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Exclusive: How did Indian textile industry get derailed and what’s the way out

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The Indian textile industry has gone through avoidable policy constraints in the past that have restricted the growth of this sector for decades. This distorted the structure of our industry to such an extent that most of the major industrialists who played an important role in the sector before and after Independence eventually migrated to various other sectors and textiles in general and apparel in particular became a small man’s business.

Foreign occupation for centuries and Industrial Revolution in Europe resulted in our losing the grip that we had on this industry for centuries, though production for domestic consumption somehow continued. Our textile exports almost needed a rebirth after Independence. World trade in apparel started in significant quantities from the 1950s. However, India’s exports of apparel assumed significant levels only from the 1970s onwards. That was the peak of the ‘License Raj’ in India, with its strangle hold on industrial production.

During the initial decades after Independence, two major factors influenced Government policies in the textiles space: the lack of capital to invest and the need for uplifting rural economy. Global sourcing of inputs was also very difficult because of limited availability of foreign exchange. The Indian apparel industry had to develop initially within these constraints and that is the major reason why it developed in the SME sector and the product mix was constrained by fabrics domestically available. The tardy progress in the areas of innovation and product diversification in this sector is substantially attributable to this backdrop.

Even now, the dominance of domestic inputs continues and ours is perhaps the most self-reliant textiles industry in the world. China which has the largest textiles industry is also the third-largest importer of textiles in the world. We have the second-largest textiles industry with imports at less than 10 per cent of domestic production and that is also mostly restricted to speciality products not available locally and those from global suppliers nominated by importers. The practice of exporting textile products from imported raw materials has not caught up with our industry. A strong urge to keep dealings with customs authorities to the minimum and delays involved in clearing imported fabrics and later proving that they have been fully used for export production, are elements that still influence decisions on sourcing of raw materials by the apparel industry. This is part of the reason why we have limited presence in high volume products like uniforms, industrial garments and regular wear. This has to change. There is immense scope for increasing apparel exports from imported fabrics.

In the case of Government levies, the textiles sector had a deadly combination of high excise duties and a large number of exemptions for a long period. The policies had a soft corner for the small entrepreneurs and several products were reserved for small and decentralised units in order to insulate them from competition with larger players. This made the textile manufacturers incapable of handling international competition, when we were forced to open up our markets. Most of the segment-specific excise exemptions and disparities in other policy areas were removed from 2004 onwards. The major disparities that still remain are the reservation of 11 items exclusively for production in the handloom sector where they cannot be produced competitively, the hank yarn obligation that forces spinning mills to pack huge quantities of yarn on hanks beyond the capacity of the handloom sector to consume, and the additional duty burden on manmade fibres. Most of these constraints affect the non-apparel segments. However, SSI reservation on apparel products which had been driving apparel industry to the unorganised sector was also removed only around the same time. Moreover, growth in the apparel segment is closely linked with availability of suitable fabrics at competitive prices.

Our craft and heritage could hold sway in global markets in the distant past. But today we need technology, productivity and cost competitiveness. There was a time when a major part of our apparel exports was from handloom fabrics. Today, handloom fabrics are rarely used by garment exporters. This is simply because demand trends in global markets have shifted away from handloom products. But our policies including the Foreign Trade Policy are still stuck with concerns for the handloom sector.

Our domestic policies also try to promote handloom goods to the detriment of other textiles. And it is not as if this focus is making any dramatic improvement in the plight of the artisans. They continue to be under-paid and at the bottom of the pyramid and the number of handlooms in operation has been consistently declining for decades now. Our heritage and craftsmanship in the textiles space are invaluable. We were masters in these much before the western world learnt to produce textiles and they have admired these for centuries. But the question is, if they are not interested in them now, should we keep on labouring to bring them back to these products or try to produce what they want? In a situation where global consumers are looking for modern products and they have abundance of them coming from several countries, can we afford to spend our efforts and resources to push our heritage products to them? Retraining and redeploying workers engaged in unproductive sectors should be able to address their livelihood issues.

There is no gainsaying that heritage and crafts should be preserved. The only issue is whether the marketplace is the best location for doing this, especially the global markets. The social objective of protecting the livelihood of our artisans and the economic imperative of achieving the maximum possible growth of our textiles sector are both important. And these are not mutually exclusive, if we guide and assist the handloom sector to produce what it can produce competitively and leave the other products to power looms and mills that can handle them better.

Once we shift the focus in Government’s textile industry policies from the past to the future and create conditions where competitive production can be ensured in the whole textile value chain, this industry can grow immensely and play its legitimate role in developing the manufacturing sector and generating productive employment. There are a few things that need to be done immediately to set this process rolling. Some of them are explained below.

It is important to attract investments in large production facilities in order to ensure economies of scale in regular wear and industrial garments which have a huge demand in global markets and negligible presence from our industry at present. This would become viable only if the labour law regime is updated to the level of what is prevalent in our competing countries and in the importing countries.

Outdated policy stipulations like handloom reservation and hank yarn obligation should be withdrawn in order to unshackle the fabrics and spinning segments and allow them to produce more competitively. Efficiency, rather than vulnerability, should guide Government policies because markets, especially the global markets, are ruthless in competition. Our apparel industry can achieve its true potential only if the focus of Government policies for the entire textiles and apparel sector are revamped with this approach.