The government has undertaken an ambitious project to attract FDI in sector. We have zeroed in on the western countries of France, Germany, Italy and Switzerland to attract FDI in the first phase as these nations have good technology at their disposal. Initially, the United States was also on the radar but later we found that it does not have the required capability as many of its companies in the sector are almost bankrupt, an official in the textiles ministry told FE.
For execution of the project Mobilisation of FDI in Textiles and Apparel Sector, the government has formulated a committee headed by textiles joint secretary JN Singh. The panel has been entrusted with the task of preparing the working plan to go about attracting foreign investments.
The $52-billion textiles sector requires investment worth $8 billion by 2012 to meet the expected demand, according to industry estimates.
India allows 100% FDI in the textiles and apparel sector without the need to take prior approval from the government or Reserve Bank of India. However, less than 1% of the total FDI goes into the sector. During April-December 2008, textiles received FDI of $90 million, 0.43% of the total foreign investment of $21.15 billion in all the sectors.
The textiles and apparel sector in India is highly decentralised and 96% of the production of fabric and garments is considered commercially non-viable. Although the capacity in the spinning segment is appropriate, we are unable to produce fabric and garments in big lots due to small production facilities, Confederation of Indian Textiles Industry secretary general DK Nair said.
Besides, the problems of smaller size, domestic industry is also facing issues of higher price leading to lower exports in the already shrinking international market of the US and Europe. In 2008-09, the countrys exports of textiles and garments came down 10% to $20 billion from the year ago.
Nair said first the government should develop a conducive investment climate by eliminating issues of poor infrastructure, high cost of raw material, complicated customs procedures and lower exports incentives. Sharing a finding of Director General of Foreign Trade that poor infrastructure accounts for 7% of the losses due to the disadvantages factors, he said, These issues are shifting our market to neighbouring Bangladesh and Vietnam, while rendering domestic firms unprofitable, he added.
As a corollary to their unprofitable operations, even domestic companies are not increasing their investments, he said. In 2006-07, Rs 25,420 crore were invested in textile mills in the country, but new investments came down 70% in 2007-08 to Rs 7,644 crore. If the government does address the hindrances, it may take the advantage of poor western markets by attracting FDI from those nations, Nair said.
Meanwhile, the government is also looking at South East Asia under its Look East Policy to increase the sales of textiles products and attract investment. Under this policy, textiles minister Dayanidhi Maran earlier this month had visited Japan, which has technological capabilities in the production of technical textiles.