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SECTOR-WATCH
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It’s now or never for struggling Indian textile industry
Veeshal
Bakshi
In 1965, India had 100 large composite textile mills in Mumbai
and 65 such units in Ahmedabad. Just 35 years down the road,
there are just about a dozen such mills left in both the cities
put together.
Like many other industrial sectors, the Indian textile industry
grew on the whole during the 70s and 80s but the growth came
through small mills which mushroomed in various parts of the
country. The large composite mills withered away.
The result — inefficient operations, poor quality products,
hardly any investments in technology upgradation and poor economies
of scale. Today, the Indian textile industry is under serious
threat of being elbowed out of the global markets by minnows
like Pakistan and Bangladesh.
A publication brought out by Northern India Textile Mills Association
(Nitma) is an eye opener for policy makers and domestic companies.
Its title “Wake Up Call” sums up the bleak future which the
sector faces unless drastic steps are taken both by the government
and the industry.
Phase-out of quota restrictions in textile production and free
trade in the World Trade Organisation (WTO) regime will change
the rules of the game but Indian textile mills are least prepared
to encash on the opportunity.
To add to the Indian industry’s woes, the Chinese and Pakistani
textile industry are developing and restructuring rapidly.
Take China, for example. In 1980, its share in the world textile
market was 4 per cent against India’s 2 per cent, while Pakistan
was nowhere on the scene. Today, China’s share (including Hong
Kong) is 25 per cent while India stands at a mere 2.7 per cent
China has set a target of 6.5 per cent growth in its textile
industry annually to reach an export target of $65 billion by
2005. China’s export thrust is on high value added products
and expansion of the proportion of man-made fibre fabrics and
decorative and industrial textiles.
The Chinese industry is being encouraged to restructure and
step up production. Foreign investment is being invited in mills
located in the western region. The Chinese government is providing
full back up in the form of competitive interest rates, power
rates and a favourable labour policy. The lending rate on working
capital is 6 per cent for less than months and 6.5 per cent
on term loans of 12 months and above, which are way below the
lending rates in India.
The Chinese government also gives special treatment by way of
financial subsidies to revive textile industry which accounts
for 25 per cent of the country’s exports besides providing employment
to more than 13 million people.
In India, the textile industry has been by and large left to
fend for itself even though it contributes 33 per cent to the
overall exports earnings and provides direct employment to about
10 million people.
Besides specific incentives enjoyed by the Chinese textile industry,
good infrastructure, especially good quality power, a well developed
telecom network, roads and sea ports bring down its cost of
production.
Even Bangladesh has been making inroads into the developed markets
as, being a least developed country, it enjoys a preferential
status from Europe and the United States for exports.
The Pakistan textile industry too has caught up fast to increase
its presence in the global market. Today it accounts for as
much as 65 per cent of the country’s total exports. Pakistan
has 6.8 million spindles and 70,000 rotors, producing 1,675
million kg of spun yarn. Its textile industry has prepared a
blueprint for restructuring whereby an investment of Pakistani
Rs 333 billion is proposed to be made. The Pakistan government
has allowed duty free import of textile machinery which has
made garments and processing industry highly developed and organised.
Processing machines are fully imported. The country has a value
added tax (VAT) system for excise duty from ginned cotton to
garments. The State Bank of Pakistan has advised banks to provide
finance to textile sector on priority. Power and labour costs
are much lower than in India.
Most of the textile companies made bumper profits last year
which enabled them to invest heavily in new machinery. In 1999-2000,
investment in modern textile machinery stood at Pakistani Rs
910 crore which rose to Pk. Rs 2,500 crore in 2000-01.
These developments in China and Pakistan should have rung alarm
bells in India long ago. Even today, both the government and
the industry continue to ignore these.
The Indian industry is by and large fragmented. Nitma puts the
blame for the “disintegration” of the domestic industry during
the last 40 years on discriminatory taxation policies which
protected one sector at the cost of the others, large-scale
tax evasion by the small-scale sector, a large organised sector
that remained a mute spectator to the mushrooming growth of
unorganised producers resulting in unfair competition, government
policies which sent out a message to composite and integrated
producers that they have no future, lack of support to composite
units by financial institutions and large-scale capacity expansion
in spinning by new entrants who had little and experience, got
in on high hopes of bumper profits on low technology orientation
and were supported by financial institutions.
Government policies have lacked vision and initiatives. For
example, the Technological Upgradation Fund for the weaving
and processing sector has made little impact. The industry blames
the government for the lack of vision in policy formulation
which has distorted production and consumption.
Yet, all is not lost. India may no longer be able to catch up
with China but it’s about time we took the threat from Pakistani
and Bangladeshi textile sectors seriously.
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