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Textile policies key to industry fortunes… - Views on News from Equitymaster
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  • Nov 18, 2000

    Textile policies key to industry fortunes…

    The Indian textiles industry is the single largest foreign exchange earner for India - accounting for around 20 per cent of India's industrial output and over 30 per cent of India's exports. It is also the second largest employer next only to agriculture. India ranks third in cotton production next to China and US and contributes around 15 percent to the world production of cotton textiles.

    The main reason for lower export growth hitherto has been the quality of production of the domestic companies. Besides, the industry has been suffering from lack of labour reforms, which has pushed productivity to lower limits due to frequent strikes and lockouts. With WTO (World Trade Organisation) agreement coming into place from April 2001, domestic companies and small-scale players will have to face competition from multinationals. Under the WTO agreement entered into between US and India, India has committed to bind its textiles and tariff lines to allow global players to have greater access to the Indian market.

    Meanwhile, the industry has been longing for rationalising excise duty structure as once the Multi-Fibre Agreement (MFA) is phased out, domestic players would be exposed to competition from multinationals. As per the agreement, developing countries have been allotted export quotes by the developed countries for exporting yarn and related commodities. Once MFA is phased out, the domestic companies would be deprived of these quotas, which have been protecting them from international competition. This is ironical since Indian textile companies have better competitive advantage in terms of raw materials, labour and designing capabilities.

    The Export pie
    Items (US$ billion) FY98 FY99 FY00
    Readymade Garments 5.9 6.0 6.5
    Cotton textiles 4.2 4.5 4.8
    Man-made textiles 1.2 1.1 1.2
    Silk 0.3 0.3 0.3
    Wool 0.4 0.3 0.3
    Handicrafts 2.0 2.0 2.2
    Jute 0.2 0.2 0.2
    Coir 0.1 0.1 0.1
    Total 14.3 14.4 15.5

    The recent New Textile Policy 2000 (NTP) announced by the government has initiated the much needed reform process for the Indian textile industry. This is expected to change the whole facet, which has been regulated strictly, up till now.

    As per the NTP 2000, the government has mooted for de-reservation of the garment sector and has extended the cap on foreign direct investment upto 100 percent (24 percent at present). This is expected to bring in significant operational efficiency to these small-scale units, which have been deprived of economies of scale.

    As these small-scale units would get access to higher end technology from their foreign partners, quality will not be a hindrance for growth in the future. It is estimated that foreign direct investments in the textiles sector would touch Rs 3 trillion by fiscal year 2003. If it were to happen, exports are also expected to touch US$ 50 billion from the current US$ 10 billion in the next ten years.

    Going forward, the outlook of garments business is extremely positive. The size of men’s readymade garments is pegged at Rs 16 billion and is expected to touch Rs 60 billion by 2005, a growth of 10 percent per annum. However, currently the branded garment’s share is just 25 percent. With de-regulation of the small-scale industry, branded segment is expected to grow at 25 percent per annum.

    The finance ministry has also reduced excise duty on textiles and apparel items, which is expected to increase exports of these goods. The duty revision has been effected on close to 195 tariff lines. However, supply of cotton in international markets is expected to be tight this year, given the fact that overall world production is expected to be lower. This should bring some respite to the domestic textile industry in terms of demand and price realisations. Moreover, the Technology Upgradation Fund (TUF) that aims at providing funds for modernizing the domestic textile industry has shown some positive indications. More than Rs 9 billion has been disbursed as of June 2000 against sanctions of Rs 28 billion. The conditions for availing this fiscal assistance have also been relaxed so as to help companies in modernizing their plants.

    On the rise…
    Garments exported US$ m Qty (m pcs)
    FY97 4,910 1,314
    FY98 5,269 1,391
    FY99 5,525 1,441
    FY00* 1,445 NA
    *(April-June 2000)    

    Cotton textiles exports for the first six months have grown by 16 percent from Rs 60 billion to Rs 70 billion. This is primarily led by cotton made-ups and fabrics exports, which grew by 32 percent and 11 percent respectively. Interestingly, knitted garments share as a percentage of total garments export stands at 35 percent. Exports to US have also grown by 30 percent in value terms (January-July) to Rs 57 billion.

    Survival of the Indian textile industry depends solely on the ability of these companies to become more competitive in terms of technology and quality of output.



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