The Hindu Business Line : `Indian textile industry less cost competitive than China, Brazil'

THE Indian textile industry's lack of cost competitiveness could well be the biggest constraining factor preventing it from grabbing the export opportunities once the global textile markets open up in January next year.

Even as a recent WTO report has predicted major gains for textile manufacturers from India and China following the phase-out of quotas from January 1, 2004, lack of economies of scale, high raw material costs and higher outgo on power have largely ensured that Indian textile players produce a number of inputs — yarn and fabric — at a higher cost as compared to China and Brazil.

According to international production cost comparisons on 13 major yarn and fabric categories compiled by the International Textile Manufacturers Federation (ITMF), the cost of an overwhelming 10 input items is lower in China and Brazil.

For instance, the average cost of production of one kilogram of textured yarn in India last year was $2.06, as against a production cost of $1.40 in China, $1.68 in South Korea and $1.90 in Brazil. Similarly, it took 24 cents to produce one yard of Ring O-E yarn fabric in India last year, as against only 20 cents in Brazil and 22 cents in China.

Being cost competitive, according to analysts, is important since with the last set of quotas being abolished next year, 49 per cent of the trade is going to be freed. According to KSA Technopak estimates, almost all the categories that have gone off quotas have witnessed a fall in sourcing prices by 10-20 per cent within the first year itself. "Many of the organised Indian textile players have production costs comparable to their Chinese counterparts. Much of the Indian textile industry is, however, disaggregated and hence the overall costs competitiveness of the industry comes down in comparison to the much more organised industries in China and other countries," Mr Baqar Iftikhar Naqvi, Senior Consultant with KSA Technopak, said.

In terms of labour costs, however, India clearly has an edge and the outgo on labour here compares favourably with other countries. "It is in labour intensive activities that Indian manufacturers have an advantage and hence it is important to get more into labour intensive activities like garmenting," Mr Naqvi said.

In the case of manmade yarn and fibre sector, India is less cost competitive due to the regressive tax structure of the Government. Consequently, textured yarn and fabrics cost much higher to produce here, according to the data. Higher capital costs could be another worrying factor for Indian manufacturers.

According to Mr D.K. Nair of the Indian Cotton Mills Federation (ICMF), "Indian textile manufacturers have been concentrating on niche markets and hence the productivity here is much lower. The items in which India does have clear cost competitiveness over China and Brazil are production of O-E yarn, ring yarn and knitted ring yarn fabric."