| India’s exports of textile and clothing products slipped by 7.5 per cent in January 2005, the first month after the phasing out of quotas.
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| In the same period, China upped its exports, already touching a humungous $100 billion in 2004, by over 100 per cent in some markets such as the US and in double digits in others such as the EU.
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| Were it not for the fact the textile and clothing sector remains one of the most important sectors for India—both for industrial and agriculture output as well as for generating employment—I would have gloated on my prescience since in recent months, almost every other analyst, industrial body, and the ministries of textiles and commerce have been drumming up the story that post-quota phase-out, the Indian textile industry will be growing by leaps and bounds, and our exports will see a quantum jump.
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| Of course, I must hasten to add that no conclusions should be drawn on a single month’s developments and that we really should wait at least for the next six months to really get a better feel of the trends.
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| I must also add that in the post-quota scenario, many of the top-ranked textile and clothing companies have seen an upsurge in inquiries although many of them do not have much surplus capacity to benefit from the same.
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| However, it would be a good starting point if our textile and commerce ministries, and our various textile and clothing industry associations were to acknowledge that India needs to weave a bolder and more innovative strategy if it were to get on the post-MFA bus along with China.
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| There is no point in talking any more about what should have been done in the last 10 years. What is more important is to try to find out what can still be done.
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| To do so, some hard facts have to be kept in mind. The first is that at this point, the Indian fabric manufacturing base is non-competitive—by and large—when compared to China.
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| We barely retain some strengths in relatively fine 100 per cent cotton fabrics and perhaps in some other niche areas. Secondly, while we can certainly make fresh investments in new manufacturing capacity, our industry would face challenge from China, where such capacity has already been created in the last few years.
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| Thirdly, China has a tremendous head start in almost all categories of textiles and clothing production whereas the Indian export basket is extremely narrow in terms of product categories.
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| Finally, various sources have estimated the investment needs of the Indian textile and clothing sector in the range of Rs 125,000–150,000 crore.
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| However, there is practically no single sector in India that has seen investment of this magnitude in the last five years and there is none that is likely to see in the next five! Hence, whether the textile and clothing industry can buck this trend is yet to be seen.
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| What are, then, the options for India? While we must certainly continue to explore all opportunities to invest in making our fabric base much stronger, it is quite likely that our garment exports in the next few years will be increasingly dependent on imported fabric and hence, the net value added in India would largely be the “labour” value added in sewing (akin to what India does in the export of gems and jewellery, wherein the overall export figure looks very impressive but net value added in India is a very small fraction of the same once the cost of imports of raw material is taken out).
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| A paradigm shift for India (and Indian companies) could be to consider investing in making acquisitions of brands and retail businesses largely operating in the clothing category in major markets such as the US, the EU, and Japan.
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| It is a fact that the maximum value addition takes place at the end closest to the consumer. While Chinese companies have started making acquisitions in other industrial sectors such as consumer durables, information technology, and computers, they have not done so in the fashion industry.
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| The know-how of managing high-end fashion brands/clothing retailing could be invaluable for such Indian companies to move to the highest end of the value chain, leaving the relatively low and rapidly commoditised mass end manufacturing to China.
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| Closer direct linkages with major international design and product development centres/entities will also facilitate Indian textile and clothing companies to offer innovative products not only for the international markets but also for the Indian market itself.
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| In the coming years, the sheer size of the Indian population as well as increasing prosperity will make India one of the biggest markets in the world for textile and clothing products.
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| While there will be an upper end of the market to focus on, at that end, almost all major global brands will be competing for the same. The Indian textile and clothing industry’s opportunity lies in creating Indian adaptations of successful businesses such as Inditex/Zara (Spain), H&M (Sweden), Gap (US), and Giordano (Hong Kong).
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| At these (equivalent) fashion-value positions, only a “Made-in-India” product can be cost-competitive.
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| It is still some time before these global players make their presence in India, and hence, at least a few leading textile/clothing companies must draw up (and urgently implement) plans to create such Indian brands/retail businesses so that even if we end up missing the post-quota export opportunity by some distance, we can at least retain most of our domestic market!
arvind@ksa-technopak.com |
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