The Hindu Business Line : Opportune time to think big

Considering the opportunities that have opened up in the textile and clothing industry, this is the opportune time to think big for the policy-makers and industry leaders.

The Government should facilitate large-scale FDI in the sector to bring not only capital but also the product and business process knowhow.

The Budget, presented by the Finance Minister, Mr P. Chidambaram, has continued the process of creating a favourable environment for the textile and clothing industry through various tax incentives and other measures. In the previous two Budgets, efforts were made to create an enabling environment for the growth of this industry, but the focus was mostly on cotton textiles.

By reducing the excise duty of 16 per cent to 8 per cent on all man-made fibre yarn, and from 16 per cent to 8 per cent on filament yarn, this Budget has set right a major anomaly. Also, the import duty on all man-made fibre yarn and some raw materials has been reduced from 15 per cent to 10 per cent. Moreover, at the time of passing the Finance Bill, 2006, the Finance Minister announced a reduction of duty on polyester chips, which are inputs for synthetic textiles, to 10 per cent from 12.5 per cent. For too long the man-made textile industry segment received a raw deal from the policy-makers. It has been reeling under the impact of high taxes and its growth was stunted.

GROWTH DRIVER

The packages announced for the textile industry in the two earlier Budgets have also failed to offer any significant relief to man-made fibres and textiles, though the excise duty on polyester filament yarn was reduced to 16 per cent from 24 per cent. The Finance Minister has now acknowledged in his Budget that the man-made textile industry is a growth and employment driver.

Hopefully, the duty reduction now announced — both excise and Customs — will ensure greater competitiveness for this segment of the textile industry and enable it to raise its share of synthetic and blended textiles and garments both in the domestic and export markets. Currently, Indian exports are highly skewed towards cotton, accounting for almost 86 per cent of the textile exports.

With the phasing out of the quota regime of the Multi-Fibre Arrangement (MFA) with effect from January 1, 2005, the mood in the textile industry is no doubt upbeat. There has been an increased flow of export orders. The latest reworked data show a significant surge in textile exports in the post-quota-free regime. According to the figures now released by the Directorate-General of Commercial Intelligence and Statistics (DGCI&S), India exported textile goods worth $12.33 billion in April-December 2005, representing a growth of 25.85 per cent over the corresponding previous period.

DATA DISCREPANCY

There was some discrepancy in the figures released by the Directorate earlier which showed that exports during January to November 2005 had grown only by 8.21 per cent at $9.3 billion, even as the import data from the US and the EU — the two biggest destinations — had suggested that imports from India were much higher. In fact, according to January 2006 figures, India's textile exports to the US had surged by over 48 per cent, leaving even China with export growth of 17 per cent, far behind.

However, this is only a small beginning and concerted efforts will have to be made to sustain a robust growth in exports of textiles and clothing for the industry to reach anywhere near China. Currently, India's share in global exports of textiles and clothing is four per cent and five per cent respectively compared to China's 18 per cent and 35 per cent. This is because the reservation of certain items for the small-scale sector until recently, historical neglect of the weaving sector, and absence of labour market flexibility, have prevented the development of scale economies in this sector.

A number of steps were initiated to prepare the textiles and clothing sector for the post-quota regime but the pace of new investments continued to remain slow till the year 2000. Things started looking up only after the formulation of the Textile Policy 2000, which aimed at achieving the target of textile and apparel exports of $50 billion by 2010. However, going by the progress so far, it appears that India's exports of textiles and clothing may not exceed $35 billion by 2010.

TIME TO THINK BIG

Considering the opportunities that have been opened up in the global markets and the growing flow of export orders, this is the opportune time to think big both for the policy-makers and the industry leaders. In view of the great employment potential of this industry, India would do well to view China as a benchmark while formulating its strategy for the textile sector rather than being satisfied with the progress achieved over the last two-three years.

Acccording to a recent study by the International Monetary Fund (IMF), the key weaknesses holding the sector's output and productivity cover the low quality of textile products, fragmentation of the industry, a continued concentration on low- and medium-priced apparel, lengthy delivery times, delays in Customs clearance, technological backwardness, lack of scale economies, and high transportation and input costs.

The Government has also acknowledged that weaving and processing continue to remain the weak links in the textile value-chain as these segments are currently concentrated in the decentralised segments of the industry. After prolonged neglect and lack of policy support, measures have been initiated in recent years to remove some of these weaknesses.

The continuation of the Technology Upgradation Fund (TUF) Scheme in the latest Budget with allocation of Rs 535 crore and the Scheme for Integrated Textile Parks (SITP) that was launched in October 2005 for creating 25 textile parks, could provide a big thrust to the sector. So far only seven parks have been sanctioned and 10 more have been identified. If the industry has to capitalise on the emerging favourable environment, it is necessary to ensure early implementation of these schemes with much higher allocations.

NEW INVESTMENTS

New investments of Rs 50,000 crore have come into textiles and garments over the last five years. Over the same period, three million additional spindles and 30,000 shuttle-less looms have been installed. Also, the cotton production has increased by 57 per cent over this period. There are encouraging signs of a significant pick up in new investments in the sector. Many companies have lined up investments on a mega scale, a chunk of them being in ready-made garments.

Industry experts feel that the Government should facilitate large-scale foreign direct investment (FDI) in the sector to bring not only capital but also the product and business process knowhow.

The Government should also consider favourably, the request of garment manufacturers to allow recruitment of contract labour in garment manufacturing units. This demand has its basis in the seasonal character of demand for readymade garments in the overseas markets; there is heavy demand for clothes during the spring and summer seasons.

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