Earlier this week, clothing/clothing dominant retailers went on a day-long strike to protest against the imposition of a 10 per cent excise duty on branded apparel. If the government had taken this step a year ago, perhaps the textile sector’s response would not have been one of such a vehement opposition. However, this particular impost has come at a time when the entire textile sector is still in the process of coming to terms with what may be a very fundamental structural shift underway. Incidentally, such fundamental shifts are also taking place in a few other sectors including food and agriculture, transportation, and energy and these have started making an impact both on the global, as well as on the Indian textile sector.
The textile industry primary uses two major fibres as its basic raw material: cotton and polyester. Cotton prices have moved up by more than 50 per cent in just the last 12 months, and by almost 150 per cent in the last 2 years. With crude oil touching a 30 month high, the prices of polyester and many other man-made fibres are likely to rise sharply in tandem in the coming months. Unlike in the past, however, such sharp increases in raw material prices may be there to stay since these are not caused by any major disruption in cotton or man-made fibre production. The oil prices, even immediately before the current political crises in West Asia and North Africa (WANA), had been rising steadily as the global economy had started to look up and further stimulated by steadily increasing demand in fast-growing economies including China and India. Cotton production has also been growing steadily, and in particular, India has seen a dramatic near-doubling of cotton output in the last decade post introduction of BT cotton.
The factors, which are going to contribute to sustained high prices for input raw material are many. The primary factor is a rapid increase in demand for textile products in two of the most populous countries of the world: China and India. As consumer incomes increase, there is a huge upsurge in spending on clothing (and food) as more purchasing power comes in the hands of hundreds of millions of till-recently low-income people. China’s domestic textile market has grown from about US$ 70 billion in 2005 to about US$ 160 billion in 2010 and poised to touch US$ 260 billion by 2015. In the same period, India’s domestic textile market has expanded from about US$ 30 billion to about US$ 52 billion in 2010, and is likely to grow further to US$ 90 billion by 2015. While some of this increase is accounted for by higher value-added products, there is a significant increase in quantum of raw fibre consumed by these two countries.
At the same time, with rising food inflation across the globe, it is very likely that governments will encourage diversion of more arable land for direct food production, and away from non-food agricultural crops such as cotton. It would be of interest to note that in 1961, the estimated world-wide area under cotton cultivation was about 32 million hectares. Fifty years later, even as the world population has increased from about 3 billion to 7 billion, the area for cotton cultivation has just inched up to about 33 million hectares. Were it not for introduction of genetically-modified seeds and advancements in pest control and irrigation, the world cotton prices would have moved up northward much earlier. Unfortunately, such dramatic breakthroughs in improving farm yields of cotton are not likely in the future.
Unfortunately for India, the Indian policy makers — like in most other sectors — do not have a holistic view of this very vital sector for the Indian economy and its direct and indirect impact on livelihood of tens of millions of Indians, and the necessity to provide affordable clothing to hundreds of millions of poor and low income citizens. Indeed, while there is an apex ministry for the textile sector, most of the critical policy decisions are actually taken by other ministries including finance, commerce, and industry. Some of these, when taken in isolation, as is the case in the recent budget could play havoc with the viability of the entire sector besides further fuelling inflation since clothing remains as basic a need as food is. The relatively well-off could do with one less shirt or sari but the poor anyway buy clothing when absolutely unavoidable.
Hence, it is critical for the textile industry to come to grips with this fundamental shift in demand and other factors-induced cost increase, while the government has to give a more considered, holistic look to all the policies impacting this important sector.
