|CURRENT ISSUE DECEMBER 27, 2004|
|BUSINESS & ECONOMY: END OF TEXTILE QUOTA|
|Dressing Up For 2005 |
Indian textile industry will invest about Rs 18,000 crore and create over 12 million jobs in two years. A peek into its battle to thrive in the new trade regime which comes into effect from January.
|By Malini Goyal|
He has been at it for 33 years. He deals with the biggest and the best brands-Gap, Ann Taylor, Marc Jacob and Banana Republic. But nothing could have prepared Sudhir Dhingra, chairman of leading apparel exporter Orient Craft, for the opportunity that stares at him as the quota regime is to be unplugged. Recently, on a visit to Europe he snapped up a Levi's plant. Now he is trying to hire its plant manager, which will cost him a stiff Euro 120,000 (Rs 71 lakh) annually but he does not even blink. He is gearing up for January 2005 and wants every stitch in place. In the past two years he has commissioned four new plants, hired 3,500 workers, set up a denim-wash unit in a German venture, raised productivity by 30 per cent and launched his own labels in India and the US.
From Bangalore to Gurgaon, Delhi to Mumbai and Tirupur to Ludhiana, preparations for January 1 are in full swing. That is the day country-specific quota restrictions will come to an end (see box). Garment and textile companies are undergoing a makeover, while global buyers like Wal-Mart, Gap, Target and Li & Fung are upscaling their India offices. As a result, experts estimate the $41.5 billion (Rs 1,86,000 crore) textile industry in India will sink in Rs 18,000 crore in 12-18 months and create over 12 million jobs. The Government hopes that the current garment and textile exports of $13.5 billion will touch $50 billion by 2010, with the $6 billion garment export doubling by 2008.
Textile and garment exporters hope that the end of quota regime will mark a new beginning for them the way the turn of the century saw the rise of India's it sector. "The end of the quota regime will be a historic turning point for the Indian textile and garment sector," says Kamal Nath, minister for commerce and industry.
The opportunity is undoubtedly there but is India ready for it? India has everything that the industry needs-raw material, abundant cheap labour and great entrepreneurial culture. Its domestic textile and garment market is $28 billion. However, the hurdles in the way are glaring. Shipping delays are frequent and costs higher. Shipping to the US from Bangkok is 18 per cent cheaper than from Mumbai or Chennai. Already some exporters are looking overseas to grow. Deepak Seth, chairman, House of Pearl, is setting up new factories overseas, including one in China, which will employ 2,000 workers by 2005. "I will save up to five weeks of shipment time and get better productivity."
Textile has never been a glamorous business. Policy bias towards small-scale industries (SSI) ensured that the industry remained fragmented and unorganised. But there is no denying that the Indian economy has had considerable stakes in textile and garment sector. It is the largest industry in terms of output, employment and export. It accounts for nearly 4 per cent of India's GDP, constitutes about 20 per cent of its export earnings and with direct and indirect employment of 83 million people, employs over 8 per cent of India's population. What is more striking is that over 95 per cent of those employed in the sector are unskilled workers with virtually no professional training.
Yet the industry has been ignored for long. And after 2005, if it does manage to pull it off, it will be in spite of the Government. Take Bangalore-based Gokaldas Exports. It has set up eight factories in the past two years and will set up three every year with up to 8,000 workers in the near future. Bigger textile majors are metamorphosing from fabric exporters to garment exporters for bigger business and better margins. Arvind Mills, which so far sold denim fabric, will now stitch jeans for Gap and Levi's. Similarly, Raymond Ltd has invested Rs 225 crore in capacity expansion and three new units for suits and trousers. Says Sanjay Lalbhai, managing director, Arvind Mills: "Vertically integrated firms will be best placed to service global clients."
The WTO estimates that post-2005, India's marketshare in the US garment imports will go up from the present 4 per cent to 15 per cent. Thanks to the it industry, made-in-India brands have good credentials today. "Global buyers want to be here. It is also because buyers do not want to put all their eggs in China's basket," says Arvind Singhal, chairman, KSA Technopak. India will also score over China as global buyers enforce stringent social audits.
But Romi Grover, head of Hong Kong-based Li & Fung, which sources goods worth $250 million from India, punctures the optimism. "We have changed but we are still not where we need to be," he says. While China created garment behemoths, in India, of the 7,500 exporters only 10 have an export turnover of more than Rs 100 crore. Over 90 per cent of India's fabrics comes from the unorganised sector.
The current expansion may take care of some of these issues. But these mom-and-pop units need to professionalise the management. They also need to strengthen the industry body Apparel Export Promotion Council to make their presence felt.
While January 1 will change the rules of the game, it is the next three-four years that will separate men from the boys. Small units are likely to close shop or consolidate. But many hope the few big ones that will survive will grow up to be the Infosys and Wipros of the textile and garment sector.