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KAUTILYA
After
IT, Time for T
The
New Textile Policy2000 finally dereserves the garment industry
By
Jairam Ramesh
The
distinctive feature of the New Textile Policy 2000 unveiled by the Government
on November 2 is the removal of garments from the list of items reserved
for exclusive manufacture by the small-scale industry (SSI) sector. It
has taken 15 years for this to happen. Rajiv Gandhi tried in 1985 and
P. Chidambaram in 1996 and 1997 but both were thwarted.
 The
garment industry occupies a special niche in our economy. At about $4.5
billion (Rs 20,250 crore), it accounts for around 13 per cent of India's
total exports and employs close to 4.3 million people, according to an
estimate by the National Institute of Fashion Technology. But from a larger
perspective, we have been left far behind by countries like China, South
Korea and Taiwan, what to speak of countries like Italy. There are five
main reasons why India's garment exports have not exploded.
»Around
60 per cent of world trade in garments is based on synthetic fibres, whereas
about 65 per cent of our garment exports are cotton-based. Till 1991,
our import duties denied Indian garment manufacturers access to cheap
synthetic fibre intermediates from abroad. High excise duties made domestic
supplies expensive.
»Our
exports themselves suffer from a lack of balanced spread, 75 per cent
being items like blouses, skirts, dresses, shirts and knitted undergarments.
»Modern,
integrated mills supply just about 5 per cent of the fabric for garment
exports, the bulk coming from powerlooms. This has meant that we have
been at a competitive disadvantage when it comes to the supply of standardised
garments made of standardised fabrics.
»The
garment industry itself has been oriented primarily towards the US and
western Europe which, no doubt, account for about three-fourths of the
total market but also where marketing is comparatively easier because
we have export quotas. Other lucrative markets like Japan have remained
neglected. These quotas, incidentally, will vanish on January 1, 2005
as per the WTO agreement and then we will really have to compete, for
which preparation have to start now. Quotas have saved us so far.
»Perhaps
most importantly, the policy of SSI reservation has created a structure
of the industry that is just not globally competitive. Reservation has
prevented the induction of new investment and technology and precluded
possibilities of international sub-contracting as a route for market expansion
for Indian firms. Inconsistent quality of products which buyers constantly
complain about and poor unit value realisations (that is, value divided
by volume of exports) which we worry about are the direct outcome of this
reservation policy.
"Textiles
First" Strategy: The world over, garments are indeed made in
small firms. But not "small" as defined in India. For most of
the 1970s and 1980s, the investment limit for defining a small firm in
this country hovered around a pathetically low $100,000-150,000 and in
the 1990s it went up marginally to about $200,000. In actual practice,
since a small-scale entrepreneur does not want to lose the many fiscal
and factory law benefits of remaining small, vertical growth of firms
does not take place, only horizontal proliferation does. Thus, you will
find a great many garment exporters in India each exporting a little,
unlike in China where fewer exporters sell vastly greater quantities.
Among the
late industrialisers India alone did not follow what economists call the
"textiles first" strategy and we have paid the price. The reasons
for this are complex. It has partly to do with our fascination with the
Soviet model in the 1950s which was based on the primacy of steel and
heavy machinery. It has partly to do with the Gandhian legacy that positioned
mass production falsely against production by the masses and wrongly placed
a premium on the latter. And there was politics. Sukhamoy Chakravarthy,
one of India's greatest economists, wrote in his 1987 classic Development
Planning that emphasis on textile exports would have required supporting
a particular regional group of industrialists at the expense of others.
On becoming
prime minister, Rajiv Gandhi remarked that the job of the textile industry
is to produce textiles, not jobs. It was this that led to the bold June
1985 Textile Policy. That policy combined with the 1991 reforms has resulted
in a partial transformation of our textile industry. The spinning and
synthetic fibre segments in the organised sector have boomed, whereas
the decentralised weaving and knitting segment has grown impressively.
But the textile industry is still crippled by controls and by fiscal distortions.
The new policy sets an ambitious $50 billion target for exports of textiles
and garments together by 2010, up from the present $11 billion. The focus
has been too much on it. It is time to shed this brahminical mindset and
move from just it to t-textiles and give India's oldest industry a new
deal. This will create mass prosperity.
(The
author is with the Congress party. These are his personal views.)
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