Textiles and clothing sector has been given a boost in the recently announced Foreign Trade Policy (FTP). A special focus on handloom and handicrafts industry has been given in the Annual Supplement to FTP that includes exemption from duty on the equipment and machinery which are needed for effluent treatment plants required by handloom and handicraft industries. These treatments will help  meet environmental and other standards abroad. In a similar measure to further support the cottage and fledgling industrial sector, the export obligation period has been extended from 8 to 12 years.

       The Government is further creating an environment which should attract an investment of Rs 1,40,000 crore in the 11th Plan period which will push the country’s textiles and garment exports from the current $14 billion to $40 billion. All these measures look fine, but at what level and in what position the current textiles industry in India is, needs a thorough analysis.

Prominent position
Today the textiles and clothing industry is the largest foreign exchange earner. Having about 35 per cent in its coffer it contributes to over 20 per cent of India’s exports. The burgeoning industry also supplies 14 per cent of industrial output, securing more than 5 per cent of its GDP and provides direct employment to 38 million people primarily to weaker sections of the society, including women. It is also the second largest important sector only after agriculture.

Indian textile industry is fairly a matured one, since the 19th and early 20th century this industry has formed the back bone of India’s economy. It has exported a wide variety of products to the international markets in spite of the restrictive and arbitrary quota regime followed with the establishment of Multi Fibre Arrangement in 1974. The industry’s major components have been mills, power looms and handlooms. Though the mill sector has been organised, mechanised and modernised, the power loom and the handloom sectors have remained at a disadvantageous position.

Lack of infrastructural and technological support and competition from the mill sector even from the neighbouring countries have weakened existence of this industry to a large extent in the country. Saving grace has been the potentiality of the mill sector which has managed to retain a reasonably high share of exports in the world market. Indian textiles and clothing has been contributing about 27-30 per cent of India’s overall export trade.
China being the leading exporter of textiles in the world having a share of more than 10 per cent followed by Korea with 8.1 per cent, India hovers around with a share of 3.5-4 per cent in the world market. With respect to clothing exports, China holds a share of 18.5 per cent followed by Italy with 6.7 per cent and India garnering about 3 per cent.

Huge potential
All these data signify the growing importance and potentiality attached to this sector. Financial help such as subsidies which are not WTO compatible, will also have to be phased out in a gradual manner. Even the benefits like GSP which are available to Indian textiles and clothing sector may not be available for a longer time in view of increasing share of Indian textiles and clothing in the world markets. All these factors suggest that the industry will have to compete purely in global market based on its intrinsic strength and competitive edge.

Challenges ahead
 Much is at stake to ignore the challenges unfolding before the industry in the wake up to quota free regime. Survival and performance of the industry will depend on how fast it prepares itself to face the stiff competition from the world market. Today the textile industry faces a host of constrains. Fragmented structure with dominance of the small scale sector, high power costs, interest rates, transaction costs, unfriendly labour laws, logistic disadvantage are posing serious threats to its growth. Foreign investments are not coming in as factors influencing the industry are not investment friendly.

Notwithstanding the fact that India is perceived to be a country with a big potential, endowed with superior design and processing capabilities and large base of skilled cheap labour, multi fibre raw material and a large and growing domestic market, it is still unable to capitalise on its market share. On the other hand, opening up of the textile world after MFA phase out has posed an opportunity and a threat to India. Opportunity because it is going to provide huge market without any restrictions of any kind, providing all chances to expand its exports and develop new markets, where as threat in terms of no longer guaranteeing a fixed amount of exports and markets and further allowing the domestic market getting exposed to competition.

The prevailing conditions of textiles industry in India suggest that the industry is not competitive enough to take full advantage of the global market. A double pronged strategy at the level of the Government and trade and industry must be initiated to meet the challenges. India’s competence in this sector lies in its huge natural resources and factor endowments such as raw cotton and cheap labour. The industry must exploit these before anyone else does. Besides, it should invest in R&D, reduce transaction costs and improve raw material base.
The Government with its own initiative may try to provide market access to Indian exporters through bilateral agreements with large consumer countries, make amendments in the labour and land laws for smooth functioning and create an investment friendly environment for the foreign investors to pump in resources.

Extension of the TUFS (Technology Upgradation Funding Scheme) and higher allocation must be properly utilised to give a face lift to especially the handloom and power loom sectors. Handloom sector has added advantage which needs to be exploited. Its ethnicity and offerings in terms of print variety, unique embroidery can attract a huge number of customers around the world. Among the ethnic textiles products Rajasthani bandini, Sambalpuri and Kanjivaram sarees have charmed the world over with its exquisite designs and colourful schemes. Similarly the industry needs to move from lower end markets to middle level value-for-money markets and export high value added products.

Industry may also contemplate on producing a variety of products which should be cotton and synthetic mix. There is a huge demand in the world for these mixed products as these are easy to maintain and low cost as compared to pure cotton products. Diversification of products range may prove to be beneficial for Indian textile industry.

There is no doubt that Indian textile industry has all the potential of making an impressive mark in the world market. But, what is required is a mix formulation of strategy and plan of action by which strengths are consolidated,  weaknesses are corrected, opportunities are exploited and threats are tackled.

The author is with Indian Institute of Foreign Trade