Indian Textiles Fail To Achieve Economies Of Scale

Economy

Indian Textiles Fail To Achieve Economies Of Scale

Garment exports from India have continued to be under pressure. Having achieved flat performance in the last fiscal, this financial year is likely to be no better. In fact, the exports are expected to witness a decline of 7-9 per cent this fiscal year ending March 31, 2018. Meanwhile, Wazir Advisors in its recent report says that India can achieve USD 80 billion textile and apparel exports by 2025 at a CAGR of 9 per cent through right kind of policy measures by the government in partnership with the industry. The domestic market on the other hand, can grow at a CAGR of 11 per cent to reach USD 220 billion by 2025.

“A whole lot of policy initiatives are being provided by the government in order to boost the various segments of the industry. It is high time that the industry gears up and synergizes to make use of these measures in a much effective manner. As a government, we are ready to support the industry in all possible manner,” said Kavita Gupta, textile commissioner, Government of India. She is of the view that as a country, India has got all the necessary ingredients and fundamentals to strengthen its position in the global market where China’s strategy to focus on high-end segments in the wake of growing cost structure has provided good opportunity to other players.

According to the Wazir Advisors’ report, despite the fact that the government has initiated various policy measures, the industry has not been able to exploit its potential fully. It has cited fragmented nature of the industry, high cost of capital, lack of FTAs, limited skill availability and raw material challenges as some of the reasons behind this.

It says that India’s major competing countries like Bangladesh, Pakistan, and Turkey have preferential market access to major global markets. Vietnam has also signed a trade agreement with the EU, which will be implemented soon. India till date doesn’t have any trade agreement with any major textile consumption base. These differential duties put India in a weaker competitive position in the world market. The report points out that while most of its competitors like China, Bangladesh and others, work on the principle of large scale production (economies of scale), India continues to languish as its textile sector is highly fragmented in nature.

“These small scale units have limited resources and lack of awareness and thus expansion of capacity and upgradation becomes a huge challenge. Moreover, lenders perceive it as a huge risk and manufacturers are satisfied with the limited resources,” said the report adding that high cost of capital has also taken a big toll on the industry. In India interest rate is 11-13 per cent as compared to 5-6 per cent in China and 6-7 per cent in Vietnam. Availability of right kind of manpower is also a matter of concern. In fact, the education and training infrastructure is not geared up to meet the demand of skilled manpower. Investment in improving the skill and productivity of the workforce by both private and public sector is missing at present.

On skilling the workforce, the report has urged the need to scale up the initiative on skill development through the Textile Skill Sector Council in partnership with the industry. Also, it believes that there is need to implement a program for assisting individual firms for providing qualitative training support at all levels of the organization. There is need to formulate a scheme to support companies to work towards improvement in quality and productivity level in the sector. In order to achieve the desired objective, the government may work with the Quality Council of India and National Productivity Council, recommends the report.

Besides, the report has also recommended R&D support, labour reforms and attracting FDI and large investments for the industry.