The Hindu Business Line : Labour issues, slow investment pace — Meeting $50-b textiles export target `difficult'

WITH just a month to go before the quota regime ends on January 1, 2005, there are serious doubts over whether the textile industry will be able to achieve the $50-billion export target for 2010 set by the Government.

According to a Government official, not enough has been done in terms of investment and capacity expansion to facilitate this.

While the Government hopes to raise textile exports to $50 billion from the current $10 billion - $12 billion, investments in the domestic industry have only gathered strength about three years ago through the introduction of TUFS, lowering of duties and tax sops. This is despite the MFA having been signed 10 years ago.

According to one analyst, the potential to scale up capacities is enormous considering the country's proximity to cotton and cheap labour. However, scaling up at this point to achieve the magic $50 billion figure would mean a whopping Rs 70,000 crore - Rs 80,000 crore in capacity expansion. This is well nigh impossible.

Foreign buyers, while acutely aware of India's outsourcing potential, are also highly quality conscious and before sealing orders will consider critical factors such as who is the manufacturer and whether his machines are relatively new (1990 onwards). The Indian textile tradition has taken a beating for almost two decades now, with large textile mills either closing mills in the metros because of the high cost or shutting down totally.

Labour is also an issue. Said Mr R.L. Toshniwal, Chairman and Managing Director, Banswara Syntex Ltd, "Investments only started in the last three years. Manufacturers are cautious of investing further because of the existing labour laws. The garment industry is labour intensive and orders are seasonal in nature. Labour laws need to be flexible to take into account this cyclical employment." He added that though investment activity was late in coming, labour issues were still holding back further investment.

Fitch Ratings echoes this sentiment: "Ultimately, most textile companies would integrate forward into garment making... However, the rigid labour laws in the country pose a serious constraint in creation of large garment making facilities."

However, local players such as Welspun, Abhishek Industries, Vardhman Spinning and General Mills, Alok Industries and Raymond are all expanding capacities.

Welspun has orders booked 5-6 months ahead indicating that demand is far outstripping supply.

Clearly this demand is going to increase. Retailers such as JC Penney, Wal-Mart and Target have already expressed interest in outsourcing from India, especially since SARS erupted in China.

Currently, Target outsources products worth $200 million from India and its internal target is to raise this to $500 million at the end of 2005 and to $1 billion by 2007-08. Similarly, JC Penney.

The retailer's offtake is about $100 million currently, and it hopes this will rise to $500 million in two years.

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