Advertisement
Advertisement

Lack of strategy strangles Indian textile sector

WTO predicts that after January 1, when quotas are lifted, China will take over 50pc of the world's apparel production

The word 'juggernaut' is of Indian origin, but few Indian industries behave like one. In the race to capture the global textile market after January 1, when export quotas will be abolished, it is China that is hurtling ahead like a juggernaut while India's textile industry trundles along at the pace of a bullock cart.

Many analysts believe China is poised to win the race. A recent report by the World Trade Organisation says China will probably take over 50 per cent or more of global textile and apparel production after quotas are lifted. Some market observers think this figure is too conservative and put it at 65 per cent.

According to the WTO's calculations, China's share of the United States clothing market alone is set to triple from 16 per cent to 50 per cent. India's share is likely to rise from 4 per cent to 15 per cent.

Analysts say the reason is that Indian textile and garment producers have failed to stitch together a cohesive strategy. Manufacturers lack the capacity to expand massively; the industry is fragmented, leading to inefficiencies and preventing economies of scale; investment is lacking, mainly because companies are put off by archaic labour laws that prevent them from hiring and firing staff; and the infrastructure is primitive.

Poor infrastructure means that the turnaround times are lengthy because shipments take forever to reach their destination. This slow time-to-market could be fatal when western consumers now spend less but shop more frequently for ever-changing fashions, forcing the industry to adapt production regularly and bring new designs into stores more swiftly.

'The potential of this industry has been destroyed by wrong government policies,' says Arvind Singhal, the chairman of consultancy firm KSA Technopak. 'We have a situation where 95 per cent of our fabric production is in the hands of small power looms. How can you expect the 5 per cent organised sector to pull up the entire industry?'

China, meanwhile, is building huge garment factories and entire supply-chain cities where thousands of workers turn out millions of pieces a year. These one-stop shops cut costs and the time it takes for garments to travel from the sketchpad to showroom shelves.

India's largest garments exporter, Bangalore-based Gokaldas Exports, which supplies several major western brands and runs dedicated units for customers such as Gap and Tommy Hilfiger, is trying to gear up for next year's challenge.

It has added eight more factories and brought in new technology. It expects its turnover to climb from US$110 million to US$144 million. But Gokaldas director Dinesh Hinduja says that despite its recent expansion, it will have to turn orders away. Its capacity, albeit the biggest in India, is still inadequate to meet the predicted demand.

Other leading textile firms are also gearing up for the battles ahead. Welspun India, Raymond, Orient Craft, the Vardhman Group and Arvind Mills have been investing heavily. Industry estimates suggest that about US$200 million has been invested in recent years. But, analysts say, it is too little, too late.

'By the time everyone has expanded their capacity to meet the increased demand, we're going to be well into 2006 or 2007. It means we'll miss the first years of a quota-free world,' Mr Hinduja said.

The loss to the economy will be significant. The textile industry employs 35 million people and accounts for 4 per cent of the gross domestic product and about 25 per cent of national export earnings.

The Planning Commission believes that almost US$2 billion has to be invested over the next three to five years if the industry is to be dragged up to global scale.

The only problem is that leading garment manufacturers are hesitant to invest massively until the government reforms the labour laws that are rigid and outdated.

For example, businesses with more than 100 people on their payrolls cannot lay any of them off. They need government permission, which is rarely granted.

Nor does the law permit the hiring of people on contract to cope with a sudden surge in demand. 'This hits sectors such as textiles badly because it experiences seasonal fluctuations,' said D.K. Nair, secretary-general of the Indian Cotton Mills Federation.

This explains why there are 10,000 small garment manufacturing units in India. For example, Orient Craft, based in Gurgaon, New Delhi, has operations spread over five or six units. It loses out on economies of scale and suffers pathetically low productivity levels.

At the heart of India's lack of readiness is a deep complacency.

At the Textiles Ministry, officials take solace in the expected 9 per cent annual rise in demand in the domestic market. They also comfort themselves with the assumption that western buyers will not be so silly as to put all their eggs in the Chinese basket - meaning India can pick up the leftovers. This attitude drives manufacturers crazy.

Said one manufacturer: 'We're always prepared to accept being second best when we could be a leader.'

Post