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The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

September - 2009 - issue > India Road Ahead

Having Lost its Competitive Advantage, Textile Industry Faces Decline

Sanjay K Jain
Thursday, September 3, 2009
Sanjay K Jain
The Indian textile industry has been one of the foremost contributors to the country's employment, exports, and GDP. The industry has been rated as one of the key drivers of the Indian economy and a bold target of exports of $50 billion (currently it’s $22 billion) had been targeted by the year 2012 by the government after the dismantling of the quota regime in 2005. However we are still far away from that target. Though now it can be blamed on the worldwide recession, I think we need to do some soul searching as to was it anyways possible. Globally, the Indian industry is recognized for its competitive advantages, especially in the cotton segment. The government has set huge targets for the industry and expects to attract investments of about Rs 1.5 lakh crore during the eleventh Plan period. This would meet the export and domestic targets, while taking various initiatives like setting up textile parks, training centers, and ‘made in India label promotion’ to global markets. It also assured continued interest subsidy through the Textile Upgradation Fund.

I keep hearing in many conferences that India has a lot of potential and we are very confident about the industry meeting its potential and that the current situation is just a blip on the monitor. Speakers talk about getting more efficient, delivering more value added products, and adopting new technology to meet the new challenges. However, no one talks about what is the country’s real competitive advantage against its existing competitors like Pakistan, Bangladesh, China, Indonesia, and the newly upcoming ones like Vietnam, Cambodia, and may be a few African countries.

Currently the textile industry is one of the worst hit sectors in India, as almost 50 percent of the industry is dependent on exports. Hence, maybe this is not the most opportune time to analyze performance and draw conclusions. However, if we go back a bit when the world was still growing we didn’t have any great performances by the textile industry in exports. In the period from April to August 2007, our export turnover saw a meager rise of 0.15 percent in terms of US dollars over the same period last year, while in terms of rupees it fell by 10.52 percent. This shows that it is not only the exchange rate which is killing us, even in terms of dollars we had not grown at all. How will we then achieve those high targets set by us, when in a high GDP growth scenario we have losses? And even more alarming is that cotton garments (which constitute about 45 percent of exports), fell over the same period by 6.86 percent in terms of dollar and 16.6 percent in terms of rupees. It clearly shows that we are losing not only on the aggregate basis, but are losing more on the value addition basis.

I was just going over our competitive advantages to understand our strengths in facing the global markets. Firstly, I looked at the basic raw material – cotton fiber, which looks very promising. We have doubled our production in five years and have sufficient cotton to feed the growth of the industry. We are the second largest producer today and have also become the second largest exporter of cotton. This means that we have a clear advantage on the cost of cotton. However, the shocking news is that it is not necessarily true – the relative advantage of India vis-à-vis competing countries like Bangladesh, Pakistan, Vietnam, Indonesia, and Thailand has come down, with the gap between Indian cotton price and that of the other countries reducing over the last five years due to the acceptance of Indian cotton by other nations and large scale exports from India. The most alarming point is that the landed cost of Indian popular cotton Shankar 6 is cheaper or equal for mills near the ports in the far eastern countries and Pakistan and Bangladesh by road as against the same for the south Indian mills (Tamil Nadu has the maximum number of spinning mills in India). Road transport is much more expensive than sea transportation, for e.g. it costs $50 (Rs 2,500) to transport 150 bales from Mumbai to China and it costs Rs. 75,000 to transport it from the place of production in north and western India to Tamil Nadu.

Further, in a falling global market where prices were falling across the board, the government hiked the minimum support price (MSP) of raw cotton by 40 percent, making the raw material expensive for our local industry, when on the other hand the price of end products were falling. Hence the industry got squeezed both ways. To top the agonies of the industry, in February 2009 the government introduced with retrospective effect five percent license against exports of cotton, hence making our cotton cheaper for our competing nations – We need to rethink whether we want value addition on Indian cotton. We have been talking about a ‘fiber policy’ for the last two years, but still there is nothing offered except promises.


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