T N Ninan: Missing the bus

WEEKEND RUMINATIONS

Three years ago, they said that India would be one of the main beneficiaries when the global trade in textiles opened up, as it did on schedule in January 2005. The country had had plenty of time to prepare, because the date for opening up had been set almost a decade earlier, when the Uruguay Round of trade negotiations had finally ended in 1996. Various projections were made after that with regard to the future "" for instance, that textile exports would climb to $50 billion by 2010 (from a little over $12 billion in 2003-04). Other forecasts talked of hitting $55 billion by 2012 and $70 billion by 2014. At one stage it was even suggested that textile exports would begin to rival software.

All pies in the sky! Textile exports this year are now slotted to reach $23 billion, down from the original target of $25 billion. Last year's target was missed too, by a couple of billion dollars. Admittedly, even $23 billion this year will mean a near-doubling of the figure four years ago, but total exports have grown faster "" so the share of textiles in the export pie has shrunk. Worse, countries like China and Bangladesh have done better in international markets. And it is clearly out of the question that exports will now double in the next two years "" so forget all the talk of rivalling software exports by the end of the decade. In short, India is missing the bus. For a sector that is supposed to be providing direct and indirect employment to no fewer than 35 million people (nearly 9 per cent of the total workforce), that is a tragedy: think of suicide-prone cotton farmers and millions of handloom weavers, if not the troubled composite mills and the unrealised potential of the garments sector.

What is the problem? On the face of it, the government has done quite a lot to push things along. It introduced a new textile policy towards the turn of the century, and announced in 1999 a textile upgradation fund scheme (TUFS) which would facilitate new investment in textile capacity; this was due to expire this year but has been extended by five years. Then, the finance minister introduced a series of tax concessions, including the virtual abolition of the value added tax on the sector. Machinery imports were liberalised, parts of the industry that had been reserved for small-scale industry (like the hosiery and knitting industries) were thrown open to all comers, and 100 per cent foreign investment was allowed under the automatic route. Going by the standards of government support for any industry, that is a pretty impressive list. The only point on which reform has not been possible concerns labour "" the industry needs to appoint people on a seasonal basis, but at least two attempts to permit flexible hiring practices by changing labour laws got stuck; now, it goes without saying, there is no question of action on this front during the life of this government, for we will have Mr Karat wielding the stick again.

At the end of all these labours, many people in the business with export ambitions have gone and set up shop in Bangladesh, where the costs are lower. There has been hardly any foreign investment into the country, meanwhile, and the amount of attention that Blackstone's recent purchase of Gokaldas Exports got is a comment on how rare such an event has been. To be sure, there has been quite a lot of investment by domestic players because of TUFS, but the figures show that the intended result has not been achieved because exports have been relatively sluggish. The rupee's gaining on the dollar over the past year has not helped matters, but then things might get worse on this front and squeeze margins further.

It is hard to point to the moral of the story, except to say that the opening up of a market is clearly not enough to evoke an adequate supply response. Orders have to be obtained, factories put up, a great deal goes into the way businessmen get into markets, and in textiles the story seems to be that Indian businessmen have not yet made all the right moves.