There is life for the Indian textile industry by growing small and medium scale enterprises surrounding the technical textiles sector, emphasises Dr Seshadri Ramkumar.
July 4th is the Independence Day holiday weekend in America celebrating the signing of Declaration of Independence in 1776, which signaled the freedom from the British. There is a similarity from this point of view for India and the United States. As an Indian American, I am in a vantage point to comment on the status of the US economy and its impact on the Indian textiles industry. US economic growth is fluid and Europe is in a precarious situation due to the Greece's debt situation.
The debt to GDP in Greece is 124% next only to Japan whose ratio is 202%. The situation in Greece is so serious that it has cost the majority of Chancellor Angela Merkel in the German parliament. The economies of developed nations are struggling and in the words of Nobel laureate Paul Krugman, the US economy is shaky. Given the fluid economic situation in the US and Europe, what will be the situation of the Indian textile Industry?
This June, the British Chancellor of Exchequer (Finance Minister) retired the customary budget box, which has been in existence for over 150-years. The budget box known as "Red Box" was first used by William Gladstone in 1860, when Britain ruled most of the world till the current Chancellor of Exchequer, George Osborne. Can you believe - this famous red box had only two interruptions in its service, which witnessed the might of British Empire to the current Britain, which is at the brink of dire economic situation if not already in such a situation.
This year, the red box presented an austere budget with axe and tax provisions. The debt to GDP ratio in the United Kingdom is 70% and serious budget cuts have to be enforced there. More importantly, the coalition government between the Conservatives and the Liberal Democrats has to get the British financial house in order.
In the United Kingdom, the legislators are axing and exploring tax hikes to balance the budget and to cut down long term deficits. This means freezing public projects such as building roads and bridges, hiring of new employees and defense spending. All these will have implications on jobs and spending. The old adage "Customer is the king" still holds well and particularly will impact the Indian textile Industry. Indian textile Industry makes big bucks by exporting. The US and Europe make up for 60% of India's textile exports. The financial troubles in these countries will be of interest and concern to the Indian textile sector.
US, China and the Indian Textile Sector
The recent jobs report for the month of June 2010 from the US Department of Labour paints a grim picture. Even though the unemployment rate has come down to 9.5% from 9.7% in May, 1,25,000 jobs have been lost in June. In addition, 6,52,000 people have been discouraged and have stopped looking for jobs, which has contributed to lowering the unemployment percentage compared to May. As briefed early on, jobs are the backbone of the economy and high unemployment leads to fewer consumers creating negative ripple effects.
The United States is the leading consumer based society and its economy is 70% dependent on consumers. Consumer spending in the US drives the import of commodity items such as textiles and jobs are the key to the spending. Consumer index has gone down by 10% recently and the pending home sales are down in May by 30%. To add insult to the injury, the United States Senate has put a hold on the passage of the extension of unemployment benefits.
The above mentioned facts on unemployment and consumer spending are short term effects. In addition to these short-term effects, the long term debt and the effects of unemployment on long term will have effects on the textile trade. Since the recession in the US, 8 million jobs have been lost. In the US and other developed economies, it is the private sector that creates jobs and grows the economy. In June, only 83,000 jobs were created by the private sector in the US Economists are predicting that it will take a decade to fill the jobs that have been lost due to the recession. Some 8 million customers already lost.
China presents a multicolour picture. Recently, the US government pressurised the Chinese government to freely float the yuan. The Chinese central bank released a statement to this effect stating it will make the exchange rate flexible. However, there are mixed signals with the freely floating yuan. The import of textile items into the US and Europe will become expensive. How positive will this be for the Indian textile and apparel sectors?
Recent trade numbers show that Vietnam and Bangladesh have made great strides in exports to the US. More importantly, India's exports to China in recent past grew at a rapid rate on year-on-year basis for the period April 09 - February 2010, whereas negative growths have been registered for the US, UK, Germany, France and Italy for the same period. Given these facts, change in yuan will not be of much benefit to India. On another scenario, the rise in yuan will result in fewer exports from China. This means, China will have excess capacity, which either will have to be dumped cheaply or domestically consumed. This in turn will have negative effects on India.
Silver Lining for the Indian Textile Industry
Given the economic situation in the developed economies, changing consumer spending patterns and the Chinese yuan situation, is there any silver lining for the Indian textile industry? As the saying goes, with adversity, there comes opportunity. The Indian textile sector should plan for the lack of growth in developed economies and should concentrate on the following:
1. Plan for diversification. With the given credit crunch and the lending crisis, is diversification possible? Furthermore, Government of India has suspended the Technology Upgradation Fund scheme. How is the growth of textile Industry possible? Surely, technical textiles industry offers a solution. The solution is not with the investments in five beam spunbound machinery or an eight metre width European needlepunch machine. Technical textiles sector offers scope for small and medium scale entrepreneurs. India is badly in need of the converting sector. This sector takes the nonwovens and the raw materials and converts them into end-use products such as filters, training pads, etc. However, there is lack of demonstration laboratories and focused workshops for creating hands-on and awareness of this segment of the industry. I have been making clarion calls for over a year to concentrate on this sector. In this connection, I am planning on conducting workshops in India focusing on the converting sector.
2. Increasing incentives for R&D in the technical textiles sector. Government of India should convene a workshop involving policy makers, international trade bodies, international and Indian academia, R&D sector, and Indian trade bodies such as Indian Technical Textiles Association, FICCI, etc to chart out a national strategy to boost the technical textiles sector and innovation in this sector.
3. Enable international trade and academic visits specifically focusing on technical textiles products and the converting sector.
To conclude, the future for the Indian textile industry is in the development of small and medium scale enterprises along with roll good manufacturers in the technical textiles sector. To end this article with a lighter note, in the classical 1940 Hollywood movie, "City for Conquest", a wanderer in the street of New York city is pushed by a police officer on the beat to move on and not to stay put in one spot. The wanderer says "Officer, which way? I don't know which way to go?" This is exactly the situation of the Indian textile industry - not knowing the direction to move forward. The movie ends as the wanderer says, "After all, the city has heart beat, meaning life." Surely, there is life for the Indian textile industry by growing small and medium scale enterprises surrounding the technical textiles sector.
Note: For detailed version of this article please refer the print version of The Indian Textile Journal October 2010 issue.
Dr Seshadri Ramkumar
Nonwovens and Advanced Materials Laboratory,
Texas Tech University, Lubbock, TX, USA.