A Sakthivel
Chairman, Apparel Export Promotion Council
India's textile exports are poised to grow at at least 33 per cent over the next three years. This would largely happen due to the phase-out of quotas under the Multi-Fibre Arrangement (MFA).
So far, Indian exporters have faced problems on the quota front. While some developed countries have deliberately not removed quotas on products of interest to developing countries in the first and the second stage of removal, in the sensitive product categories, like men's and ladies' shirts, cotton pants, T-shirts, pullovers and bottoms, we are unable to export because we invariably reach a saturation point due to quotas getting exhausted.
This is despite the exporters having the additional capacity required to supply more. Some countries do release additional quotas, but that has only happened after pressure from the Apparel Export Promotion Council and the government. Once quotas for all product categories are removed, international buyers will be free to buy as much as they want from India.
A factor that offers tremendous comfort to us is that unlike Bangladesh or Sri Lanka "" which are forced to import raw materials, both cotton and synthetic "" we have our own raw material base, and that is one of our biggest strengths. As a result of the availability of raw materials, we will be able to deliver quickly.
In addition, Indian exporters are comparable with the best when it comes to delivering quality products. This, along with the availability of cheap labour, has resulted in all big international chains and brands calling on Indian companies to meet their demand.
While some of the large companies are buying through buying houses, a significant number of international brands have set up offices in the country or are in the process of doing so. The main reason for their flocking to India is the quality that Indian garment exporters can deliver.
Another plus point is the quality of entrepreneurship, which is lacking in most countries. In India, the management is professional and yet personalised. So we can assure better quality at competitive prices. Workers, too, are cooperative, although productivity is lower.
The government is also trying to ensure that whatever hurdles exist are removed so that textiles exporters are in a position to exploit the advantage right from the day quotas are removed.
Infrastructure is also seen as a big hurdle in the progress of textile exports. In the case of ports, for instance, port facilities are being upgraded.
At present, mother vessels call on the Mumbai port. But in the south, there is a shortage of mother vessels that come to Tuticorin, and exporters have to rely on Singapore and Colombo if they want to export in large quantities to Europe, the largest export destination.
We have taken up the matter with the government and have sought that the frequency at Tuticorin or Chennai be increased so that mother vessels come at least three to five days a week. The government is working on the proposal and I am hopeful that our demand will be met shortly.
Another problem that is cited is the lack of capacity. Expecting the benefits from quota removal from 2005, Indian textiles exporters and manufacturers have already made preparations and those who were left behind initially are in the process of upgrading technology to modernise their units and are also investing in additional capacity.
In the past three years or so, around Rs 3,000 crore to Rs 5,000 crore has been invested in land, building and machinery. Big factories have come up across the country.
All research papers in recent months have also captured the fact that India is poised to do well and will be the second-biggest beneficiary after China once quotas are removed. China has an advantage because its infrastructure and productivity is better.
But no buyer wants to put all his eggs in one basket. Also, internationally, it is now recognised that Indian exporters are better than the Chinese on delivery, quality and entrepreneurial skills.
So far, buyers have had to source from several countries to meet their needs because thanks to the quota regime, their requirements are not met by sourcing products from just one country.
Now they can get all that they want from one country. They have already started coming to India in anticipation of the opportunity ahead. We are also exposing our exporters to the global scenario. The two mega shows in Dallas and New York next month are aimed in that direction. India is poised to do well once quotas are removed.
Arvind Singhal
Chairman, KSA Technopak
Many seminars have recently been conducted disseminating the findings of various studies on the outstanding potential of the Indian textile industry in the wake of the likely phase-out of quotas from January 1, 2005. One such study projects a potential of as much as $30 billion worth apparel exports by 2013, compared to just about $5.5 billion in 2004.
On the potential front, we can take almost any sector in India "" for example, agriculture, tourism, healthcare or pharmaceuticals "" and come up with multi-billion dollar export opportunities for the country.
Unfortunately, in all these cases, and almost certainly in the case of the textile and clothing sector, it is unlikely that we shall achieve any significant success in the near future. Quota phase-out is one such instance where India is poised to actually miss the bus rather than getting on it.
The main reason for India's compromised competitive situation post-Multi-Fibre Arrangement is to do with the peculiar structure of the Indian textile and clothing industry.
In the past 20 years, our policy-makers have systematically destroyed the core of this industry. Efforts to undo this damage have only been initiated in the past two or three years and it will take many more years before these efforts show any significant results.
Take a look at some numbers. In fiscal 2002-03, the organised mill sector produced just about 3.6 per cent of all fabric production in India (and about 5.5 per cent in terms of value) with the remaining being accounted for by the powerloom and handloom sector.
It would be to difficult find such a large-scale industry in the country (or anywhere in the world, or for that matter) that is so disorganised as Indian textile.
Thanks to the senseless government policies of the last 20 years, there has been virtually no new investment in new capacity in the past five years.
According to KSA estimates, total new investment in the Indian textile and clothing sector (including some modernisation) in the past five years is less than Rs 10,000 crore (excluding investment in fibre production).
The sector has received practically no foreign direct investment and there are no signs of this trend reversing anytime in the near future. This needs to be seen in the context of both the Planning Commission as well as KSA estimates of an investment need in the range of Rs 85,000 to Rs 95,000 crore over the next three to five years to make the industry competitive and of some global scale.
Excluding the output of leading fibre producers such as Reliance, Indorama and Grasim, we estimate that the total revenues of the top 20 textile and clothing companies in India do not exceed Rs 10,000 crore.
There are just about 15 apparel exporters in the country having revenues in excess of Rs 100 crore, and another 30 between Rs 50 and Rs 100 crore.
In the world that is seeing rapid consolidation of brands and retailers, thereby requiring larger suppliers, the strength of even the biggest of Indian companies (barring a few) to scale up to global size remains untested.
Moreover, India's export product basket for garments is predominantly in three categories (in the list of top 10). In yarn, it already has a dominant share.
In fabrics, India's exports were largely "grey", but with buyers seeking packages, fabrics have to be processed and converted into garments. Fibre-wise, India's strength so far is largely confined to cotton, and season-wise, our garments offer solutions only for spring/summer.
Hence, while most of the major organised players will perhaps benefit from the quota phase-out (in fabric and garments), their overall numbers and contribution to the total Indian textile and clothing industry (about Rs 1,27,000 crore, including domestic and exports in 2003) may add up to an incremental increase of not more than Rs 3,000 to Rs 4,000 crore in 2005 at current prices (or even in 2006), or just about 5 to 6 per cent of total export value (of yarns, fabric and garments) in 2003-04.
Further, even this increase is suspect due to the likelihood of a steep decline in export prices post quota phase-out, giving a real possibility of stagnation or even an actual decline in India's textile and clothing exports in value terms in the near term.
