What cloth is India cut from? Textiles were supposed to be a success story. But as the UPA worryingly notices?the PM has promised to ?address concerns??despite record increases in cotton production, the output story is unravelling somewhat. Things are a bit better in the decentralised powerloom, hosiery and handloom sectors. They are expected to push up total fabric output by around 8% by the end of this fiscal. But, crucially, output from mills?they were supposed to lead India?s export charge in post-MFA quota times?is expected to fall for the first time in four years. Put this in the context of textile companies adding new and improved capacity by using official help from the technology upgradation fund scheme (Tufs). Indeed, better-than-expected industry response has meant demand has outstripped the budgeted supply of funds. Official help has also come via integrated textile parks, new apparel design and training centres and 100% FDI under the automatic route. The sector has welcomed a fresh set of entrepreneurs who want to exploit new global market opportunities. So, all things considered, the sector should have been spinning a better yarn. Instead, textile exports have remained almost stagnant even in dollar terms; so rupee movements can?t be the convenient explanation.
What?s wrong? Clearly, India?s textile industry is falling behind global standards on cost competitiveness and productivity. Sri Lanka, Vietnam and Bangladesh quote prices that are around four-fifth of India?s prices at the lower end. This is a huge difference. And India is yet to break into lucrative upscale markets. Bluntly, Indian gains in the post-MFA period have been minuscule compared to expectations and frighteningly small when compared to China?s performance. Two sets of solutions suggest themselves. First, and especially for lower-end products, labour flexibility is crucial. Manufacturers should be able to quickly adjust their labour force according to export demand, which has a seasonal pattern. Second, the industry needs to learn how to move up the value chain. India is an upper-end player in many traded products. It is a shame that an industry with such a long domestic tradition?going back well into history?cannot produce classy vendors who command premia in global markets.
