The Hindu Business Line : Archaic laws stifle textile sector competitiveness

Exit Policy regulations prove to be another set of stumbling block for large-scale investments into the textile sector, both by domestic and foreign players.

New Delhi , Jan. 21

EVEN as the world market for textile exports has opened up from January 1, domestic textile players continue to reel under archaic Government regulations that stymie investments and prevent them from achieving economies of scale for competing with their Chinese or Pakistani counterparts.

Take for instance the `Handloom Reservation Order,' which reserves production of 11 items including non-terry towels and varieties of bed sheets, exclusively for the handloom sector.

"What is ironic is that with the textile trade opening up from January 1 this year following the abolition of the quotas, all of these items can be imported into the country from say Pakistan or China, but an Indian non-handloom sector player cannot manufacture these items here," a textile sector player said.

Then there is the `Hank Yarn Obligation Order', which stipulates that 40 per cent of the cotton yarn produced by each and every unit in the country has to be in hank form for use by the handloom sector.

The only problem with the order is that there is no market for the hank yarn so produced. According to industry estimates, in October last year, the unsold hank yarn stock stood at about 15.27 million kg.

"If the Government prescribes what each unit should produce, either the Government should buy whatever is produced by them or there should be a market for the item. The Order just does not make any sense in the present scenario," a textile sector expert said. Interestingly, the pile-up in hank yarn stocks is despite a majority of units flouting the order and instead paying up the inspectors who visit their premises.

Exit Policy regulations prove to be another set of stumbling block for large-scale investments into the textile sector, both by domestic and foreign players.

As per the existing labour regulations for the manufacturing sector, which apply to the textile sector too, units employing more than 100 people require Government permission to shut shop. "The permission required for closing down the unit is near impossible to obtain. The result is that in case an owner of a unit faces acute losses, he stops production on the sly and workers are rendered idle without any clue of when or if production would restart," a manufacturer said.

A result of the rigorous exit policy norms is that while the country has around 220 composite mills for the record, only about 20 of them are actually operational, according to industry estimates.

There are a slew of incentive schemes formulated by the Centre that promise cheaper funds to textile companies, provided they are of a particular size. For instance, the TUFS scheme prescribes a project cost cap of Rs 1-crore for power loom sector for availing of capital subsidy. "If an entrepreneur was to invest say Rs 5-crore, he would prefer to set up five small units so that each one can avail subsidy under the scheme.

This ensures that instead of one composite unit being set up, the five units would lack economies of scale," a textile sector expert said.

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