Action please...

The Textile Policy 2000 is, at best, a product of wishful thinking. Far removed from ground realities. Not enough to energise an industry enfeebled by long years of protection. Its revival against the pulls and pressures of the global market needs two things. One is a clear cut action plan to reposition its assets. Or what remains of them. The other the lack of a reservoir of entrepreneurial talents. Sadly, the textile policy is mum on both these counts.

On the future of Indian textile industry, it is apt to begin with a Russian example.
Time was in 1930s. Stalin was all out to collectivise agriculture. The Russian farming folk, known as kulaks, resisted. The opposition was ruthlessly put down. Most of the farmers were killed. And their families exiled.

The collectivies were a damp squib. Productivity suffered. Prices were tuned to bulk (monopoly) purchases by the government in Moscow. Eventually they all became dens of corruption. Weakening the Soviet power in the process. Agriculture was its Achilles heel.
Stalins successors, in turn, wanted to liquidate the collectives. And restore the farms to farmers. But there were no farmers left to take up the challenge of farming. The ordinary folk never had the necessary knack. So the agricultural economy collapsed. And Soviet Union along with it.

The plight of the Indian textile industry is almost the same. Only the script and artist were different. And were far too many cooks to spoil the broth. At the end of it all there is no industry worth the name in India to get up and go. Taking the cue from the latest round of policy announcement. It is in the doldrums. With no hope of regaining vigour.
What went wrong? Everything. To be short. Why? The industry (or whatever that remains of it) puts the blame on the government. Reeling out a long litany of faulty policies. Unconceded is that the faults included a long rope it had in the name of protection.

The industry had all it wanted. For the record, it made noises about policy lapses here and there. All the while, the protective wall was kept intact. The need for economies of scale and volume production were given a go by. Exports were ignored. 

Or were minimal to garner permission for foreign travel. Discussions on what should be done were few and far between. The funds-hungry ruling class took care of everything. Even farmers were not allowed to sell or make profit from the cotton they produced.

Better to leave alone the present structure and organisation of the textile industry. Old text books on the subject extolled its location (and external economics) in the heart of the market. In Mumbai, Ahmedabad and Coimbatore. Elsewhere too in the country it enjoyed market proximity.

Every one is wiser, on hindsight. Looking back, however a few facts are revealing. At the time of independence, the Indian textile industry was well developed. Its products were competitive. And had penetrated the western market. Its inclusion in the general scheme of things for protection was a big mistake. A competitive environment would have brought the best out of it. But those who had the industry under their watch were also the most powerful. They had the government under their thump.

Personal aggrandisement  not corporate (or industrial) growth  was 
the only item on the agenda. Under-in-voicing and over-in voicing had blossomed into a cult status. Investments in new plant and equipment were also guided by those considerations. Cutting edge technology was ignored as a rule.

What shape the industry now? For a clear picture, avoid the confusing array of statistics. A casual look at the share prices is enough. The old fairies have collapsed. That the industry is gone is no ones worry. Closer to the heart being the urban land and cash reserves. Damn shareholder values. So long as the major shareholders  the state owned ones  remain loyal.
Over the years the structure of the industry underwent major changes. Taxation (exise duty) favoured powerlooms. Mill owners were piqued. But their focus was again the local market. Not with competitive advantages. Representations studiously avoided this point. If profits and profitability are the ultimate aim, beaten tracks on home turf are the most dependable.
Even so the country produces enough cloth. It is a different thing that it could have been produced cheaper. And exported more. As it is, the role of the industry in Indian economy is not inconsiderable. It remains the largest single employer in the industrial sector. As many as 20 million are employed directly. And it accounts for one-fifth of industrial production and nearly a third of exports.

The centre of gravity has shifted in favour of decentralisation. The handlooms employ 12 million and the powerlooms 6 million. Power loom hiked their share to 70 per cent of the production and handlooms are not doing so well as before.

The industrys record in exports is not impressive. Compared with what was possible and what its main rival  China  has achieved. 15 years ago they were on a par with each other. Now Chinas exports at 40 billion are 10 times more than that of India. 

Even that presence in the world market was possible only because of the higher excise duty for mill cloth. The tax works out to an advantage of 9.2 per cent for the powerlooms. For the mills, therefore, the domestic market was not that attractive. Exports were the only way out.
For the record, composite mills sell 65 per cents of their output abroad. Garments claim bulk of it. Now they cant cope with the overexacting demand for quality in the export market. Investments on cutting edge technology being few and far between. In the normal course, the firm demand for 65 per cent of output should have made sound base to work from. That never happened. The spirit of competition being not part of the industrys psyche.

So the sickening spectacle of more mills downing shutters. The statistics are startling. During the 18 months ending last October, no less than 69 mills stopped working. An average of one mill a week.

On the record, 381 mills are closed. Comprising 265 spinning and 116 composite mills. Throwing out of commission 38083 rotors and 74600 looms. Nearly 500 cases are also pending before BIFR. Workers at the closed NTC mills are paid to the tune of $8 million a year.

NTC (short for National Textile Corporation) mills form a big chunk of the closed mills. The state owned corporation was formed decades ago to take over and run a host of textile mills which went bankrupt while under private custody. A huge burden on the national exchequer as well as the banking industry.

There lies a story behind the evolution of NTC. Its a tragedy of errors. Detailing how the government was trapped. By the retiring mill magnates taking on board their socialist pit bulls. The mills, sucked dry by the managing agents, were taken over for the sake of keeping the jobs.

The exercise began with the Indu (India United) Mills in Mumbai. In the sixties. With five divisions, it was the biggest textile mill in India. In terms of cotton consumption. For its intake of the fibre was 100,000 bales when the domestic output was 4.2 million bales. It was also a well known brand accepted right across the country.

Citing family feuds managing agents withdrew from the scene. The mill was closed. Trade unions made a hue and cry. It worked. The government assumed control. With all liabilities. Everything went according to the plan scripted by the management.

Saner voices in the textile ministry (and the government) were against the proposal. How the mill went bankrupt none wanted to know. Otherwise it would have opened a can of worms. There was even a suggestion to sell up the mills to foreign companies. It never clicked because of two reasons. In the first place, those remote-controlling the government never wanted that type of competition near at home. Secondly, the mind-set (and policy shift) was for the all  conquering public sector.

It needs to recap the industry on the eve of the policy announcement. According to the Economic Survey, the production of man-made fibre and yarn rose significantly from 188 million kgs in 1980-81 to 1632 million kgs in 1998-99.

At the same time the ratio of cotton to man-made fibre in the textile industry remains high at 65.35 compared to the world average of 46.54. There therefore is good scope for the increased use of man-made fibre while reserving cotton for the higher ends of the market.

The fabric production, according to the Survey again, showed a compound annual growth rate of 5.3 per cent between 1993-94 and 1998-99. moving up from 27,898 million sq. metres to 36,102 sq. metres. 

Simultaneously, the share of mill sector in the fabrics production declined to five per cent. With power looms (including hosiery) accounting for 74.7 per cent. Production on the whole keeps its up trend. Meanwhile exports have shown a compound annual growth of 11.3 per cent. 

As far as percentages go, the Indian textile industry is synonymous with power looms. Their number rose from 0.638 million in 1986 to over 1.5 million in 1997. With 7.7 million workers on their payrolls. Powerlooms role in the countrys overall industrial development is not inconsiderable.

The fast growth of the powerloom sector indeed was possible because of so many reasons. As compared with it can do with low overheads and limited working capital. Their export entitlement was also raised to 10 per cent of the total from three per cent early last decade. And it was done to help them modernize their units.

But that did not go far. Indias share in world primary textile exports is a despicable 2.5 per cent. It is fully accounted by the outdated technology used in every stage of production. As for powerlooms, most of them use low-speed shuttle looms. For the record, spinning speeds increased by 25 times in the last century and weaving speed 20 times.

True, India has the largest loomage in the world. That makes little meaning with low speed and lack of quality control. Making things worse are frequent shut-downs and idle loomage. Most of the looms are also more than 20 years. And 75 per cent of them are the conventional type. Without weft pick motion, weft reeler etc. According to studies. That was fault-free fabrics and higher-efficiency are out of question.

It is in these circumstances that the new textile policy (2000) is sought to be put in place. Also to be taken note of is the position of the Indian industry vis--vis the rest of the world. Even under the MFA regime (which will go come 2005), Indias show has been far from impressive. Its 2.5 per cent share is lower than other countries in the SE Asian region. 
China distinctly ahead with over 12 per cent. South Korea and Taiwan claim 5.5 per cent and 5 per cent respectively. Thailand with 2.3 per cent and Indonesia (2 per cent) are also not far behind. 

In one sector, however, there was sparkling achievement. Spinning. Literally, Indian has annexed 31 per cent of the world yarn market. The technology upgradation in this field was also significant. On a rough estimate, Indian imports accounted for more than half of the world exports in spinning machinery in the past seven years.

Elsewhere, the position is not so idyllic. The world textile industry is in a better shape. The currency crisis has sharpened the competitive edge of the SE Asian textile industry. Keeping the open market in sight, MNCs have also taken position in the area.

Wrong, at the same time, to write off the textile industries in the developed world. They are all at it. Fighting back fiercely. Encouraged by the government keen on saving the jobs. Take for instance the $72 billion US textile industry. The biggest in the world. It is investing upto $3 billion every year on new technology. Even while reeling under the weight of cheap imports.
More is its reconsolidation on regional basis. To off set its high cost of manufacture. The North American Free Trade Agreement (NFTA) gives it a protective cover. Mexico has stepped up its output of garments using US-made fabrics. The Caribbean islands are also a part of the strategy. Apparel exports from there were growing at a clip of 17 per cent. In the five years through 1996. it should be much more now.

The changes taking place in the US textile industry are ominous. Because US is also the biggest importer of textile goods. The large investments are showing results. Most notable is the increase in variety across the board. With a considerable reduction in volume per item. New varieties put on the market far outnumber the dropped ones.

The number of US textile companies has declined in recent years as a result of Ms & As. And even outright closures. The surviving outfits are strong, lean and far more efficient. Productivity in US textile industry keeps pace with the digital revolution. In terms of international competitiveness, it is regaining its edge lost earlier on account of high labour costs.

From the Indian point of view, the progress being made by the US textile industry on three counts are the most noteworthy. One is the increased use of robots on the shopfloor. Manual assistance is eliminated in loading the yarn and the unloading of cloth. Even its transport to the godown and warehouses. Similarly, manufacturing and delivery lead times are being cut to a third in the past seven years.

Some spinning mills have achieved a breakthrough. Depending both on process development and capital investment, quite a few of them have managed a three-fold increase in sales. Also to be seen are the larger use of genetic engineering, cellular biology and tissue culture. As a result, it is just possible, there will be no dyeing departments in the US textile mills. For, colour cotton is being grown in a big way.

Apart from US, other developed countries are also not sitting idle. What is happening in Italy is more relevant to India. The essence of Italian industrys consolidation is in disaggregation. Major units are being divided (and subdivided) to form clusters. Most of them specialising in a single process. That sets the stage for a co-operative way for both production and upkeep. Production and sales went up as a result. Germany and Turkey also are on track to modernise their plants.

Even the existing exporters in SE Asia and elsewhere have to reckon with a major threat from a new source. Looming large on the horizon are the east European countries now queuing up for EU entry. On the scale of development, they are on par with most of the SE Asian countries. And their industrial base is sufficiently strong. It is likely that they will embrace textile as a major export item. In an enlarged EU with 13 more countries in. Tough days for presently exporting countries. For India, that means China is not the only country to contend with.

Compounding the Indian textile industrys woes are other problems too. Arising out of its structure and management. On the face of it (even otherwise) the primacy given to powerlooms is nothing to rue for. In fact they alone promise the necessary flexibility in a highly competitive world. Being small, they are also easily manoeuvreable. 

But the real trouble is that the looms have been slow in imbibing new technology. That spells disaster in two ways. In the first place, product innovation is automatically ruled out. Also the reflexive action to market (fashion) changes. Both suicidal in a competitive market. 
The managerial challenges inherent in restructuring also go unnoticed. The low-cost environment is helpful only to a limited extent. The essence of the unfolding market in textile is variety and exacting demand for quality and speed. The survival depends on a fresh management skills for reading the industrial radar. With a greater degree of accuracy.
Internet is revolutionalising the trade (both overseas and internal) in textiles. That means new dimension to the competitive markets. Indian industry will have to keep in view the challenges from a net-work of firms spread across the world. For strategic (industrial) reasons developed countries will take on board production centers in far-flung countries. The Us outreach, for instance, even covers sub-Saharan Africa. 

It is against these unfriendly conditions that the various aspects of the new textile policy (2000) have to be examined. To begin with, its assumptions. They fail to convince even after several glances. The sprawling domestic market helped the industrys survival. Also under-written by the protective regime. The surge in exports to $11 billion is also nothing to crow about. MFA and a depreciating rupee were contributory factors. India has patently failed to gain a sustainable toehold in any of the importing countries. 
That being the case, the textile policy, announced in early November 2000, is a product of wishful thinking. And ablaze with tall claims. Estimates of sick vary from 70 per cent to 90 per cent. Purple patches here and there notwithstanding. What is obvious is that industry on the whole is palsied. Unable to take even glucose drips.

Proof? The fate of the Textile Upgradation Fund is enough. Its $5 billion corpus is languishing. For want of takers. A little less than a billion dollars is lifted. Much of it by the spinning mills. None in the industry is feeling emboldened to take the risk. Does the magic wand of a policy statement change the outlook?
Too weak a premise for extrapolation. And yet, the Union Textile Minister Kashiram Rana keeps thundering. Like a school boy. In Ahmedabad, after the release of the policy, he let his tongue wag. He told his listeners that the number of shuttle-less looms in the country was going to go up to 5000 in the next five years. From 8000 now. 

There is no dearth of studies on the degeneration of the Indian textile industry. Experts down the years have identified all or most of them. From low and sub-quality cotton output and ginning to non-tariff barriers to export. In between the industry has to contend with outdated machinery, low productivity, erratic supplies of cloth, high interest rates and intra-industry competition overseas. Several inputs are regulated, heavily taxed and expensive. Preventing the increased use of synthetic fibre in cloth production.

Does the textile policy address anyone of them? The list of disincentives for industry comprises as many as 50 or more items. Here and there, there is passing reference (in the policy) to a few. Most revolting to the commonsense are the oversise extrapolations on past performance. As such they make only wild dreams.

Against international averages, Indian textile industrys record of $11 billion in exports lacks luster. A five-fold increase to $50 billion in 2010 is a claim not good even as domestic consumption. The export environment has never been hospitable. And it will be more so in the future. For the reasons set forth earlier and more.
If wishes were horses so goes the old saying. The textile policy 2000 is only a product of wishful thinking. As it comes with no strategy or action plan to regroup and reposition the industrys various segments to face the challenges ahead. As it is, it only flogs the dead horse.

The surfacing trends are ominous. There has been a 65 per cent growth in the import of textile into the country. In terms of value it works out to $400 million as against $242 million in 1995. The garment producers favour the better cloth from abroad, say the Powerloom Development and Export Promotion Council (PDEXCIL). Complaints of dumping apart, it is a trickle that can reach flood levels in the days to come.


Cutting edge
The Textile Policy 2000 sets store by increased production and exports of apparels. That is well in order. For internationally it is the fasted growing market. Where design, production, sorting and sales take place in different geographical regions. To take full advantage of expertise, production techniques low-cost and quality considerations. For that reason, the apparel industry had seen a major shift from developed countries to developing countries. 
When stock taking was done in the early nineties, more than half the total capacity in the apparel production capacity shifted from high-cost areas to the less developed countries. Wage costs were the main catalyst for the change. In early nineties, hourly wages in Germany were the equivalent of $17.22. It was $8.13 in US, $4.6 in Taiwan, $3.85 in Hong Kong and Mexico $1.08. At the other end of the scale was South Korea with $0.71, India $0.27, Indonesia $0.28 and China $0.25 

The point to be noted is the bounce seen in exports from Hong Kong, Taiwan and South Korea. Explaining the primacy of the three countries K.V.Ramaswamy and Gary Gerefei (Development Economies) hold that rising labour cost how did not lead to any loss of their competence. This was because they upgraded the quality of their products and moved to higher value added segments. Many Hong Kong companies are also selling under their own brands.

The world trade in apparels never left its fast track. In fact it is only second to telecom and electronics. It showed the higest growth of 17 per cent between 1985 and 1990. Well ahead of the trade in manufacturing at 15.5 per cent. And was $166 billion in 1996. in 1998 it rose to $180 billion. Over the year there was a modest set-back of $1 billion. However preliminary estimates place it at $190 in 1990. All the same it is slated to ride high at $350 billion by 2010.

It is clear that India wants to tap into such a growing market. it record so far is fair though not spectacular. Between 1989-90 and 1995-96, the garment sector export more than doubled to $3.67 billion from $1.6 billion. It rose to $3.75 in 1996-97 and $3.78 in the following year. A growth rate of mere 0.6 per cent.

In 1998-99 garment exports fetched $4.44 billion. The new textile policy plans a big leap from that level to $25 billion by 2010. a growth rate of 17 per cent a year. The world apparel export touched that level only once. That was in the second half of eighties. When the base was much narrower. The growth rate always turns negative on a wider base. That is a basic economic tenet. 

The textile ministry needs do a little bit of explanation on the feasibility of targets fixed. How it weighed the competition from other low-cost countries in Asia. Quite a few of them recorded spectacular growth in garment exports. And how India will catch up with, let alone, surpass their challenge.

Back in 1980, Thailand and Indonesia had respectively 0.7 per cent and 0.2 per cent share of the world clothing exports, record Ramaswamy and Gereffi. When Indias share was 1.5 per cent. Fifteen years later, they improved their share to 3.3 per and 2.3 per cent. More commendable was the performance of Bangladesh. Its exports rose from nil in 1980 to 0.9 in 1997. Indias is stuck between 2.3 per cent and 2.6 per cent.

In formulating the textile policy, the goverment bends over backwards to show that it means business in its own way. It has taken apart not only its mind-set but even a little bit of the outmoded framework. The garment sector has been deserved from the SSI list. This is done in the hope that large scale units alone could deliver. Also gone is the cap on foreign investments. FDI to the extent 100 per cent can now flow into the garment sector. A venture capital fund to tap the new breed of entrepreneurs is also on the cards.

Everything looks fine on paper. But the optimism of FDI coming in a big way is misplaced. As it is, India is not destination for foreign entrepreneurs in the clothing industry. According to figures available in early December 2000, FDI flows into the textile sector declined to $27.5 million during the eight months to October. For the same period a year ago it was $49.6 million. It works out to less than one per cent of the total inflow.

Even if the foreign capital oozes in, it will be more interested in exploiting the booming domestic market. the temptation will be to shun the patently inhospitable overseas markets. The removal of the export obligation clause sets the stage. For an inward looking garment industry. It will be more profitable with a limited range of product-mix. As a rule foreign capital homes in on regions where industrial activity is vibrant.

So far, the small size of its units stood the industry well to some extent. They had what Ramaswamy and Gereffi call flexibility advantage. That enabled the industry to process even a wide range of orders of 500 pieces and even less., there is no reference anywhere in the policy to the latest strength of Indian industry. Or the way it could be put to effective use.
Globalisation means regional division of labour as seen by Adam Smith. Specialization to boost value added. In production and sales. Internet and e-commerce help to reduce the distance between production centres and markets. Giving the consumer a wide choice. But more powerful in the new scheme of things are retailers with extensive net-work. The quest for low-cost (but high finish) products makes market red hot.

Survival in such exacting conditions needs a dynamic approach. The policy calls for changes and attitudes. Not only calls. The Indian focus so far on the low end of the market. the industry supplying mainly cotton based clothing and seasonal fashion garments. Its major disadvantage is its inability to move up the value chain. And nil scope for diversification to include a broad spectrum of demand. The textile policy is mum on reshaping the industry and its marketing prowess. In a trade where the distributors and retailers are calling the shots. Driving the manufacturing industry into tight corner.

Lip service
Critics have shelled the Textile Policy 2000 for its neglect of employment generation. Call it under-employment or disguised employment, the handloom sector comes on top. Lending a helping hand to people mostly on the country side. Otherwise struggling to eke out a living. 
Being still an unorganized sector, precise estimates are hard to come by. The share of handlooms production has been placed at around 21 per cent of the total. About 7862 million square metres on the last count. The co-operative movement is broad-based in this sector. There are 23115 primary weavers co-operative societies registered across the country. The average production in handloom households is 3.66 metres per weaver per day.

Handloom clothes sell on their curiosity value. Not utility. The sector lacks the necessary marketing skills and high-decibel publicity. Which need brand-backing. As it is it needs millions of dollars to promote brands. Something beyond the means of both the industry and the government. Given the policy shift in favour of mechanized production, handlooms will be under greater pressure. Also foreshadowing danger is the increased emphasis given to blended fabrics. A section of the organised industry even sees a gold mine in the countrys lower cotton out put. As it will boost the synthetic fibre content in blended fabrics to at least 50 per cent. 

More uncared for is khadi. The rough-woven, but elegant, cloth that won India its freedom. Compared with handlooms, investments in khadi have more employment effect. Unlike handlooms, khadi is made out of handspun yarn. But it has gone out of fashion. 
Production of khadi has fallen to $120 million in 2000 from $138 million in the previous year. And employment to 1.23 million from 1.38 million, in the mean time.

The rehabilitation of khadi and its employment potential needs more than monetary investments. It calls for a rebuilding of the culture and spirit of self-respect. Possible only if the leadership is endowed with the appropriate moral fibre. Sadly lacking these days.

What therefore, in a nut shell, the final impact of the Textile Policy 2000? A set of targets beyond reach. A free-for all domestic market weakened by ill-advised protection the local industry will crumple before the squall of competition. In the event, one can see the prime minister Atal Behari Vajpayee much publicized promise of 10 million jobs going up in smoke.

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