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INDIAN TEXTILE INDUSTRY

The textile industry occupies a unique place in the economy of India by virtue of its contribution to the industrial output, employment generation and foreign exchange earnings. In 1999, the industry produced 38 billion square metres of fabric. More importantly, exports of textiles and readymade garments now stand at over $14 billion (Rs 63,000 crore), which accounts for more than a third of India's total exports. In terms of employment, from cotton growers to garment sellers, the industry engages 35 million people directly across four different stages of activity.

PRESENT PERSPECTIVE


Recent decades have witnessed the changing fortunes of the Indian textile industry. The post-70s era has been marked by rampant fragmentation of the industry. One of the earliest and deepest wounds inflicted on the organised mill sector came with the emergence of the power-loom sector and processing houses. More recently, challenges from global competitors and the prospect of a free-trade regime in a few years will call for newer strategies and mechanisms to cope.

The organised textile industry has been entrapped in a severe crisis for the last few years. In June 2000, the Mafatlal Industries' mill in Mumbai was shut down - the 92nd textile mill to have shut down since April 1999 - the highest rate of mill closure since Independence. In all, 350 mills are shut today, and the ones that aren't closed are not doing much better.

ANOMALIES IN THE VALUE CHAIN

From raw cotton to yarn to fabric to garments, every link in the textile industry's value chain has been rusting for years.

Yarn: India is the world's largest exporter of yarn, with 25 percent share of the global yarn market. Yarn manufacturing is the most organized and the only state-of-the-art segment of the industry. And though it may be the most competitive segment, yarn accounts for a miniscule proportion of global textile trade (just about $7 billion out of the $350 billion annual trade). Rather than trading in yarn, most yarn producing countries prefer to convert it into fabric and garments which fetch much higher prices.

Weaving: Weaving is the most fragmented, outdated and troubled segment of the industry, largely because of government policies. Fabric is produced by three kinds of mills:

Composite Mills (mills that make yarn, fabric and some garments too; about 2,000 in number)

Power looms (over 15 lakh)

Handlooms (cottage industry - thousands of them)

Such large-scale fragmentation was driven by the objective of creating employment: power looms can be set up anywhere with minimal investments. The government granted to power looms, many discriminatory benefits - less than 50% excise duty levied on mill cloth, subsidised power and water and exemption from octroi. The cost of producing one metre of cloth by a power loom is 0.22 paise, compared to RS 1.60 in a composite mill. Subsidies to power-looms have made composite mills sick.

But now, the attention has shifted from employment generation to competitiveness. Most power looms are too small and too technologically outdated to produce quality fabric at competitive prices. Consequently, India has a miniscule 3.2 percent share in the global fabric market. Even countries like Bangladesh have rejected Indian fabric for its poor quality.

Readymade Garments: Garment making in India is reserved for the small-scale sector - no garment manufacturing unit can have an investment of more than RS 3 crore. The exclusion of big corporates from garment making is one reason why India's share in the global garment market is just 2 percent (or $5.5 billion). In contrast, China, from 1990-98, through large and integrated garment factories, had raised its share in the global garment market from 9 percent ($9.4 billion) to 17 percent ($30 billion) and is now the world's largest exporter of apparel. Even Sri Lanka and Mexico are benefiting by following this model.

GLOBAL PERSPECTIVES AND THE FUTURE


The Indian textile industry's presence in international trade is already very low. The share of Indian textile and clothing industry in global export trade of over US $350 billion is just about 3 per cent as against china's 12.5 per cent, almost 26 per cent together with Taiwan. Presently, Indian exports enjoy some amount of protection under the quota system of textile trade, but this comes to an end on December 31, 2004. Falling trade barriers will unleash a flood of imports of cheaper and better fabric and garments into India, and will also make the export market far more competitive.

In the free-trade regime, Indian textiles may not only lose some of their foreign markets, but they would also face tremendous foreign competition in the domestic market. From the levels of 100-150 percent in the early 1990s, customs duties on textiles have fallen to 20-35 percent and further reductions are due in the next three years. As customs duties are scaled down, excise duties and other domestic taxes, too, will have to be brought down to provide an even field for the domestic industry.


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