`Garment Quota System Revamp Crucial'

India has not expanded its export product base over the past decade which has led to saturation of the market. Re-introduction of floor prices and re-orientation of the quota distribution policy should help rectify the situation, said H H Shah, president of the Clothing Manufacturers Association of India (CMAI), in an interview with Devendra Vyas. Excerpts:

What is the current status of Indian ready-made garment exports?

While on the one hand the volume of exports has gone up from the 1996 levels, unit dollar realisations have come down due to the fall in the value of the rupee against the US dollar.

Unit dollar realisations have been more affected in case of exports to the countries of the European Union. However, the unit dollar realisations to the United States have remained more-or-less steady.

The fall in the unit value rate (UVR) is mainly attributable to a decline in earnings of non-restricted garments. By and large the UVR for restricted items has held steady.

The UVR for restricted items in the EU is only 70 per cent of that in the US ($4.17 for the EU against $5.77 for the US).

The larger volume of exports to the EU coupled with a lower UVR is mainly responsible for the fall in dollar earnings. As regards non-restricted items of garments and those outside bi-lateral arrangements, the UVR for the EU is barely half of that for restricted items _ at $2.02 against $4.17 for restricted items.

Recession is generally made out to be the cause for the fall in exports but if it was so, the fall should be reflected irrespective of whether the garment is a restricted or non-restricted item.

The fall is mainly due to competition among exporter and the fact that India has not expanded its export product base over the past decade leading to saturation of the market.

Re-introduction of floor prices and restructuring of the quota distribution policy should help rectify the situation.

What effect do you think the budget will have on your industry?

The hike in duties on grey fabrics (5 per cent for cotton and 12 per cent for synthetics) will make inputs for the garment industry costlier. The additional 8 per cent special duty (subsequently reduced to 4 per cent) introduced across the board will push up garment prices.

The industry's plea for duty-free imports of inputs and trimmings to the extent of 5 per cent of the FOB value of exports in the immediately preceding year, has not been conceded.

Had this been done, the industry would have been able to increase garment exports.

The readymades sector is fighting for survival in the face of cheaper imported stuff. What is the solution to this problem?

The industry is alert to these developments and has recommended imposition of specific duties on all garments covered under the harmonised code to be levied on imports or an ad-valorem duty of 40 per cent, whichever is higher.

The imposition of specific import duties is not a measure to protect the domestic industry but to ensure that cheap, shoddy goods do not enter the country.

In fact, the CMAI is willing to open the Indian market for garments imported from any country provided they are of good quality.

While arriving at such duties, the association was mindful of the prices prevailing in the European Union/the US for these garments as well as the current rupee-dollar exchange rate.

We feel that if good quality garments are allowed to enter the country, not only will the Indian consumer be benefited but this would also act as an incentive to Indian garment manufacturers to upgrade quality to compete with the imported garments.

What are the problems plaguing the readymades sector?

In the domestic and export sectors, the main problem for the industry is the extremely low productivity in the country compared to that of Sri Lanka and Bangladesh.

The advantage generally espoused of low wages in the Indian garment industry is a myth when one considers the output per machine per worker which is lower than that in Sri Lanka, Bangladesh or Dubai.

Due to government's policy to encourage the NIE quota, many entrepreneurs have invested heavily in plant and equipment.

Unfortunately, despite the setting up of modern machines, production has not increased significantly due to the primitive work culture in India.

Notwithstanding this fact, CMAI has been advising its members that the salvation of the industry lies only in investing in modern technology and equipment.