| Once again, the Indian textile and apparel sector is in the news mostly with reports of its impending demise on account of the weak dollar (or the strong rupee, as many in India have erroneously started saying). The last time the sector hogged the limelight was in early 2005, glowing under the rosy prospects of it being able to conquer the world textile and clothing trade with the elimination of the restrictive quota system. At that time, analysts and other pundits "analysed" the prospects of this sector as superlative on the single trigger of the elimination of quotas, driving up the valuations of all kinds of textile and clothing companies to hitherto unseen highs. The same analysts and pundits have now started writing the obituary of this sector on the single trigger of a weak currency of a large importing market (even though there are other large markets such as the EU) and the sector's fortunes on the stock exchanges have taken a drubbing. |
| The reality "" in these three years from 2005 till now "" has been somewhere in between. The quota phase-out was indeed a golden opportunity for India and its textile and clothing sector. Yet, both the government and the industry failed to rise to the occasion by not being prepared for the same. The systemic distortions in the sector, largely brought about by the government itself through an exceptionally regressive policy framework for most of the 1980s and 1990s, the inability of Indian manufacturers to develop value-added products or internationally competitive manufacturing capability, and the tectonic changes in the dynamics of the global textile and clothing trade had rendered India's textile sector extremely vulnerable to competition from China and many others including our own neighbours such as Bangladesh and Pakistan, and Vietnam. The weakness in the US dollar has merely been the coup de grace for those who have been marginally efficient or downright uncompetitive in the post-quota world. |
| On the other hand, the prospects for textile and clothing consumption in India have never looked brighter. Sustained economic growth in the last 15 years has pulled out over 100 million people from below the poverty line to become marginal or full-fledged consumers, and has also put significantly more disposable income in the hands of hundreds of millions of middle- and upper-class consumers. As a result, domestic demand for basic and value-added textile products is booming and is expected to rise rapidly in the coming years, taking the size of the domestic market opportunity from the current Rs 120,000 crore or so to almost Rs 250,000 crore (at current prices) by 2015. With the cushion of import duties, the domestic industry is well protected from an onslaught from Chinese imports other than in select product categories where the domestic production is almost negligible. The imminent growth of modern retail in India, notwithstanding the totally misguided political opposition to the same, will provide the textile and clothing producers similar opportunity as the Gaps and Wal-Marts and Marks & Spencers do for exports. Indeed, many of the traditional customers (clothing brands and retailers) of the Indian textile and clothing exporters are poised to set up shop in India, providing their suppliers an opportunity to serve them in India too. |
| Ironically, the growth of the domestic market will also put a brake on China's own export juggernaut in the coming years. While China may not become a major market for India's finished textile goods, it can certainly be one for raw materials (fibre and yarn, especially cotton) in the coming years. With the imminent strengthening of the yuan, China would be a less potent threat to other exporting nations in the coming years than what it is today. |
| Hence, in the medium term (3-5 years) the prospects are not gloomy at all for the Indian textile industry though it certainly has a challenge on its hands in the short term. The solution is not to further raise to the level of a crescendo the news about its malaise and for its leadership to make more frequent visits to Raisina Hill and Udyog Bhawan pleading for the impossible or infeasible. Instead, the highly fragmented leadership of the textile and clothing sector has to put their heads together to prepare themselves for a brighter, more prosperous future by creating additional highly efficient, quick responsive, and product- and fashion-innovative manufacturing capacities. Some of the producers should actively think of moving up the value chain by creating more power brands, and some should go right up to the consumer creating Indian versions of highly successful international textile-oriented retail concepts such as Primark, Zara, Esprit, and H&M. |
| If any support has to be sought from the government, it should be related to getting easier access to a higher quantum of low-cost capital for modernisation and new investments and for creating a policy framework that can attract massive investment for the domestic production of state-of-the-art textile and clothing machinery at lower cost. |
| Can clothing business create wealth in India? Check out the performance of an upstart named Koutons. |
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
