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Cover Story | August 2017

Fragmented nature, lower productivity pose hurdles

Replying to the questions from the ITJ, Persistence Market Research Report says that textiles and apparel industry growth is strongly linked to the overall global economic growth. Excerpts from the interview.

Why India is still a laggard in textile export while countries like Vietnam and Bangladesh are making strides? Textiles and apparel manufacturing is a labour intensive industry providing direct employment to around 51 million people in India alone. Shift in global textiles and clothing manufacturing hubs over the past few decades from developed countries in North America and Europe towards Japan during 70s and subsequently towards China in the 90s is testament to the fact that availability of relatively low-cost labour is one of the primary factors governing the fate of the industry growth in a particular country/region. Over the past decade and half, labour and land-related cost competitiveness in China dwindled markedly and prompted industry players to set-up facilities in other low-cost countries such as Bangladesh, Indonesia, Vietnam, and India among other South Asian countries. The textile and apparel industry in these countries thrived and flourished over the period, especially in Vietnam and Bangladesh. The two countries account for a significant chunk in overall garments exports to the EU and the US. India has, however, witnessed a relatively slower growth in its share in global textiles and garment exports over the recent past. A comparison of the key factors such as labour and energy cost among the three countries points out that the latter is relatively higher in India vis-à- vis other two nations whereas labour cost in the country is higher than that in Bangladesh but is relatively lower than that in Vietnam. However, unlike India, these countries have preferential access to two of the largest garments/ apparel importing markets namely the US and the EU in that the textile and apparels imported from these countries are not subject to duties. This, in an industry characterised by strained margins, makes Bangladesh and Vietnam textile export havens. Besides, factors such as highly fragmented nature of the industry and lower productivity per employee as compared to that in Bangladesh coupled with archaic labour laws governing textiles industry act as an impediment to growth of textile and apparels exports in India.

Which are the segments in textile industry faring better and which are non-performers? Which, in the present circumstances, have good scope?

Textiles and apparel industry growth is strongly linked to the overall global economic growth. Slower growth across major textiles and apparel markets namely China, the US and the EU, in turn, have resulted in lackluster growth across segments over the past couple of years. Among the various segments, apparels or readymade garments segment accounted for a share of around 45 per cent in overall textiles and apparels exports from the country in 2015-2016. Moreover, sighting strong employment generation potential of this segments, the Government has recently channelised significant efforts and resources towards development of this segment. This is expected to drive growth of the segment over the next few years. Also, another area where the policy focus has been concentrated is the technical textiles segment. The technical textiles segment in India is anticipated to create significant growth opportunity over the next decade.

Is India over-dependent on the US and the EU market? What is the solution for this?The US and the EU are two of the largest importers of textile and apparel in the world. The two markets accounted for nearly 37 per cent share in overall textiles and apparel exports from India in the past year. Economic down turn in the EU and the US in turn has an adverse impact on textiles industry in the country. Accordingly, emphasis has been laid towards developing textiles and apparel exports to countries such as Russia, Iran and some of the Latin American countries over the recent past.

India’s cost to export is quite high compared to some newly-emerging countries in Asia? What can be the remedy?

Traditionally, cost of textile and apparel exports from the country has been relatively higher owing to presence of several duties and taxes at various levels. Moreover, lack of a streamlined process to avail of tax credits, among other benefits added to the predicaments of small and medium-sized exporters. Besides, cost of capital and the interest rates in the country have been relatively higher when compared to some of the other major exporters.

Over the past couple of years, Government has launched a series of schemes and policies including interest rate equalisation schemes, and offering duty rewards, etc., which are directed towards positioning the country on a somewhat level-playing field along with the competition and streamlining the overall process.

Does India’s infrastructure fall far short of the needs, which is affecting its exports? If so, how can this be corrected? What according to you are the factors that if fine-tuned can give a push to India’s textile exports?

India is one of the few countries that can boast of presence of the entire textiles and apparel industry value chain, right from fibre, yarn, fabrics to apparel production. However, the fabric and apparel production segments are composed of a large number of small and medium scale individual facilities. These facilities are often characterised by relatively low capacities and lack of adequate technology and resources.

The average apparel manufacturing unit in the country is significantly smaller than that in Bangladesh. Such facilities are often unable to fulfill the requirements of some of the clothing industry giants, thus instilling concerns pertaining to supply-security. Accordingly, the Government has channelised resources towards capacity building in order to avail of economies of scale and to ensure that productivity is at par with that of the competition. Several additional integrated textile parks are expected to come online in the country over the next few years. Focus on building capacity for man-made/synthetic fibres, specialty fibres and value added products, technical textiles across the value chain is need of the hour in order to strengthen exports.

Besides, focus on developing favorable trade policies and free-trade agreements with key markets is can drive the growth in exports. The Government’s efforts towards reviving the EU-India free-trade agreement negotiations which have been deadlocked since 2013 provide a ray of hope to the textiles industry.

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