There is a tide in the affairs of men [and nations] which, taken at the flood, leads on to fortune. - William Shakespeare |
With the lifting of the textile quotas, Indian industry has the opportunity of taking the export tide at the flood. The big question is whether it will be able to do so, particularly in competition with our giant, hyper-competitive neighbour across the northern border. |
To be sure, most foreign analysts think that the two countries to benefit most from the expiry of the multi-fibre agreement are likely to be China and India. |
We have had a decade's notice for the lifting of the quotas "" sufficient time to prepare for free competition in fabric and garment exports. |
And there is evidence, at least at the micro level, of many leading companies investing in capacities in preparation for a sharp rise in exports. |
The Indian Cotton Mills Federation (ICMF) has estimated textiles export to grow to $40 billion by 2010, from the current level of just about 40 per cent of that. In the process, the growth in exports is estimated to create 5 million fresh jobs. |
(Directly or indirectly, the textile industry offers the highest number of jobs, next only to agriculture.) Is this IT exports-type growth rate achievable? This may need capital investment of up to $20 billion and much better infrastructure "" particularly port and air-cargo capacities. |
There is no doubt that the potential for growth is there. International trade in textiles is expected to increase from the current level of $350 billion a year to $850 billion in a matter of 10 years. |
China, including Hong Kong and Macao, commands a 25 per cent of the current exports; India, barely 4 per cent. China apart, the quota regime had conferred a "competitive advantage" on some countries despite the absence of raw material or skills. |
The quotas allowed some inherently inefficient arrangements to persist: the fabric was produced in one country (which had no quota left), sometimes cut in a second country, and brought for stitching and export to a third country that had the quota. |
Such artificially-created comparative advantages will vanish in the post-quota era of free competition. Such countries may not only not gain much from the lifting on the quotas, but may also find it difficult even to retain their existing shares. |
One pointer is that quotas on some types of textile exports were lifted in 2002: China's share in these items has gone up sharply, even as that of Bangladesh and Sri Lanka has fallen. |
Hence the general expectation that China and India will gain market share in a rapidly increasing market at the cost of many smaller exporters. |
Incidentally, Bangladesh, Pakistan and Sri Lanka depend on textiles for 75, 65 and 50 per cent, respectively, of their merchandise exports, and are vulnerable to a loss in competitiveness. |
The basic competition for market share will be between India and China. For one thing, unlike India, China needs to import a lot of fabric to support its garment exports. Two, Indian garment exporters are probably in a better position to cater to small orders or rapid changes in designs. |
Both these confer, at least temporarily, some competitive advantage to us. But we are handicapped by a highly fragmented industry, lost weaving capacity in composite mills rendering quality standardisation difficult and so on. |
China is far ahead in quality and has incomparably more efficient infrastructure (roads, ports and so on); more reliable and cheaper power; huge, technologically up-to-date manufacturing facilities; and a disciplined, highly productive workforce. |
Again, thanks to enthusiastic acceptance of newer varieties like Bt cotton, Chinese output per hectare is three times ours. No wonder textile producers in the European Union and the US are far more afraid of Chinese competition: they have forced China to impose export duties on some varieties. |
Meeting Chinese efficiencies and prices is an increasing challenge for the rest of the world. Last month, BusinessWeek carried a cover story titled "The China price", describing how industry after industry in the US is being hammered by the super-competitive Chinese producers. |
Some figures the article quotes are eye-openers: Chinese prices are far cheaper for products ranging from machine tools, plastic moulds (up to 50 per cent), furniture (40), LCD TV (30 ), crape paper (45 ) and so on. |
The Chinese are competing on price and technology even in sophisticated products like special steels, petrochemicals, micro chips and so on. Even at the high-tech end of networking equipment, one Chinese producer is offering higher capacity switches than Cisco's, at prices up to 25 per cent cheaper. |
No wonder the American industry is finding Chinese competition tougher than what the Japanese and South Koreans offered in earlier decades. In some ways the US has become a developing country vis-à-vis China "" supplying raw materials and importing finished goods. |
But coming back to the competition between India and China, the recent experience of Tata Motors is worth noting. The company had a multi-year, large (by our standards) contract for export of passenger cars to the Rover Group of the UK. Recently, the contract was terminated and replaced by a contract with a Chinese automobile manufacturer. Would we do better in textiles? |
Almost 200 years ago, Napolean said: "Let China sleep. For, when she wakes up, the world will tremble". That time is coming fast. Email: avrco@vsnl.com |