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| For the overall Indian economy, several favourable factors have been cited that include a good monsoon, declining interest rates and better focus on productivity, even though the collective impact of these factors is likely to be far lower than that reflected in the current rise in market capitalisation of the stock market. |
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| For the textile sector, the boom in the stock prices is perhaps based on a single factor: the phasing out of quotas at the end of December 2004, implying that Indian companies will be free to export any textile product to any market in the world without being subjected to Quantitative Restrictions on account of quotas. |
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| Theoretically, this is true. However, the fallacy in this argument is very obvious as well: to be able to export, the Indian companies must have exportable products (in terms of quality as well as price competitiveness) and the capability to ramp up production volumes to meet the export opportunity. |
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| The date of phasing out of quotas has been known for almost 10 years now and hence it is not something that has happened only in the last few months. Unfortunately, the state of the art for most of the Indian textile industry remains shamefully obsolete barring a few notable exceptions. |
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| The Indian Textile Ministry merrily keeps setting humungous targets that are nothing more than pies in the skies. The figure most frequently touted is $ 50 billion in exports by the year 2010, up from about $14 billion in 2003. |
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| To put this in perspective, the entire current output of the Indian textile industry (for domestic and export consumption) is about $ 35 billion. |
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| Yet, the government believes that it can double this output in the next six years just to meet the projected export target! And the so called analysts and experts in the Indian stock markets believe that Indian companies can each raise the hundreds of crores of rupees that each one needs to modernise, add more capacity for value adding products, and create marketing expertise to convert the post MFA (i.e. post 31 December 2004) opportunity into real business. |
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| As per various estimates, even if the Indian textile industry were to set the export target of $ 30 billion, and a domestic market consumption of $ 25 billion (up from the current $ 15 billion) by 2010, the total investment needs are in excess of $ 20 billion (about Rs 90,000 crore). |
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| For an industry beset with non performing assets, and most of the existing listed companies continuing to show poor operating profitability, it is practically impossible for this industry to raise this kind of capital in the next five to six years. |
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What can be the way forward? As a start, the Government must now come out with a bold plan to create an equity fund for investment into carefully planned projects covering the entire textile
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