Textile policy draft sets 8-fold jump in exports

11 Aug 2014


AN Indian goods train waits at a railway 
station in Hyderabad. India’s cabinet agreed on August 7 to increase the limit on foreign direct investment in defence industry to 49 from 26pc, and allow unlimited investment in railway 
AN Indian goods train waits at a railway station in Hyderabad. India’s cabinet agreed on August 7 to increase the limit on foreign direct investment in defence industry to 49 from 26pc, and allow unlimited investment in railway infrastructure.—AFP

Information technology is one of the most vibrant industries in India, generating not just huge revenues and profits for the producers, but also jobs, especially in smaller cities and towns. India’s textile sector, which is the second-largest employer after agriculture, is poised to grow at an even faster pace if the government accepts the recommendations made by an expert panel.

The Narendra Modi government has laid emphasis on the manufacturing sector and wants to encourage industry by providing incentives, leading to faster growth, employment generation and exports. Textile is one sector which can gain substantially from these policies.

Earlier this month, the government came out with the draft of a new national textile policy — to replace the one that was formulated in 2000 — which is based on the findings of an expert committee headed by Ajay Shankar, member- secretary of the National Manufacturing Competiti­veness Council.

The Shankar committee report will be the basis for the new textile policy, which will have to be approved by the union cabinet. The draft policy envisages suitable amendments to several policies — including labour laws — to encourage industry to boost production and exports. The Vision 2024-25 document says that if the government takes the necessary steps, Indian textile exports can jump to $300bn, up from the present $39bn, capturing a fifth of the global textile business (up from a mere 5pc at present).

The draft textile policy expects the domestic size of the textiles and garments industry to grow to $350bn — with the overall size of the industry expanding to $650bn — from the present $100bn. The panel believes that it is possible for exports to grow at 20pc annually over the next decade. India’s textile and apparel exports grew at an average of 11pc over the past decade.

The panel has suggested that the government must amend stringent labour laws, making them more flexible, to encourage hiring of workers by producers. Textile is a labour-intensive industry and the present rules discourage entrepreneurs from taking more workers. The industry has for years been seeking relaxation in the tough norms of the Industrial Disputes Act and also permission to hire contract workers at least in export-oriented units.

The Indian textile industry provides direct employment to 35m people, which the panel feels can be doubled to 70m over the next 10 years. Textiles minister Santosh Gangwar admits that there is need for flexibility in labour laws relating to the sector.

And to meet these goals — of a nearly eight-fold jump in exports and doubling of employment — the expert committee says there is need to attract about $120bn in investment, including foreign direct investment. For this, the government has to provide the necessary infrastructure — including creation of new mega textile parks — ensure easy connectivity to ports and promote innovation and R&D.

The report also wants India to diversify its export basket, tapping new markets including Japan, China, Brazil and Russia. At present, about 50pc of India’s exports are to traditional markets in Europe and the US.

The committee report has also suggested an improvement in productivity by bringing in efficient processes and encouraging skills development (another pet subject for the Modi government). “The ministry of textiles needs to evolve a credible mechanism for tracking improvements in quality and productivity across the value chain as well as across individual enterprises,” says the report. “A programme for assisting individual firms in improving on both parameters needs to be implemented.”

THERE has been a dramatic change in the Indian textile industry in recent decades. While in the past, integrated mills in cities such as Mumbai and Ahmedabad dominated the sector, today the sector has dispersed to little-known cities and towns and there has been a mushrooming growth of new entrants who have made tremendous strides in terms of technology adaptation, revenue and profit growth and exports.

The textile industry relocated from the main metros to smaller towns from the 1980s because of rising wage bills and militant trade unionism. The chimneys in Mumbai’s textile district, which was home to a hundred mills, are today being replaced by steel-and-glass high-rises where apartments and offices cost a fortune.

But places such as Ichalkaranji, Bhiwandi and Malegaon in Maharashtra; Tirupur, Erode and Salem in Tamil Nadu and a clutch of cities in Punjab and Rajasthan are today textile hubs contributing to the phenomenal growth of the sector. The textile units in these cities are owned by medium- and small-scale entrepreneurs, many of who have ploughed their profits and invested in new machines and technology.

While the spinning industry is still dominated by organised players, weaving is under the control of small and tiny operators, many with traditional looms. But cities such as Ichalkaranji and Tirupur are today among the most affluent places in India with high per capita incomes.

Successive governments have been extending incentives and concessions to textile and garment exporters, setting up separate clusters around the country. Last month, for instance, finance minister Arun Jaitley also announced the setting up of several textile mega-clusters in Uttar Pradesh, Gujarat, Bihar, Karnataka and Tamil Nadu. He allocated Rs2bn for these new mega textile clusters.

The government has also been liberal in encouraging exports. Jaitley increased the duty-free entitlement for import of trimmings, embellishments and other items from 3-5pc of the value of their exports.

The textiles ministry has set an export target of $45bn for the current fiscal and the industry is confident of meeting the goals, despite a slowdown in demand from China, the world’s largest cotton textiles market.

The Cotton Textile Export Promotion Council (Texprocil) recently sought more incentives, including a 5pc duty reduction in exports of fabrics and home textiles to China. Manikam Ramaswami, chairman, Texprocil says the government should extend the incentives to help boost exports to China, which will also result in bridging the $32bn trade deficit with the country.

Despite cotton prices having dipped to a five-year low globally, Indian cotton is dearer by 10pc. Ramaswami points out that the difference is making it difficult for even the most efficient spinners to export yarn.

Published in Dawn, Economic & Business, Aug 11th, 2014