The Hindu Business Line : Textile exports to US

India has to work on its shortcomings and spruce up its act to enhance textile exports so that the export target of $40 billion by 2010 can be reached.

If the performance in the US market is anything to go by, India seems to have weathered fairly well the quota-free regime in textile exports in 2005, the first year following the abolition of quotas on such exports. It has moved up from being the fourth to the third largest supplier to the US. India's share has increased from 4 per cent to 5 per cent of US imports, registering a year-on-year growth of 27 per cent.

But the bad news is that it has a lot of catching up to do with China, which has increased its US import share from 17 per cent in 2004 to 25 per cent in 2005. Also, for exporting countries as a whole, the US market is increasingly coming under pricing pressure with realisations almost stagnant at $1.75 per sq m in 2005, compared to $1.77 the previous year.

Asian countries have emerged winners in the US market with traditional exporters such as Mexico, Canada, the Caribbean Basin Initiative (CBI) countries, Italy and Turkey losing market share. On the face of it, this would seem to suggest that free trade agreements/preferential trade agreements, with their duty differentials vis-à-vis competition and outward processing arrangements, have failed the acid test of the post-quota period with differentials in labour cost and cheaper raw materials making all the difference between the haves and have-nots.

Non-apparel growth

In non-apparel exports, despite China, India and Pakistan growing their shares, it seems Mexico, Turkey, Germany, Korea, and Taiwan are still holding their turf in yarn markets. Overall, non-apparel imports grew by a good 11 per cent to $20.5 billion, with China topping the chart, followed by Pakistan and India growing at 29 per cent, 17 per cent and 16 per cent respectively. Mexico and Turkey saw modest growth while other top ten suppliers witnessed a decline.

Developed economies such as Europe, Korea and Taiwan are seeing a decline in value-added manufacturing with dismantling of capacities and shift to low-cost locations such as China, India, Bangladesh, Sri Lanka and Pakistan, leaving them with no alternative but to export yarn.

Progressively, the trade in non-apparels will be driven by technical textiles (fabrics used in industrial applications), which are estimated to grow at over 7 per cent a year over the next five years and globally constitute over 50 per cent of fibre consumption. This is an area India needs to watch out for owing to its limited presence in the segment. China is already a large exporter of these products.

Cotton as white gold

Cotton is the darling of world trade, with imports of both apparel and non-apparel growing in double digits — 10 per cent and 13 per cent respectively. In cotton apparels, China stole the show with 118 per cent growth to $6 billion. With this, China doubled its share from 7 per cent in 2004 to 15 per centin 2005. In the process it eclipsed Mexico as the most preferred supplier of cotton apparels.

India's performance, though remarkable, was not as spectacular. It moved up one notch to become the fourth most preferred supplier of cotton apparels, growing at 43 per cent to $2.3 billion. Trends suggest that Asian competition is close on India's heels. Some of them have lower labour costs than India and have been investing in strengthening their manufacturing base by increasing installed capacities of shuttle-less looms and modern spindles.

In cotton non-apparel, which grew at 13 per cent to $7.6 billion, China, Pakistan, India and Turkey occupy the top four positions with exports growing at 43 per cent, 24 per cent, 17 per cent, and 19 per cent respectively.

Lower MMF growth

Man-made fibres, on the other hand, hit by high oil prices, saw lacklustre growth in apparels. MMF apparels grew at a measly 2 per cent to touch $20.7 billion, while non-apparels saw a healthy 10 per cent growth to touch $11.1 billion. The other reason is that earlier quotas were not stringent on MMF items. MMF non-apparels were clearly aided by the growth in technical textiles as globally 80 per cent of technical textiles are manufactured from MMF.

Despite being the fourth largest MMF producer in the world, India occupied a lowly 16th position, though its exports grew at 13 per cent. Even countries such as Indonesia (Rank 3), Vietnam (Rank 4), Honduras (Rank 7), Bangladesh (Rank 8), Thailand (Rank 11) and Sri Lanka (Rank 13) seem to be doing better despite a fall in their exports in 200. China occupies pole position, increasing its share in MMF apparels from 16 per cent in 2004 to 27 per cent in 2005! Likewise, in MMF non-apparels, India occupies 10th position with exports growing at a healthy 26 per cent. China again occupied pole position, increasing its share from 36 per cent in 2004 to 41 per cent in 2005.

India's woes largely stem from the fact that the Government has followed a policy of discrimination between natural and artificial fibres in terms of higher excise duty on artificial yarns than on natural yarns — an anomaly corrected only in the recent Budget. The havoc wreaked by differential policies is evident in India's position in cotton trade vis-à-vis MMF.

Canons of protectionism

China's stupendous success has made policy-makers in America a little nervous, with the US restricting growth in exports from China in some items, leveraging the fact that as per conditions of its entry into the World Trade Organisation, developed countries can apply selective quotas on China until December 31, 2008.

Apart from these, other tools such as using anti-dumping duty, increased demands for compliance with environmental and social standards, rules of origin and FTAs are being used by policy-makers in developed countries to protect the domestic industry and increase the costs of supply for developing countries through increased compliance and certification requirements.

Strengthening the industry

So much has been said about the technological backwardness and medium scale of the Indian textile industry, that the growth in exports seems like manna from heaven. No doubt, Indian companies have undergone restructuring in last few years, acquired scale and invested in modern technology, but we need to tackle the issues highlighted in the recent CRISIL studies, to ensure fast-paced export growth and to beseen as a credible supplier of choice, after China.

Indian policies and exports are clearly moving in the direction of achieving $40 billion in size by 2010. Restrictions on Chinese exports mean that India has a limited time-frame to make good on its shortcomings so that it can leverage to the maximum the world demand for its textiles.

(The author is Manager, CRISIL Infrastructure Advisory. The views are personal.)

More Stories on : Textiles | Exports & Imports | WTO

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Inflationary discomfort

One dollar is one dollar

Picking up the resettlement gauntlet

Politics of the oil protest

Textile exports to US — Weaving success, post-quotas

Hats off, IMF!

The FII `shock' to stock market

Making IPOs retail-friendly

Soft drinks

Promoting bio-diesel