The textile industry that has had a rough year is feeling up beat. The reason is the new textiles minister Dayanidhi Maran who has got into the act as soon as he has been sworn in. He has already addressed the various textile associations, has been visiting textile cities and parks and listening to people. It is a multi layered industry ?cotton, fibre, spinning, weaving, garments to name a few. He has been grappling with the various grievances of the industry. Maran had a reputation as a dynamic performer during his stint as the minister for IT & Communication during the previous regime. Textile industry leaders hope he would bring about the breath of fresh air they desperately need.
There is a justifiable grievance in the industry that in spite of its contribution to the economy, it has never got the importance it deserves. A Johnny come lately like IT hogs all the attention and support. Just look at the textile industry numbers.
According to a study done by ICRA Managing Consulting Services, the industry contributes 4% to the country?s GDP, 14% to the country?s industrial production, and around 12% to the country?s foreign exchange earnings.
The Indian textile and clothing industry generates the largest number of employment second only to agriculture. It provides direct employment to more than 30 million people and with forward and backward linkages, a lot of indirect employment is created as well.
According to the study, the Indian textile and clothing market is estimated at Rs 2.55 trillion (2007-08), with exports accounting for 35% of the market value. Almost half the exports go to Europe and the US. The economic meltdown in these regions has been disastrous for the textile industry.
India?s textile exports have declined by 4% compared to 21% growth in previous year.
This has resulted in drop in production, turnover and profitability. There have been other problems as well. For example Tamil Nadu, which accounts for 40% of India?s textile exports has been reeling under 50% power cut for several months now, resulting in the industry taking a big hit as it has to generate its own power to run the machines.
Textile industry sources say the government insists on supporting industries that show high return on investment. They point out that industries like steel and cement are protected by anti-subsidy dumping duties, non-tariff barriers and so on. Although IT industry has come of age, government still wants to protect it. On the other hand, according to Manickam Ramaswami, articulate chairman and managing director of Loyal Textiles, who presents the textile industry?s case in many forums, India is pricing itself out of the international markets, thanks to government policies.
Ramaswami points out that there are several anomalies in the duty drawback structure for textile and clothing exports. Fabrics have lower duty drawback than yarn. Dyed and grey fabrics have the same duty drawback. Duty drawback does not necessarily increase with value addition. The buying and selling policies of Cotton Corporation of India, the agriculture ministry giving traders 5% export incentives and access to international shipping that the Indian industry does not have made cotton available to our competitors like Bangladesh, Thailand, Vietnam and so on at 10-12% lower prices.
To solve this problem government should impose an import duty on cotton. The minimum support price can be scrapped and the farmer should have multiple sources to sell his product.
He also has some strong and interesting views on pricing of polyester yarn, viscose fibre and their intermediaries. The raw material for both fibres, crude oil and wood pulp are imported. But both are available duty free. Imposing duties on intermediaries like MEG and PTA that are not imported is only to justify the DEPB (Duty Exemption Pass Book) given to the manufacturers. The DEPB is given to these producers on their exports based on the notional duty paid on their intermediaries. There is enough and more capacity of these intermediaries in the country. Reliance is the near monopoly manufacturer of these products.
So how does it affect our textile industry? Domestic prices are 12-15% higher than international prices . Our fibres are also available to our competitors at 20% lower prices thanks to the DEPB given to them. In fact our fibres are not bought by Europe as they say they are being dumped by the Indian industry. Which really doesn?t matter as the West?s spinning capacity is coming down. But our Asian competitors buy them at a cost lower than that is available here. Ramaswami?s point is that as virtually no import is taking place in either fibre or intermediaries, the notional duty can be scrapped. Nobody will lose and the country will gain.
The textile industry feels that the last five years have had only anti-textile policies. To give one more example, concepts like integrated textile farms have not taken off. They have only helped some real estate developers. Clearly it is time to think outside the box for this industry that provides livelihood for millions.
