The textile industry in India, which grew at an impressive 30% plus per annum (1987-92) with a peak growth rate of 53.5% in 1989-90 against all odds, attracted the attention of economists and researchers during the last quarter of the 20th century. In the 1980s and 1990s, a host of researchers studied this industry, especially on the losses for India on account of the imposition of quantitative limits on textile & clothing (T&C) items by developed countries who were signatories of the multi-fibre agreement (MFA). There were also studies that focused on suggesting measures for realising the available quota, identifying the affected T&C categories, and so on. Many of these research findings emphasised the need for ending protectionist measures, dismantling of the MFA and the eventual integration of the MFA-guided textile trade regime into the rule-based GATT/WTO. As aspired, T&C trade was liberalised from January 1, 2005.
The gains for India since the beginning of January 2005 from the international trade in T&C were not as much as expected. Term it the ?adjustment process? or blame it on the dollar exchange rate?whatever the reason, the realisations from this industry have not been as projected. An industry which contributed 25% of India?s total exports in 1987-88 is contributing less than 15% in 2007-08 whereas the share of exports in India?s GDP increased threefold from 4% to 12%. Though total exports from the country recorded more than satisfactory growth, the primary driver of growth in exports is not T&C. The export contribution of engineering goods has steadily risen from 10% to 25% from 1987-88 to 2007-08. Such changes in trade patterns were exhibited by China, South Korea, Taiwan and Hong Kong during 1980-1996.
There are also reports of firms/entrepreneurs exiting the industry as industry structure moves from fragmentation to consolidation. Is India then losing competitiveness in textile production and manufacturing?
The emergence of the clothing sector is primarily an offshoot of India?s low-cost country advantage, a spin-off of its large population. As per the current estimates, 90 million people are already employed in the sector and it is projected to provide employment to a few million more as there are industrial giants betting on this industry. Besides, there has been a proliferation in textile/apparel parks in the last few years, though there are also instances of lay-offs in the industry.
Free trade compels firms to be competitive and the easiest way to achieve this is by being costefficient. The other ways are by developing better design, manufacturing small lots, etc which might make a firm better off, but not necessarily the country. I have been hearing about instances where a number of staff working with garment manufacturers disappeared overnight and shifted to a mall which got opened in the neighbourhood. I have also been hearing about intentions of apparel manufacturers in selling or hiring their premises for better return.
Obviously, as the country moves along the development path, it is natural for the economy to move away from labour-intensive activities to capital intensive activities.
The T&C industry is important, however, because it absorbs people with low skill sets. Also, the process of training is faster. In a country like India, wider employment opportunities may be available for people living in big cities. Textle firms can, though, consider moving to tier-II and tier-III towns and rural areas, and still achieve competitiveness merely due to the vast potential available within India. It may not happen automatically. Some planning on the part of policy makers may be necessary to bring this much-desired change about.
A lot of money is being spent by the ministry of rural development to help millions cross over the much ?disputed? poverty line. What if they attempt to utilise some of these funds to foot the wage bill in garment manufacturing units in smaller cities and rural areas? The potential for the industry and employment is massive.
The author is chairman, fashion management studies, NIFT
