You are on page 1of 22

India’s Foreign Trade – II

Textiles and Clothings

From Prof. A. K. Sengupa


Some Reading Materials on Textiles and Clothings

I. Introduction

The history of the textiles and clothing is old as old as the necessity of the mankind to
protect itself from the cold and the climatic conditions. Trade is one of the most antique
human activities, and combines perfectly with textiles and clothing.

Historically, many reasons made this sector strategic for both developed and developing
countries. According to the WTO estimates, textile and clothing account for about 9.1
percent of world manufactured goods exports or of 6.5 percent of all merchandise
exports.

The textile and clothing industry is one whose production process is highly intensive in
unskilled labour. Since this is a factor with which developing countries are relatively
well-endowed, exports of textile and clothing products are argued to have been the
obvious choice for Third World countries in the drive to industrialise. Efforts under the
GATT to liberalize trade have always met with particular difficulties in textiles and
clothing. For more than thirty years, this sector was governed by special regimes: the
Short Term Cotton Arrangement in 1961, the Long Term Cotton Arrangement from 1962
to 1973, and the Multifibre Arrangement from 1974 to 1994. Since the early 1980s, the
developed world has placed increasingly restrictive protectionist measures against their
imports of textiles and apparel from developing countries under the auspices of the Multi-
Fibre Arrangement (MFA).
II. The History of Textile Trade & Origin of MFA

2.1 The Cotton Arrangements (1961-1973)

The gradual removal of quantitative restrictions following the easing of balance-of-


payments difficulties in the developed countries coincided with the re-establishment of
Japan in world trade in textiles and the emergence of a number of developing countries as
exporters of textiles and, to a lesser extent at that time, clothing. The developing
countries, in particular, benefiting from access to raw materials and relatively low
production costs, particularly wages, began to rapidly increase the volume of exports of
cotton textiles and clothing to the developed country markets. The sharp increase in low
value imports of cotton textiles adversely affected investment and employment in the
developed countries which faced the prospect of rapid closure of production facilities in
the sector leading to serious social problems. To alleviate the difficulties, some developed
countries negotiated with individual governments agreements to limit the quantities of
exports of cotton textiles or voluntary export restraint agreements, as they came to be
known later.

In 1959, a study was proposed in GATT to find a multilateral solution to the problem of
sharp increases in imports, over a brief period of time and in a narrow range of
commodities which can have serious economic, political and social repercussions in the
importing countries.

2.2 Need for MFA & how MFA came into being?

2
As seen above, the developed countries suffered a great pressure in this sector from the
developing countries. Obviously such pressure needed to be regulated, and possibly
inside an international agreement accepted by the major importers and exporters. The
properly place for a debate was inside the GATT, where many of the countries involved
were represented. In June 1973, the Working Party became a negotiating group under the
purpose to reach a mutually satisfactory arrangement on trade in textiles by the end of
the 1973. The Agreement came into force the 1st January 1974 (GATT).

2.3 The Multifibre Agreement (1974-1994)

The Multifibre Arrangement (MFA), more formally the arrangement regarding


International Trade in Textiles, 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 (and from 1986, certain vegetable fibre products).

2.31 Objective of MFA


The stated objectives of the MFA were
 To achieve the expansion of trade, the reduction of barriers to such trade and the
progressive liberalization of world trade in textile products.
 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.
 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.

2.32 Structure of MFA


The MFA (like the Cotton Arrangement) 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. Every year Quotas – the
quantities of specified items which can be traded between trading partners - were

3
negotiated on a country by country basis. The MFA did not apply to trade between rich
industrialized countries themselves.

2.33 Amendments in MFA


The MFA was a framework of bilateral agreements negotiated country by country, or
unilateral actions that set quotas limiting the amount of imports of textiles and clothing
from developing to developed countries whose domestic industries were facing serious
damage from rapidly increasing imports.
Since its inception, the MFA was renegotiated four times and each modification brought
with it increasingly restrictive measures - covering a broader range of products, and
reducing any flexibility provisions in the system. In 1986, when MFA IV was negotiated,
coverage was extended to additional fibers, silk, ramie, linen and jute. By 1994, MFA IV
involved eight importers and 31 developing, Central and Eastern Europe countries.

2.34 Developments under the MFA Regime


During its 21 years, from 1974 to 1994, there were changes and adaptations in the
operation of the Arrangement. Extensions of the MFA were negotiated a number of times,
in the course of which new provisions were added and new products included.
Furthermore, the growth rate of six per cent in quotas envisaged in the MFA was in many
cases sharply reduced in practice in bilateral agreements. The complex network of
bilateral quotas under the MFA were also negotiated at short intervals, often every year or
so. In its last years of operation, six MFA participants
(Austria/Canada/EEC/Finland/Norway/United States) applied quotas under the
Arrangement, to varying degrees in terms of products covered and countries affected.
However, apart from restrictions on former state trading countries, the MFA was used
almost exclusively to protect against imports from developing countries. Switzerland and
Japan, which were members of the MFA, had no restraint agreements. Sweden dropped
all of its restraints and withdrew from the MFA in 1991. In 1994, its last year of
operation, the MFA had 44 Members which was, of course, less than half of the GATT
membership but accounted for most members with an interest in textiles and clothing
trade, including China, which was not a GATT contracting party.

4
2.35 Some effects of MFA Regime

1. Shifting patterns of global production


A repeated pattern of expanding and shifting production occurred as investment in new
facilities was made in the less-restricted or unrestricted exporters. This shift in production
and export activity led to demands in the industrialized countries for yet more widespread
restrictions which brought about further shifts to unrestricted countries. This also served
to expand global production capacity. While sustaining the performance of the original,
predominant suppliers, this shifting production and export pattern stimulated the growth
of industries in countries which, had it not been for the MFA quota system, may not have
entered the international market as exporters when they did.
2. Investment by developed countries
Heavy investment by developed countries in automated equipment was undertaken,
particularly in the textiles sector. As a result, textile industries in the developed nations
became one of the most capital-intensive areas within the manufacturing sector.
3. Upgrading of quality
Developing countries subject 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 where the
developed countries were also concentrated.
4. Vested interests
The MFA and the bilateral agreements under it created vested interests in both importing
and exporting countries in guaranteed market shares and the quota rents associated with
them. The cost of protection was borne by the consumer in the form of higher prices.
5. Circumvention of quotas
It has been claimed that a practice developed in some areas of avoiding quotas by the
transshipment of goods through third countries and/or false declarations of origin. This
practice apparently took on extensive proportions in the later years of the MFA and led to
increasing concern in the importing countries and sometimes strong reactions to deal with
the problem.

5
6. Transparency and predictability
On the positive side, the MFA provided transparency as well as a degree of predictability
in textiles and clothing.

2.36 Weaknesses of MFA


The MFA merely ensured that garment Transnational Corporations (TNCs) retained
control over their markets and that the foreign buyers were assured of supplies. Quota
restrictions made it convenient for garment TNCs to dominate and control the global
garments trade. They did this by securing quotas, through their subsidiaries, allotted to
developed countries. Because of this, many small and medium scale garment firms either
integrated to the TNCs’ production process (e.g. subcontracting) or closed their shop.

Even if the MFA was a multilateral agreement, it was composed of bilateral agreements
or unilateral actions establishing quotas. It was also far from the principles of the GATT.
In fact the quotas were a clear violation of GATT Article XI that prohibited quotas.
Moreover, MFA was in stark contrast with GATT Article I which talked about the non-
discriminatory clause. In fact, it was specified how much of each product the importing
country wanted to accept from individual exporting countries.

2.37 Phasing out of MFA


One of the main objectives of the governments of many developing countries in the
Uruguay Round was to achieve improved terms of trade in areas of their most important
exports – including textiles and garments. The MFA had largely kept this area outside the
scope of the normal rules of the multilateral trading system.

During the Uruguay Round, the decision was taken to phase out the MFA over a ten year
period, in order to bring trade in textiles and clothing gradually into line with the rest of
industrial trade under formal GATT rules and procedures. The MFA terminated on 31
December 1994 upon the entry into force of the WTO and its Agreement on Textiles and
Clothing on 1 January 1995.

6
III. Integration of textiles and clothing into the GATT/WTO Agreement

The integration program of the Agreements on Textiles and Clothing (ATC) is based on
the assumption that the whole textile sector is not integrated in the GATT/WTO
Agreement at the beginning of the implementation. The scope of the integration is to
include also all the non-MFA members and the non-MFA restraints. The MFA members
have to follow the integration schedules, while the non-MFA members could chose to use
transitional safeguards measures and follow the same integration program of the MFA
members. If they do not wish to use safeguards they are asked to integrate their textiles
sector in one stroke.

The ATC provides that the MFA restrictions will be phased out in four stages over a ten-
year period. At every stage a certain amount expressed in percentage of the total import
volume of 1990 must be integrated, in respect of the Harmonised System (HS) lines in
the ATC Annex. The ATC Annex defines the product coverage, which comprises the
whole universe of textile products in Section XI of the HS code (excluding the fibres).

As soon as a product is integrated, it becomes subject to normal GATT rules, and the
transitional provisions of the agreement can not be invoked anymore. At the end of the
forth and last stage (1st Jan. 2005), all restrictions of this sector will be removed
overnight. At the beginning of the first stage, products accounting for not less than 16
percent of the total import volume of 1990 should be integrated, at the second 17 percent
and at the third 18 percent. At the end of the transition program, the remaining products
could count even up to 49 percent of the 1990 volumes imports

3.1 MFA restrictions

7
The ATC abolish gradually the existing MFA bilateral agreements. All the restrictions of
bilateral agreements must be notified along with the average growth rates and flexibility
provisions. These restrictions will remain until the products are integrated in the
GATT/WTO, or when the agreement expires.

Also the unilateral measures are integrated and can be kept until the expiry date, but they
should be integrated within the integration program before the end of the first year of
existence of the ATC.

Each member can decide which products integrate and at which level, with the only
provision that they should come from each of the four groups: tops and yarns; fabrics;
made-up textile products; and clothing. It is the importing country to decide which
products integrate, not the TCB neither the exporting countries. This allows importing
countries to integrate those products that are not under restriction first. The ATC Annex
covers all the textile products, some of which were never restricted in any country.

The importing countries can decide to integrate products under quotas not filled. Also, the
percentage integration is based on volume and not on value of the imports.

3.2 Safeguard measures in the ATC


The ATC keeps the possibility to introduce Transitional safeguards measures (Article 6)
for a member demonstrating that "a particular product is being imported into its territory
in such increased quantities as to cause serious damage, or actual threat thereof, to the
domestic industry producing like and/or directly competitive products".

There is no mention of the concept of Market disruption, which was the main provision
to not apply MFA rules. The mechanism of the safeguard measures operates when serious
damage has been caused by a sharp and substantial increase of imports from a particular
source. There is no mention of the low prices of the impugned imports.

The use of these measures is now allowed only when imports have caused serious
damage or there is an actual threat of causing serious damage. The provision of real risks
under the MFA was eliminated.

8
The existence of serious damages must be seen under many prospects, such as output,
productivity, capacity utilisation, market shares, exports, wages, employment, domestic
prices, profits and investments.

3.3 Differences with GATT '94


The safeguard measures of the ATC defer substantially from the GATT '94 rules in many
ways. The length is up to three years (eight in the GATT), no provision in the ATC of
eventual compensation to the effected party, discrimination treatment. The integrated
products can be safeguarded under the ATC safeguards provisions. If the restriction lasts
for more than a year it must increase at least of a 6 percent. If there is no mutual
understanding between the importing country and the exporting country, or, if the
agreement is not reached within 60 days of consultation, the importing country can apply
the restraint within thirty days after consultations, and refer the matter to the TMB. Quota
should not be lower than the actual level of imports for that exporting country during a
recent 12 month period, the action can last for up to three years as mentioned above.

3.4 The six pillars of ATC


1. Product Coverage The precise definitions of the products covered by the Agreement,
set out in its Annex using the 6-digit H.S. Codes.
2. Integration programmes The programme for integrating the products covered by the
ATC into GATT rules and disciplines.
3. Quota Liberalization The progressive liberalization of the quotas carried over from
the former MFA through improved growth rates.
4. Non-MFA Quantitative restrictions The gradual removal of Quantitative Restrictions
(other than MFA quotas) those are not consistent with GATT rules.
5. Transitional Safeguard The availability of a Transitional Safeguard Mechanism to
deal with further surges in imports causing serious damage or actual threat thereof.
6. Supervision, monitoring, & reporting Supervision, monitoring and reporting on the
implementation of the Agreement by the Textiles Monitoring Body.

9
IV. Indian Textile Industry

History of the Indian Textile Industry

British dumped
Use of their own goods. Labor-
printing Carpets in Destroyed Indian intensive
Mughal era Struggle
blocks industry policies GATT
for
500 BC Pre-colonization Independence 1990s

3000 BC 1500 AD Colonization Till 1995


1980s
Woolen Robust textile Gandhi’s cry for Liberal-
carpets industry. Net khadi to weaken ization
exporter British textiles

The Government of India (GOI) put numerous policies and regulations to ensure that
mechanization did not occur and that labor-intensive textiles were produced. However, in
following this ideological aim, the GOI did not realize the negative impacts in terms of
decreased productivity and reduced competitiveness: It provided favorable and protective
taxes and other regulations to the small-scale sector, as the GOI presumed that this sector
created more employment. Large-scale production was curtailed by restrictions on total
capacity and mechanization on mills. Strict labor regulations resulted in disincentives for
capital investment and high production costs. From the price side, the GOI cornered the
sector by imposing price restrictions. The more mechanized and the higher the capacity of
the textile producing company, both in terms of quantity and quality, the more it was
discriminated against by the GOI which used tax policies and other regulations to
sanction these practices. 1990 sounded a new era to India’s textile sector as the GOI came
to realize that efficiency and competitiveness were suffering under the numerous
regulatory burdens.

10
This led to the relaxation of many of the constraints previously imposed on the textile
sector. Licensing was removed in the early 90`s by the Statement of Industrial Policy and
the Textile Development and Regulation Order. In 1995, India signed the General
Agreement of Tariffs and Trade bringing its liberalization policies to an international
level.

4.2 Significance of the industry

The Indian textile Industry is currently one of the largest and most important sectors in
the economy in terms of output, foreign exchange earnings and employment in India.

Textiles & Clothing industry contributes


14% Total industrial production
8% Total Gross Domestic Product (GDP)
8% Central excise revenue
18% Industrial Employment
35 mn workers Highest employer in industrial sector
USD 14 bn Highest export earner in industrial
sector

2002 2010

Domestic market Size $ 25 Bn $ 45 Bn

Export market Size $ 11 bn $ 40 Bn


47 million indirectly
35 million directly
Employment generation 54 million in allied
40 million in textiles
activities

4.3 Structure of the Industry

Spinning Mostly in organised sector and technologically efficient


Fragmented and labour-intensive. About 3.9 million
Weaving and
handlooms, 1.8 million ‘powerlooms’ and most of knitting
Knitting facilities in small ‘decentralised’ units
Fragmented. About 2,100 small independent processing units.
Finishing Only about 200 units are large and integrated with spinning
and weaving/knitting.

11
About 77,000 small-scale units, including subcontractors
Clothing Only a few hundred units in the organised sector

The structure of the Indian textile industry is both complex and unique. It represents a
sharp contrast to the textile industry in other countries and can be characterized by
several aspects. First of all, it employs co-automated technology. A second characteristic
is the dualistic manufacturing structure dominated by a fast expanding decentralized or
unorganized small scale manufacturing segment and a declining, vertically-integrated,
large-scale composite mill segment. Furthermore the textile industry is dominated by
cotton as a primary raw material. A fourth characteristic is the existence of a large public
sector, which is composed mainly of nationalized and ‘sick’ mills that have been taken
over by the government. The last characteristic is the predominance of the small-scale
sector. This might be seen as a major advantage, for example, in comparison to China.
While the Indian textile companies are capable of producing very small amounts of cloths
for its clients, China is able to produce in large quantities only.

4.31 Textile – Value Chain


The textile chain can be broken in three stages. At the end of first stage, the fabric is
manufactured. The second stage can be identified as garmenting (i.e. converting fabric
into garments) and the third stage will be branding and retailing. The first stage begins
with spinning and continues till the grey fabric is ready. Raw material forms the major
chunk of cost in the first stage (around 50%). Cotton is the most important raw material
for the denim and shirting industry. Here, India is the third largest cotton producer in the
world and the cotton prices are comparatively cheaper in India as compared to
international markets. So, we are at the advantage.

The second stage involves processing and garmenting of the fabric produced. India has a
major advantage in this segment, as this stage is highly labour intensive. As evident from
the graph below, labor cost as percentage of total cost in India is very low as compared to
other countries. Apart from cheap labour, India has skilled labour too, which also gives an
edge over other countries.

12
The third stage can be recognised as branding and retailing of the garments produced.
This is the higher end of the textile chain, but it takes time for a brand to gain market
share. Indian textile majors have already started entering this segment but we believe the
process is time-consuming post the MFA scenario.

India’s Competitive Position in Stages of Textile Manufacture

Determinants of India’s Competitive Emerging


Process
Competitive Advantage Position Competition

Spinning Quality, cotton price Medium Indonesia, Turkey


Technology,
Vietnam,
Weaving automation, power, Low
Philippines
finance
Scale economy,
technology, China, Vietnam,
Processing Low
environment issues, Philippines
finance
Bangladesh, Sri
Labour cost,
Lanka, Morocco,
Garmenting productivity, brand Medium
East Europe,
fashion design
Mexico

13
Threat of new ENTRANTS

Economies of scale
High
V. Porter’s 5 Forces Analysis ofcapital investment
the Textile Industry
China’s entry into WTO
Increasing FTAs
10 more nations into EU

Industry
Competitors
Bargaining power of
Bargaining power of
SUPPLIERS
Developing Nations of BUYERS

Asia and Africa, Latin


Low bargaining power
America Volume of purchase is
Limited role, no branding
Low differentiation of High competition with variable.
inputs.
large no. of players. Wide range of choices
Large no. of suppliers Competition across available.
segments

Threat of SUBSTITUTES

Large substitutes, even inter category


Could be challenged as a fashion
accessory.
Denim industry suffered due to
substitutes. 14

Synthetic fibers going down.


VI. SWOT

Strengths

1. Abundant raw material availability allowing the industry to control costs and reduce
overall lead-times across the value chain. Given inconsistent quality, would the
industry be able to support large scale increases in volume?
2. Low cost skilled labour providing distinct competitive advantage for the industry.
Given the need for greater automation, how should the industry channelise the skill-
base?
3. Presence across the value-chain providing a competitive advantage when compared
to countries like Bangladesh, Sri Lanka who have developed primarily as garmenters.
 Reduced lead times
o Manufacturing capacity present across the entire product range, enabling textile
companies and garmenters to source their material locally and reduce lead time.
 Super Market
o Ability to satisfy customer requirements across multiple product grades – small
and large lot sizes, specialized process treatments etc.
How should the industry fully exploit this advantage?
4. Growing domestic market which would allow manufacturers to “mitigate risks”
while allowing them to build competitiveness

15
 Vibrant domestic market, enabling manufacturers to spread risks and overcome events
like 9/11
 Very low per-capita consumption of textiles indicating significant potential for growth
 Domestic market is extremely sensitive to fashion fads and this has resulted in the
development of a very responsive garment industry
How should the industry address the risk of international competition?

Weaknesses

1. Fragmented industry leading to lower ability to expand and emerge as world class
players
 In fabric, large section of the industry is in the power loom and handloom sectors
 Global buyers prefer to source their entire requirements from two to three vendors,
and Indian garmenters find it difficult to fulfill the capacity requirements
How should the industry organize capacities to meet global buyer expectations?
2. Historical Regulations though relaxed continue to be an impediment to global
competitiveness
 The industry continues to be affected by several historical regulations. Eg: absence of
a viable exit option for industry players
 These regulations resulted in a complex industry structure, which is currently an
impediment
o Pre-2000 garmenting was reserved for the SSI sector, which has resulted in most
units being set-up with small capacities
What does the industry/government need to do to speed up the reform process?
3. Lower cost competitiveness has hampered ability to compete with lower cost global
players
 Labour force in India has a much lower productivity as compared to competing
countries like China, Sri Lank, etc.

16
 The Indian industry lacks adequate economies of scale and is therefore unable to
compete with China and other countries, etc.
 Costs like indirect taxes, power and interest are relatively high
What would it take to build cost competitiveness?
4. Technology Obsolescence has resulted in the need for significant technology
investments to achieve world class quality
 Large portion of the processing capacity is obsolete
 While state of the art integrated textile mills exist, majority of the capacity lies
currently with the powerloom sector
How can larger players be incentivised to invest in modernization?
Opportunities

1. Post 2005 – Increase in global trade


2. New Product Development needs additional focus in Indian companies in order to
move up the value chain and capture a greater global market share
 Newer specialized fabric – smart fabrics, specialized treatments, etc.
 Faster turnaround times for design samples
 Investing in design centers and sampling labs
 Investing trend forecasting to enable growth of the industry in India

Threats

1. Competition in domestic market by competition offering lower prices and higher


quality
 Competition is not likely to remain just in the exports space, the industry is likely to
face competition from cheaper imports as well
2. Ecological and Social Awareness is likely to result in increased pressure on the
industry to follow international labour and environmental laws

17
 Developed markets have seen extensive developments in the form of increased
consumer consciousness on issues such as usage of polluting dyes, usage of child
labour, unhealthy working conditions, etc.
 Standards like SA 8000 have now started being implemented extensively in the
industry
 This has resulted in increased pressure on companies to limit sourcing from
countries/companies known to have such practices
Could large Indian players make this a competitive advantage?
3. Regional alliances will continue to have a significant impact
 Regional trade blocs play a significant role in the global garment industry with
countries enjoying concessional tariffs by virtue of being a member of such
blocs/alliances

VII. Post-MFA Scenario

There is a huge opportunity lying ahead for Indian textile manufacturers in post MFA era,
as the markets will no longer be restricted. But there will be competition from countries
like China, Sri Lanka, Bangladesh, in terms of cheap availability of products. But when it
comes to fashion trends, we believe Indian companies will have an advantage. As far as
cost competitiveness is concerned, the larger players in the Indian textile sector are well
placed to compete.

But the Indian textile sector has a long way to go to achieve a sustainable competitive
advantage. The industry is very fragmented and access of finance and technology has
been affecting growth prospects of the smaller manufacturers. In terms of technology and
the ability to produce products in the large-scale, we still lag behind others and to that
extent, investors to remember that there are only few companies in this league.
Impractical labour laws also restrict large players to lay off redundant workers to improve
competitiveness. Therefore, the risk profile of the sector is also higher, despite the growth
opportunity, on account of lack of control over input costs. Overall, it is a balanced
scenario and it remains to be seen how Indian companies tap this opportunity.

18
Studying the orders that have been placed in the year 2005, we see that there is spurt in
demand from the big foreign retailers and the country's textile and apparel exports are
expected to grow by nearly 30 per cent in value terms during the next fiscal, according to
industry estimates. Two months into the textile quota phase-out, Indian textile suppliers
are emerging with a significant presence on the sourcing plan of major retailers in the US
and the European Union for the next couple of years. Wal-Mart, the world's biggest
retailer, plans to source $11-billion worth of textile merchandise, or about 5 per cent of its
requirements, from India over the next few years. JC Penney, which outsourced around
$500 million of textiles from India during the last financial year, plans to jack up the
sourcing to around $2 billion over next two years, according to industry sources. Players
are going for capacity additions, like Raymond has said that it would be investing Rs 100
crore in augmenting its denim capacity by 10 million metres per annum. However,
Chinese competition and curbs by US and EU may pose severe threat in post-MFA
period.

China is believed to be to make the most out of the post-quota regime. China has emerged
as a major player in the international markets by increasing its share from 6% (1985) to
15% (1995) and close to 29% (2001); expected to touch 43% by 2010. China is already
the largest exporter of textiles (16%) and apparel (23%) in the world -
 The biggest producer of cotton and man-made fibres (25% of global fibre)
 Has the largest spinning and weaving capacity in the world
 The largest garment factories and the world's first supply chain cities
On the contrary, INDIA has barely 4% of the global textiles market and less than 3%
share of apparel.

Since the lifting of textile quotas at the beginning of this year, Chinese textile exports to
EU and the US have surged. In response, both the EU and the US have adopted measures
to limit Chinese textile imports. European imports of Indian textiles and clothing raised
an average of 10 per cent in the first quarter, following the worldwide lifting of quotas on
textile trade. In the previous five years, such imports were virtually flat. With China

19
agreeing to slow some textile exports to Europe, European textile makers are targeting
India’s exports as the next biggest threat.

7.1 Future Strategies

1. Integrated Growth Strategy


 Need to concentrate on domestic market along with exports
2. Strengthen Fabric Base
 At present we have a weak fabric industry leading to insufficient demand for yarn and
inadequate raw materials for garments.
 This is a result of shifting fabric production from the organized sector to decentralized
sectors, mostly through Government policies.

3. Investing in Modernization
 Investment of Rs. 1,40,000 cr required across the value chain – ICMF Vision
Statement
4. Garment Driven Growth
 We need to target a garment driven textile growth.
 Several studies have shown that the per unit cost of production of garment in India is
much lower than most of the other production centres.
 The industry also has a large and increasing domestic market to tap.
5. Flexible Labour Laws
 Textiles as a whole and garments in particular are highly labour intensive.
 Existing labour regime that protects the interests of the existing unproductive labour
at the expense of the huge unemployed workforce
 Disruption of production should be specifically excluded from the workers’ rights;
there are several other options available for settling disputes.
 Need a viable exit policy, since continued operation of a loss making unit is in
nobody’s interest
6. Human Resource Development

20
 Availability of trained workforce through textile education
 International studies have shown that India has advantages in wages, but these are lost
in low productivity.
7. Marketing Brand India
 Marketing needs to be strengthened
 Strong marketing will lead to Branding
8. Being cost competitive
 Prices need to be internationally competitive
 International prices declining with quota-free access
 Other competitors ahead in capital intensity, labour productivity and economies of
scale
 Cost structure in India has so far been adverse due to high power tariff, poor
infrastructure, inflexible labour laws and fragmented production

VIII. Summary and Conclusion

India’s textile sector is currently poorly organized by virtually any standard. It will
probably succeed in being the major domestic provider for products for this market, but
will have a difficult time moving up the value chain to the international market. It appears
to be moving in the right direction for increased competitiveness on quality, management
practices, and eventually cost but it still has a long way to go before it catches its main
global competitors.

The Textile Industry in India has gone through significant changes in anticipation of
increased international competition. The industry has been forced to tailor products to
both the domestic and the international market which have traditionally been quite
different. The domestic market has huge potential but is also very price sensitive whereas
the international market tends to favor mass production while also emphasizing quality,
service rates to the Western world, and price of production. India has the ability to
compete on the global scale but it is losing market share to Asian countries that have
cheaper labor, better investment in machinery and capital, and better ocean transportation

21
options for export to the U.S. While its market share has certainly increased over the last
decade, India still lags behind countries like China that have seen phenomenal growth in
recent years.

There are several areas where China enjoys a distinct advantage over India in a
manufacturing-type industry such as textiles. Perhaps the most noticeable advantage is
the difference in foreign direct investment (FDI), especially by Chinese nationals living
abroad. Furthermore, China has undergone significant trade reform in recent years,
especially in opening its market to foreign competitors and privatizing large government
agencies. This compares to the relative stagnation of outdated policies that better
describes India’s approach. And finally, it is simply much more efficient and cheaper for
goods to reach the U.S. from the port of Hong Kong and other China ports, versus from
India. However, India enjoys a similar comparative advantage for serving demand in the
European Union.

References

 Textile & Clothing Industry of India; Chandrima Chatterjee, Confederation of


Indian Textile Industry, 2005
 India’s Textile Industry: What Will Happen When the Quotas are Lifted?; Brian
Carver, Christy He, Jonah Hister, University of Washington, 2004
 Post MFA world: India ready for freedom run; India Brand Equity Foundation,
CII, 2004
 SWOT Analysis of the Indian Textile Industry; Vikram Utamsingh, KPMG, 2004
 The Textile Quota Regime will end on 1st January. The Chinese are ready for it.
Are we?; Businessworld, 15 Nov, 2004

 www.indiainfoline.com; Updates on Textiles Industry


 http://www.economywatch.com/business-and-economy/textile-industry.html

22

You might also like