The Hindu Business Line : Textiles and clothing: India must spin a new strategy

The textile industry has not been able to undo the damage inflicted by decades of skewed Government policy and today it finds itself quite unprepared to reap the full benefits of a quota-free regime beginning January 1, 2005. Though the Budget has tried to provide the much-needed boost to the industry, much more needs to be done to help it overcome the problem of technological obsolescence, capitalise on scale economies and move up the value chain, says S. D. Naik.

Readying the textile industry, as a new era looms.

TH<150>ERE has been a flurry of activity in different segments of India's textiles and clothing industry over the past three-four years with major players, and even some of the smaller ones, implementing expansion and modernisation plans at a fairly hectic pace. Even so, the industry as a whole has not been able to undo the damage inflicted by several decades of skewed government policy and today it finds itself quite unprepared to reap the full benefits of a quota-free regime beginning January 1, 2005.

Unfortunately, while the textile exporting countries were given sufficient time to prepare for the elimination of quotas, both the industry and the Government in India were too slow in responding. Since January 1, 1995, the international textiles and clothing trade has been undergoing a gradual transformation under the 10-year transitional programme of the WTO's Agreement on Textiles and Clothing (ATC). However, till 2000, nothing much happened in India.

The New Textile Policy, which was in the making since 1995, was finally out only in November 2000 but that too turned out to be a patchwork long on promise and short on concrete measures. The policy statement promised to make efforts to restore the organised mill sector to its position of pre-eminence so as to meet the international demand for high value, large volume products. The policy decided to encourage setting up of large integrated textile complexes and entering into strategic alliances with international majors.

However, because of the continuing complacency on the part of the industry and the Textile Ministry, the new capacities in the organised mill sector were slow to materialise, even as some 470 large mills that had become technologically obsolete and financially unviable had to down their shutters since 1999 throwing close to half a million workers out of work. The modernisation and technology upgradation of the existing units also moved at a snail's pace. As a result, even today, the organised mill sector accounts for just around six per cent of the total production of fabrics in the country and over 90 per cent comes from lakhs of powerlooms scattered all over the country.

The readymade garment is emerging as one of the more promising segments in the textile chain today as the demand for finished products is witnessing a big surge in the domestic and export markets. However, the garment manufacturers in India are finding it difficult to source their requirements of quality fabrics in required quantities from the domestic market because of the highly fragmented nature of the weaving segment of the industry.

Unfortunately, the Textile Ministry even now appears to be preoccupied with wrong priorities such as rehabilitation of the remaining 119 sick mills under the National Textile Corporation which continue to bleed the national exchequer of around Rs 1,600 crore every year.

Meanwhile, China lost no time in seizing the opportunity and created huge capacities in weaving and garment manufacturing over the past decade by going for economies of scale and modern technologies. Over the last three years alone, it bought around 75 per cent of the total shuttleless looms sold globally besides acquiring 65 per cent of texturing machines, 60 per cent of rotors, 30 per cent of circular knitting machines and 25 per cent of electronic flat-bed knitting machines. Today, it has the largest spinning and weaving capacity and also the largest garment manufacturing capacity in the world and it is already the largest exporter of textiles and apparels.

The size of the Indian textile industry and its share in world exports is too small compared to that of China. True, over the past few years commendable efforts have been made by some of the leading players to create new capacities, expand the existing ones, restructure and modernise. However, even today, the net addition to new weaving capacities and garment manufacturing are inadequate to meet the potential demand in the world markets and the backlog of modernisation remains huge.

Unfortunately, the pace of modernisation of the industry continues to remain painfully slow. The Rs 25,000-crore Technology Upgradation Fund Scheme (TUFS) launched on April 1, 1999 (which offers five per cent interest subsidy on modernisation loans) has made only a marginal impact so far. Till September, this year, banks and financial institutions had sanctioned loans of Rs.9,051.28 crore for projects worth Rs 20,007 crore. The actual amount disbursed was Rs 7,468 crore for projects worth Rs 15,565 crore.

The Indian Cotton Mills Federation (ICMF) has mooted the creation of a textile restructuring fund, which was also suggested earlier by the Steering Group headed by former Planning Commission Member, Mr N. K. Singh. In addition, the textile mill sector has petitioned the government for a dedicated fund to realign the high cost debt sourced by "financially weak but technically viable" units. The Government would do well to consider these suggestions on a priority basis.

A report by Fitch Ratings states that technology, scale, integration, and design capabilities will play a crucial role in establishing a strong presence in the global textile market after January 1, 2005. The study further adds that technology is particularly important in weaving and processing, where modern machinery results in significantly higher productivity levels, lower operating expenses and minimal fabric defects. Garment manufacturers will also need international design capabilities to meet customer expectations.

Significant improvements in productivity levels and profitability are all the more important because there is a real possibility of prices coming under pressure after the end of the quota regime. Most companies, especially those from China, which have set up huge capacities, may resort to price cuts to build up their global market share.

Going by the recent press reports, the Textile Ministry finally seems to have woken up to the urgent need to go for scale economies and is planning to remove all the textile products from the SSI reservation and also the purview of Essential Commodities Act. While the woven garment sector was finally de-reserved in 2002, as many as 83 knitwear and hosiery items are still under the SSI reservation list.

The Prime Minister, Dr Manmohan Singh, has also directed the Textiles Ministry to prepare a strategy paper outlining the measures needed to attract investments and boost exports of the industry. In a joint presentation to the Prime Minister, the Textiles Minister, Mr Shankarsinh Vaghela, and the Commerce Minister, Mr Kamal Nath, have stated that there has been new investment of Rs 50,000 crore in the textile industry over the last five years and that banks which were earlier reluctant in providing credit to this industry have now disbursed loans totalling Rs 20,000 crore.

The ministers further stated that ``Vision 2010 for Textiles'' formulated by the Government envisages that the size of India's textile industry would grow from the current $37 billion to $85 billion and that the value of industry's exports would grow to $50 billion by 2010 and that the country's share in world textile exports would double from the current level.

A little reflection would reveal that the figures now provided in the so-called `Vision 2010' have just been recycled from the New Textile Policy that was announced in November 2000 and the ICMF study published in 2002. There is nothing new in this vision statement. Yes, the Textiles Minister has now informed the Rajya Sabha that the country has targeted to increase exports of textiles and garments to $30 billion in the next two years.

However, the industry observers are bound to view these projections with scepticism. A recent study by investment rating agency, Crisil, commissioned by the ICMF, estimate that the Indian textiles and apparels industry would compass a potential size of $85 billion by 2010. Of this, the domestic market potential would be $45 billion and exports would form the balance $40 billion.

While more orders are no doubt expected to flow to India after January 1, 2005, the real problem will be that of capacity constraints faced by Indian suppliers. Most major players are already working to their full capacity as of now. Hence, as Mr Arvind Singhal, Chairman, KSA Technopack, puts it: "We have missed the bus as far as the first years of a quota-free world are concerned." However, by adopting a more pro-active approach we can cover some of the lost ground in the medium term. The 2004-05 Budget has tried to provide the much-needed boost to the textile industry by offering an attractive package to make it "efficient and competitive". But much more needs to be done on a priority basis to help the industry to overcome the problem of technological obsolescence, to capitalise on scale economies and to move up the value chain.