The Hindu Business Line : Textile industry holds promise with removal of quota regime

THE dismantling of the quota presents an opportunity for India to enhance its global export market share in textile trade through appropriate policy response and fostering an environment to overcome specific constraints now plaguing the industry, according to two senior economists of the International Monetary Fund (IMF).

In a just circulated working paper, which is described as research in progress, the fund economists Mr Prasad Ananthakrishnan and Ms Sonali Jain-Chandra contend that though achieving exports of textiles and apparel of 50 billion by 2010 as projected by India's Textile Policy 2000 appears doubtful, the dismantling of quotas at the end of 2004 put an end to the trade regime and offers an opportunity for competitive producers.

Stating that in a competitive milieu, success would depend on quality, price, delivery schedules and marketing skills, they said that so far India's performance seems to have been modest. But with further domestic reform, India might be able to increase its exports at a more rapid pace. For this, they said, the strategy should aim to overcome specific constraints such as low quality of products, fragmentation of the industry, concentration on low-to-medium-priced apparel, long time-to-delivery, delays in customs clearance, low level of technology, unfavourable trend in labour productivity, lack of scale economies and high costs of inputs and branding.

Citing an Export Import (Exim) Bank of India study which has called for sharpening India's competitive advantage by lowering the cost of operations through efficient use of production inputs and better integration of manufacturing processes, enhanced technology, foreign investment, improving the efficiency in logistics and supply chain management and improving soft skills such as design capabilities, they said "a coherent response would involve both increasing the volume of exports and upscaling its products."

In order to minimise lead times, India should further integrate the supply chain and develop strong textile clusters, capable of handling all stages of production in a co-ordinated manner. In particular, they said, the weaving and fabric-processing (dyeing and finishing) sector, considered to be the weakest link in the supply chain due to inadequate investment and lack of technology, should be strengthened. There must be integration from weaving to garment making to reduce lead time, cut costs and improve quality.

Pointing out that foreign investment and transfer of technology would help the industry to be more technology savvy and improve quality and productivity, they said that it would be preferable if the integration of the supply chain supervenes in tandem with reducing the tariffs to source from the most efficient producer, domestic and foreign.

As non-cost factors, too, get important, particularly for brand name and eco-labelled products, emphasis should be placed on quality certification and branding with focus on manufacturing high-quality and defect-free processed fabric.

The Fund economists also call for developing services-related expertise in designing, marketing, retailing, financing and the gathering of market intelligence on foreign markets. To this end, FDI flows should be encouraged. Even as India has not permitted FDI in retail segment, the economists said that it might be appropriate to permit FDI in retail distribution services for textiles and clothing to begin with.

Again, they said, there is a huge market for packaging, sports textiles, medical and hygiene textiles, and military textiles, which fall under the definition of technical textiles. As the production of this genre requires expensive equipment and more skilled labour, India should encourage diversification of established textile firms to capture this growing market.

There is also a need to forge contacts between domestic clusters and retail groups as the growth of retailers had shifted the market power from producers to retailers.

With the apparel industry set to be one of the fastest growing air freight markets between 2004-09, a policy approach of setting small textile cluster-linked airports with emphasis on freight and business traffic (like Canary Wharf in London) could be an option in the medium term until ports and other capacities are enlarged, they observed.

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