wool and man-made fibre products.
The stated objective of the MFA was "to achieve the expansion of trade, the reduction of
barriers to such trade and the progressive liberalization of world trade in textile products”. While
at the same time ensuring the orderly and equitable development of this trade and avoidance of
disruptive effects in individual markets and on individual lines of production in both importing
and exporting countries". A further aim was "to further the economic and social development of
developing countries and secure a substantial increase in their export earnings from textile
products and to provide for a greater share for them in world trade in these products".
Operationally, the MFA (like the cotton arrangements) provided rules for the imposition
of quotas, either through bilateral agreements or unilateral actions, when surges of imports
caused market disruption or threat thereof in importing countries. In imposing quotas, importing
countries were obliged to observe consultation provisions and specific rules and standards both
in determining a situation of market disruption and when introducing and maintaining
restrictions on exporting members. As a norm they were required to allow for an annual growth
rate of six per cent in the quotas. A statutory body, the Textiles Surveillance Body, carried out a
monitoring and reporting function and also handled cases of disputes. The MFA terminated on 31
December 1994 upon the entry into force of the WTO and its Agreement on Textiles and
Clothing on 1st January 1995.
Impact of MFA on ITI
During the course of the first two Multifibre Arrangements in the 1970s, Indian exporting firms
enjoyed a relatively unrestricted growth. Their export quantities had not reached the limits set by
the quotas. However, during the third phase, some quotas started to bite. By 1987, apparel
exports began to be curtailed by quota ceilings for most categories.
 Indian exporters complain that quota restrictions have limited their ability to mass-
produce and thereby reap benefits from economies of scale. Another common problem is
uncompetitive prices, pushed higher by the cost of paying for quotas. This made many
Indian exporters to move their operations to non quota countries like Sri Lanka and
Nepal.
 Thus, when the country subjected to quantitative restrictions progressively upgraded the
quality of their textile and clothing exports in order to maximize the economic gains. In
shifting their exports to the higher end of the quality range, they forced competition to
move from lower value high volume products to the more sophisticated ones. But still the
niche of quality, which is in demand, is very far from what it is being produced. The
replacement of MFA with ATC is raising new implications for the market access.
Features of ATC
The ATC is a transitional tool that will be used in place of the MFA until 1st January 2005. The
ATC has a number of defining features. Some of these are:
 The product coverage, encompassing yarns, fabrics, made-up textile products and
clothing;
 A program for the progressive integration of these textile and clothing products into
GATT 1994 rules;
 The liberalisation process to progressively enlarge existing quotas (until they are
completely removed) by increasing the annual growth rate at each stage and
 Establishment of the Textiles Monitoring Body (TMB) to supervise the implementation
of the other provisions.
Thus, the main objective of it being “Multi Fibre Agreements and other QRs usually imposed by
developed countries to be phased out by year 2005 (in 4 phases, 1974-2005)” Heavy investment
is being seen in the country in automated equipment, particularly in the textiles sector to upgrade
their quality. As a result, the textile industry is becoming one of the capital-intensive areas within
the manufacturing sector in India.
Impacts and Implications of ATC on ITI

The agreement has great relevance for India whose exports of the sector are more than € 12
billion. The impact and implications of the ATC are dealt with SWOT analysis of the sector
below;
Strength
 Largest producer of jute
 Second largest producer of silk
 Third largest producer of cotton
 Second largest exporter of dyestuff and dye intermediates
 Presence of entire chain of manufacturing e.g. in cotton, from growing, ginning,
spinning, weaving, processing to clothing garments/madeups
 Presence of vibrant textiles machinery sector
 Support institutions
 Availability of cheap labour
Weakness
 Low productivity at all levels, from growing to ginning to spinning to weaving
 Capacity utilization as low as 50% in most of the sub-sectors
 Poor infrastructure
 90% of units being very small or tiny
 Absence of productive economy of scales in most sub-sectors,
 Absence of value added tax
 Control on dynamics of sub-sectors & restrictive import regime and trade policy
 Environment & technological obsolescence
 Lack of long term strategy
Opportunities
 With the phasing out of restrictive trade policies- MFA and other QRs, substantial
increase in size of the markets is expected.
 Besides the developed countries, new markets would be opened up in developing
countries.
 Post GATT, the trade of textiles and clothing is expected to rise by € 24 Billion per year.
Threats
 Major benefits of ATC agreement under GATT not to be available before 2002.
 ‘Quotas’ are being removed, but ‘Non-Tariff Barriers’ (e.g. in the name of anti-dumping,
consumer safety, eco-labeling etc.) are fast replacing ‘quotas’.
 Phasing out of quotas also mean countries to export on their comparative advantage only;
 Competition in international market to increase manifold, with eco-textiles
MARKET ACCESS
Obstacle Reasons Environmental Implications
Requirements (threat/opportunities)
Lack of infrastructure and Quality standards SMEs face more formidable

monitoring facilities compliance in practicing
environmental standards
Limited technology choices Technical regulations Exports are more vulnerable
inadequate access to to market access barriers due
(relatively more expensive) to its scale and sector
environmentally friendly raw composition.
materials
Lack of info on eco-processes Environmental Management Expensive to adapt the
Systems (ISO, etc) EMS, standards, procuring
eco-label, purchasing
licenses, etc
Enterprises lack the skill and Eco-labelling Need of expertise and
technology needed to explore Technology
the positive trading benefits by Easy market access
environmental measures
Difficulty in harmonization Recycling requirements Better trade image (domestic
compared to developed Packaging & global)
countries who have widely Material specific Requirements Possibilities of outstanding
differing environmental Processes performance being the
standards in accordance with biggest and varying sector
their national priorities
As shown above the obstacles for the market access are mainly due to the hindrance and lack of
technology. These obstacles can be eliminated only by means of information dissemination and
bringing this information into practice through proper training programmes. The country may
have cheap and heap of eco-friendly resources, but to explore them there is a need of proper
information. As the nations R&D and technology are lagging behind the consultation with
developed nations becomes important and vital.
As a result, even after six years of the start of implementation of the Uruguay Round, the access
of developing country textile exporters to developed country markets remains restricted. The
growth of textile exports has collapsed during the 1990s, as compared with the second half of the
1980s. Further, there has been little change in the distribution of textile and clothing exports
between major regions.
This can only be attributed towards quality. When there are quantity restrictions in trade, the
margin of profits can be made only through quality output. The industries concentrated more
towards mass production, which was not the proper solution. The same profits could be made
with less and better quality output. The quality output will not only keep the margins of profits
but also heightens the trade and consumer reliability.
Environmental requirements cover a broad spectrum and include, inter-alia, charges and
taxes for environmental purposes. Requirements are relating to products including standards and
technical regulations, ecolabelling, packaging and recycling requirements for achieving
environmental objectives. Such requirements have significant effects on market access of
developing countries like India into markets that prescribe them. These effects could be positive
or negative. Positive effects, or opportunities, are not always easy to exploit and require
expertise, technology and resources that may not always be available. As the sector is quite huge
with all sub-sectors, it can achieve better trade image. Negative effects relate to expenditure
incurred to adapt to new standards, licenses etc., to acquire necessary technology and expertise,
to non-availability of materials for meeting requirements and the administrative apparatus
required in exporting countries.
Quota Administration
The international trade in textiles and clothing was regulated by special arrangements for 40
years outside the rules of General Agreement on Tariff and Trade (GATT). The framework of
Multi-Fibre Arrangement (MFA) applied to international trade in textiles and clothing for the
period 1974 to 1994. 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. Consequent upon
the establishment of the World Trade Organization (WTO) with effect from 1.1.1995, the
quantitative restrictions in the bilateral agreements under the MFA are being governed by the
Agreement on Textiles and Clothing (ATC) contained in the final Act of the Uruguay Round
negotiations. The quota regime in the textile sectors is scheduled to be completely phased out by
the end of 2004 AD. The Ministry of Textiles has announced Garments and Knitwear Export
Entitlement (Quota) Policy 2000-2004 and Yarn, Fabrics and Made-ups Export Entitlement
(Quota) Policy 2000-2004 on 12th November, 1999. The break up of quota allocation under
various systems for export of yarn, readymade garments and other textiles is given in the table
below. The Short-Term Cotton Arrangement (STA) of 1961 for the first time formally
acknowledged special treatment of the textile sector in the world trading system. This special
arrangement for cotton, which began as a one-year agreement, led to a sequence of arrangements
on textiles spanning more than forty years. The Long-Term Arrangement (LTA) lasting from
1962 to 1973 and the Arrangement Regarding International Trade in Textiles (better known as
the Multifibre Arrangement or MFA) lasting from 1974 to 1994, for all practical purposes
exempted the textiles sector from GATT rules and discipline.(9) The ATC, which succeeded the
MFA in 1994, explicitly acknowledged the need to integrate the textile sector into GATT and set
a definitive end date (31 December 2004) for the special treatment of the sector. However, at the
time of the Costa Rica-US dispute the liberalizing impact of the ATC remained unclear. And the
history of textile treatment in the world trading system justified a certain level of skepticism.
For more than thirty years, the textile sector was governed by many agreements: the
Short Term Cotton Arrangement in 1961, the Long Term Cotton Arrangement from 1962 to
1973, and the Multi-fiber Arrangement from 1974 to 1994. In short, efforts to liberalise trade and
textiles have always met with great difficulties. As a result of protective measures developed
countries made heavy investment in the sector, and as a result textile industries in the developed
nations became one of the most capital-intensive areas within the manufacturing sector. During
the same time, developing countries were subject to quantitative restrictions thus keeping a
strong check on their textile exports and taking the edge by keeping maximum amount of textile
production in their hands. The MFA was terminated on 31 December 1994 upon the entry into
force of the WTO and its Agreement on Textiles and Clothing (ATC) on 1 January 1995 in order
to have a multi-lateral liberal system of trading by deleting quota from textile exports by the end
of 2005. Phenomenal resources have been committed in recent years by developing nations
depending heavily on textile exports towards re-structuring and industrial adjustments for
meeting the requirements of the quota free regime. However, there is still a long way to go as for
instance 92% of the quotas in the case of the US and 76% of the quotas in the case of EU are still
in place as of May 2003. Extrapolating from recent IMF and world bank studies on income, trade
and employment implications for developing countries it is estimated that developing countries
would have an income gain of about USD 24b per year, export revenue gain of USD 40b and
employment generation of about 27m jobs in the post Agreement on textile and Clothing (ATC)
era. However, hopefully, the textile quota system will be behind us effective from January 1,
2006 when the textile sector will be reintegrated into the multilateral trading system. Though it is
yet to be seen whether it will be an integration in the true sense, while all the WTO members
states, particularly, major importers of textiles and clothing will make every effort to resist the
temptation of continuing the protection through other imaginative protectionist ways and means.
For a long time multi-fiber arrangements and its predecessor arrangements have diverted from
the basic principle of a multilateral trading system and constituted a form of a special and more
favorable treatment for developed economies by imposing discriminatory restrictions in a sector
that has always been of a crucial interest to developing nations. Restricted textile exports
provided developed country's textile industry and their economy with more than three decades of
protection. Though elimination of textile quotas in 2005 will open trade to fierce competition, it
will also open many windows of opportunities for all the countries that rely heavily on this
particular sector. The benefits, however, for the developing countries may not be spread evenly.
Countries that are more competitive may be able to exploit more opportunities and being
competitive would mean having an indigenously integrated textile industry. Basic raw materials
being available at home would be a crucial factor for greater exports of value added products but
above all developing countries would have to put their houses in order, improve productivity and
competitiveness and gear up for increased emphasis on quality and timely delivery requirements
of the buyer. Hence, the post 2005 era offers opportunities of export markets that will be free
from quota restrictions. The name of the game as mentioned earlier is "competitiveness".
Competitiveness
Many developing countries have a competitive edge in yarn and textile production and
other made-ups and still others in apparel and so on and so forth. Therefore, there is something in
the lifting of restrictions for everyone but there are fast changing phenomena at work in the
textile industry, i.e. there are new ways of doing business, new technologies, and better fabrics.
Specialization in niche products and diverse exports is probably the only way to remain in the
new market. However, translating these opportunities into actual trade performance will require
appropriate domestic policies in the form of political and social measures in areas such as
production, technology and marketing strategies to build a competitive edge. Price
competitiveness, an important factor, would make a lot of difference in the post quota world.
Although non-price factors such as quality, quick responses to changing consumer taste, fashion,
development of new fabric, etc. should not be discounted either. Developing countries with
developed or integrated textile production structure will be better poised to utilize the market
opportunities of a quota free trade regime
Non-Tariff Barriers
The post quota regime sounds a perfect solution for ending trade disparity among textile
producing developing countries, which was imposed upon them by developed countries.
However, in the post 2005 scenario such restrictions may still exist in the form of non-tariff
barriers such as antidumping and countervailing duties that are not only trade restrictive but also
price distorting and can lead to inefficiencies in the market. It is a ground reality that once a
textile manufacturer loses a buyer on account of higher prices due to such duties it is very hard
for the same manufacturer to regain his share in the market later. It is ironic that the WTO
committee is still debating on rules and procedures on the inadequacy of the anti-dumping law.
Using the inadequacies of these laws different countries initiate investigations related to textile
related products coming from other countries. From past trends it seems that the purpose behind
initiation of these investigations is to simply freeze the trade transaction. These investigations
linger for a year or more, and eventually yield a negative result in most cases. Mr. Humayun
Akhtar, trade minister of Pakistan, has recently quoted that, "From 1994 to 2001 the EU
commission has been the biggest user of anti dumping and anti-subsidy actions accounting for 64
initiations in the textile sector of these 57 were targeted against developing economies." It is
interesting to know that the targeted countries of these initiations were already subject to quota
restrictions. Textile exports from developing countries are repeatedly disrupted by initiation of
such prolonged anti-dumping investigations that has a negative consequence on their trade.
These actions strengthen the apprehension that the post 2005 quota free age may in fact prove to
be a nightmare for developing countries involved in textile exports. It is feared that if such trends
do not end, and further proliferation of protective measures in the textile sector in the pre and
post ATC era prevail, they would nullify the benefits of the removal of the quotas.
The intervening period leading up to 2005 has also seen the emergence of regional trade
arrangements (RTA) and unilateral preferential schemes of international trade in this sector.
These preferential regional arrangements provide no quota restraints from some countries that
are termed as preferred suppliers. To quote some examples in the US there are some Caribbean
initiatives, Andean trade preference act and African growth and opportunity act, not to mention
NAFTA. In the EU there are among others the Euro-Mediterranean Association agreements,
preferential agreements such as the ACP-EU trade agreement. Statistics on the increase in export
of preferred suppliers to the US and EU must be assessed in conjunction with the base, value,
volumes and increase trade shares in order to gain a complete picture. The conclusion seems to
be that real gains are more evident in these regional types of arrangements. To quote one
example in the words of Fernando Canales, Mexico's economic minister, that he made at the
ministerial conference in Brussels, Belgium on May 6, 2003:
There is no doubt that the liberalization of the sector, under NAFTA helped the industry
to increase its production and exports. Since 1996 growth in this industry has outpaced our GDP
growth. Consequently in 1998 Mexico became the largest supplier of textile goods to the US
market. In 2001, our (Mexico's) textile and apparel export to the US market were 9 billion US
dollars. In the end, if the post-2005 era would not permit discriminatory quota restrictions as a
matter of rule then it goes without saying that the lifting of quotas would finally unleash growth
and development potential of developing countries and enable them to benefit much more from
multi lateral trading system.
Though the General Agreement on Tariff and Trade (GATT), at times criticised as the
`general agreement to talk and talk', operated for almost half a century in the post-Second World
War era, aiming at free trade, textiles were governed by special arrangements outside GATT, for
nearly four decades.
 These were the Short Term Arrangement Regarding International Trade in Cotton Textiles
(STA), the Long Term Arrangement (LTA) and so on.
 Then came a biggie, in the form of the Multi-Fibre Arrangement, or the MFA, that ruled
the scene for two decades, during when textiles quotas were negotiated bilaterally.
 The MFA allowed imposition of selective quantitative restraints, and annual growth rates
for quotas.
 Each country had its own method of distributing the available quotas among the myriad
exporters. Thus, India used 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) and so on.
 The MFA ended in 1994, and was followed by the Agreement on Textiles and Clothing
(ATC), born along with the establishment of the World Trade Organisation (WTO) a
decade ago.
 The basic aim of the ATC was to secure the removal of restrictions applied by developed
countries to imports of textiles and clothing. The ATC ruled the scene for ten years, and
terminated a few days ago, performing its due role of dismantling the MFA regime, and
integrating textiles into `GATT 1994' in four steps. (GATT 1994 is the new version of the
General Agreement, incorporated into the WTO, which governs trade in goods.)
 Thus, on January 1, 1995, members were required to integrate no less than 16 per cent of
the total volume of 1990 imports.
 Three years later, another 17 per cent was to be integrated, followed by 18 per cent in
2002. The balance, a whopping 49 per cent, happened when we were busy saying Happy
New Year, a few days ago.
 The real impact is more because, as a document on the WTO's site informs, only 20 per
cent of the products integrated into WTO rules in the first three phases of the ATC were
subject to quotas.
 The remaining 80 per cent of quotas eliminated at the end of 2004, consisted of "239
quotas maintained by Canada, 167 quotas maintained by the European Union and 701
quotas maintained by the US."
 There is some flexibility, because a member country chooses what products to integrate,
but there should be at least one product of each of the four groupings — tops and yarns,
fabrics, made-ups, and clothing.
 The magic of integration into GATT is that any quotas imposed on them will be removed.
Don't forget that on textiles battles have been pitched during trade talks.
 For many developing countries, the idea of ending the quota system became the carrot to
get them around which to discuss issues such as intellectual property, services and
investment. Textiles are important in trade because they account for almost 10 per cent of
world manufactured goods exports.
 Though estimates vary on the effect of unshackling trade by removing the fetters of quota
on the value of trade in textiles, India and China are bullish about the new scheme of
things, if the past is any indication.
 For instance, Texprocil informs that during January-September 2004, exports to quota
countries were $1.21 billion against $1 billion the previous year, achieving an increase of
21 per cent. China has been the major player in the textile market; it holds a 22 per cent
share in fabric exports and almost a third share in garment exports, and is now looking at
50 per cent!
 Removal of quotas does not mean `happily ever after' for trading partners, because there
can be bickering on new forms of protectionism. One such move, however, met with a
roadblock on New Year's Day when a judge of the US Court of International Trade in
New York barred the Bush administration from considering petitions seeking restrictions
on imports of clothing and textiles from China.
*************

Five Year Plans For The Textile Industry

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Five Year Plans For The Textile Industry

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INDIAN TEXTILE INDUSTRY UNIT II

FIVE YEAR PLANS FOR THE TEXTILE INDUSTRY

First Five-Year Plan (1951–1956)

 Communications and transport

Target Growth:4.5% Growth achieved:4.0%

Third Five-Year Plan (1961–1966)

Fourth Five-Year Plan (1969–1974)

Seventh Five-Year Plan (1985–1990)

 Using modern technology

 Full supply of food, clothing, and shelter

 Increasing productivity of small- and large-scale farmers

 Making India an Independent Economy

 Merchandise imports (estimates): 95,437 crore (US$17.4 billion)

 To prioritize agricultural sector and emphasize on the rural development

 To ensure food and nutritional security.

 To check the growing population increase

 To encourage social issues like women empowerment, conservation of certain

 To create a liberal market for increase in private investments

Tenth Five-Year Plan (2002–2007)

Eleventh Five-Year Plan (2007–2012)

 Reduce educated unemployment to below 5%.

 Raise real wage rate of unskilled workers by 20 percent.

 Reduce the headcount ratio of consumption poverty by 10 percentage points.

 Develop minimum standards of educational attainment in elementary school, and

 Increase literacy rate for persons of age 7 years or above to 85%

 Lower gender gap in literacy to 10 percentage point

 Reduce Total Fertility Rate to 2.1

4. Women and Children

 Connect every village by telephone by November 2007 and provide broadband

 Increase forest and tree cover by 5 percentage points.

 Attain WHO standards of air quality in all major cities by 2011–12.

 Treat all urban waste water by 2011–12 to clean river waters.

 Increase energy efficiency by 20%

 Target growth: 8.33% Growth achieved:7.9%

12th Five Year Plan

Production of Fabrics in Organized Sector

Fragmentation of manufacturing units is the most serious impediment to production of

Need for New Approach

Investments for modernisation and technological upgradation

Raw Material Policy

 Labour Law Enforcement Authorities in terms of Sections 8, 9 & 10 should be allowed to

Financing of consolidation and special package for T&C Industry

THE CONCEPT OF GATT

months Anti- billion of world trade

Main Objectives of GATT

Fundamental principles of GATT

3. Development in international trade

of temporary safeguards against severe domestic disruptions caused by expanding imports.

Impacts and Implications of ATC on ITI

Lack of infrastructure and Quality standards SMEs face more formidable

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