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Can India dress the world?

By T Thomas
August 26, 2005 18:26 IST
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With the dismantling of textile quotas at the beginning of 2005 by the US and Europe, a major opportunity has been opened up for India. This can be exploited fully if we take some steps outlined here.

In 2004-05, garment exports from India earned $ 6 billion in foreign exchange out of total textile exports of $13 billion, which in turn constituted more than 15 per cent of India's total export earnings.

The sector employs 30 million people and was growing at about 8 per cent annually, even when the quota restrictions existed. With the removal of quotas it is estimated that the growth rate could reach 15-16% per annum.

India's share of the world's textile trade is only about 4 per cent. This could double to 8 per cent by 2010. The value of our exports at that level of market share will be $50 billion, and it will provide 12 million additional jobs.

Our major competitor in garment exports is China. However, China has exceeded the quotas agreed with the European Union in 6 out of 10 categories of goods.

Therefore Chinese shipments have been held up in categories like bras, shirts, sweaters and trousers. Whilst European retailers want to market the cheaper Chinese products, Europe's textile industry insists on China observing the quota limits.

Trade negotiators from the EU are now in China, trying to resolve this dispute. The same sort of opposition to growing Chinese exports is felt in the US. This gives rise to a special opportunity for India as we are not seen as a threat by European or US manufacturers at this stage.

India has the following major advantages in textile and garment exports:

  • (i) we grow both long staple and short staple cotton in more than one region of the country;
  • (ii) we have a long established tradition of textile manufacturing;
  • (iii) our labour costs are much lower than those in the US, Europe and Japan;
  • (iv) we have specialised institutions training people in textile design;
  • (v) unlike in the case of China, the US does not see India as a threat.

In spite of these advantages, the Indian export of garments was greatly impeded by the government's misguided policy of reserving garments for small-scale industry.

As in many other industries, such reservation has been irrational and against our national interest. To manufacture garments for the world market, substantial capital investment in fixed assets is required. This is well beyond the resources of small-scale firms.

Furthermore, it needs investment in sustained marketing over a period of time, which is again beyond the capabilities of small-scale units. Now that this industry has been opened up for large-scale units, it is worthwhile considering what can be done to expedite our progress.

Garment manufacturing is labour-intensive, and mostly uses female labour. It is also highly seasonal as people all over the world tend to buy more new clothes in certain seasons. On the other hand, as fashions tend to change, it is not possible to manufacture and keep stocks for any length of time.

Therefore, the garment industry tends to be highly seasonal. Furthermore, if as a result of any reason beyond the control of the manufacturers the export market takes a dip, the manufacturer will have to scale down operations.

India's employment laws as they are administered today are too inflexible to accommodate these special characteristics and requirements of the garment industry. Both the government and Parliament have to recognise that in order to sustain and grow our garment industry, we have to allow special employment terms in this industry.

Special Economic Zones (Apparel Parks) should be set up on the same lines as software technology parks. Recognised units located in such apparel parks should enjoy 100 per cent tax exemption.

Having recognised it is a seasonal industry, provision can be made to allow seasonal employment. In order to sustain workers during the off-season, each manufacturer can be asked to create a "Seasonality Fund" in a scheduled bank, with both employers and employees contributing each month 10 per cent of the earnings of the worker to the fund.

The employee can draw from this fund (which should be jointly managed and properly audited) for sustenance during the off-season.

The other major corrective step is to facilitate the speedy shipment of finished goods. China is able to ship directly to ports on the west coast of the US. India should designate two or three ports, especially on the west coast, where special facilities for speedy clearance of documents and goods should be given to recognised garment exporters.

A special cadre of customs officials with better than normal terms should be assigned to avoid the usual delays and corruption. The garment industry should be glad to pay a cess in order to remunerate such officials, instead of having to indulge in corruption.

Another aspect that requires attention is marketing. To exploit global markets it is necessary for our garment industry to have better antenna in these markets. This can be facilitated by collaboration with marketeers and fashion houses in the United States, European and Japanese markets.

Payment of royalty or service fee to such collaborators should be allowed so that they can promote India-made brands. Where appropriate, such reputable international collaborators should be allowed to acquire equity in Indian garment companies as compensation for using their brand name, on terms to be negotiated between the parties.

In short, we should do everything possible to make India an attractive destination for international garment marketeers. We have the resources in manufacturing, designing and marketing skills, but can benefit from market access.

The government should withdraw from interfering and allow commercial freedom to exporters to negotiate the necessary terms. It is such freedom from government interference that has enabled the IT industry to grow and become so successful. It is high time we extended that to other promising sectors like the garment industry

Garment exports from India can be an even larger bonanza than the software industry. Software exports have helped to create an image of India as a technology-oriented country. Indians travelling abroad can sense greater respect, as if we are all software engineers.

Similarly, the garment industry can create an image of India as a fashion-oriented destination, which India truly is -- with all our colourful and varied dresses and the natural poise which is the style signature of the Indian female.
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T Thomas
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