India’s textile and garment makers are cranking up capacity ahead of the lifting of global import quotas at the end of this year as they seek to cash in on a market in which the sky will be the limit.
India is expected to be one of the winners — albeit way behind giant rival China — of the phasing out of three-decade-old rules that have curbed exports of textiles and clothing from poor nations. But there’s still nervousness about how well the ”Made in India” brand will fare.
”We’re increasing capacity, we have raw materials and entrepreneurship. But we have to wait and see — it’s going to be buyers’ choice,” said A Sakthivel, chairperson of the Apparel Export Promotion Council of India.
India once boasted the world’s largest textile industry, which contributed to the wealth of the British Raj. But post independence in 1947, the sector went into decline, hit by red tape and ramshackle infrastructure.
But textiles are still India’s second-biggest economic activity after agriculture, employing 35-million of its one-billion-plus population, and success in the new quota-free world could generate millions more jobs.
The end to quotas and a loosening of regulations is expected to quadruple India’s slice of the $400-billion-a-year textile market to 15% from 4%, according to World Trade Organisation (WTO) calculations.
That, however, is still far behind China whose market share is seen potentially more than tripling to at least 50% from 17% in 2003, according to the same WTO forecast, although Beijing has pledged to keep a break on sales so as not to swamp world markets.
Indian manufacturers have been spending to increase capacity — analysts estimate about $700-million has been ploughed into new mills and equipment over the past two years.
But the Indian Cotton Mills Federation says the industry needs billions of dollars more in investment to meet a government target of more than quadrupling exports to $50-billion by 2010.
It also will have to consolidate to achieve economies of scale as its textile industry is too fragmented, dominated by a few large integrated players and many small, family-owned companies unlike China’s huge players.
Indian productivity also needs to pick up the pace. A recent study found India’s overall textile productivity is just 16% of United States levels.
”India needs to improve its scale of production,” said TK Bhaumik, economic adviser to the Confederation of Indian Industry. ”We’ve a lot of small-scale units.”
Still, analysts say India is probably best poised after China to take on the world. It is the world’s third-largest cotton producer after China and the US, and the second-biggest yarn spinner after China. It also has a vast and cheap labour pool, though more expensive than China’s.
Indian companies report US retail giants have been boosting their purchases in recent years. The Apparel Export Promotion Council says multinational companies have bought about $1-billion-worth of garments from India, up from almost nothing in 1999.
At the same time, if India wants to get its products to market, textile and garment manufacturers say it needs to overhaul infrastructure.
While the government has embarked on massive highway building, ports still need huge improvement, especially when compared with China’s.
”We need road facilities and port facilities to be increased so we can have better turnaround times. We don’t have the handling capacity. China has good infrastructure,” said Sakthivel, whose company, Poppy’s, has annual sales of $25-million and 4 000 employees.
India’s rigid labour laws, which mean employers with more than 100 workers need government permission — rarely granted — to hire and fire, are another obstacle.
Chinas ”labour laws are very good, very flexible” said HKL Magu, managing director of New Delhi-based Jyoti Apparels, which employs 2 000 workers and supplies such retail giants as Wal-Mart, Wrangler and Marks and Spencers.
Speed and cost in getting goods to market, labour expenses and prices will be vital in determining India’s success.
”Though the removal of restraints will provide unrestricted access, it will also result in unrestricted competition,” said Textiles Minister Shanker Sinh Vaghela.
Indian analysts say buyers will want to follow the rules of prudent supply management.
”We can’t compete with China on the labour front. They all work on contract but the rest of the world won’t want to buy everything from China — it wouldn’t be good business,” Magu said.
But Magu is optimistic.
”We expect our turnover to increase to $16-million in 2005 from $12-million, and that’s only the beginning. There’s going to be great competition but we’re ready.” — Sapa-AFP