The ongoing discussion within the United Progressive Alliance government on the indirect tax regime that governs the textile industry is critical to its future growth and competitiveness in the global market. Any return to the regime that choked the organised segment of the industry by providing excise duty exemptions to small processors and weavers would destroy the huge opportunity that awaits Indian industry once the global trade in textiles becomes quota-free. This is, of course, following the abolition of the Multi-Fibre Agreement at the end of the current year.
The last budget had rightly brought all segments of the textile value chain within the indirect tax net by removing exemptions to looms in the unorganised sector. The positive impact on whatever little is left of our textile industry was immediately apparent. The industry witnessed a revival and a number of players unveiled investment plans to enhance capacity to take advantage of the impending quota-free global trade. For a change, textile companies? shares too contributed to the surge in stock market in 2003 and early this year. All this would be undone if exemptions are brought back to break the Cenvat regime that now covers the entire textile chain.
It is argued that these exemptions are necessary to provide employment through unorganised and small weaving and processing operations. The truth is that these exemptions eroded the competitiveness of the Indian textile industry in domestic and global markets, drove a large number of mills to sickness and forced thousands out of jobs. In the first half of the 20th century, the Indian textile industry was a global leader with competencies across the entire value chain. By the end of the 20th century, a number of other countries, notably China, emerged as far more competitive players than us.
The result? Today China with nearly $70 billion exports occupies close to 20 per cent market share in the world textile trade of $370 billion, while we are struggling to retain a 3 per cent share with $13 billion. Had we not ruthlessly demolished our textile industry through a series of exemptions to unorganised players and obligations imposed on organised industry, we could have been the global textile giant and not China.
We have all the competencies, skills, capital, entrepreneurial zeal and the drive to make it happen. Yet we vacated the turf to others. We protected the unorganised sector but most of the textile jobs created by global demand went to China and even to Bangladesh, Sri Lanka and Pakistan or Mexico. Our old textile policy has made us lose thousands of new jobs that could have reduced poverty in India. It is plain that we have learnt little from mistakes of the 20th century even as an opportunity in the 21st century stares us in the face.
By 2010, the global trade in textiles would zoom to $600 billion. It is a pity that our debate is not focussed on how to grab a 10 per cent global market share within the next six years. Is it difficult to understand that a determined global foray will create millions of new jobs, not exemptions that have encouraged production of shoddy cloth for the domestic market?
Second, the global game is open to those who can reap economies of scale to deliver large volumes. Therefore, the production of quality cloth by the organised sector would have to grow manifold to meet this demand. Any break in the Cenvat chain would defeat this objective and our exporters? dependence on imported cloth for quality apparel would continue. Furthermore, as it operates today ? in thousands of small shops employing a few hundred tailors each ? the Indian apparel industry is not equipped to play the game in a market without quotas. For example, a big apparel exporter in China would employ over 20,000 whereas our biggest exporters would barely cross a 1,000 per unit. Our apparel makers must be empowered to become volume players through a flexible labour policy and abolition of all small industry reservations like those on knitwear, for example.
Today, volume buyers do not even look at India and go to China because they can meet their requirements under one roof. It is time we announced a long-term textile policy that forcefully conveys to the world that we are fully geared to meet global requirements. Should that happen, textiles has the potential to outshine IT and BPO to become a huge engine of growth for India. But unlike IT and IT-enabled services, textiles would provide opportunity to the semi-skilled rural migrant and thus have a far more powerful impact on lifting our people above the poverty line. A new bus will visit our textile industry in January 2005. If we miss it this time, it may never return.
The author is an advisor to Ficci. Views expressed herein are personal