Arvind Singhal: Another tale from China!

MARKETMIND

I am sure most Business Standard readers would be as tired of reading about China day in and out, as I am.

Yet, I have once again been prompted to write about China after a chance encounter earlier this month with the president of China's National Textile and Apparel Council (and the equivalent of China's minister of textiles) at a rather unusual forum: the National Retail Federation (NRF's) annual show in New York.

The minister was leading a delegation of eight members from China, and had succeeded in leveraging his good personal relationship with the chairman of one of the largest retailers in North America to get a speaking slot at this prestigious event to present the Chinese textile and clothing industry to the retailers attending this show, and exhort them to buy more from China!

This is when China's exports of textile and clothing products hit $97.4 billion in the year ending December 2004. Immediately prior to pitching for more business from the US retailers, he had travelled to Canada and had addressed a Canadian federation of retailers for a similar objective.

During his presentation in New York, the minister openly stated that the Chinese government has decided that textiles would be one of the "pillar" industries of China, and to do so, it has to carry out market-oriented reforms, including opening its own market to the rest of the world.

In the same presentation, the minister proudly mentioned that during the 1998""2000 period, the Chinese government made a substantial part of its spinning capacity obsolete and laid off "1.2 million workers in the state-owned cotton mills".

At that point, I only wished that some of our own politicians and state planners were there to get a first-hand understanding of what it takes to become a competitive nation and establish world-class industries!

Of course, it is not that our own politicians and bureaucrats are averse to travelling overseas.

Unfortunately, most of the time, the itinerary is planned to suit their personal desire of globe-trotting, and the meetings are largely targeted towards the ubiquitous Non-Resident Indians, and a few others hastily rustled up by the economic departments of our embassies/high commissions in the countries falling in the itinerary of these globe-trotters.

The textile industry in India continued to be stifled till just about two years ago, and our planners continue to believe that phasing out quotas on January this year is enough to give the industry a much-needed boost.

It is no wonder that even during the last year of quotas (2004), China added almost $30 billion to its textile and clothing exports while India could add no more than $500 million (my initial estimates).

The story could well be repeated in other sectors of industry as well. However, not much is to be gained by lamenting on what we should have done in the past 20 years but have not done.

What is more important is to reflect on what can still be done, and how to do it. Several concurrent steps have to be taken as far as the textile and clothing industry is concerned, keeping in mind that like China, it has to be one of the crucial pillars of our country.

In no particular order of importance, these steps are the following. The first one pertains to the government taking a planned policy decision to encourage closures of non-competitive mills and get rid of its obsession to revive the NTC-controlled assets.

While it may continue to dither on labour reforms for the country as a whole, it can certainly make an exception for this vital sector.

The second one pertains to creating a fund (perhaps in the range of $2 billion or about Rs 9,000 crore, to start with) to be used as seed capital/promoters' equity for starting or expanding large textile-manufacturing businesses in partnership with existing Indian textile firms and other businesses/entrepreneurs.

The government, of course, has no business to be holding this equity for long and must plan to divest the same to the public with a specified period of start-up of the business.

This initial funding will greatly assist in the capital formation needed desperately by India, currently conservatively estimated at over $30 billion or about Rs 140,000 crore (China, as per the minister's presentation, has invested almost $20 billion in textile machinery imports alone in the last five years).

The third step is for Indian textile firms to stop spending more time on preparing and issuing a variety of reports, and actually go out to meet the really big customers (retailers like The Gap, JC Penney, Wal-Mart, Marks & Spencer, Next, H&M, Inditex/Zara, and the like) at the levels of their chairmen and presidents and make a pitch for their personal interest and attention on India.

Forums like NRF (the US), Retail Week (the UK) and others are the places to use diplomatic and public relations to get prime speaking slots there to present India's case.

The fourth step is to start thinking big, and make serious effort for making high-value acquisitions in Europe and the US""for textile, garment, and branded fashion companies.

This would be the only productive way to get direct entry for value-added products in the competitive European, Japanese, and US markets.

Partnerships with European and US design houses, and other product development/R&D entities, would also be essential in this regard.

The final, and equally important, step would be for the textile industry to make a concerted plea to the government to allow foreign direct investment""with no strings attached in terms of quantum or percentage of holding""in the retail sector.

India has absolutely no case to make with the major global textile product retailers/fashion brands to open up their sourcing for us, while we obstinately ban their operations in India!

arvind@ksa-technopak.com