In a recent paper. John WHALLEY of the university of westen Ontario has assessed the impact of the end of the MFA. he has used data from US ,EU,Chinese and other sources. India seems to have done quite well.the impact on both asian and non asian suppliers to the EU differs from that of US case.only for India is there an increase in the market share. In all other cases shares either fall o hold steady. The picture that emerges is only small impacts on aggregate Chinese exports of clothing and textiles.

The project aims at studying the textile industry of India in general and textile export from India post MF regime in particular. The project studies the various aspects of WTO agreement and its implications on the textile export .it also studies how the termination of Multi Fibre agreement benefited India and its competitiveness vis a vis other global players like China, Korea and Vietnam. It also highlights various aspects pertaining to Indian textile industry like its comparative advantage in textiles and garments with respect to other countries, which emanates from the low wage costs and access to domestically produced fabrics and other inputs.

Profile of the Indian Textile Industry

The Indian Textile industry occupies an important place in the economy of the country because of its contribution to the industrial output, employment generation and foreign exchange earnings.

At present, the contribution of the textile industry to GDP is about 4 percent. The textile industry provides direct employment to about more than 35 million people and is the second largest employment provider in India after agriculture.

Of this, textile industry alone accounts for 29 million and the apparel industry accounts for balance 6 million people.



Volume (2004-05) Employment

Organized Textile Mills Powerloom Handloom Jute Handicrafts Sericulture

1789 0.4 million 3.5 million -

1.5 bn sq.mts 28.3 bn sq.mtr 5.7 bn sq.mtr 1.6 mn tonnes -

(Million) 1.0 4.8 6.5 4.4 6.4 6.0

Source: Ministry of Textiles With exports as well as domestic sector growing rapidly the Textile and Apparel Industry is expected to provide direct employment to 40 million people by year 2010. • Size of the Indian Textile and Apparel Industry is estimated to be US $ 85 bn comprising US $ 45 bn in domestic and balance in exports by 2010.

The contribution of this industry to gross export earnings is about 17% and it adds less than 2 % to the gross import bill of the country in 2004-05.

The textile industry is a self -reliant industry from the production of raw materials to the delivery of final products with considerable value addition at each stage of processing.

The industry was delicensed in 1991 and under the current policy no prior government approval is necessary to set up textile mills. The per capita cloth availability in the country has increased from 22.87

square meters in 1991-92 to 33.51 square meters in 2004-05. PER CAPITA AVAILABILITY OF CLOTH (In Sq. Mts.) 100% COTTON FABRICS 6.26 6.36 6.72 7.47 8.19 9.08 10.41 10.99 11.91 11.96 12.46 12.59 13.09 15.32 22.87 24.50 26.22 25.98 27.99 29.30 30.92 28.19 30.55 30.68 31.97 31.37 31.01 33.51 NONTOTAL

YEAR 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

COTTON 13.71 15.57 15.92 15.24 16.32 16.24 15.94 13.07 14.16 14.22 14.82 14.40 13.41 14.08

BLENDED/MI XED FABRICS 2.90 2.57 3.58 3.27 3.48 3.98 4.57 4.13 4.48 4.50 4.69 4.38 4.51 4.11

By O/o the Textile Commissioner India’s position in the World Textile Economy

•Third largest producer of raw cotton •Second largest producer of cellulosic fibre / yarn. •Second largest producer of cotton yarn. •Largest producer of jute. •Second largest producer of silk. •Fifth largest producer of synthetic fibre / yarn.

Importance GDP * * * * * * GDP: Exports






Economic Indicators 4 % 17 % 12 % 13 % 13 % 21 % (2nd largest employment provider) Indian textile trade:
 

Invested Capital Gross Output No. of Factories Employment

3.17% of world market ( 2003) CAGR of 5.91% (94-2004)

 

3rd rank in EU & 4th rank USA From USD 13.5 bn in 2004 to USD 40 bn in 2010 over a period of 7 years @ CAGR of 19.85%

%Vision India 2010 for Textiles Textile economy to grow to $ 85 bn. by 2010. Creation of 12 million new jobs in Textile Sector. To increase India’s share in world trade to 6% by 2010. Achieve export value of $ 40 Billion by 2010. Modernisation and consolidation for creating a globally competitive industry.

    


 Textile & Apparel Market USD 85 billion - Export USD 40 billion and Domestic USD 45 billion

Post-Quota regime Indian Textile Industry is poised for a quantum leap and leverage its competitive advantage. Investment climate in Textile Industry has drastically improved. Entrepreneurs and existing players are expanding capacities and adopting strategies addressed to growing consuming class.

Industry is striving hard to improve quality, productivity & efficiency, and introducing global benchmark with the support of modern technology & IT solutions. Indian economy’s growth at 7-8% & focus on development of infrastructure augurs well for the growth of industry. Pragmatic approach by the Government in supporting the textile industry and close cooperation Bilateral & multilateral trade agreements will facilitate better trade.

Textile Trend : Textiles account for 14 per cent of India's industrial production and around 17 per cent of its export earnings. From growing its own raw material (cotton, jute, silk and wool) to providing value added products to consumers (fabrics and garments), the textile industry covers a wide range of economic activities, including employment generation in both organised and unorganised sectors. Manmade fibres account for around 40 per cent share in a cottondominated Indian textile industry. India accounts for 15% of world's total cotton crop production and records second largest producer of silk. It is the second largest employer after the agriculture sector in both rural and urban areas. India has a large pool of skilled low-cost textile workers, experienced in technology skills.

Almost all sectors of the textile industry have shown significant achievement. India's cotton textile industry has a high export potential. Cost competitiveness is driving the penetration of Indian basic yarns and grey fabrics in international commodity markets. Small and flexible batches of apparels can be manufactured in India and can provide a larger variety of casual wear and leisure garments at significantly lower costs. Besides natural fibres such as cotton, jute and silk, synthetic raw material products such as polyester staple fibre, polyester filament yarn, acrylic fibre and viscose fibre are produced in India.

Textile Exports at a Glance (Provisional) TEXTILE EXPORTS AT A GLANCE APRIL ITEM DECEMBER 2004-05 2005-06 % Mn.US $ Ready Made Garment 4393.97 Rmg Cotton Including Accessories 3288.73 Rmg Silk 127.78 Rmg Manmade Fibres 533.47 Rmg Wool 276.98 Rmg Of Other Textile Material 167.01 Mn.US $ 5889.11 4392.18 176.53 742.10 296.32 281.99 Growth 34.03 33.55 38.15 39.11 6.98 68.85


Cotton Textiles 2509.88 3077.68 Cotton Raw Incl. Waste 56.81 292.82 Cotton Yarn, Fabrics, Madeups 2453.07 2784.86 Etc. Man-made textiles 1464.42 1450.36 Manmade Staple Fibre 45.26 62.05 Manmade Yarn, Fabrics, Madeups 1419.16 1388.31 Wool & Woollen Textiles 50.31 Wollen Yarn, Fabrics, Madeups 50.31 Etc. Silk Natural Madeup Silk Waste TOTAL TEXTILES Handicrafts HANDICRAFTS Silk Yarn, 294.17 Fabrics, 293.94 0.23 319.78 316.78 3.00 62.49 62.49

22.62 415.44 13.53

-0.96 37.09 -2.17 24.21 24.21

8.71 7.77 1203.48

8712.75 10799.42 23.95 738.71 (EXCL. 285.02 436.45 0.00 17.24 910.69 314.21 579.87 0.00 16.61 99.71 99.71 23.28 10.24 32.86 0.00 -3.65 32.49 32.49

HANDMADE CRFTS) Carpet (Excl. Silk) Handmade Carpet (Excl. Silk) Millmade Silk Carpet COIR &

COIR 75.26 COIR 75.26

MANUFACTURERS COIR & MANUFACTURERS Jute Floor Covering Of Jute Other Jute Manufactures Jute Yarn

198.35 35.50 39.09 52.17

223.37 47.54 43.21 40.53

12.62 33.92 10.53 -22.32

Jute Hessian TOTAL TEXTILE EXPORTS Source : Foreign Trade




9725.07 12033.20 23.73 Statistics of India (Principal

Commodities & Countries) DGCIS, Calcutta Exports of Textiles At present, (2004-05) the exports of textiles (including handicrafts, jute, and coir) account for about 17% of total exports from India and are the largest net foreign exchange earner for the country as the import content in textile goods is very little as compared to our other major export products. Further, the export basket consists of wide range of items containing cotton yarn and fabrics, man-made yarn and fabrics, wool and silk fabrics, made-ups and variety of garments.

Textile Exports at a Glance 2005-06 & 2004-05
5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0

Million US $

af ts

pr od uc t

ex ti

ex ti

Ju te


i lk





2004-05 2005-06







an di






oo ll e

Co tt





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Sector-Wise Analysis Readymade Garments Readymade garments account for approximately 49% of the country's total textile exports. They represent value added and less import intensive sub sector, thus deserving a special place. Readymade garment exports recorded a growth of 34.03% in 2005-06 (april-december) as compared to the previous year 2004-05. During the period April-December 2005-2006, Readymade Garment exports were US$ 5889.11 million,

Co ir



Co ir














corresponding period of 2004-2005. The major importing countries/regions of our readymade garments are the E.U., the U.S.A., Canada, Japan, U.A.E. and Switzerland. Cotton Textiles including Handlooms Cotton textiles i.e. yarn, fabrics and made-ups (Millmade / Powerloom/ Handloom) constitute more than 1/4th of our exports of all fibres/yarns/made-ups. Cotton textiles exports have recorded a growth of 22.62% (including raw cotton) in 2005-06 as compared to the previous year 2004-05. During the period April-December 2005-2006, cotton textiles exports including handlooms/raw cotton were US$ 3077.68 million, recording a growth of 22.62% as compared to the corresponding period of 2004-2005. Man-Made textiles The Man-Made textile exports had recorded a decline of 0.96% in 2005-06 as compared to the previous year during the period April-December 2005-2006, Man-Made Textiles exports were US$ 1450.36 million, recording a decline of 0.96% as compared to the corresponding period of 20042005.

Woolen Textiles During the period April-December 2005-2006, woolen

textiles exports were US$ 62.49 million, recording a growth of 24.21% as compared to the corresponding period of 20042005. Handicrafts including Carpets Handicrafts are one of the sub-sectors which contribute substantially to the overall textile exports. In dollar terms, the sector exhibited an annual export growth of 23.28% in 2005-06 as compared to the previous year. During the period April-December 2005-2006 handicrafts including carpet exports were US$ 910.69 million, showing a growth of 23.28% as compared to the corresponding period of 20042005. Coir The Coir exports had recorded a growth of 32.49% in 200506 as compared to the previous year During the period AprilDecember 2005-2006, coir exports were US$ 99.71 million, recording a growth of 32.49% as compared to the corresponding period of 2004-2005.

Jute Jute exports have recorded a growth of 12.62% in 2005-06 as compared to the previous year 2004-05. During the period April-December 2005-2006, jute exports were US$ 223.37 million, recording a growth of 12.62% as compared to the corresponding period of 2004-2005.

Implications industry







Since 1970, India has built up a large-scale clothing industry. During the course of the first and second MFA, in the 1970s, India’s exporting companies enjoyed significant growth. The abolition of quotas will certainly benefit some developing countries, while others will lose out dramatically. The biggest challenge the textile industry faces is to radically alter its mindset. Indian industry will have to become competitive by raising its level of efficiency to meet the challenge both in domestic and international markets. Every country’s textile industry is of strategic importance, as it generates large-scale employment. Thus it becomes necessary for countries to regulate the import of garments.

Regulation here takes a variety of forms including tariffs and quotas. With the completion of phasing out of the Multi-fibre agreement (MFA) by 1st January 2005, India’s share in total world textiles and garments exports is poised to reach 8.0% by 2010 from the present 3.9% to become $50 billion sector. With the termination of MFA agreement, India’s garments segment is poised to fuel the country’s textile and garment’s exports as this segment provides the highest per unit realisation and has high value added content. The year 2006 has ushered in a new beginning in the world trading system with a regime of quota free trade in textiles and clothing. The textile sector has been subject to various restrictions since 1961; it has finally been integrated in the world trade organization (the successor to GATT) starting January 1, 2005.From 1961-1994, Multi Fibre Agreement (MFA) governed this sector. In 1995, the MFA was integrated into the WTO via the Agreement on Textiles and Clothing (ATC) Against this background , it is likely that the changed scenario is offering significant export opportunities to the Indian Textile industry.( Binding quota restricted India and China, especially with regard to clothing though they have

strongest revealed comparative advantage –RCA-in textile and clothing.)

POST QUOTA REGIME: January 1, 2005, was a momentous day in the annals of world trade since it signaled the end of three decades of restrictive trade practices in textiles in the form of Multi Fibre Agreement or MFA, better known as quota regime. Introduced in 1974 by nine countries- Canada, France, Germany, Italy, Portugal, Spain, Greece, UK and US – the quota regime restricted imports from as many as 39 countries with India and China being the worse hit .The system of quota was intended to provide breathing space for industrialized nations to allow less developed countries like Bangladesh ,and from countries with which they had preferential trade agreement ,like Mexico to compete .the complete phase out of the MFA by 2005 under Agreement on textiles and clothing(A$C) put an end to quantitative restrictions. for exporters in India it gives a tremendous opportunity to boost export. A report by leading rating agency Fitch said;”the cost of retaining the MFA have evidently outweighed its benefits. Protectionism has skewed global distribution ,employment and investment pattern but has also failed to stem the slide in Textile and Clothing (T $ C) employment in industrialized countries.” the report also notes that for each job saved in developed world, as many as 35 jobs were lost in the developing world, notably in India and China. The Fitch report like many other reports, is particularly bullish on the prospects for India and China I the post quota regime. The report estimates

that while India could benefit to the tune of 8.4%of its current external receipts (CXR or export earnings), I the case of china, it would be a gain of 3.9%of its CXR. According to Mr. Raghav of leading consultancy KSA Technopak:” There would be three key determinants for a nation to succeed in post quota regime. These are raw material production base, ability to convert raw material into finished goods, the low cost of operations, and reliability as a supplier. India, Mr. Gupta notes, has the benefit of being strong on all four counts and is poised to do well in the post quota regime. While admitting the dominance of China as a leading supplier of textile and clothing, Mr.Gupta says there are enough safeguards to prevent it from monopolizing the market. The china safeguard allows the erstwhile quota deploying nations to regulate imports. it works like this-incremental supplies in a specific category would be limited to 7% year-on-year till 2008. Interestingly enough, the Chinese government on its part has already moved in to rein its overzealous exporters by levying an export tax covering some key categories like CAT347/348(trousers and shorts). According to Mr. Rajan Hinduja of Golakdas exports, although Indian exporters could see a marginal rise in apparel exports arising out of the Chinese decision (to impose the tax), the move is not likely to have a major impact as India accounts for under 5%share of the US market India can only be perceived as a threat when it reaches the level of china which meets around 25% of the US imports. But there is a flip side to the post quota story. For one, the abolition of quotas is expected to hit some countries really hard .Textiles and Clothing which accounted for 18% of

Vietnam’s export earnings in 2003 are expected to witness a slide thanks to rising competition from India and China in the post quota era. Similar is the story with Tunisia which derives a whopping 48% of its export earnings from this sector. Another worrisome issue could be the rise of non tariff barriers. While short term measures of reciprocal market access and transitional safeguards are currently being put in place by the industrialized nations, the downside risk remains that political pressure may increase non tariff restraints as a new line of defense. WHO GAINS AND WHO LOSES: • CHINA • INDIA • TURKEY • PHILIPPINES • INDONESIA 3.9% 8.4% -2.2% -1.7% -0.9%

INDIA VS. CHINA: China is undisputed leader in the world textile sector, making a quarter of the apparel sold world wide. But India enjoys few key benefits over china ,which will come into play in the post quota era. CUTTING EDGE:

India is self sufficient in cotton

In India, the 2.7 million tones of cotton consumed by its textile industry is all grown at home. China on the other hand, imports a fifth of its cotton requirement. • Higher export realization: While china caters to the mass segment, India has the ability to service high value niche orders and has better designer resources. this is reflected in the average export realization of the two countries. while the realization for India is $4, that for china is $3-$3.5 per piece, according to KSA Technopak. • No WTO Restrictions against India: The WTO agreement provides that countries can place filters if an export from China threatens to grow by more than 7.5%for the next three years. There is no such provision against India.

The US Textile industry is lobbying hard to block dumping of products from china.

WHY IMPORT FROM INDIA AT ALL: The India textile industry is emerging as the next best alternative to China. Importers from developed countries are trying to reduce their dependence on china and increase sourcing from India. There are also those in the industry who believe that the size is not all that matters and that china lacks the flexibility to meet smaller, custom made

requirements. India on the other hand is capable enough to provide fashion driven products although in smaller volumes, which probably makes it more amenable to experimentation. India also has the advantage of designing and embroidery. Sections of Indian textile industry which are likely to pick up the most: The garment industry stands to gain most directly post MFA.In the last 10 years, the quotas on other textile items(outside the garment)have been gradually lifted to meet the requirements of the ATC.The developed countries have kept the removal of quotas on garments to the final phase. So it is only in 2005 that the market for garments will completely open up. International retailers are also increasingly sourcing apparel from China and India, which is a positive development for garment industry. The cotton spinning industry may also benefit ,but indirectly. It may see a surge in domestic demand from garment exporters. THE BIG BUYERS: Wal-Mart, JC Penney’s Sra Lee and a host of other international retailers have announced plans to increase sourcing from India and have approved manufacturing facilities in places such as tirupur. The sudden surge in these outsourcing contracts comes in the wake of manufacturing units shutting down in the developed countries. For example ,the home textile segment shows promise ,as leaders in the US market such as Pillowtex and west point have filed for bankruptcy. again, Levi Strauss has closed down a number of its plants in the US and is now focusing more on marketing.

Retailers will therefore, be looking to increasing their sourcing from India and other countries to meet their demand supply gap. WILL THERE BE EQUAL VALUE AND VOLME GROWTH: While volumes are expected to expand faster, the value of Indian textile may grow at a lower rate. for one, there will be more competition , and hence greater pressure on pricing. Second, exporters have in the past resorted to purchasing quotas to expand their exports. The cost of acquiring these quotas has been passed on to the buyer. in the absence of quotas, these costs will disappear and exporters may lower the prices of the garments.

RECENT PERFORMANCE OF TEXTILE INDUSTRY: India’s texitile exports to the US and EU have marked a quanrum jump during the first half of the calendar year 2005, marking strong performance after the elimination of quotas. In the US market ,India’s export achieved a growth of 29.5% while it has grown nearly 75% in the EU. “india’s performance is much higher than the average growth of imports of tetile and clothig to USA , which is 10.98%.” says B.K.Patodia, chairman ,TEXPROCIL. In terms of growth India stands next to china. India’s traditional competitors like Pakistan , Indonesia and turkey have shown lower growth during this period. IMPORTS OF TEXTILES AND APPARELS INTO USA

Jan-june2004 Total imports India China Indonesia Vietnam 38174.07 1797.13 6432.91 1257.74 1233.42

Jan-june2005 42365.90 2328.71 10750.29 1430.93 1261.83

% growth 10.98 29.59 67.11 13.77 2.3

Bangladesh Pakistan Turkey

911.49 1191.51 853.87

1107.24 1321.64 813.43

21.48 10.92 -4.74



While the export dat published by DGCIS are contentious, the information available from leading importingcountries like USA and EU show that india’s performance has been highly encouraging in the post quota period ,he pointed out. Referring to specific products ,patodia pointed out that india’s export of items like cotton yarn , knitted fabrics and home textile products have registered a positie growth. Import of home textile categories from

India into the US like pillowcases (56.24%), sheeting(56.31%) bed spreads(12.06%) and towels(19.11%) have registered impressive growth. In the European union too. India has shown a positive growth of 6.82% during the period jan-april 2005. considering the decline in overall imports from extra- EU sorces into the European union,india’s performanceshould be considered commendable.india’s growth has been achieved not only in garment items but also in hone textile products like cotton bed linen, table toilet linen ,etc. With fresh restrictions been put up on china by the EU and imminent threat of further restrictions being imposed by the US, exportes of textiles and garments from India have good opportunities to increase their sales in these markets. Invaluable help has been provided to the Government of India in the area of framing of policies that have a bearing on the exports of cotton textiles. This has helped in the creation and nurturing of a healthy trade climate and exporter-friendly policies which have been the primary reasons for the boom in exports. The role played by TEXPROCIL in the finalisation of the Multi Fibre Arrangement and in the negotiations at the World Trade Organisation has been extremely commendable The rise in exports has spawned a spate of protection measures, amongst them being the fervent efforts by the European industry to protect their own. Anti-dumping has been one of the first attempts in this direction. This has been followed by anti-subsidy investigation An export of Indian cotton textiles has shown tremendous growth in all categories: yarn, fabrics and made-ups reaching more than 4 billion US$ in value terms and covering over 185 countries spanning 5 continents.

India has become one of the world's largest exporters of yarn for every kind of application from hosiery to weaving. Fabrics account for a third of India's cotton textile exports. Made-ups from India can be found on the shelves of the leading departmental store across the globe.







India is confronting the problem of huge unemployment and poverty. Overcoming this problem is the top most priority of Government of India. In this context, Government has recognized the role of export - led growth. No industry is better equipped than the textile industry to play a critical role in creating employment opportunities and significantly contributing to India’s emergence as a powerhouse in the world economy. These objectives can be met through higher investments. Attracting fresh investments to remain competitive is the greatest challenge faced by the Indian textile industry. It is true that the level of investments has gone up in recent years. Yet this is not enough in reaching the target. Large investments are required across the entire value chain of the industry to make the products more competitive in the global market. To achieve the export target of 50 billion USD by 2010, investments of the order of Rs.1,40,000 Crores (US $ 32 billion) are required. This would generate 12 million additional jobs. However, the new investments in the industry are much less than the desired level. Foreign direct investment in the textile sector is almost nonexistent. Major textile producing countries like China, Pakistan, Bangladesh,

Vietnam, Sri Lanka have been able to attract higher investments and thus pose real challenge to India in the international arena.. India has a natural competitive advantage in terms of a strong and large MFA base, abundant and cheap skilled labour, and presence across the entire value chain of the industry ranging from spinning, weaving and garment manufacturing. However, both productivity and efficiency have to be stepped up in order to meet the challenges of global competition. There must be a bold and reasonable price policy for cotton all over India, to enable the textile and garment industry to grow and catch up with China. In India, presently due to the presence of big players doing everything under one roof is going to benefit the textile sector to grow and consolidate in newer markets world-wide, by exploiting the economies of scale available in post MFA. This is going to be one of the important factors in determining India’s competitiveness India’s well-developed fashion design industry is another factor, which can cater to the rapidly changing fashion trends and demands with the aid of large base of skilled workers available in the country. Since a large portion of exports is from the lower priced segment where labour intensity is high, it is important to improve the efficiency and productivity to increase the cost competitiveness of these segments. It is only then that India can compete in this segment where competitiveness is driven by lower costs. The industry is also suffering because of very slow technological up gradation. This is one of the reasons for lower efficiency and productivity in

the Indian textile and clothing industry. Also the quality of Indian products suffers, especially in the standardized mass production market.

Management Research Project


Textile Export from India post MFA (Multi Fibre Agreement)



Submitted To: Prof. Sujoy Das Gupta Faculty, ICFAI Gurgaon

Submitted By: Nidhi Yadav 05BS2044

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