Weak policy fabric

India's textile sector needs wider reforms

The Union government’s proposal to make the use of a range of Indian-made “technical textiles” — textiles used in industrial applications — mandatory for ministries and public agencies offers another example of the paucity of fresh ideas for reviving the economy. In seeking to artificially create a market for a category of textiles, the plan is reminiscent of successive Jute Control Orders, which made it compulsory for industry to use jute packaging for sugar, cement, fertiliser, and some other commodities. Under the current proposal, seven ministries involved in major infrastructure projects, such as the railways and road transport, will lead the initiative in the use of these textiles. 

The intention behind this proposal is praiseworthy — to encourage a fast-growing segment of the textile industry under the Make in India rubric and create jobs. The questions are whether such market creation by fiat is an efficient policy choice and is it necessary at all. The experience with the Jute Control Order offers some pointers. It was introduced with the laudable objective of reviving the perennially ailing jute industry. But other structural problems — not least absurd procurement prices, inadequate investment, outdated technology, and inflexible labour laws — ensured that jute mills remained in the sick bay, jute workers in dire straits and jute farmers in abject poverty. It is worth noting that the same problems prevent the industry from reviving despite a marked resurgence in the popularity of jute in the environmentally conscious West.

The Indian textile and garments industry does not suffer from the lack of a market but a weak ability to compete in terms of price and quality with producers from, say, Bangladesh and Vietnam, for roughly similar reasons. It would have been more constructive for the ministry to have focused on enforcing as well as expanding the coverage of an imaginative package for labour created in the first Modi government. That would have enabled flexible hire and fire without impinging on benefits, encouraging the kind of economies of scale that the textile industry sorely needs. Equally, an urgent programme to streamline the processes of the goods and service tax, one critical reason for weak exports, would have been more helpful than mandating demand. Working with the ports and shipping authorities to improve turnaround time in India’s ports would have been no less useful. At a more granular level, technical textile exports have been among the faster-growing segments of the business. The ministry has, in fact, gone some way towards facilitating this sub-sector by notifying HSN codes for a chunk of technical textiles, enabling manufacturers to claim central and state government incentives. Useful enabling interventions of this nature would go far longer towards helping manufacturers compete meaningfully on a global scale.

Experience from the bad old days of the licence raj has shown that a protected and guaranteed domestic market is likely to accentuate inefficiencies and encourage the kind of corruption that inevitably attaches itself to the tendering process. The fact is that Indian textile exports have long been misaligned with demand — being predominantly in cotton when the market preference is shifting towards synthetics. This inability to anticipate global market trends is symptomatic of a key weakness of Indian business in general. Protecting markets is unlikely to encourage them to improve.