Financial Daily from THE HINDU group of publications
Tuesday, Jul 30, 2002
Industry & Economy
`Labour costs eroding India's edge in textile sector: Study
NEW DELHI, July 29
THE increased automation widely witnessed in the textile sector all over the world is reducing the share of labour in the total production costs. That should be good news for the rich and the developed world. But that does not hold true for India. For, it is eroding the country's competitive edge since its comparative advantage is mainly based on lower wages.
The country's cost disadvantage in textiles is highlighted in a research paper in the current issue of `Textile Times', the official journal of the Indian Cotton Mills Federation (ICMF). According to the research paper, based on international comparison of the cost structure of the textile sector undertaken by the Zurich-based International Textile Manufacturers' Federation (ITMF), India's production costs are among the highest in the world. And, this is despite the near lowest labour cost in most activity lines.
In textiles, the share of direct labour in production cost has fallen from 30 per cent in conventional production lines to a low of three per cent in the new automated lines. Central to the profitability of the textiles units now is how efficiently the capital involved in machines and installations can be put to use rather than the cost advantage of sourcing labour.
According to the ICMF Chairman, Dr Rajaram Jaipuria, "The paradigm shift in the cost profile of textiles does not augur well for India which traditionally tried to leverage its comparatively low labour cost in finding export outlets".
Commenting on the research paper findings, Dr Jaipuria said, "Upgradation and modernisation of textile units are now unavoidable for the survival of the Indian textile industry". With shorter product life cycles, it is the difference in efficiency in the production cycle, rather than wages, that determine the cost of bringing products to markets, the research paper has pointed out.
Significantly, recent statistics released by the Centre for Monitoring Indian Economy (CMIE) on the Indian textile sector also indicate a decline in the wages and salaries in the cost of production. The cost of wages and salaries in the sector, which includes cotton, synthetic and other textile products and garments, has come down from Rs 4,170.9 crore in 1998-99 to Rs 4,051.8 crore in 2000-01.
During the period, however, the cost of power and fuel expenses have moved up from Rs 3,404.8 crore to Rs 4,051.8 crore while the interest payments have shot up to Rs 5,143 crore in 2000-01 from Rs 4,851 crore in 1998-99.
In the international markets, there is a growing interest for using higher performance textiles, such as smart textiles with improved functions and high level of comfort. The fear is that the development of such multi-purpose fabrics and continuing increase in material efficiency can constrain demand growth for traditional exports. Many of India's competitors are moving towards better quality products to conform to the changing market trends.
"Our responses to such changes and customer preferences are slow and not very focused and this can further erode our export market share," the ICMF chief felt.
Calling for faster modernisation of the textile sector, the research paper has suggested that apart from reducing the cost of production, the domestic textile industry should absorb new technologies by leveraging upon its technologically dynamic workforce. For, future comparative advantages for India will not depend just on cheap labour.
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