Can India become the next textile superpower?

Building cost-effective large-scale fabric mills and unleashing labour reforms can propel us to a 10%-plus share in global apparel trade

Like in many other industries, in apparel too China has left India way behind. Today, China is the world’s apparel superpower, with exports of $165 billion and controlling 39% of the global apparel trade. India, in contrast, exports one-tenth that of China and contributes 3.7% to global apparel trade. Surprisingly, China has us to thank—at least in part—for its success. For, China’s phenomenal growth in cotton garments is partly because we continue to be its largest supplier of cotton fibre and yarn. We export over $4 billion of cotton yarn and fibre to China every year, 30% of its total cotton fibre and yarn imports.

This is unfortunate. One, it is always better to sell finished garment rather than raw material. If 1 kg of yarn is processed and sold as finished garment, it generates four times more revenue. If 1 kg of cotton fibre is sold as finished garment, it generates 6-8 times more revenue. India exports $9 billion per year of raw cotton fibre and yarn to China. Safely put, at least $24 billion of China’s garment exports is courtesy us.

Two, Apparel-making is far more labour-intensive than fabric- or yarn-making. In fact, 8-10 times more people can be employed if the same yarn we sell to China is worked on and sold as finished garment to the rest of the world. With manufacturing jobs not keeping pace with the government’s vision, this could be an important focus area to drive employment.

So, what will it take for us to win back our rightful position in the global apparel trade?

* Building cost-effective large-scale fabric mills: Fountain Set is a fabric company headquartered in Hong Kong. Its largest plant in China can make over 150 MT of knit fabric per day, which is 4-6 times more than the largest mills in India. And there are several like Fountain Set. A large fabric mill brings in efficiencies, lowers costs and improves quality. India needs tens of mills like Fountain Set. As quality and cost-effective fabric capacity increases, the demand for India’s fabric locally and internationally will go up, spurring further downstream investment. If the private sector hesitates to do this for want of short-term demand downstream, the government should step in. On the synthetic side, the comparison is far more stark. India practically has no good quality synthetic fabric mills (while the world is continually moving away from cotton and towards synthetics).

* Unleashing labour reforms: Our garment factories are not something we can be proud of. Manufacturing efficiencies are low (between 30% and 50%), compared to Chinese factories that operate at 60-70%. Concepts such as “lean manufacturing” are not as prevalent in the garment-making world as they are in, say, automotive manufacturing. Investment in people and systems are rare, and at the heart of this is the entrepreneur’s fear of adding and investing in labour without having the flexibility to downsize as required. This fear is collectively driven by a system of archaic labour laws and unhealthy labour-politician nexuses that thrive in many manufacturing clusters. Consequently, large Indian garment factories employ 3,000-4,000 people, while the largest Chinese factories employ over 10,000 at one place. Inspiring greater confidence in scaling up, by unleashing labour reforms, is central to building higher quality garment factories. This is our toughest battle, and the most critical one to win.

* Building clusters pro-actively: Our apparel value-chain is fragmented. Cotton farming, spinning, fabric-making, fabric-processing, garmenting are all done by different companies—driven by the small-scale industry reservation overhang in some parts and the general fear of scaling up in other. A cluster helps bring such companies physically closer and ensures benefits commensurate to that of an integrated player (lower inventories, better labour availability, shared infrastructure, faster response times). Our SEZ and textile-park policies have been notoriously ineffective in creating clusters—only three active non-captive textile parks, and a handful of sizeable manufacturing SEZs so far. Rethinking our SEZ policy (for example, doing away with the controversial MAT for SEZs) could go a long way in building real clusters while attracting FDI investment in the apparel sector.
Successfully moving on these areas and exporting our produce as finished goods, by itself, will give a $40 billion boost to exports, and propel us to a 10%-plus share in global apparel trade. Once we fix this in the short term, achieving the $300 billion export target set out for our textile industry by 2024-25 is only a matter of time.

Arun Bruce is partner and director, BCG. Natarajan Sankar is project leader, BCG. Views are personal

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