REVIEW OF LITERATURE - Shodhgangashodhganga.inflibnet.ac.in/bitstream/10603/23730/11/4_chap 2 review... · REVIEW OF LITERATURE ... provided justification for liberalization and new

REVIEW OF LITERATURE

The studies relating to textile exports in India and other countries highlighting the

impact of globalization and liberalization have been reviewed and summed up in this

chapter. Some studies predict a substantial increase in the size of exports as a result of

phasing out of quota regime while others predict a very cautious approach to be

undertaken by developing countries. Few studies have also been conducted to estimate

the impact of ATC (Agreement on Textiles & Clothing) expiry on textile trade. This

chapter provides review of related research to the present study.

Pelzman (1984) examined effect on profitability of Textiles and Apparel for 29

textile and 33 apparel industries during the period 1969-79 by using multiple regression

analysis. Pooled cross section, time series data for pre MFA- Multifibre Agreement (1965

-73) and post MFA (1974-79) has been taken. The variables taken were capital output

ratio, concentration of manufacturing index, economies of scale, growth of industry

demand, seller concentration ratio, ad valorem nominal tariff rate, import penetration

index and MFA. It was found that MFA did in fact improve the profit performance of the

protected textile and apparel sector.

Goldar (1989) has analyzed export function of Engineering Products by making

use of secondary time series data for the period 1960-79. A four-input (capital, labor,

material and energy) production model was used at aggregate level. The results indicated

that world demand, cumulative output, exchange rate and total factor productivity are

important determinants of export performance.

Malhotra and Kaur (1993) used binary variable technique to estimate the

quantitative impact of change in industrial policy in terms of liberalization. They found a

significant positive impact of liberalization on industrial production in the economy and

provided justification for liberalization and new industrial policy spelled out in July,1991

which was based primarily on the concept of market economy.

Bhalla (1995) analyzed that agricultural growth made a huge impact on the whole

economy. The market surplus in agriculture stimulated increase in trade and transport

which led to increase in per capita income of rural and urban population. The market for

Review of Literature

consumption goods and services increased which raised income of rural workers and it

led to development of other sectors in the economy.

Sharma (1996) in his study remarked that in the post MFA, improvement in

export performance could be sustained if policy reforms were continued with a view to

debottleneck the constraint on exports. General development of infrastructural facilities

in the country in the form of road and rail network, ports, shipping and air-services;

attention to quality control, packaging etc, awareness of Indian products in terms of

quality, variety, price etc. have to be created in the international markets.

Austria (1996) has examined the effects of the MFA Phase out on the Philippine

Garments and Textiles Industries. Export performance of the industries during the MFA

years focusing on the role of quota and the administration of quota in the country has

been analyzed during 1980 -1994 by using secondary data. Also, prospects for survival in

a quota-less world, investments in the garments and textiles industries and benefits to the

country from the phase out have been examined. It was found that though MFA has

assured the country of markets for its exports of textiles and garments, it has also caused

waste of domestic resources because of inefficiencies in the administration of quota

allocation among exporters which not only affected the amount of export earnings but

also the efficiency with which resources were used.

Singh (1998) analyzed the issues peculiar to a 'small scale of production' in India

in an increasingly globalised scenario. She stated that small and micro producers were

crucial in developing economies, and their role was even greater in the largely rural

economies of South Asia. In India also, the sector was the second largest employer, after

agriculture, and accounted for nearly 6 percent of the country's GDP. India was an

exception, in that, it gave the small scale sector large incentives, and protection, in the

period 1948-1991, going to the extent of reserving certain production lines solely for the

sector. She also examined some of the other issues plaguing the sector such as credit

availability and maintaining quality standards.

Chandra (1999) in his study pointed out that the Indian textile industry has

“Islands of Excellence” but the capability and performance of average firm was not very

high when compared to those in several other countries .The technology performances,

stock and work practices in textile industry of India were outdated. There were distinct

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weaknesses in the structure of the industry. Its inherent strengths have to be built upon

and new contemporary strengths needed to be added.

Nanda and Raikhy (2000) pointed out that with the phasing out of MFA over 10

year period regarding textiles, India’s exports in textile could also increase. India may be

able to increase its market share from the current level of 2.4 percent to 4 percent. So,

India had to meet the challenge of a free trade regime in textiles and clothing. There was

need to diversify into a high range and classic garments technology up gradation by

importation, if necessary; up gradation of labour skill, extension of off-shore production

facilities to selected clothing, in special areas like Andaman Nicobar etc.

Banik and Bandopadhyay (2000) tried to examine Indian cotton textile industry

in the wake of MFA phase out. The competitiveness of Indian textiles was measured by

calculating RCA which is ratio of share of product in country’s export to its share in

world export and REC which is ratio of India’s textile exports in world’s textile exports

to share of India’s textiles in its total export. Also, ERP (effective rate of protection) was

calculated and secondary data was taken for 21 years from 1973-74 to 1993-94. It was

found that with rise in competitiveness, exports would increase. With more protective

regime, both competitiveness and production will fall.

Kareem (2001) analyzed determinants of India’s machinery exports from 1970-

87 at aggregate and disaggregate level by using secondary data. Multiple regression

analysis was applied and no unanimity was found as far as significance of the variables

was concerned like world demand, domestic demand and import substitution. It was

found that domestic demand was not significant in case of non electrical machinery and

world demand was significant in case of agricultural machinery and implements, for

Nigeria and Nepal.

Aggarwal (2001) in his study pointed out that India’s garment and textile exports

were likely to face fresh challenges with phasing out of Multifibre agreement by 2005, as

well as several regional trade treaties, such as NAFTA(North American Free Trade

Agreement).

Diao and Somwaru (2001) used trade data from 91 countries over 37 years.

Empirical investigation showed a strong positive relationship between trade in textile and

apparel and the standard of living. The possible impact of MFA phase out on the world

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T&A (Textile & Apparel) trade was studied using an intertemporal, global general

equilibrium model. It was found that MFA phase out would enlarge world trade of T&A

and developing countries would further gain market share in world total exports. Most

countries whose textile and apparel exports were restrained by MFA gain post-MFA.

However, welfare gains could be different among different countries for eg. textile and

apparel exports increase more in the region of other Asian countries than that in India.

However, from welfare point of view, India gained more than the gain of the region of

other Asian countries. One reason was that T&A sector contributed more to GDP in

terms of value added. For this reason, exports of T&A created more employment

opportunities and hence GDP raised more in India than that of other Asian countries.

Banik (2001) in his paper revealed that by 2005, quotas would come to an end,

implying that the importing (buyer) countries could no longer discriminate between any

exporting (seller) countries. As a result there would be greater market access for

exporters from India. But that was a long term benefit. However, in the short run, there

would be little or no gain for Indian apparel exports.

Kathuria et al. (2001) pointed out that the abolition of quotas would create

opportunities for developing countries. The outcome for any individual country, they

said, would depend on its policy response. Countries that took the opportunities to

streamline their policies and improve their competitiveness were likely to increase their

gains from quota abolition.

Mukherjee (2001) observed that small and medium enterprises occupied a

crucial position in the Indian economy not only because they contributed to GDP,

income, exports and employment but they also implied self/group initiative, self

employment and small livelihoods, and a small business. It was important to create and

ensure space and more opportunities for such a sector given three things – unemployment

in India, structural changes due to disinvestment and privatization and uncertain

environment faced by SMEs in today’s world. It was also observed that SMEs in

exporting activity needed to adapt to technical standards and SPS measures as applicable.

The SMEs were expected to incur high cost as a result of TRIPS Agreement due to

royalty payments related to copyrights and related rights, trademarks, industrial designs,

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etc. Also under WTO rules, use of QR’s (Quantitative restrictions) were discouraged

unless as a safe guard measure.

Liu and Shu (2001) investigated the determinants of exports performance from

Chinese industries. The study was based on cross section data which was published in

1997. Both industry level and sub sector level data was taken into account. The whole of

industry-specific characteristics in affecting export performance at the sectoral level were

empirically examined. It was found that export performance at sectoral level was

significantly influenced by labour costs or labour intensity, the level of FDI and firm size.

The main findings from sub sample estimations also supported those obtained from the

overall sample.

Kumar (2001) remarked that textile industry witnessed positive growth during

1973-94 in capital stocks, output and capital output ratio, more so, in its woolen textile

segment which was relatively stable in demand, domestic as well as international till the

breakdown of East European Market. As expected, the capital efficiency in the industry

was deteriorating over time as was reflected by rising capital output ratio. The pressure

on industry to improve product quality at minimum price was likely to increase in near

future owing to phasing out of MFA by 2005 under Uruguay Round of GATT (WTO).

Ganesh (2002) commented that the Indian textile industry was in a state of decay,

if seen from the perspective of preparedness for the opening of the world textile market in

2005. Those not so concerned with the importance of loss in exports, would still need to

consider the serious implications for local industry and employment when textile imports

opened up further and import duties came down. For almost fifty years, government

policy weighted scales against the organized sector including the state sector, first by

limiting the growth of composite mills, and then by encouraging excise duty avoidance

and evasion as the basis of building competitive advantage in the Indian market.

Apparel Fortnightly (2002) mentioned that phasing out of the MFA was

foreseen as a big achievement in the liberalized world trade and a boom for developing

nations including India. However, the effect of such liberalization would not be the same

for all nations of developed world. Some will emerge as major gainers while others will

be worst hit by the time, the textile trade is integrated with the WTO regime. Those

countries, which were well established in the world, apparel markets enjoyed a high

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production base, superior technology and marketing acumen, brand equity would be the

beneficiaries.

Verma (2002) analyzed competitive performance of Indian exports in US and EU

markets. In order to calculate this, twin criteria was adopted.

i) Growth rate in unit value of the product imported from India exceeded average

growth rate in unit value of the product from all suppliers in a market.

ii) Its market share grew over the period 1995-2000.

It was found that except made –ups, Indian textile export to the US had no future.

The market share of other products was declining. In case of EU, India’s

performance was good in synthetic products (yarn and made-ups) in textiles. Among

garments; suits, coats, jackets and skirts were leaders. The products whose exports to EU

had been constrained by quotas and hence were likely to gain from quota dismantling in

2005 were cotton bleached fabric and woven bed linen.

Singh and Singh (2002) had analyzed the economic growth in Punjab from 1966-

1967 to 1998-99 by using secondary time series data. The determinants of economic

growth, capital accumulation, technological breakthrough and human capital, were

analyzed. It was found that these factors were constraining the growth of Punjab

economy. The decelerating economic growth was rooted in irrational pattern of

investment and declining development expenditure and was compounded by crisis in

agriculture, due to marginalization of small farmer and population pressure on land. The

need was to reorient the government’s investment planning and strategy, along with

implementation of change in organizational pattern of production.

Naik (2003) reported that N.K. Singh, member secretary, planning commission;

had cautioned textile exporting countries to be vigilant over other forms of trade

restrictions that would spring after the expiry of the quota regime by the end of 2004.

These disguised forms of the protectionism could be like visas, transshipment and anti

dumping measures.

Chandran (2004) found that India’s three thousand textile mills were on the

threshold of undertaking a massive modernization and expansion programme with a view

to achieve textile export target of US $50 billion for the country by 2010, a target fixed

by the Indian Government. The world trade for textile and clothing was expected to

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increase from the present US $374 billion to US $550 billion by 2010. Only countries

with integrated textile industry such as India, China, Pakistan and Indonesia would

rapidly benefit in the post WTO era.

Elbehri (2004) studied global trade implications of MFA quota removal on cotton

and textile industry. The analysis was based on a new set of MFA- trade restrictiveness

based on 2002 product - level quota trade and price data. Using a multiregional general

equilibrium, the analysis provided comparative static assessment of changes in global

trade patterns in post MFA. The analysis also took into account the MFA-induced

implicit tax on cotton and allowed for inter-fiber substitution. The model was run for

several scenarios including quota removal only or in combination with tariff

liberalization. The analysis confirmed significant shifts in textile and apparel trade from

preferential exporters to Asian and South Asian suppliers that were subject to binding

MFA quotas. However, not all MFA exporters benefit equally from the expanding

apparel trade. The United States showed significant increases in apparel imports

substituting for domestic products, raised overall consumption and produced substantial

welfare gains. The implications for fiber markets on the US showed lower demand for

cotton domestic use but expanding US cotton exports due to higher world demand

particularly when both quotas and tariffs were removed.

Siddharthan (2004) analyzed productivity, efficiency and growth of Indian

economy in globalized era. He concluded that there had been major inter-firm differences

in behaviour relating to technology and growth strategies and the resultant productivity

and efficiency. Some firms had gained by the liberalization and globalization policies

while others had lost. The main gainers had been the MNEs and their affiliates which had

better access to technology and other intangible assets. To survive and succeed in the

global regime and to compete against the MNEs, some of the domestic firms had adopted

a strategy of entering into non-equity strategic alliance with foreign and domestic firms

resulting in technology imports against royalty payments. These networking firms had

also done well. But other domestic firms that had no networking had not done well.

Within MNEs also, there had been differences depending on the source country. By and

large, acquisition of technology was the main vehicle of growth and domestic firms that

enjoyed better technology and had a smaller productivity gap in relation to MNEs had

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benefited by liberalization policies. But firms that were stuck with earlier technological

paradigm with large productivity gaps had lost out.

According to Subrahmanya (2004), globalization and liberalization created

beneficial opportunities for small-scale industry. The removal of quantitative restrictions

and the reduction of import duties, particularly after the setting up of WTO in 1995, had

opened up foreign markets to Indian small industry as much as Indian market had

opened up to foreign goods. Such opportunities should act as an incentive to many a

small firm in India to enhance their competitiveness to penetrate the global market.

Nordas (2004) remarked that the outcome of the phasing out of quotas depended

much more on the prevailing tariff rates and the preference margins of countries

recovering from such preferences that were captured by the conventional estimates. He

concluded that both China and India would gain market shares in the EU, US and Canada

to a significant extent, but the expected surge in market share was expected to be less

than anticipated as proximity to major markets assumed increasing economic significance

and tariffs and increasingly restraining trade due to the fact that products cross bordered

several times. Also, other developing countries were catching up with China in terms of

unit labour costs in the textile and clothing sector and China had not shown competitive

strength in design and fashion segments in the market.

According to study by Nair (2004), the emerging scenario was that EU (European

Union) and USA (United State of America), who together accounted for over sixty

percent of world imports of textile and clothing and for most of the textile quotas,

fortified their market with preferential arrangements, mostly providing for production

sharing by their own industries or for offshore processing of their raw materials. Both had

kept their MFN(Most Favoured Nation) import duties on textile products several times

higher than their average industrial tariff, in order to make imports from non-preferential

sources even more difficult. All this gave a clear message that abolition of quotas should

be expected to accelerate all other forms of Non Tariff Barriers (NTB) and trade defense

measures.

Narayanan (2004) examined the determinants of employment in the Indian

textile industry. He stated that though there seemed to exist substitutability between

capital and labour; a fall in employment despite a rise in output was surprising. The

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lagged effect of capital, output shock, wages, past employment, trade regulation index

and the number of man days were studied for 32 sectors of the Indian textile industry

from 1973 to 1999. Of these, 8 were in cotton group, 4 in wool group, 3 in silk group, 3

in manmade fibers group, 6 in jute group and 8 in others. The dependent variable was log

of employment and independent variables were productive capital stock, change in output

and wages per person. Different variants of this dynamic panel data model showed a

positive effect of capital, past employment and output shock and a negative effect of

previous period wages, while in most cases, the other factors were not significant.

Oxfam (2004) attempted to study the export pattern and urged for the third world

to be vigilant in post Quota Regime. He feared that protectionist instincts of the rich

countries would persist which would not be good for the third world. If rich countries

replaced quotas with alternative forms of protectionism, all developing countries would

suffer.

Weeraratne (2004) identified globalization as an increasing integration of

economies around the world, through trade and financial flows and associated mobility of

labour and technology. The negative impact of globalization on textile and Apparel

(T&A) industry in Sri Lanka had been emphasized while strategic options were provided

to survive the height of globalization after 2005 – quota free era.

Statistical analysis of a 25 year period revealed a high import dependency for

inputs, which hindered the development of a domestic production base for such inputs

and its associated economic and human development possibilities. The analysis showed

increasing dominance of China in world T&A trading. Survival strategies identified

include stressing better working conditions through buyers’ market model and

establishment of trading blocs for secured markets.

Mohan and Ray (2004) attempted to compare performance of three categories of

banks – Public, Private and Foreign – using secondary data. DEA technique was applied.

Physical quantities of inputs and outputs were taken and revenue maximization efficiency

of banks during 1992-2000 was compared. The findings showed that PSBs performed

significantly better than private sector banks but not differently from foreign banks. The

conclusion pointed to conversions in performance between public and private sector

banks in the post reform era, using financial measures of performance.

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Bhole and Mahakud (2004) analyzed the trends and features of trade credit of

the entire economy, public limited companies, private limited companies and foreign

companies in India from 1966-1967 to 2000-01 and estimated both time series and panel

data models for empirically identifying the determinants of trade credit. The period

analysis was also carried out to measure the impact of liberalization on the determinants

of trade credit. It was found that the government sector had remained a substantial user

of trade credit through the entire period. The nature of behavior of trade credit and the

changes in it over the years depended upon the type/ownership of companies.

Cheng and Lo (2004) estimated the ‘sequential production technology’ by

computing the Malmquist Productivity index for various size groups of enterprises in

Chinese industry. Secondary data for 87 production units (large, medium and small) for

1994-97 was taken. The output was industrial value added; and labour and capital were

taken as inputs. It was found that large enterprises registered fastest productivity growth

and improvement in technical efficiency in 1994-97 period. It indicated that large scale,

mainly state owned Chinese enterprises had exhibited the potential of making noticeable

improvements and the relevant state policy had its justification.

Rangarajan (2005) attempted to study the post MFA challenges and observed

that a more cautious approach was required by developing countries especially Indian

government, instead of juggling with tariffs, excise and other sops. They should seriously

think of the taxonomy of the sector to face the challenges. Similarly, various industrial

associations, instead of showing their bargaining power in achieving a good deal for a

sop from the government should support its members through market studies,

competition tips and market data bases for future references.

Chakraborty and Chakraborty (2005) pointed out that in the post WTO phase;

the members were expected to bring their trade policies increasingly in line with WTO

directive i.e. to reduce the barriers on imports. It was widely held that India’s exports

would rise significantly in the post WTO phase but at the same time, there was an edge of

Chinese exports over Indian exports and it was possible that a number of Indian export

items might adversely suffer owing to competition from their Chinese varieties. Besides,

the competitiveness of a number of products had declined in the post WTO phase. In all,

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a gloomy picture on future exports potential emerged and fulfillment of foreign trade

policy (2004-09) objective looked less likely.

Landes et al. (2005) opined that demand for cotton and manmade fibers in India

would likely strengthen in response to rising consumer demand in India and increased

exports of textiles and apparel following the removing of the MFA quotas. The pace of

growth in cotton demand would hinge on execution of reforms to policies, including

taxes that discriminate against the use of manmade fibers and regulations affecting the

scale, technology use and export competitiveness of the textile and apparel industries.

Imports of raw cotton increased along with rising demand in recent years, but future

growth depended on the extent to which India can boost chronically low cotton yields and

improved cotton quality.

Singh and Kundu (2005) analyzed that though globalization had opened vast

market opportunities for Indian cotton textile industry, still the industry was exposed to

the threats of fierce competition. Survival and growth in such environment required

achieving global competitiveness. 81 senior and middle level executives from cotton

textiles manufacturing and exporting firms in India were empirically investigated and it

was found that China, Vietnam, Bangladesh and Malaysia were emerging as major

competitors in international textile market. It was also found that the industry was

competitive in terms of input factors – labour, transportation and raw material but not in

terms of finance, power and technology.

Malik (2005) stated that export strategy in India confronted several issues,

especially the choice of policy instruments. Questions were raised about the utility of the

prevailing export promotion schemes, even while these interventions were considered

necessary to keep India’s exports competitive in the international market. A positive

association was found between exchange rate movement and exports. This association

was though not very helpful in predicting the impact of exchange rate on export

performance, but it did provide an indication about the role of explicit or implicit subsidy

and market structure. Historically, subsidies were critical for India’s export growth. In the

past 1991 era too, implicit subsidies played a crucial role. Sector specific data bore the

impact of policy intervention on export performance.

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Rameshan (2005) stated that the textiles and clothing export performance of

India and China during the ATC and post MFA period, with focus on USA and EU have

been examined. It was evaluated that in comparison with China, India had not been able

to gain significantly in these markets from the quota removal on textiles and clothing.

Besides, the possible strategic options available to India were explored to become a major

player in the leading export markets of textile and clothing despite competition and

competitors. The results showed that India’s gains in textiles and clothing trade in ATC

and post MFA era had not been commensurate with its hopes.

Tiwari (2005) examined India’s integration into the global apparel market to

understand alternative forms on global insertion that was occurring, especially in light of

elimination of quotas. Though the Indian government was attempted to attract FDI into

textiles, apparel and retail, and domestic firms were scaling up rapidly as well as

exploring global partnerships; these features have followed successful integration into

export markets, rather than led to it. It was argued that India’s rather quick emergence as

a successful textile and garment exporter after years of inward orientation had more to do

with changes in domestic policy that took place throughout the 1980s and 1990s and how

these changes interacted with global trade regulations on the one hand and with ongoing

transformations in the Indian domestic market on the other, than with purely external

factors. The domestic firms were thus playing a stronger role in the internationalization of

Indian textiles and apparel than major external drivers such as the role of global buyers,

FDI, or preferential trade agreements. As Indian textile and apparel industry adjusted to

uncertainties of the post MFA world, an understanding of diverse paths was critical. The

presence of strong set of internationally integrated domestic firms, a growing design

sensibility and emergence of up grading processes that were not necessarily tied to labor

or dependence on global textile value chains was hopeful finding.

Hashim (2005) pointed out that with the Multi Fiber Agreement (MFA) coming

to an end, competition in the Indian textile and garment industry would increase

manifold. One of the main factors determining their competitiveness would be unit cost,

where India had fared poorly in the recent past. The unit cost depended upon factor prices

and productivity level.

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Rangarajan (2005) remarked as the ATC process rolled out, trade policy

continued to have a strong influence over clothing value chains, though in modified and

more diffused form, as the broader multilateral framework, and specific, regionally based

trade arrangements, took precedence over sectoral ones (Baden, 2002). The post MFA

period witnessed more concentrated pattern of delocalization towards the large, currently

restricted suppliers including India. In such a competing scenario, the Indian exporter

could no longer talk about the strategies of price, quality and responsiveness.

Exim Bank (2005) estimated that in the short term, both China and India would

gain additional market share proportionate to their current market share. Exim estimated

that India would have a market share of 13.5 percent in textiles and 8 per cent in

garments in USA market. With regard to EU, it was estimated that the benefits were

mainly in the garments sector. The potential gain in textile sector was limited in the EU

market considering the proposed further enlargement of EU. It was estimated that India

would have a market share of 8 percent in EU textiles market as against China‘s market

share of 12 percent.

Kathuria and Singh (2005) remarked that with the MFA phase out in December

2004, India could be the big winner after China. India has the potential to increase its

share from US $6 billion to US $20 billion by 2010. This dismantling of the quota regime

presented both an opportunity as well as threat. Export markets would no longer be

restricted for want of quotas whereas there looms a threat also because markets would no

longer be guaranteed by quotas. There was a need to devise new strategies, thus moving

from cost based competition to time based and value based competition.

Seyoum (2005) empirically investigated determinants of level of high technology

exports. Secondary data of a sample of 55 developed and developing countries was taken

and using factor analysis and multiple regressions; the study examined the effect of

inward FDI, home demand conditions and technological infrastructure on high

technology export. It was found that all the variables had a positive effect on high

technology exports.

Singh (2006) reported that India could be the big winner in textiles after China.

According to the DHL – Mc Kinsey Apparel and Textile Trade Report, the value of the

global textile and apparel industry was likely to go up to $248 billion by 2008 with

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China, India and Pakistan expected to be the “Clear Winners”. The report forecasted that

India had the potential to increase its share from the current 4 percent to 6.5 percent

valued at $16 billion by 2008.

Havrila and Gunawardana (2006) used unrestricted error correction modeling

procedure to determine the export supply of Australian textile industry. Secondary data

from (1970-1999) was used and it was found that in the short run as well as long run,

export supply of textiles was positively and significantly related to relative price of

exports and negatively and significantly related to the effective rate of assistance.

Caparas (2006) examined the determinants of export performance in the

Philippine manufacturing sector. Secondary time series cross sectional data for 2000-02

of 716 firms was used .The Papke-Wooldridge model was determined and estimates of

the model was done using modified quasi- maximum likelihood procedure. Among the

firm level characteristics tested, foreign affiliation was found to be the most prominent

influence on a firm’s propensity to export.

Kalirajan and Singh (2007) did comparative analysis of China’s and India’s

recent export performances. Secondary data was taken. Average values of exports during

2000-03 and average size of economies for 2000-02 were taken. Data on trade restrictions

and openness to trade were also taken for the period 2000-02. Sample sizes of partner

countries which were 77 for both China and India were taken. Augmented gravity model

was estimated .It was found that cost competitiveness of China appeared to help its

exports in negotiating large distances and there was a need for India to learn from China.

It needed to develop cost advantage and product process so that high value markets could

be captured.

Papadogonas et al. (2007) examined the determinants of export performance of

firms in Greek manufacturing industry. Cross sectional data from 1652 firms in 1999 was

taken and Tobit regression model was applied. The study found that firms that have

larger size, lower unit labour cost and low capital to labour ratio had a higher propensity

to export. This also confirmed the fact that in Greece, which had the second lowest

capital to labour ratio among EU-15 members, export activities were concentrated among

firms with low capital intensity, exactly as was predicted by theory of Comparative

advantage.

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Ray and Neogi (2007) applied DEA to firm level data from various years of ASI

(Annual Survey of Industries) to obtain Pareto-Koopmans measure of technical efficiency

in the Indian textile garments industry. The overall efficiency was split up into input and

output oriented Russell type non- radial measure. For the second stage, regression of

DEA efficiency scores in terms of age, ownership, regional location and other

characteristics of a firm was performed. The main findings were that output scale played

major role in calculating output efficiency as well as efficiency of production and non-

production workers. Skill also played a significant role in explaining total efficiency.

There was no significant difference in level of total efficiencies among states except

Delhi. Age did not have significant impact on level of technical efficiency. In general,

levels of output oriented efficiency of firms exceeded their input oriented efficiency.

Kumar and Gupta (2007) examined growth of export of industrial goods from

Punjab during pre-and post–reform period. They opined that Punjab was performing well

as far as export of industrial goods was concerned. Still it had the potential to perform

better. Under such circumstances, the government should design supportive industrial

policies and development strategies for EOUs (Export Oriented Units) in the state.

Concerted efforts were required from all the stakeholders like entrepreneurs, state and

union governments, trade and industry, farmers and producers to secure a healthy state

economy and its export performance.

Katti et al. (2007) opined that the textiles sector registered a growth of 18.2

percent in 2004-05 as compared to negative growth in 2003-04 when compared to a

growth of 8.8 percent in manufacturing sector as a whole. As a result of several

incentives provided by the government in the previous budget, there had been a sharp

increase in investments in this sector and the shift was being made from being sunset

sector of the economy to a sunrise sector. There had been a significant increase in the

number of new players wanting to set up textile manufacturing industry with the share of

Letter of Intents/Direct industrial License in textiles, being 29.03 percent of the total and

the share in investments being 32.63 percent.

Bhandari and Ray (2007) analyzed technical efficiency of Indian textile firms

using non parametric DEA. Technical efficiency scores were analyzed. It was observed

that amongst six major states considered, regional efficiency of Tamil Nadu was best.

31


Also, smallest average size class of firm had the highest group efficiency. There was a

clear trend of rising regional efficiency over time. Hence, technology gap across regions

seemed to be diminishing over time.

Banerjee (2007) employed a non parametric data envelopment technique to

derive the technical efficiency scores of Indian cement manufacturing firms in two

scenarios, one in which all the firms would take initiatives to abate pollution and the

other, in which no firms take initiatives to abate pollution. Secondary data for two time

periods 1999-2000 and 2003-2004 was taken. It was found that on an average, the

industry could gain in terms of production efficiency by 8 percent age points in 1999-

2000 and 2 percentage points in 2003-2004, which was found to be statistically

significant for both the years. This indicated that cement producing firms in India had an

incentive for opting to comply with the environmental standards set by the regulation for

their own benefits. However, the magnitude of gains in efficiency levels decreased over

time. They were more pronounced in the initial phase of implementation of regulation

than in the subsequent years.

Gupta and Kumar (2008) analyzed growth performance and forecasted exports

of leather industry in Punjab. Secondary data relating to exports of leather industry was

taken for a period of 26 years ie.1980-81 to 2005-06.The performance of exports was

measured by computing yearly and compound annual growth rates, making short term

forecasts and measurement of long term trends. Forecasts of exports were prepared for

lead time of five years by using Double Exponential Smoothing, and long term trends

were captured by fitting ten distinct functional forms and equation of best fit was

selected.

Kavita et al. (2008) observed that Indian textile exports could rise from 6 billion

US Dollars to 18-20 billion US dollars within the next five years. This would add more

than 5 million direct jobs and 7 million indirect jobs in the allied sector, primarily in

cultivation of cotton. Efforts were needed in cotton research, technology generation,

transfer of technology, modernization and upgradation of ginning and pressing factories

and an aggressive marketing strategy.

32


Sasidaran and Shanmugam (2008) in their study investigated the implications

of unshackling of global textile trade on the efficiency of firms operating in the Indian

textiles industry, following complete phasing out of MFA in 2005. Results of the study

showed that average efficiency declined over the years, indicating presence of

inefficiency in using inputs. Indian textile firms failed to utilize their inputs efficiently

during the phase of liberalization which, if done, would have helped them to withstand

and overcome the intense competition from other players like China.

Goedheuys, et al. (2008) analyzed the knowledge based determinants of

productivity of firms from five countries – Brazil, Ecuador, South Africa, Tanzania and

Bangladesh. These countries were active in food processing, textile and garments and

leather products. The knowledge sources driving productivity performance were very

different across sectors. In textiles, firms raised productivity levels by importing new

machinery and through research and development. In garments and leather products,

R&D(Research and Development) and design activities, high quality management and

licensing technology from foreign firms were significant productivity determinants.

Firms productively levels were further depressed by regulatory and financial

constraints.

Singh and Goel (2008) examined the global financial crisis in case of Indian

textile and apparel industry. The data for 79 firms (10 firms under composite mills, 23

under MMTF, 18 under weaving, 12 under hosiery and knitwear and 16 under readymade

garments) were selected for the period 1995-2007. The variables taken were output,

employment, exports, imported capital, imported inputs, domestic capital and domestic

inputs. The relationship between different variables from time to time was calculated by

making use of regression and ratio analysis. Employment was affected by demand and

supply side factors. It was found that there were serious implications for export oriented

labor intensive textile industry. With low export demand, workers were laid off.

Employment depended significantly on imports of intermediate inputs. The impact from

supply side was also studied and it was found that impact of slow down had been felt

through indirect effect of exports through fall in output.

33


Lozi (2008) examined the role of SSI in the economic development of Jordan by

showing the effects of SSI on unemployment rate, production and sales. Both primary

and secondary data were used. Percentages depicting the relative importance were

calculated. The results showed that growth of SSI in Jordan in terms of employment,

production and sales had increased due to globalization and domestic liberalization.

However, the results were still not significant and to make a sustainable contribution to

the national income, employment and exports, it was found that SSI should be

encouraged.

Joshi and Singh (2009) analyzed the productive efficiency of garment industry

by making use of primary data of eight ready-made garment firms located in Bangalore,

India. DEA (Data Envelopment Analysis) was employed and number of stitching

machines and number of operators were taken as input variables and number of pieces of

garment produced was taken as output variable. The results showed that overall

efficiency in garment firms was .75, which indicated that firms could increase their

output by 25 percent with existing level of inputs. As far as Pure Technical inefficiency

was concerned, it was found that the firms were 17 percent inefficient and 9 percent

inefficiency was due to scale. It was also found that most of firms were operating under

decreasing returns to scale which indicated that the production efficiency of firms could

be improved by adjusting the plant size at the optimum level.

Sonia and Kansal (2009) evaluated the performance of SSI, before and after

liberalization and compared them with average annual growth rates. The period of study

was 1973-2007 and secondary data was used. Percentages and exponential growth rates

were calculated. It was found that globalization had a negative impact on the growth of

small scale sector measured in terms of number of units, production, employment and

exports. No indicator showed a positive impact and in each case the average growth rate

was less in post-globalization period than in pre-globalization period.

Gupta (2010) observed that the whole gamut of measures to promote exports

could be divided into two broad categories - price measures and non price measures. The

former category included devaluation of currency, all kinds of indirect and direct tax

34


benefits to exporters etc, whereas the latter comprised up gradation of quality of product,

fast delivery of consignment, post sale service, etc. The price factors were of short term

in effect because they could be emulated easily by competitor country in a short span of

time. As far as non price factors were concerned, they had long lasting impact and could

not be matched easily by competitor countries.

Hosamane and R. (2010) explored the investment determinants using

neoclassical theory of investment. Secondary panel data for fifteen years (1991-2005)

comprising of ten manufacturing industries at aggregate level was used. The study made

use of panel estimation models along with IPS panel unit root test. The results of random

effects model indicated that output, change in output (with one year lag) and profits,

along with capital stock, change in capital stock (with one year lag) and cost of capital

were important variables in determining investment behavior of Indian manufacturing

sector.

Sissoko and Yerger (2011) assessed India’s competitive exposure to other

nations on its sales into US import goods markets over the 1996 to 2006 time frame.

MOM (Market overlap Measure) Statistic was employed. The analysis showed that there

was a sharp rise in China’s importance as a competitor to India in US import markets and

China was in a dominant position as a source of competitive exposure for India compared

to any other single nation selling in US import markets. It was also found that there were

declining relative importance for commodity products, such as diamonds and labour

intensive products, such as clothing and footwear and textiles. It was suggested that

continued growth in US import markets for India will come not from utilizing its

abundant low skilled labor supply, but by continuing to upgrade both the skill set of its

workforce and the capital intensity of its production.

Hudson et al. (2011) stated that while elimination of MFA was presumed to be a

net global benefit because it represented an elimination of a distortionary set of trade

agreements, it was based on the assumption that the underlying global trading regime was

based on free trade principles. However, due to the trading pattern that had emerged after

the MFA and its unintended consequences, with production infrastructure and trading

35


rules based on distortionary incentives so entrenched into the system, the global trading

regime after the elimination of quotas was still far short of free.

Chaudhary (2011) studied the changing structure of Indian textile industry after

MFA phase out. A period of 9 years (2001-09) was taken. The period 2001-04 was pre

MFA phase out period and the period 2005-09 was post MFA period. Four factors

namely total exports of Indian textiles and clothing, production of cotton, FDI in textiles

industry, operating profits of textile exporters were taken and multiple correlation

coefficient was estimated keeping one factor fixed at a time. It was found that there was

positive impact of MFA phase out on the Indian textiles and clothing sector. Also

production of cotton was highly dependent on exports of textiles and clothing, FDI in

industry and operating profits of textile exporters. Also, profit margins improved after

MFA phase out.

Saputra (2011) made use of Data Envelopment Analysis (DEA) to examine the

technical efficiency level of Indonesian manufacturing industries during 1990 - 2001.

Secondary data of 23 main Indonesian manufacturing industries (3 digit ISIC groups)

with 74 sub industries (4 digit ISIC groups) was taken. The model CRTS-Constant

Returns to Scale, output oriented was used. It was found that there were five Indonesian

principal manufacturing industries which were identified as best performers, namely

tobacco, iron and steel, transport equipment, nonferrous metal and industrial chemicals.

On an average, industries that were categorized as basic industry tended to perform better

than other industries that were categorized as low traditional and high tech industry.

However, for the last two years, it was found that high tech industries inclined to become

more efficient than basic and traditional industries.

Murugeshwari (2011) analyzed the impact of policy shift on total factor

productivity in Indian textile industry. Both time series and cross sectional secondary

data during 1980-2005 was taken for 6 subsectors as per three and four digit classification

(NIC code 1987 and 1998).Two inputs – total number of persons employed and gross

fixed capital formation, were taken and one output i.e. gross value added was taken.

Malmquist Productivity index was used and it was found that the textile industry showed

36


total factor productivity (TFP) improvement and technological progress during pre-

liberalization period which revealed that competition had reduced the productivity

performance and technological progress of this industry.

Tahir and Yusof (2011) assessed the relative efficiency of fourteen public

limited companies in Malaysia. The study was based on secondary data which covered a

period of five years, from 2004-2008. The study adopted a non parametric approach,

Data Envelopment Analysis (DEA), using both the constant returns to scale (CRS) and

variable returns to scale (VRS) assumptions to provide measures of technical and scale

efficiency. In this study, two input variables (total expenses and total assets) and one

output variable (sales) was used. The results revealed a substantial level of dispersion of

technical efficiency between companies within the sample for the year to year basis. The

estimated results showed that only one company was relatively efficient throughout the

period under investigation while the average overall technical efficiency varied from 0.1.

to 0.50. It was found that the source of inefficiency was mainly due to its scale rather

than pure technical inefficiency. The inefficient companies could effectively promote

resource utilization efficiency by better handling their inputs.

Tahir and Memon (2011) analysed the efficiency of fourteen top manufacturing

companies in Pakistan for a five year period from 2006-2010. The study was based on

secondary data of top 14 manufacturing companies. DEA method was applied using both

the Constant Returns to Scale (CCR) and Variable Returns to Scale (BCC) models to find

the overall efficiency, technical efficiency and scale efficiency. In this study, two input

variables (total expenses and total assets) and two output variables (sales and profit

before tax) were used. The results under CCR method showed that only one company

was considered technically efficient while the average overall technical efficiency varied

from 0.64 to 0.99. Company number 5 (NRL) demonstrated the best performance for all

years under study.

Kumar and Gugloth (2012) analyzed the collision of globalization on Indian

MSMEs (Micro, Small and Medium Enterprises).The period of study was 1993-2010.

Secondary data was employed and yearly, average and compound growth rates were

calculated for pre-liberalization (1992-1993 to 2000-2001) and post liberalization (2001-

37


2002 to 2009-2010). The contribution of SSI in terms of parameters like number. of

units, employment, production and exports was analyzed. It was found that MSMEs

brought in huge amounts of foreign investments into the country and provided

employment opportunities for many people who, in turn, helped reduce the level of

poverty in the country. MSMEs had emerged as the most dynamic sector of Indian

industrial economy.

Chan (2012) analyzed the issue of sustainable economic development in the

Chinese economy by making use of Total Factor Productivity. The study focused on

regional analysis to determine the inequality patterns among Chinese Provinces to

address the issue of inequality. The sample consisted of secondary data of 30 provinces

in China from 1978 to 2008. The results showed that the Eastern Region was more

efficient as compared to western and central region in China. It was also found that the

main contribution of economic inefficiency in China was mainly due to pure technical

inefficiency. The technological change was found to play an important role for

sustainable economic development in China.

The above studies indicate that exports of textiles and clothing from developing

countries were the subject of special discriminatory and restrictive measures evolving

quota and tariff. Although initially intended as temporary relief measures, these quotas

put severe curbs on the flow of textile exports from developing countries including India.

This was done on plea of giving some temporary respite to these rich countries to adjust

their textile economy to a transformation from being textile exporting countries to their

new role as textile importing countries. A temporary arrangement which was devised for

short duration lasted for more than four decades.

Though, removal of quotas may open new frontiers but it would also close captive

markets. The EU and the US would no longer be restrained and they could buy as much

as they wanted from the cheapest possible sources. Some argued that the ending of quotas

would result in cut-throat competition between developing countries. Coupled with this,

there was erosion in the growth of markets in industrial countries. Apparent consumption

of textile products, in real terms, remained stagnant during the decade 1985-95.

38


Purchases became discretionary and fashion-driven. As a result, fashion cycles got

shorter and order-cycles were compressed. Retailers order requirements on short-order

cycle term and demand responded rapidly to in-season ordering. Hence, they were

compelled to secure their supplies of top-up orders from those in close vicinity.

This study, therefore, will examine the textile export performance of India during

the last few years. It will evaluate the proposition whether India has been able to gain

from quota removal on textiles or it has continued to be a smaller player in the world

market for textiles as compared to other countries e.g. China. Besides, possible strategic

options available to India to become a major player in the leading export markets of

textiles would be explored despite the competition and competitors.

*** **

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REVIEW OF LITERATURE - Shodhgangashodhganga.inflibnet.ac.in/bitstream/10603/23730/11/4_chap 2 review... · REVIEW OF LITERATURE ... provided justification for liberalization and new