Spinning a new web

BS OPINION

With India's strengths in cotton textiles and in processing small-batch fashion orders, and with the rapid growth in exports in the non-quota section (in the last decade, while quota exports rose 3.4 times, non-quota exports rose 4.4 times), there are few reasons to doubt that India's textile exports can jump from around $14 billion now to a projected $50 billion by the end of the decade, since all export quotas will end in less than 16 months.

Yet, the industry is fragmented and only an abysmal level of investment is taking place (against an estimated Rs 98,000 crore of investment required, only about Rs 4,000 crore has taken place annually over the past few years in modernisation and new capacity). So, unless policy responds to the challenge, it's difficult to see the potential being realised.

To be fair, the government has done its bit to encourage investment. Over the past few budgets, the warped duty structure has been corrected, making investments in larger facilities profitable once more.

A textile modernisation fund set up by it has disbursed funds for projects worth around Rs 10,000 crore in the last four years, and another fund is on the anvil to help restructure debt of at least a similar amount.

In both cases, the government has been creative: it has defrayed some of the costs but left it to the banks to look at project viability independently.

For instance, if SIDBI thinks your weaving project is a viable one, and charges an interest rate of 13 per cent, the government will chip in with 5 per cent, thereby lowering the effective interest rate to 8 per cent, which is still higher than international levels, but within shouting range.

On a rough reckoning, around Rs 500 crore of subsidy per year is enough to help achieve fresh investments of Rs 10,000 crore.

So, why the sense of unease? Because labour laws have not been addressed. Today, leading garment exporters own as many as 30 factories apiece in some cities, set up at tremendous cost in terms of both money as well as efficiency, in order to escape getting caught in India's rigid labour laws. The fact is that exports are a seasonal business, and subject to high failure rates.

Since labour laws for the organised sector do not allow quick closure, few are likely to set up the kind of large units that offer economies of scale, until these are changed.

In other words, specialised industry packages will not deliver the goods until the business environment is conducive. A survey carried out by the All India Management Association (AIMA) some months back on small-scale units (and that is what the bulk of India's textile/garment exporters are) showed that SSI units in South India were doing very well, while those in the north were doing badly.

One reason was that the south had the least amount of government interference in terms of visits by inspectors, and this left entrepreneurs to concentrate on their business. Spinning different strategies is a good thing, but the best thing the government can do is to get out of the way.