In a little over nine months from now, on December 31, the multi-fibre agreement, that for decades has governed the international trade in textiles, will come to an end. The agreement was designed in the mid-1970s with a view to protecting the textile industries of the West. | |
| It did so by allocating quotas of textile exports to every major exporting country. This had the result of limiting imports into the US and EU, the two largest markets. |
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| Fortunately, the agreement has a sunset clause, and though it has been extended four times, it will finally be phased out on New Year's. International textile trade will become quota-free for all, as it should always have been. |
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| How will India fare in a more competitive market? One pointer comes from the fact that India's exports to non-quota markets have been growing faster than to the quota markets; logically, India should stand to benefit from the opening up of all markets. |
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| But that is at the level of generality. Much will depend on the speed with which India adjusts to the new environment, as also what competitors do. |
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| It is also useful to analyse the immediate consequences of the phase-out. These have been laid out admirably in a paper by Samar Verma, chief economist at Oxfam. |
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| The most noteworthy point in it is that India may have little to fear from Chinese competition, which has not only moved slightly upmarket but is also constrained by quotas to the US for another three years. |
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| Besides, China is focusing on garments export as its national policy, thereby moving away from domestic textile production. Both these features provide opportunities that India must exploit. |
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| In order to do so, however, it needs to follow not just appropriate policies in respect of domestic excise duties but also open up the domestic market to foreign competition, especially in the areas that are now held hostage to lobby interests. |
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| Another important element in this policy is the opening up of foreign investment in retailing, because of the way the textile distribution chain is organised worldwide. |
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| If India is to gain from the tidal wave of competition that is about to sweep the international textile trade, it will have to stop thinking small. While artistry has its place in the market, the key lies in scale. |
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| This would involve, very importantly, the de-reservation of the knitwear segment. The market for knitwear is huge, and growing rapidly, but India can exploit it only if it allows the big players to move in. |
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| India will significantly gain on exports of garments and made-ups, while the gains in yarns and fabric will probably be smaller. |
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| But these gains will be short-lived if the collateral policy changes are not put in place quickly. That is why accelerated reform of the textile industry must be priority for the next government. |
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| Indeed, those of the changes that can be made straightaway must be made without waiting for a new government to come in. |
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