Scenario of Indian Readymade Garment Export in the Post2-Ashish Goyal

8/15/2019 Scenario of Indian Readymade Garment Export in the Post2-Ashish Goyal

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THESIS ON

SCENARIO OF INDIAN READY MADE GARMENTS EXPORT IN THE POST

MFA REGIME


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ABSTRACT

The present study aims to highlight the prospects and potential of Textile industry

in India, more specifically the role of emerging trade policy environment-

specifically, the role of Multi Fibre Agreement (MFA), discriminatory rules of origin

in egional Trading Arrangements !TAs", tariff pea#s and environmental and

labour standards- as mar#et access issues relevant to textile and clothing

exporting countries$ To assess the supply-side factors of export competitiveness,

a preliminary intervie% %as conducted %ith a fe% exporters$ The intervie% sought

their vie%s and opinions chiefly in respect of the supply-side bottlenec#s that they

are facing in India$ The supply-side frame%or# is based more on opinions thanon data& numbers$ The inferences about the supply-side factors are therefore

based on the opinions expressed by exporters of identified products$


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TABLE OF CONTENTS

INTRODUCTION

• SCENARIO OF INDIAN READYMADE GARMENT EXPORT IN THE

POST MULTI FIBRE AGREEMENT

• IMPORTANT GARMENT ITEMS EXPORTED FROM INDIA

OBJECTIVE & SCOPE OF THE STUDY

RESEARCH METHODOLOGY

• NATURE OF DATA• DATA COLLECTION

REVIEW OF LITERATURE

• THE STRUCTURE OF THE TEXTILE AND CLOTHING SECTOR

• THE SUPPLY CHAIN

• GLOBALISATION AND GARMENT INDUSTRY IN INDIA

• THE RETAIL SECTOR

• CLOTHING

• TEXTILES• THE EXPORT MARKET

• GLOBAL TRADE IN TEXTILE AND CLOTHING: INDIA’S

COMPETITIVE PERFORMANCE

• TRADE IN NINETIES

• US IMPORT TREND

• INDIA’S COMPETITIVE PERFORMANCE IN THE US19

• INDIA’S COMPETITIVENESS IN EU MARKET

DISCUSSIONS & ANALYSIS

• OUTCOMES UNDER THE MFA AND ATC

• THE DISADVANTAGES OF REMOVING QUOTAS FOR INDIA

• POLICY RECOMMENDATIONS

• HOME DEMAND CREATION

• PROMOTE FAIR COMPETITION


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• REMOVE MANUFACTURING OF KNIT GARMENT AND FABRIC

FROM SSI RESERVATION LIST


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CONCLUSIONS & IMPLICATIONS

• FUTURE SCENARIO OF THE CLOTHING INDUSTRY

• TARGETS AIMED AT THE NATIONAL TEXTILES POLICY !"###$

• STEPS TAKEN BY THE INDIAN GOVERNMENT TO ENHANCE

COMPETITIVENESS

BIBLIOGRAPHY


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INTRODUCTION

SCENARIO OF INDIAN READYMADE GARMENT EXPORT IN THE POSTMULTI FIBRE AGREEMENT

The foundations of the Indian textile trade %ith other countries began as early as

the second century '$ The sil# fabric %as a popular item of Indian exports to

Indonesia around the *th century, %here these %ere used as barter for spices$

To%ards the end of the +th century, the 'ritish ast India ompany had begun

exports of Indian sil#s and various other cotton fabrics to other countries$ These

included the famous fine Muslin cloth of 'engal, 'ihar and rissa$ The trade in

painted and printed cottons or chint., a favorite in the uropean mar#et at thattime, %as extensively practiced bet%een India, hina, /ava and the 0hillipines,

long before the arrival of the uropeans$ The textile industry1s predominant

presence in the Indian economy is manifest in its significant contribution to the

industrial production, employment generation and foreign exchange earnings$

urrently, it adds about 2 percent to the industrial production and about 3$2

percent to the 4ross 5omestic 0roduct (450)$ It provides employment to about

*6 million %or# force$ Together %ith allied agricultural sector, it provides

employment to over 73 million people by the end of the tenth plan period$ The

contribution of this industry to the gross export earnings is over 3* percent %hile

it adds only three percent to the gross import bill of the country$ It has been

estimated that India has approximately *8,888 readymade garment

manufacturing units in the country. It is the only industry %hich is self-reliant, from

ra% material to the highest value added products vi.$ garments& made-ups$

otton accounts for more than +* percent of the total fibre consumption in the

spinning mills and more than 67 percent of the total fibre consumption in thetextile sector$ The Indian textile industry contributes substantially to India1s export

earnings$ The 99: Indian textile exports approximately amounted to s$*6,888

crores of %hich apparel occupied over s2,888 crores . At present, the exports

of textiles account for about 32$2: percent of total exports from India and are the


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largest net foreign exchange earner for the country as the import content in

textile goods is very little as compared to other ma;or export products$ Further,

the export bas#ets consists of %ide range of items containing yarn and fabrics,

%ool and sil# fabrics, made-ups and variety of garments$ 5uring the period, April-

/anuary 3883-388*, the exports had amounted to uality, relatively

high fashion, but small volume business. ecent recession in urope and the

=outh Asian currency crisis has also contributed their o%n bits to the decimating

Indian exports$

The international trade in textile and clothing sectors has been a

egregious exception to the most favored nation principle of 4ATT and, since the

early 9:8s, has been a case of managed trade through forced consensus3$

@o%ever, the T Agreement on Textile and lothing (AT) mar#ed a significant

turnaround$ According to the AT, beginning st /anuary 996, all textiles and

clothing products that had been hitherto sub;ected to MFA->uota, are scheduled

to be integrated* into T over a period of ten years$ BThe dismantling of the

>uota regime represents both an opportunity as %ell as a threat$ An opportunity

because mar#ets %ill no longer be restrictedC a threat because mar#ets %ill no

longer be guaranteed by >uotas, and even the domestic mar#et %ill be open to

competitionD2$ From st /anuary 3886, therefore, all textile and clothing products

%ould be traded internationally %ithout >uota-restrictions6$ And this impending

reality brings the issue of competitiveness to the fore for all firms in the textile

and clothing sectors, including those in India$ It is imperative to understand the

true competitiveness of Indian textile and clothing firms in order to ma#e an

assessment of %hat lies ahead in 3886 and beyond$


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=ince 9+8, India has built up a large-scale clothing industry$ 5uring the

course of the first and second MFA, in the 9+8s, India1s exporting companies

en;oyed significant gro%th$ The abolition of >uotas %ill certainly benefit some

developing countries, %hile others %ill lose out dramatically$

The textile industry contributes 38E of total industrial output (9E to

excise collection) and accounts for 7E of the industrial %or#force$ 5espite this

impressive performance, the spinning sector continues to be plagued by a

number of problems$ evels of moderni.ation in this sector are lo%$ In a common

textile policy there are %ide differences bet%een the shares of states in the

production of textiles and garments$ nly a fe% states have reached a 6E or

higher share$ The biggest challenge the textile industry faces is to radically alter its mindset$ Indian industry %ill have to become competitive by raising its level of

efficiency to meet the challenge both in domestic and international mar#ets$

very country1s textile industry is of strategic importance, as it generates large-

scale employment$ Thus it becomes necessary for countries to regulate the

import of garments$ egulation here ta#es a variety of forms including tariffs and

>uotas$ India1s Tenth Five-Gear 0lan provides for a programme to modernise 3$6

la#h po%erlooms into semi-automatic looms, in important po%erloom clusters

over the next three yearsC induct 68,888 shuttle-less looms in the next three

yearsC promote a labour-productive environmentC and set up apparel export par#s

at ma;or readymade garment production centres$

5uring the last ten years cotton textiles (including yarn, made-ups and

fabrics) and garments have registered highest rates of gro%th in exports$ The

exports of cotton textiles have gro%n to s *,837 crores in 99+ as compared to

s :8 crores in 9:$ According to the Tirupur xporters? Association (TA), the

readymade garment and #nit%ear exports from Tirupur have crossed

s 888 crore during 388:-8+ against the set target of s 8888 crore$ The

4arment Manufacturing and xport industry is the real engine of gro%th for the

%hole textiles sector in India$ A significant point to be observed is that the share

of fabrics in total textile exports during 977 %as around :8E %hich has declined


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to *8$++E in 99+$ The


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ma;or competitor in garment exports is hina$ @o%ever, hina has exceeded the

>uotas agreed %ith the uropean


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I-"ort#nt ,#r-ent ite-! ex"orte% +ro- In%i#

• Jariety and >uality of ra% sil#s - tussars. matka !i/!. phaswas.

• An ama.ing array of ;a>uards, moss crepes and georgette sheers$

• The Kmadras chec#K - originally used for the ubi>uitous "lungi" , a simple

lo%er body %rap %orn in southern India and in some other parts$

• 'enares and #an;ibaram sil# sarees$


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RESEARCH METHODOLOGY

A esearch Methodology defines the purpose of the research, ho% it

proceeds, ho% to measure progress and %hat constitute success %ithrespect to the ob;ectives determined for carrying out the research study$

The present study is an analytical presentation of the garment export scenario in

India %ith special reference to Multi Fibre Agreement (MFA)$ In order to evaluate

the demand-side of Indian textile and clothing exports, the study has analysed

the competitive performance of Indian exports of the Lidentified1 products

international mar#ets$ It has also been used to highlight the role of emerging

trade policy environment- specifically, the role of Multi Fibre Agreement (MFA),

discriminatory rules of origin in egional Trading Arrangements !TAs", tariff

pea#s and environmental and labour standards- as mar#et access issues

relevant to textile and clothing exporting countries$ To assess the supply-side

factors of export competitiveness, a preliminary intervie% %as conducted %ith a

fe% exporters$ The intervie% sought their vie%s and opinions chiefly in respect of

the supply-side bottlenec#s that they are facing in India$ The supply-side

frame%or# is based more on opinions than on data& numbers$ The inferencesabout the supply-side factors are therefore based on the opinions expressed by

exporters of identified products$

NATURE OF DATA

0rimary dataH primary data has been collected through raising a

>uestionnaire in 5elhi area %ith 36 exporters& traders& manufacturers$

=econdary dataH secondary data that is already available and published $it

could be internal and external source of data$ Internal sourceH %hich


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originates from the specific field or area %here research is carried out e$g$

publish broachers, official reports etc$

xternal sourceH This originates outside the field of study li#e boo#s,

periodicals, ;ournals, ne%spapers and the Internet$

DATA COLLECTION

=econdary data has been used %hich is collected through

• Articles,

• eports,

• /ournals,

• Maga.ines,

• e%spapers

• eports prepared by research scholars, and

• Internet$


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JI F ITATuality fashion mar#et, the industry is characteri.ed by modern

technology, relatively %ell-paid %or#ers and designers and a high degree of

flexibility$ The competitive advantage of firms in this mar#et segment is related to

the ability to produce designs that capture tastes and preferences, and even

better N influence such tastes and preferences N in addition to cost effectiveness$ Another ma;or mar#et segment is mass production of lo%er->uality and&or

standard products such as t- shirts, uniforms, %hite under%ear etc$

Manufacturers for this mar#et segment are largely found in developing countries,

often in export processing .ones and&or under out%ard processing agreements

%ith ma;or importers$: They employ mainly female %or#ers N semi-s#illed and

uns#illed N and outsourcing to household production is >uite common in the lo%

end of the mar#et$ In the lo% to middle priced mar#et, the role of the retailer has

become increasingly prominent in the organi.ation of the supply chain$ The retail

mar#et has become more concentrated, leaving more mar#et po%er to

multinational retailers$ These have mar#et po%er not only in the consumer

mar#et, but perhaps more importantly they have considerable buying po%er$ In

addition, high-volume discount chains have developed their o%n brands and

source their clothing directly from the suppliers, %hether foreign or local$

. THE SUPPLY CH IN

The textiles and clothing sectors can be seen as a supply chain consisting of a

number of discrete activities$ Increasingly the supply chain from sourcing of ra%

materials via design and production to distribution and mar#eting is being

organi.ed as an integrated production net%or# %here the production is sliced into

speciali.ed activities and each activity is located %here it can contribute the most


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to the value of the end product$ hen the location decision of each activity is

being made, costs, >uality, reliability of delivery, access to >uality inputs and

transport and transaction costs are important variables$ The textile sector

produces for the clothing sector and for household use$ In the former case there

is direct communication bet%een retailers and textile mills %hen decisions are

made on patterns, colours and material$ In the second case textile mills often

deliver household appliances directly to the retailers$

Go$#i!#tion #n% G#r-ent In%'!tr* in In%i#

4lobali.ation has put forth India1s business community in the international

mar#et$ Jarious foreign trade policies and investment policies have been framed

to facilitate foreign trade and increase the profitability of the Indian garment

manufacturers$ The advent of liberal trade policies in textile and garments sector

have made it possible of usage of modern technologies and international

methods of manufacturing clothes$ This sector of garments is one of the most

successful and important in terms of foreign exchange generation and

employment generating field$ It provides employment to la#hs of people and is

the most sort out and booming industry of India$

The Indian textile and garment industry is completely independent on

itself i$e$ from fibre manufacturing to the finished garments %ithout sourcing it

from other countries$ India is becoming the most preferred destination for

sourcing readymade garments for the international mar#et$ Jarious garment

export companies are coming up %ith clothes that are fashionable #eeping

international trend in mind and also of good >uality$ Many international brands

also source readymade garments from Indian mar#et$

The capitali.ation in various garment manufacturing arenas is

increasing li#e- manpo%er, cotton production, multi-fiber production, etc$ The

Indian garment export graph is %itnessing a steep rise since last fe% years %hich

is a positive reinforcement for Indian exporters and foreign buyers$ India is being

seen as the next pioneer country in readymade garment export business$


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Foreseeing the present booming fashion industry, the foreign buyers are sho%ing

interest in doing business %ith Indian exporters$ Therefore it becomes mandatory

for exporters to constantly present variation in designs and patterns in garments

%ith >uality maintenance$

Free trade scenario has been created in the Indian mar#et, %hich has

resulted cut throat competition among the manufactures and exporters for

various things li#e >uality, ra% material base, manpo%er, cost of inputs, etc$

re>uired for garment ma#ing$ To sustain the competition various steps are to be

ta#en, the foremost one is to imbibe the latest manufacturing and production

technologies$ The importance of merchandising has increased as it helps in

generating high dividends$ 'randing and presenting diversified products is avalue addition for the companies in order to con>uer the global mar#et$

Trade in textiles and clothing is a vital part of the %orld economy, %ith many

nations heavily dependent on this sector for foreign exchange earnings and

employment-generation$ Textile and clothing trade accounts for nearly :E of total

%orld exports$ It %as valued at uality fabrics$ hina1s trade

balance is stronger than India1s, but both India and hina have very high

productivity gro%th$ ecently, both countries have also en;oyed high gross fixed

investments of capital$ F5I flo%s also play an important role in both economies$

Though governance indicators are better in India than in hina, obstacles to

trade and business exist in both countries$


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India ran#s third in the production of ra% cotton, produces the finest variety of

cotton, and possesses educated manpo%er$ The ability of the textile and clothing

sector to compete internationally depends on the strength of the domestic

industry$ It relies on the production of >uality products in various segments of the

supply chain, and the ability of the government to provide a favourable

atmosphere to safeguard the interests of the domestic industry in the global

arena by conducting effective negotiations at the T$

Textiles and clothing are also among the sectors %here developing

countries have the most to gain from multilateral trade liberali.ation$ In fact, the

prospect of liberali.ation of the textiles and clothing sectors %as one of thereasons %hy developing countries accepted to include services and intellectual

property rights N areas to %hich they %ere sceptical at the outset N in the


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the micro level, the t%o sectors are increasingly integrated through vertical

supply chains that also involve the distribution and sales activities$ Indeed, the

retailers in the clothing sector increasingly manage the supply chain of the

clothing and textiles sectors$

The ret#i !ector

=ubstantial changes in the retail sector have been observed during the

past fe% decades and modern retailing has been called Klean retailingK in a

recent comprehensive study (Abernathy et al, 999)$ The technological building

bloc#s of lean retailing are bar codes and uniform product codes, electronic data

interchange (5I) and data processing, distribution centres and common

standards across firms$ The change most visible to consumers is the expansion

of large shopping malls at the outs#irts of the cities at the expense of city centre

department stores and bouti>ues$ The retail sector has become more

concentrated, particularly in the cities and urban areas$ ean retailing has a

bearing on suppliers and the technology applied in the clothing and textiles

sectors$Cothin,

The basic production technology of the apparel industry has not changed much

over the past century, and is characteri.ed by the progressive bundle system$

or# is organi.ed such that each %or#er is speciali.ed in one or a fe%

operations$ The fabric is first cut and then grouped by parts of the garment, tied

into bundles (pre-assembly) and then se%ed together$ The individual se%ing

tas#s are organi.ed in a systematic fashion and speciali.ed se%ing machines

have been developed for the individual tas#s$ A %or#er receives a bundle of

unfinished garments, performs her single tas# and places the bundle in a buffer$

A buffer of about one day?s %or# has been common at each operation$ It ta#es

about 28 operations to complete a pair of pants, %hich implies that there is about


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28 days of in-process inventory$ For men?s bla.ers, ho%ever, it ta#es as much as

88 operations$ Although a number of improvements in terms of systemati.ing

the operations and reducing the time at each individual operation has ta#en place

over time, the basic system has remained the same$ ne explanation for this is

that technology changes cannot be implemented in a partial fashion involving

only a fe% operations$ This %ould unbalance the system and any ma;or

technological change therefore needs to involve the entire system (Abernathy,

999)$ ven though the basic technology and the se>uence of operations have

not changed much, ne% innovations have improved efficiency at each stage of

production and not least, improved coordination bet%een stages and provided a

more seamless interface bet%een them$ @o%ever modern, the assembly stage of

the clothing sector is still labour-intensive and it is the stage that is most li#ely to

be farmed out to lo%er-cost firms$ Table belo% sho%s the cost structure of the

clothing sector, given as percentages of gross value of the sector?s production$

The countries included in the table constitute the ma;or exporters or importers

under the AT for %hich data are available$


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T#$e&I

The co!t !tr'ct're o+ the cothin, in%'!trie!. !eecte% co'ntrie!5

Co'ntr* Un!/ie%#$o'r

S/ie%

L#$o'r

C#"it# Tot#

1#'eA%%e%

Inter-e%i

tein"'t!

O+ which

i-"orte%

C#n#%# 36$9 6$8 8$3 2$3 67$7 9$7USA 3$8 6$7 6$7 *3$: :+$2 *$7Fr#nce 3$: 2$+ 7$7 *6$8 :6$8 32$*It#* 2$* *$ :$2 **$7 ::$3 *$60#"#n 3$9 2$8 $3 *+$ :3$9 +$7

Hon, 6on,.

Chin#

33$: +$9 3$9 2*$2 6:$: *$8

6ore# 6$8 3$9 2$+ 33$: ++$2 6$9Chine!e

T#i"ei

38$7 *$6 :$8 *8$* :9$+ 8$9

Chin# 7$3 3$6 3$3 *3$9 :+$ 6$+In%i# 3$ 3$9 +$7 *$7 :7$3 $71ietn#- 9$8 $3 *$7 2$8 7:$8 28$2C7ech

Re"'$ic

3$3 *$3 9$9 *2$ :6$9 37$9

Morocco 2$: 3$ 8$9 3+$: +3$2 *+$9Source: GTAP

Textie!

The textile industry is usually more capital intensive than the clothing industry

and it is highly automated, particularly in developed countries$ It consists of

spinning, %eaving and finishing, and the three functions are often underta#en in


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integrated plants$ Traditionally, and in many mar#ets, it is still the case that lead

time in the textile sector is >uite long and the capital intensity of the industry

results in relatively large minimum orders$ The textile industry is therefore less

flexible in terms of ad;usting to consumer tastes during a season than the

clothing and retail sectors$ The textile sector is thus in many %ays the bottlenec#

in the supply chain$ This is a more O5 intensive segment of the industry and

sub;ect to less fre>uent changes in patterns, material and colours$ The textile

sector is less uns#illed labour-intensive than the clothing sector$


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T#$e&8

The co!t !tr'ct're o+ the Textie in%'!trie!. !eecte% co'ntrie!5

Co'ntr* Un!/ie%#$o'r

S/ie%

L#$o'r

C#"it# Tot#

1#'eA%%e%

Inter-e%i

tein"'t!

O+ which

i-"orte%

C#n#%# 33$+ *$ 8$* *:$ :*$9 32$3USA 9$6 2$3 8$* *2$8 ::$8 9$+Fr#nce *$7 *$+ +$3 32$+ +6$* 33$8It#* $7 *$3 3$: 3+$: +3$2 *6$80#"#n +$: :$: +$8 *$3 :7$7 $3

Hon, 6on,.

Chin#

9$8 *$9 8$7 3*$7 +:$3 6$7

6ore# 3$8 3$* 6$3 39$6 +8$6 38$8Chine!e

T#i"ei

8$2 *$* 7$* 33$8 +7$8 8$3

Chin# 9$+ $: 3$8 3*$3 +:$7 7$In%i# +$7 3$7 :$+ 3+$* +3$+ 2$81ietn#- 8$3 $: 3$2 32$* +6$+ *2$*C7ech

Re"'$ic

*$8 $7 *$7 37$+ +$* *6$

Morocco 6$7 8$9 :$3 *$8 7+$8 22$*Source: GTAP

eadymade garment is a part of the textile industry that consists of fabrics,

made-ups, yarn, thread, fibre, %oolen textiles, sil# textiles and readymade

garments$ eadymade garments account for about half of India?s textile exports$

The global apparel industry is among the most advanced, and yet the most


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fragmented of all retail sectors$ The global mar#et is estimated at 7* billion,

much of it in the


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operations and achieve economies of scale$ It is evident that near-term prospects

for the export mar#et are sha#y because of the global slo%do%n$ The long run

depends on ho% companies use their resources to invest in technology$

The ma;or problem %ith the Indian mar#et is its si.e$ It is also the

main reason %hy it has so much potential$ It is being dubbed the second largest

retail opportunity for retailers$ @o%ever, the exact si.e of the mar#et in value

terms is not #no%n$ This is because it is highly fragmented and disorganised, and

the data available can only be considered an estimate$ According to research by

McQinsey, the domestic clothing mar#et is estimated at s 7+,888 crore, 33 per

cent of %hich is made up by readymade garments$ f the 33 per cent, 38 per

cent belongs to the branded apparel mar#et$ This means that in a mar#et %orths 38,888 crore, only s 2,888 crore is catered to by branded apparel$ =o there

is still a s :,888 crore mar#et to be tapped$

ne of the ma;or issues facing the mar#et is that there are not

enough good players that can translate into higher >uality garments$ ompetition

%ill also engender innovation and research -- no% sadly lac#ing in the industry$

Another dra%bac# for the smaller players is that a ne%comer may find it has no

place to sho%case its product$ =tores are coming up, but slo%ly and offer

homogeneous products$ 5ifferentiation is re>uired$ =o %hile small players can

respond to changing trends faster than bigger players, the latter are able to

leverage their si.e to put up individual sho%rooms$ The future potential of the

readymade garments mar#et lies in companies trying to change consumer

perception and help them ma#e a transition from tailor-made clothes to ready-to-

%ear clothing$ This re>uires investment in infrastructure to increase >uality and

design and also advertising -- brand management$

GLOBAL TRADE IN TEXTILE AND CLOTHING5 INDIA9S COMPETITI1E

PERFORMANCE

5uring the MFA period, the textile exporters from industrial countries and those


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from developing countries merely changed shares bet%een themselves during

the 32 years period$ The share of industrial countries declined by almost as much

(9$3E) as %as the gain in the share of developing countries (7$7E)$ lothing

exporters*, ho%ever, exhibit significant changes, %ith the share of top *

exporters having declined by *$7E$ e% entrants have come in as %ell as some

old ones have been #noc#ed out$ f these ne% entrants, most- if not all- are from

developing countries, since the share of industrial countries has declined during

the period, and that of developing countries has increased$ The countries that are

gaining share in clothing exports are the ones %hose industries are integrated to

one or the other advanced country through some policy-induced preferential

arrangements$ Mexico, aribbean region, ast uropean countries and

Mediterranean countries are capturing much of the space vacated$ There has

been a much deeper globalisation in clothing than in textiles$ Indeed, that has

been one of the principal reasons for the developed countries agreeing to an

eventual phase-out of MFA >uota in the


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hand, only 68E of the additional fibre consumption %ould originate in developing

countries$

Tr#%e in Ninetie!

5uring the decade 998-3888, textile trade gre% at a rate of 2E, after having

gro%n at a rapid 6E annually during the >uin>uennium of 976-98$ The gro%th

rate turned negative in 997 and in 999 follo%ing the ast Asian crisis, but

resumed to a robust gro%th of +E in 3888$ lothing trade gre% at a faster rate

compared to textile, and cloc#ed :E annual average rate during the ten years

from 998-3888$ It is noticeable, that, on an average, clothing trade gre% at least

as rapidly as textile trade in all years since 978$ It is therefore not surprising that

the share of clothing trade in total textile and clothing trade has been rising and

no% stands at 6:E, higher than 68E in 998$

US I-"ort Tren%

In terms of MFA fibres, the uare metre e>uivalent

(sme), %orth


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$ f the eight cotton apparels, India1s mar#et share (in 3888) in uantity at

reduced prices, %hile in *2, India moved up the value chain$ 'ut the uota is close to the si.e of


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exceedingly %ell in *2+, and has been building its domestic manufacturing

facilities very fast$ 'ut 0a#istan is not yet as much of a threat since its unit value

is considerably lo%er than India$ hina, ho%ever, is li#ely to emerge as a big

threat to India in *2+ since their uvr is closer to India1s and they too are

upgrading their product rapidly$ Their mar#et share declined due %holly to >uota

constraint$ 'ut they seem to be producing less numbers, and better >uality of *2+

for uota ceilings$ 'ut once the

>uotas are removed, India may find itself again losing in this upgraded mar#et

segment due to sheer si.e of these countries1 exports$ The important lesson for

India therefore is that it must not only upgrade its values, but also begin to find

%ays of competing increasingly on non-price factors$

2$ ithin textiles, India has done commendably in made-ups (*:3 and *:*)$ In

to%els (*:*), Indian performance has been excellent$ It %as the largest supplier,

and yet managed to gro% fastest in


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an#a are building huge domestic manufacturing facilities, but they are all lo%-

price segment players$ This is li#ely to be India1s star performer$ India has done

%ell in *:3 also in terms of improved mar#et share, as %ell as higher unit prices$

@o%ever, the one big threat, %hich is India1s close competitor, is Mexico$ And

India can no longer afford to compete only on price-based factors, since Mexico

%ould have an advantage over India not only until 3882 (due to >uotas) but also

beyond (due to tariffs)$ India must rapidly develop non-price based competencies

in this item of great potential$ ountries such as Tur#ey too are building up

massive domestic facilities for manufacturing *:3, but they are very lo% price

segment players and no threat to India at all$

6$ In all chosen fabric38 exports to uantity

terms$ =o %hy haven1t >uotas protected Indian fabric exports in the uotas does not imply

assured export gro%th, as is often (mis)understood$ xports are a function of

export order$ @o%ever, >uotas provide protection in an indirect fashion, by

prohibiting other supplier from exporting more than they are competitively

capable of$ From an importer1s perspective therefore, all the order that the

importer may li#e to place %ith an exporter may not be importable from that

exporter due to >uota limits on the exporter$ The importer %ould therefore be

compelled to place the Loverspill1 order %ith someone %ho is second most

competitive in the product$ In this sense, the second most competitive suppliers1

exports are BprotectedD to the extent of the limited >uota supply %ith the most

competitive supplier$ This indeed is the sense in %hich >uota Lprotect1$

Alternatively, it can be said that, but for quotas, the exports of Indian fabric to uotas have indubitably protected

the exports of Indian fabric in the uin>uennium$ Indian

fabric exports have not revealed to be competitive in the


31/73

has been declining, but the intensity of price competition in these products could

be gauged from the fact that in all fabric products, the real prices of


32/73

(AFTA) and aribbean 'asin Initiative ('I) regions$ Indeed, there has been

some evidence of Indian fabric exports no% getting diverted to countries that

en;oy preferential access to the


33/73

6$ The observation of interest to suppliers li#e India to < is that the share of

extra-< imports in almost all selected AT product categories is on the rise$ The

only category %here the share of intra-< imports has increased is synthetic

fabric and India is an Loutlier1 here$ In all other categories, specially in all garment

categories, the share of extra-< imports has increased significantly in the five

years$ And that should be music to the ears of garment suppliers to


34/73

R


35/73

$orking in the %eady ade 'arent (usiness!.

". $hat kind of copany is yours?

)artnership

)ublic liited copany

)rivate liited copany

*ole proprietorship

+s there are "" Traders ,orking in the $oollen -arpet business and there are

"3 of )rivate liited copanies. This sho,s that only Traders have the )vt. td.

-opanies in this business.


36/73

+lso Ma/ority of the -opanies 0# is *ole )roprietorship -opanies and 31

are )artnership firs.

There is no )ublic iited -opany in $oollen -arpet (usiness.


37/73

3. $hat are the countries ,here you export your goods?

The a/or exporting countries to ,hich the %eady ade garents is exported are .*.+!

'erany! .K.! *,eden and 2rance. %eady ade garents are also exported to Italy!

+ustralia! -anada! apan! *,it4erland! 5enark.


38/73

0. $hat are )robles faced by Indian Manufacturers ,hile

producing %eady ade garents.


39/73

⇒ More than #6 of the respondents attributed to unskilled labour and old or

obsolete Machinery as the a/or proble ,hile production of -arpets! ,hich

they are facing.

⇒ $hile others believe that o, productivity! )oor processing of %a, Material!

Inade7uate supply of suitable ra, aterial as the a/or proble in ,hich only

18! 1#! 10 of the respondents respectively agree.

⇒ 9ery fe, respondents :;< believed that ess *upervision creating proble

,hile production of carpets.

=. 5o you think there is a need for >iring 5esigners for iproving the

design?


40/73

+n over,heling a/ority of the respondents agreed to the stateent that there is a need

to hire designers for iproving the design in ,hich 06 of the respondents +gree

soe,hat and 38 agree strongly. nly 11 of the respondents disagreed to the

stateent and 11 of no opining.


41/73

#. 5o you think there is a need to give Training to eployees?

+bout 81 of the respondents agreed in ,hich =6 are strongly agree and 31 agree

soe,hat that eployees are unskilled in ready ade garents industry and there is a

need to give training to eployees. nly about 1" of the respondents disagreed to the

stateent and @ of no opinion.


42/73

@. ,hat are the +reas in ,hich India is facing

copetition fro -hina

The a/or areas in ,hich Indian Industry is 2acing -opetition fro -hina are o,

pricing! >igh Auality of )roduct and o, cost of production. +nd o, cost of

)roduction.

*oe steps ust be taken to reduce the )rices of $oolen carpetsB 7uality of the carpet

ust be iproved by hiring skilled labour and per unit -ost of production ust be less in

order to copete ,ith -hinese Industry.


43/73

@. $>+T +%C T>C *trategies adopted by Indians to eet the

copetition.

Most of the Indian -opanies are adopting different strategies to eet the -hinese

-opetition asD

⇒ They are reducing the prices of %eady ade garents.

⇒ They are hiring skilled labor for production of %eady ade garents.

⇒ They are increasing their production capacity.

⇒ They are iproving the 7uality of %eady ade garents.

⇒ They are hiring the designers for iproving the designs.

⇒ They are cutting the cost by using various eans like (ack,ard 5iversification or

2or,ard 5iversification.


44/73

8. 5o you advertise your )roduct?

>ere #= of the respondents do the advertiseent for %eady Made 'arents and in

those #= of the respondents the edia! ,hich is choosed by a/ority of the copanies

:#"

9ery fe, people are using 5irect ail and Maga4ine to advertise their product.


45/73

5I=


46/73

pushes Kliberali.ationK of trade in goods, services and related areas$ This has

had a big impact upon the economies of both KdevelopedK and KdevelopingK

nations$ The proponents or propagandists of the T regulations %ould argue

that the %orld community as a %hole %ould benefit from such interventions$

@o%ever, critics have suggested that the T is simply another aggressive tool

of the developed %orld to further extract resources from the developing %orld for

their o%n benefits, to further serve global capital %ithin the current economic

globali.ation paradigm$

0erhaps the most significant decision to emerge from the uota

system has provided some security (albeit %ith associated difficulties) for those in

the industry in India$

uantitative

restrictions %hen surges in imports of particular products caused, or threatened

to cause, serious damage to the industry of the importing country$ The Multifibre

Arrangement %as a ma;or departure from the basic 4ATT rules and particularly

the principle of non-discrimination$ n /anuary 996 it %as replaced by the

T Agreement on Textiles and lothing %hich sets out a transitional process

for the ultimate removal of these >uotas$ The abolition of >uotas has come

about as a result of decisions made by the T, of %hich India is a member$ The

decision has affected not only India but other countries in =outh Asia, such as =ri

an#a and 'angladesh, and the entire textile industry that from 9+2 until the

end of the


47/73

The MFA, as the name suggests, extended restrictions on trade to

%ool and man-made fibres in addition to cotton$ The MFA governed trade in the

textile and clothing industry and consisted of A frame%or# of bilateral agreements

or unilateral actions that established >uotas limiting the amount of imports to

countries %hose domestic industries %ere facing serious damage from rapidly

increasing imports$ The MFA, intended only to be a temporary arrangement, has

been in existence for almost t%enty-five years$ It received four extensionsC these

being in 9++, 97, 97: and 992$ ne of the realties %e must face is that the

MFA?s existence did encourage the entrance of several countries into the export

of textiles and clothing that other%ise %ould not have been involved$ The MFA

provided for the application of selective >uantitative restrictions %hen surges in

imports of particular goods are caused$ r threatened to cause damage to the

industry of the importing country$ n /anuary 996, T replaced the MFA

%ith the Agreement on Textiles and lothing (AT)$ The AT has a number of

defining features$ =ome of these areH

a$ The product coverage, encompassing yarns, fabrics, made-up textile

products and clothingC

b$ A program for the progressive integration of these textile and clothing

products into 4ATT 992 rulesC

c$ The liberalisation process to progressively enlarge existing >uotas

(until they are completely removed) by increasing the annual gro%th

rate at each stage andH

d$ stablishment of the Textiles Monitoring 'ody (TM') to supervise the

implementation of the other provisions$

The MFA aimed at an orderly opening of restricted mar#ets in

order to avoid Kmar#et disruptionsK$ i#e the TA, it %as supposed to be a

temporary measure$ The science of >uantitative trade policy analysis %as not

very %ell developed in the 9+8s$ The burden of proof of %hat constituted a

Kmar#et disruptionK %as therefore relatively %ea# and the agreement came to

comprise most developing country exports to the


48/73

the end of the second MFA (97), 78 per cent of imports of textiles and apparel

into uota agreements %ith 38 countries

and territories and by consultative mechanisms %ith another countries

(Qrishna and Tan, 99+)$ AT is not an extension of the MFA$ ather, it is a

transitory regime bet%een the MFA and the full integration of textiles and clothing

into the multilateral trading system$ The MFA has certainly attracted foreign

investment and created many ;obs$ The MFA %or#s through bilateral agreements

bet%een governments$ India1s most important mar#ets are the


49/73

3883&*&2$ There are additional provisions in Article 3 for early removal of >uotas

and integration of products$

Article * deals %ith >uantitative restrictions (or measures %ith

similar effect) other than those under the MFA$ Members %hich had such

restrictions in place, %hich could not be ;ustified under a 4ATT provision, %ere

re>uired either to bring them into conformity %ith 4ATT rules or phase them out

%ithin the ten year transitional period, according to a plan to be submitted by the

restraining Member to the Textiles Monitoring 'ody$ There is no obligation to

eliminate restrictions that are permitted under 4ATT rules$

A #ey aspect of the AT is the provision in Article : for a special

transitional safeguard mechanism intended to protect Members against

damaging surges in imports during the transition period from products %hich

have not yet been integrated into 4ATT and %hich are not already under >uota$

This clause is based on a t%o-tiered approach - first, the importing Member must

determine that total imports of a specific product are causing serious damage, or

actual threat thereof, to its domestic industry and second, it must then decide to

%hich individual Member(s) this serious damage can be attributed$ =pecific

criteria and procedures are set out for each step$ The importing Member must

then see# consultations %ith the exporting Member(s)$ =uch safeguard measures

may be applied on a selective, country-by-country basis by mutual agreement or,

if agreement is not reached through the consultation process %ithin :8 days, by

unilateral action$ The >uota may not be lo%er than the actual level of imports for

that exporting country during a recent 3 month period, and the action ta#en may

remain in place for up to three years only$ If the measure is in place for more than

one year, gro%th shall, %ith one exception, be no less than : per cent$ In

practice, the special safeguard %as invo#ed on 32 occasions in 996 by the


50/73

Article 6 of the AT contains rules and procedures concerning

circ'-4ention o+ the :'ot#! through transshipment, re-routing, false

declaration of origin, or falsification of official documents$ These re>uire,

inter alia, consultation and full cooperation in the investigation of such practices

by Members concerned$ hen sufficient evidence is available, possible recourse

might include the denial of entry of goods$ There is also a provision %hereby all

Members should establish, consistent %ith their domestic la%s and procedures,

the necessary legal provisions and&or administrative procedures to address and

ta#e action against circumvention$

A%-ini!tr#tion o+ re!triction! during the transition period %ill remain %ith the

exporting Members and any changes in practices, rules or procedures shall besub;ect to consultations %ith a vie% to reaching mutually acceptable solutions

(Article 2)$

0rovisions relating to the co--it-ent! 'n%ert#/en in # #re#! o+

the Ur','#* Ro'n% #! the* re#te to textie! #n% cothin, re>uire that all

Members Bshall ta#e such actions as may be necessaryD to abide by these rules

and disciplines so as to achieve improved mar#et access, to ensure the

application of fair and e>uitable trading conditions and to avoid discrimination

against textiles and clothing imports (Article +)$ If an exporting Member is found

not to be complying %ith its obligations, the 5ispute =ettlement 'ody or the

ouncil for Trade in 4oods may authori.e an ad;ustment to the >uota gro%th for

that country %hich is other%ise an automatic gro%th$

The Textie! Monitorin, Bo%* has been established to supervise

the implementation of the AT and to examine all measures ta#en under it, to

ensure that they are in conformity %ith the rules$ It is a >uasi-;udicial, standing

body %hich consists of a hairman and ten TM' members, discharging their

function on an ad personam basis and ta#ing all decisions by consensus$ The ten

members are appointed by T Member governments according to an agreed

grouping of T Members into constituencies$ There can be rotation %ithin the


51/73

constituencies$ These characteristics ma#e the TM' a uni>ue institution %ithin

the T frame%or#$ In /anuary 996, the 4eneral ouncil decided upon the

composition for the TM' for the first stage$ In 5ecember 99+, the 4eneral

ouncil decided upon the composition for the second stage (997-388) %ith

TM' members to be appointed by T Members designated from the follo%ing

constituenciesH (a) the A=A Member countriesC (b) anada and or%ayC (c)

0a#istan and hina (after accession)C (d) the uropean ommunitiesC (e) Qorea

and @ong Qong, hinaC (f) India and gypt&Morocco&TunisiaC (g) /apanC (h) atin

American and aribbean MembersC (i) the uotas on textiles and clothing have changed the global nature

and location of production$ The t%o #ey outcomes %ith regard to geographic

location have been the protection of production centres in >uota-imposing

countries, mainly the uota unconstrained locations$ An absence of >uotas %ould in all

li#elihood have lead to higher concentrations of textile and clothing production

centres in a small number of lo%-cost destinations$ ven the t%o decades

preceding the formalisation of a >uota regime under the MFA in the early 9+8s

sa% a rapid rise in production and exports mainly from =outh ast and ast

Asian countries$ The MFA slo%ed do%n this trend and thus played an important

role in the further gro%th and development of this sector in industriali.ed

countries$ 0rotectionist measures ensured the continuation of an incentive for the


52/73

sector to operate in an environment characterised not merely by lo% input costs,

but also by other competitive factors such as design, technical attributes and

fashion elements, %hich %ere allo%ed to flourish$ =ince >uotas provide an

absolute rather than a relative measure of protection, as discussed earlier, they

immunised to a large extent against the do%n%ard pressure on prices that other

countries1 increasing competitiveness and generally lo%-cost base brought %ith

them$ Ruotas therefore played a #ey role in preserving and expanding the sector

in the countries such as the


53/73

rather than a long-term commitment on the part of the investor$ These factors,

and the highly competitive nature of the industry, particularly %ithin the lo%er

value-added commodity type segments, have all contributed to driving do%n

%age rates and increasing mobility of industrial entities$ evertheless, these

factors, together %ith the incentive provided by the absence of >uota restrictions

in certain countries, have li#e%ise played an important part in facilitating the

much %ider development of this sector$ ith clothing manufacturing in particular

providing in many cases a first Lentry point1 for non-agricultural production and

economic upgrading, countries such as Mauritius and esotho have long ago

integrated these factors into their respective industrial strategies$ 'oth %ere able

to offer investors >uota and tariff-based preference margins vis--vis access to

#ey international mar#ets that >uota constrained countries did not have$

ith the T Agreement on Textiles and lothing providing a

scheduled removal of MFA >uotas over the decade 996 N 3886, little global

change relating to >uota phase-out too# place during the early stages of the

Agreement$ As %as illustrated earlier, the flexibility granted by the AT, together

%ith the level and coverage of products on %hich it %as based, meant that the

integration of sectoral trade %ith normal 4ATT disciplines too# place only much

later$ onsidering also that the sector is highly mobile, certainly %hen compared

%ith other production sectors, both producers and buyers (retailers) felt little

pressure to reorganise production or sourcing decisions$ hile setting the scene

for future >uota removal, the AT had very little impact in practice for at least half

its period of application$ The period covered by the AT %as also significant for

other developments, notably a broad reduction in import tariffs on industrial

goods$ This also impacted on the textile and clothing sector, %ith the #ey

outcome being that margins of preference for countries not constrained by

>uotas, or in possession of additional mar#et preferences beyond those agreed

to under the T, too# on further importance$ hina, %hich until its T

accession late in 388 did not benefit from Most-Favoured ation (MF)

principles that member states extended to%ard each other, %as thus constrained

not only in absolute terms (>uotas) but also in relative terms %ith respect to the


54/73

margin of preference due to generally lo%er tariffs or %ithin specific preferential

trade regimes and agreements$ This helped sustain the continued dispersion of

the sector$ ther factors also contributed to the apparent short-term sustainability

of these locational patterns$ The rise in non-tariff barriers, in particular technical

standards (for example the use of ecological criteria and the rise of eco-

labelling), additional customs procedures and re>uirements (ranging from

elaborate administrative criteria to pre-shipment inspections), rules of origin and

so forth, all contributed to the relative importance of preferential trade

agreements$ For African countries, successive omV onventions and later the

otonou Agreement, as %ell as general 4=0 and Lverything-'ut-Arms1

programs, provided preferential access to the uropean mar#et %hich further

increased the relative benefit accruing to >uota unconstrained countries$

The conclusion of preferential trade agreements and

arrangements bet%een developed and developing countries N %hile not entirely

ne% N are generally a more recent phenomenon$ hile there is no direct lin#

bet%een the removal of >uotas and the gro%th in bilateral and multilateral trade

arrangements, these have nevertheless contributed indirectly yet significantly to

the impact that the AT >uota regime has had on many developing countries$ For

example, in 388, the uota, this applies only to the

duty-free preferences offered rather than overall mar#et access for clothing

exports$ @o%ever, A4A1s >uantitative limits are set %ell above Africa1s current

exports to the uota

restrictions faced by many Asian exporters$

According to T estimates, %orld exports of textiles and clothing have

increased from


55/73

increased by a substantially smaller margin$ Among the leading textile and

clothing exporting countries, a large number are from the ran#s of countries

classified as developing countries$ Although the uropean


56/73

under the MFA is because of the reasonably large >uotas it receives %hen

compared to other apparel exporting countries. The high >uotas and a semi-

s#illed, cheap labor force, supported by tax incentives and concessions to foreign

investors have made India an attractive country in %hich to invest$ Investors vie%

India as having cheap flexible labor, %hich has attracted the li#es of evi-=trauss,

'enetton, acoste and 0ierre ardin$ According to Martin (99:) India has

suffered under the MFA because it seems to discriminate against cotton

products$ Indian cottons %ere taxed 38E more than other fibres$ Ruotas have

not yet been removed at all on cotton garments$

The %i!#%4#nt#,e! o+ re-o4in, :'ot#! +or In%i#

The five most li#ely disadvantages or dra%bac#s for India areH

a) declining competitivenessC

b) heavy reliance upon >uota categoriesC

c) high concentration on a fe% mar#etsC

d) lac# of direct mar#eting lin#s %ith ma;or purchasers andC

e) a heavy reliance on imported inputs&materials$

5ecline in ompetitiveness

The current trends in the Indian garment industry sho% a slo%do%n in mar#et

gro%th, %hich could cause damage to the industry if measures are not ta#en to

address this bac#%ard trend$ This has resulted in factories here being of an

inefficient si.e$ The small si.e of the factories has prevented the achievement of

technical economies of scale in the industry as a %hole$ ompare this to the

massive manufacturing infrastructure in place in countries such as hina$

Furthermore, it is %idely believed that labour productivity in the

Indian garment industry is rather lo% due to lac# of proper training, %astage and

absenteeism$


57/73

There is a lac# of significant investment in advanced technology in the

country that could also affect competitiveness$ The ma;ority of factories are small

scale and there is an obviously lac# of ne% investment in technology$ More than

half of the firms in the industry %or# on old se%ing machines$

lectricity prices in India are high %hen compared to other

countries in Asia and supply is often interrupted due to the reliance on hydro-

electricity, %hich recently has been hampered due to unfavourable %eather$

eliance on Ruota ategories

The introduction of the MFA can be clearly seen as one of the #ey factors in the

rapid expansion of the Indian textile and clothing industry$ Foreign investment

%as enticed %ith the assistance of more liberal economic policy$

Although rapid gro%th too# place, the number of products %as limited to those

that came under the MFA$ More than 98E of India1s garment exports to the uota

(MFA) system$ These items are nearly all of a standardised type$ India has been

established as a supplier of lo%-price, lo%-medium >uality garments$ KIt has only

recently moved into the high fashion, expensive branded clothing$K 5ue to theheavy reliance on lo%-priced >uota-bound products, the Indian garment industry

is almost certain to face severe competition from other international garment

players$

ac# of Mar#eting in#s

There is little established direct lin#s bet%een


58/73

5ependence on imported Inputs

5espite the rapid gro%th in the industry over the last t%o decades, the

development of supporting industries such as fabrics and accessories has beenslo%$ As a result, the garment industry relies very much on imported inputs$$ This

then affects local value adding #eeping it at a lo% level$

5ue to the need to import inputs there is often a long lead-time on

products from India, %hen compared to Tai%an, @ong Qong or =outh Qorea,

%hich have established domestic sources for necessary inputs$ India is also at

the mercy of delivery delays and the fluctuations of international prices for ra%

materials$ This in turn may result in delays in exporting the finished product to

overseas buyers$ The prompt delivery of products is especially important edge

for manufacturers that can be easily lost because of the over dependence on

imported inputs$ Turn around time for garments produced in =ri an#a and India

is approximately six monthsC compare to an average of three months in hina,

Tai%an and =outh Qorea$

Poic* Reco--en%#tion!

India is a land of great potential since it is perhaps the only country in the %orld

that is self-sufficient and complete in the cotton value chain$ This strong

advantage, ho%ever, has been frittered a%ay due to fragmented and myopic

vision of the government that resulted in policies that ran counter to mar#et

signals$ The current industry structure is in a significant sense- a tribute to the

Indian textile and clothing sectors %ho have managed to perform despite the

throttling policy constraints$ In vie% of the global developments in retail sector,

driven by emancipated consumer, and #eeping in mind that the protection that

>uota afforded to Indian textile mar#et %ould soon disappear, it is imperative for

the Indian textile and clothing sectors to reform, and do that >uic#ly$ As is evident

by no%, most of the impediments to India1s export competitiveness lies at home$

Mar#et access conditions arise only after India develops the competence to

survive in the mar#et$ Also, it is clear that most of the problems are structural in


59/73

nature, and emerge from a lac# of holistic vie% about the entire value chain- from

fibre to retail, %hich in itself is engendered by the fragmented government

policies$ eedless to %rite, most of the reform in this industry pertains to changes

in government policies$ @o%ever, before delineating the policy changes re>uired

to ma#e the Indian textile and clothing sectors globally competitive, it %ould be

useful to mention a fe% of the guiding principles %hich lay the foundation of

recommendations$

$ hile the role of the government in creating and sustaining national advantage

is significant, it is inevitably partial because in the absence of underlying national

circumstances that support competitive advantage in a particular industry, the

best policy intentions %ould fail$ India is endo%ed %ith these Lunderlying national

circumstances1 in textile and clothing sectors in full measure$

3$ 4overnments do not control national competitive advantage, they only

influence it$ The central role of the government policy therefore, is to deploy a

nation1s resources (labour and capital) %ith high and rising levels of productivity,

since productivity is the root cause of a nation1s standard of living$

*$ 4overnments cannot create competitive industries$ Firms must do so$

4overnments shape or influence the context and institutional structure

surrounding firms, as %ell as the inputs that firms dra% from$ 'ased on these

premises, follo%ing policy recommendations are madeH

Ho-e %e-#n% cre#tion

$ Allo% Foreign 5irect Investment (F5I) in garment retailing to enable large,

modern retail sho%rooms to set up shops in India$ %ing to comparative

advantages in clothing manufacture that %ould be available indigenously, the

government need not %orry if these large retailers %ould begin to outsource their

clothing re>uirements$ 0resence of large retailers %ould create domestic demand

for ready-to-%ear garments, and also push for higher productivity in garment

manufacturing through bul# orders$ This %ould also help promote large-scale

manufacturing facilities for garmenting, and help Indian exports diversify into

standardised, mass-clothing items$


60/73

3$ educe the import duty on textile and apparel to infuse competition in the

domestic mar#et, %hich %ould, inter alia, drive up demand for higher and

better clothing$ The Indian import tariffs in this industry are among the

highest in the %orld, ranging bet%een 36-28E+6$ And %ith >uota to be

abolished in 3882, the global attention %ould distinctly turn to%ards tariffs

in this industry$ There already is tremendous pressure on India to improve

mar#et access by reducing the high import tariff rates$ India can use this

as an opportunity to minimise the threat from proliferating regional trading

arrangements$ 4I can use Lreduction in import tariffs1 as a bargaining tool

to get MF tariff rates (specially pea# rates) in


61/73

W ationalise excise duties on synthetic fibre to bring it in line %ith cotton fibre

W o%er customs duty on ra% materials used in manufacture of synthetic

fibre&yarn This %ould enable the development of a vibrant synthetic fibre base in

India, %hich is critical to correct the predominance of cotton in Indian exports and

consumption$ 4lobal consumption of synthetic is gro%ing faster than that of

cotton, and share of cotton is expected to decline to less than that of synthetic

fibre$ India has virtually no presence in this area$ This is also essential to gro%

into the vast area of technical textiles that is emerging as a special-use textile in

the %orld$ India is ;ust not present in the huge and gro%ing area of non-apparel

textile applications$ Most of standardised items of clothing too re>uire some form

of blend$ Moreover, that %ould enable Indian exports to diversify into non>uota

mar#ets %here the demand for synthetic apparel is much higher compared to

>uota-mar#ets$ And finally, that %ould ta#e off some pressure on cotton to clothe

the domestic mar#et (due to %hich cotton prices have been subsidised in India)$

otton then, can concentrate on higher value addition$

Re-o4e -#n'+#ct'rin, o+ /nit ,#r-ent #n% +#$ric +ro- SSI re!er4#tion i!t;

ne of the chief reasons for the current fragmented, decentralised garment

sector in India is that it is reserved for ==I7$ 5e-reservation %ould attract large-

scale firms into manufacturing of mass-items of clothing, %hich reap scale

economies$ arge-scale firms %ould not in any case enter the product lines,

%here order si.e is small, and considerable manufacturing flexibility is re>uired$

=o ==Is %ould not be %iped out$ 5ereservation %ould allo% India to enter into

mar#ets segments, %hich are among the fastest gro%ing and are factory-based$

'esides, ceiling on scale has prevented modernisation and investment in the

sector$ That %ould also eliminate the peculiar dichotomy %hereby the Indian

garment units %ere protected from Indian large-scale manufacturers, but had to

compete %ith foreign large-scale units in the domestic turf follo%ing removal of

>uantitative restrictions on imports$ 5e-reservation %ould allo% processing of

bul# orders from large retailers overseas as %ell as at home (after F5I in retailing

is allo%ed)$ This %ould ma#e the sector attractive for >uality investment through

technological upgradation$ Jery importantly, this %ould also enable the sector to


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invest in products not on the basis of ==I constraints, but on the basis of

composition of demand$ Finally, since building non-price competitive

competencies are crucial for export gro%th, the sector %ould begin to invest in

brands, designs, IT driven superior customer services, uni>ue style and patterns

etc$

Inflexible Indian abor la%s, are the biggest disadvantage that %e have$ 4arment

business around the %orld but particularly in India is sub;ect to highs and lo%s of

seasonal overseas demands$ hile spring and summer production months have

very high demand for garments, but %inter and hristmas seasons, demand is

considerably lo%$ @ence all of us in the 4arment Manufacturing sector, setup

factories to cater to the lo%er number as %e do not have the ability to fire surpluslabor during lean months$ This %ay country is losing a lot of export business

opportunity as %ell as employment potential, if piece rate contract or time bound

contract labor %as permitted, huge amounts of ne% employment %ould be

created$

ac# of discipline amongst %or# force in the Indian garment factories is the

reason for very lo% productivity and high cost of Indian garments$ The same

Indian %or#er, %or#ing in overseas factories produces *-2 times more, because

of the fear of losing his ;ob$ Too much ;ob security is no good for an industry

%hose performance greatly depends on the performance of its labor force$ If %e

could allo% productivity lin#ed %age system and allo% at least 36E flexibility, you

%ould suddenly see hundreds of ne% factories being set up %hich %ill generate

ne% employment for millions of people$

e believe government is coming out %ith some special incentives to be given to

exporting units to be housed in existing and upcoming export processing .ones$

hile this thought process is good, the govt$ should not forget that over 98E of

the current exports are being effected by existing manufacturing units %ho have

built garment export business from .ero to : billion$ This is the main driving force,

%hich needs to be empo%ered and trusted, if %e have to go from : billion to 68


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billion, %hich is the stated target of the government ne% export processing .ones

%ill ta#e years to be developed %ith suitable infrastructure and many more years

for the exporting community to relocate or build manufacturing facilities in these

.ones$ 0recious time and opportunity that is #noc#ing at our door, in the >uota-

free regime next year, %ill be completely lost$ government needs to trust the

exporting community in general and maybe punish heavily, a fe% bad ones$

=impler and liberal export policies should be formed to facilitate import of %orld

class fabrics and trims from around the %orld, %hich may not be available in

India, or maybe more expensive in India$ This %ould help even the small

exporters %ho cannot afford to deal %ith the current bureaucratic ma.e of

policies and procedures$ I strongly suggest a textile export tas# force be formed

comprising of representative of various government departments in one location,

as single %indo% authority, %ho could supervise and facilitate the gro%th of

textile industry out of India, as opposed to the current Inspector a;$

3$ Another hurdle in the path of gro%ing textile exports from India is Artificial

pricing of the hinese urrencyH %hich is giving undue advantage to the hinese

industry in the 4lobal Mar#et$ @ardening of the Indian upee against uipped to face undue competition from hina and other competing nations$

*$ Another challenge is shorter lead-time, =everal of our competing countries

have substantially shorter transit times to urope and uic#est possible time$ I

%ould li#e to recommend that all apparel shipments be given the status of


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perishable items, so that it can be custom cleared on top priority, 32 hours a day

and *:6 days a year, this %ill put export shipments on sailing vessels or flying

aircrafts, %ithout any %aste of time, to match or shorten the lead-times to various

foreign destinations$

=pecial conomic Pones (Apparel 0ar#s) should be set up on the same lines as

soft%are technology par#s$ ecognised units located in such apparel par#s

should en;oy 88 per cent tax exemption$ @aving recognised it is a seasonal

industry, provision can be made to allo% seasonal employment$ In order to

sustain %or#ers during the off-season, each manufacturer can be as#ed to create

a K=easonality FundK in a scheduled ban#, %ith both employers and employees

contributing each month 8 per cent of the earnings of the %or#er to the fund$

Another aspect that re>uires attention is mar#eting$ To exploit global mar#ets

it is necessary for our garment industry to have better antenna in these mar#ets$

This can be facilitated by collaboration %ith mar#eteers and fashion houses in the

uality control,

faster product innovation, >uic# responses to changes in consumer preference,

and the ability to move up in the value chain by building brand names$ The point

%as also made that India1s presence %as largely confined to the lo%er end of the


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value chain -- in ma#ing basic garments li#e T-shirts and shorts$ hina, on the

other hand, ma#es more value-added formal %ear


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CONCLUSIONS 2 IMPLICATIONS

The developed countries have KtemporarilyK protected their textiles and clothing

sectors for 28 years and these t%o sectors have represented anomalies in the

4ATT ever since the TA came into force in 9:3$ Among the most distorting

measures to have prevailed are import >uotas allocated to some, mainly

developing countries on a country-by-country and product-by-product basis,

%hile other countries face no >uotas$ This has led to a pattern of speciali.ation

%here countries %ith the strongest comparative advantage for textiles and

clothing, such as hina and India, face binding >uotas, %hile others receive

investment in the sector motivated by unfilled >uotas and may %ell find that these

investments are unsustainable in a trade regime based on the principles of the

4ATT$ There is no doubt that both hina and India %ill gain mar#et shares in the

uropean uotas in accordance %ith the final stage

provisions of the AT has had the most deep-seated impact$ hile the

conclusion of the AT can be credited %ith being one of fe% agreements under

the T banner that has (for the most part) run its course in accordance %ith an

agreed frame%or# and time schedule, it has also resulted in an extraordinary


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number of actual and yet-to-be seen measures to counteract its impact$ The

uropean uotas as is standard, %e also analy.e the impact of the removal

in the presence of safeguards on hina$ The results of the simulations do not

present an optimistic scenario for India in terms of export gro%th of TO in a

>uota-free %orld (=cenario I)$ They also sho% that Indian exports of TO %ill

continue to expand in the presence of the safeguards on hina, but %ill be

adversely affected once these are lifted (=cenario II), essentially providing India1s

TO industry some respite until 3887, %hen all safeguards on hina %ill be lifted$

It appears that in the face of falling prices, Indian industry needs to become more

competitive$ Most of the domestic reforms in India1s TO sector too# place after

3888, %ith substantial policy initiatives in 3882$ The impact of these policy

changes of the last fe% years in the TO sector %ould produce results after a lag$

India could emerge much stronger and expand its trade in textiles and apparel at

a much faster pace if the some of the #ey %ea#nesses are overcome$


68/73

F't're Scen#rio o+ the Cothin, In%'!tr*

Information revolution promises to bring the %orld closer to cohesion$ In the

emerging face of fast moving information, technological transfer is bound to ta#e

place at a higher speed$ As the International borders blur =upply hain

Management and Information Technology ta#e a crucial role in Apparel

manufacturing$ 4lobal partners in the clothing supply chain are exchanging

information electronically, thus the need for Indian lothing Industry to spruce up$

uires generation of real value service for the customers,

comprehensive study of multifaceted and multi-layered supply chain, and global

integration of supply system in a cost and time effective manner$ Inventory

planning, sales forecasting, manufacturing strategy, distribution net%or# and

transportation management are some of the areas %hich need improvement$ The

economic scene of uality of garment exports the ==I restriction of the garment industry

should be removed$ 0resent e>uity participation of 32E by the foreign partners

needs to be enhanced and /oint Jentures %ith ma;ority share holding as %ell as

technical collaborations should be allo%ed$ abour la%s need a remodelling and

libralisation$ A research, development and training institute focused on post

garment processing li#e %ashing dyeing etc$ is also needed$ Indian government

should negotiate higher >uotas from


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capabilities$ =tream lining Internal Ruota Adminstration and free.ing minimum

export prices is crucial for the future of the readymade garment export industry$

Thus the need of the hour is to enlarge both manufacturing as %ell as the

mar#eting base$ Inculcation of a spirit of innovation by %ay of research and

development and tapping ne% mar#ets especially in =outh Africa, entral Africa,

I=, ast uropean countries, atin America and Australia is also mandatory for

export gro%th$

T#r,et! #i-e% #t the N#tion# Textie! Poic*

X Achieve the target of textile and clothing exports from the 388 level of

billion to 68 billion by 388 of %hich the share of garments %ill be 36

billion$

X Implement, in a time-bound manner, the Technology


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ensure better returns for those belonging to the disadvantaged categories, and

the orth ast and other bac#%ard regions of the country$

X Facilitate the gro%th and strengthen human resource development institutions,

including the ational Institute of Fashion Technology on innovative lines$

X evie% and revitali.e the %or#ing of the Textile esearch Associations to

focus research on industry needs$

Ste"! T#/en $* the In%i#n Go4ern-ent to Enh#nce Co-"etiti4ene!!

X 5ereservation of %oven readymade garment, and hosiery and #nitted products

from ==I sector$

X Allo%ing foreign e>uity participation up to 88 percent through automatic route

in this sector %ith certain exceptions$

X Adoption of cluster development approach for the production and mar#eting of

handloom products, initially to ta#e up to 38 clusters$

X Introduction of the Technology


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standby letters of credit in respect of external commercial borro%ings raised by

textile companies for moderni.ation or expansion of textile units$

X aunch of the =cheme for Integrated Textile 0ar#s (=IT0) to provide the

industry %ith infrastructure facilities on the basis of public private partnerships$


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Bi$io,r#"h*

American Textiles Manufacturers Institute, “The China Threat to World Textile and Apparel Trade,” available via the Internet at www.atmi.or.Appelbaum, !ichard, "##$, “Assessin the Impact of the %hasin&out of the Areement on Textiles and Clothin on Apparel 'xports on the

(east )eveloped and )evelopinCountries,” Institute for *ocial +ehavioral and 'conomic !esearch,Center for lobal*tudies, -niversit of *anta +arbara.Avisse, !ichard, and M. /ou0uin, "##1, “Textiles and Clothin2 the 'ndof )iscriminator %rotection,” La Lettre du CEPII, 3o. 145.+irnbaum, )avid, "##1, “The Comin arment Massacre,” available viathe Internet at 6uststle.com.Cerra, 7alerie, *andra A.!ivera, and *weta Chaman *axena, "##8,“Crouchin Tier, 9idden

)raon2 What Are the Conse0uences of China:s WT; 'ntr for India:s Trade1#1, ?Washinton2 International Monetar /[email protected], Woon, and %eter ilduB, "##", “The -* Mar=et for Technical Textiles,” *mall+usiness Technolo )evelopment Center ?*+T)C@, Technical TextilesIndustr *tud,3orth Carolina, -*A.Economic and Political Weekly , )ecember $, "##$, “Trends in TotalInvestment b Industries.”'xport Import +an= of India, "##8, “Textile 'xports 2 %ost M/A *cenario,;pportunities andChallenes,” Wor=in %aper *eries 3o. 4, /ebruar, Mumbai./itch !atins, "##$, “)ismantlin of uotas 2 India to +eneDt.”/rancois, E./., +. Mc)onald, and 9. 3ordstrom, 144$, “The -ruua!ound2 A lobal eneral'0uilibrium Assessment, C'%! )iscussion %aper, ?(ondon 2 Centre for'conomic %olic!esearch@./rancois, E./., 9.9. lisman, and ). *pinaner, "###, “The Cost of '- Trade %rotection in Textiles and Clothin,” Kiel Institute of World Economics Working Paper 997./rancois, E. /. and ). *pinaner, "##1, “With !as to !iches but thenwhat< 9on on:s TFCIndustr vs. the ATC and China:s WT; Accession,” Fourth nnualConference on !lo"alEconomic nalysis Paper.


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arments and Textiles 'xport +oard, )epartment of Trade and Industr,"##", “The %hilippinesarments and Textile Industr,” )ecember G1.oldman *achs, *eptember "##$, “Textile, Apparel and /ootwear, "##8uota 'limination

*urve !esults.”& GH &overnment of India, "##8, #nion $udget %&&'(&), 3ew )elhi.overnment of India, 7arious ears, *inistry of +e,tiles- nnual eport ,3ew )elhi.9ummels, )avid, "##1, “Time as a Trade +arrier,” %urdue -niversit, Eul, -npublished.International Monetar /und and World +an=, "##", “Mar=et Access for)evelopin Countr'xports& *elected Issues, ” available via the Internet atwww.imf.or>external>np>pdr>ma>"##">en>#4"H#".pdf

athuria, *an6a, and An6ali +hardwa6, 1445, “'xport uotas and %olicConstraints in theIndian Textile and arment Industries,” mimeo World +an=.athuria, *an6a, Will Martin, and An6ali +hardwa6, "##1, “Implicationsfor *outh AsianCountries of Abolishin the MultiDber Areement,” World $ank Policyesearch WorkingPaper %7%/.(an=es, 9ans %eter, "##", “Mar=et Access for )evelopin Countries,”Finance and0e1elopment.

Manole, 7lad, "##8, “Winner or (oser < 'Bects of uota Abolition inWorld Mar=ets for Textile and Apparel,” World $ank 0EC! mimeo.Mcinse, "##$, pparel and +e,tile +rade eport.Mlachila, Montfort, and onJhen an, "##$, “The 'nd of Textilesuotas2 A Case *tud of the Impact on +anladesh,” I*F Working Paper /&2,?Washinton2International Monetar/[email protected], 9.., "##$, “The lobal Textile and Clothin Industr %ost theAreement on Textile and Clothin,” World +rade 3rgani4ation.

Documents

Scenario of Indian Readymade Garment Export in the Post2-Ashish Goyal