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BUSINESS:
TEXTILE INDUSTRY
A
Million Looms Bloom and Then ...
Weaving
is the most fragmented, outdated and troubled segment of the textile industry
in India. Ironically, it's been driven to this state by government policies.
Fabric in India is produced by three kinds of mills: composite mills (mills
that make yarn, fabric and sometimes garments too; about 2,000 in number),
power looms (over 15 lakh) and thousands of handlooms (cottage industry).
Such large-scale fragmentation was driven by the objective of creating
employment; power looms can be set up anywhere with minimal investments.
To ensure
that a million looms bloom, the government granted them discriminatory
benefits. The excise duty on cloth produced by power looms is less than
half of what cloth produced by composite mills attracts. Besides, power
looms are provided subsidised power and water and their products are exempt
from OCTROI. According to a recent report prepared by the Prime Minister's
Council on Trade and Industry, the cost of producing one metre of cloth
by a power loom is 0.22 paise, compared to Rs 1.60 in a composite mill.
Such a huge cost differential, the result of subsidies, has made composite
mills sick, and has taken fabric making away from mills to power looms.
Laments Anang Lalbhai, managing director, Arvind Products Ltd: "With
employment creation being the objective, government policies were biased
against composite mills and in favour of power looms. But now that the
attention has shifted to competitiveness, the rationale of the old policies
is in question."
Rightly
so. Most power looms are too small and too technologically outdated to
produce quality fabric at competitive prices. Consequently, India has
a piffling 3.2 per cent share in the global fabric market. Even countries
like Bangladesh have rejected Indian fabric for its poor quality. While
India accounts for 85 per cent of Bangladesh's yarn imports, less than
10 per cent of its fabric imports are sourced from India.
Readymade
garments are an equally deplorable story of missed opportunities, inflicted
largely by government policies. Garment making in India is reserved for
the small-scale sector. Which means no garment manufacturing unit can
have an investment of more than Rs 3 crore. This precludes the entry of
big corporates into garment making, which is one reason why India's share
in the global garment market is just 2 per cent (or $5.5 billion). China,
in eight years between 1990 and 1998, had raised its share in the garment
export market from 9 per cent ($9.4 billion) to 17 per cent ($30 billion)
and is now the world's largest exporter of apparel. Its success formula?
Large and integrated garment factories, which use the latest technology
and reap economies of scale. Even Sri Lanka has created an integrated
facility for apparel manufacturing in Colombo called Premadasa Park. Mexico
is a step further. Its La Laguna textile park produces 4.5 million pairs
of denim jeans every week. It employs 70,000 people and the entire work
of assembly, laundry, cutting, stitching, labelling and selling takes
place in one complex.
By fragmenting
the industry, India has quite clearly been swimming against the global
tide. And when the floodgates of free trade open on January 1, 2005, Indian
textiles may not only be swept away from some of their foreign markets,
but more portentously, they would face a deluge of foreign rivals in the
domestic market. From the levels of 100-150 per cent in the early 1990s,
customs duties on textiles has fallen to 20-35 per cent and further reductions
are due in the next three years. Points out Lalbhai: "As customs
duties are scaled down, excise duties and other domestic taxes too will
have to be brought down to provide an even field for the domestic industry."
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