The quotas in textiles, enforced under the Multi Fibre Agreement (MFA) which was signed in 1994, are going to be lifted on December 31, 2004 and the trade in textiles would come under the WTO directly. It means that all forms of protectionism applied to textile industries the world over, would have to go. India has championed the dismantling of the MFA because it stands to benefit from the freeing of textile trade. India could easily increase its share in world export in textiles and garments that amounts to $400 billion a year. But India would also face tough competition in fabrics and apparels imported from other countries , especially from China, which could spell disaster for scores of inefficient textile mills. Preparing for the era of freer trade in textiles would mean that Indian textile manufacturing units would have to acquire the state of the art technology for improving price and quality.The aim is to reach $50 billion mark in textile exports by 2010,from current earnings of $13.5 bn. But this leap forward would require huge investments amounting to nearly Rs 98,000 crore. Can this be done ?
Though famous for its cotton textiles since ancient times, India has also emerged as a major garment exporter in recent years. The main item of export however continues to be gray cloth or unbleached bed linen. In the case of garments, the 'reservation' for the small scale sector has been lifted and big mills are producing jeans and shirts of high quality. Though investments in about 40 Indian textile mills have gone up substantially as they started to prepare for the quota free regime , others have done nothing. Those wanting to export more value added products are going for vertically integrated units which produce yarn to finished garments, all under one roof. Such mills are investing in the latest technology and specially in Information Technology. This is because garment production requires great flexibility to cater to fashion and inventory control and for reaching orders to buyers on time. In all this, the use of IT becomes essential.
India's competitors today range from highly developed countries ( the top textile giant has been Germany) but also developing countries like Bangladesh, Turkey and China . South Koreans have set up huge modern garment factories in Bangladesh just as Italians and Taiwanese are coming to Tirupur , Tamil Nadu, for setting up bases in India for garment production. China is the new big name in textiles and is responsible for 20 per cent of the world exports in textiles. It is the most efficient exporter. Inexplicably, it is going to tax its own exports from January 1, 2005, in order to give a chance to less efficient competitors but perhaps the real reason is to avoid anti dumping action.
In India however, apart from the few mills, the textile industry in general is lacking fresh investment. The reason is historical and India would be in a difficult situation in 2005 because of the lack of a consistent textile policy that encouraged investment over the years.
For years, the mill sector was controlled in order to encourage the handloom sector which provided jobs in the villages. The output of mills was physically restricted in the 1950s and an increase in the spinning capacity was permitted only for the cooperative sector. Weaving capacity of mills was frozen to 1956 level and the establishment of new composite spinning and weaving mills, was prohibited. The government also disallowed cotton mills from using synthetic materials in pure form or in blends with cotton .
Power looms however were encouraged because of their smaller size, and were allowed to take advantage of the new synthetic materials in production. Rationalisation of labour ( shedding labour) was also not allowed and man- machine ratio became abnormally high as a result of which productivity fell to incredibly low levels as compared to global standards. Voluntary price control was imposed on mills and 45 per cent of total mill production was in the form of 'control cloth' for the poor. By 1973, 103 mills were declared sick and the National Textile Corporation was created to nurse the sick mills.
Power loom production however grew rapidly as it was exempt from excise duties. Today, the power loom and handloom sectors contribute 95 per cent of the total production and because of their decentralised nature, economies of scale cannot be practiced nor can there be drastic innovations for improving quality. It means that the textile sector currently cannot be geared for a tough competition from abroad. Despite the disadvantages, handloom exports however have grown in niche markets where the special feel and look of handlooms has been favoured by designers .
Not only the textile industry was controlled but all kinds of restrictions were placed on raw cotton marketing and its export and though India is one of the few countries to have its own cotton production base, the quality of cotton has not improved due to poor farming practices and bad ginning. Improving the quality of cotton and raising its productivity could bring down prices from their current high level ( about 10 percent higher than international prices ) and lead to higher competitiveness. Having access to high quality cotton would be a great advantage also for the current surge in demand from all over the world for pure cotton textiles.
New restructuring strategies could change the entire textile sector but huge investments would have to be undertaken. Indian textile and garment producers would have to gear themselves for a big change and from being product oriented, they have to become service oriented and cater to customers' needs in a systematic manner. New markets would have to be identified and the main thrust could be on garments , their finish and embellishments .
Modernisation of machinery is key to India's competitiveness in woven and knitted items. In handlooms , modern , shuttleless looms would lead to higher productivity . Mills would also have to install more eco-friendly production units with water recycling plants to cater to social compliance norms of the EU buyers. Indian textiles should also meet the 'ethical standards' and not employ child labour. These would preempt anti dumping action from rich countries.
Globally , textile industry is no longer a labour-intensive one and the main players have highly expensive, computerised machinery. Garment factories have assembly line production manned by skilled and educated workers. Unless India wakes up to these new trends, the change over for most existing textile mills and garment manufacturers could be a difficult one.
* Views expressed in this article are those of the author and do not necessarily reflect those of Observer Research Foundation.
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