End of quotas to aid the big boys

IN FOCUS/ TEXTILES

India enjoys cost competitiveness but was unable at present to capitalise on its strengths owing to low quota allocation, according to the United States department of customs.

Within Indian industry, the larger players would grow faster as the current internal quota distribution mechanism was skewed in favour of smaller producers.

Textile majors like Arvind Mills, Ashima Group, Welspun, the textile unit of Reliance Industries Limited (RIL), Arvee Denims and Exports, Raymonds, and Indo Rama Synthetics were among the companies which were preparing themselves to seize the opportunities thrown up by the dismantling of quotas.

The manufacturers were investing in capacity expansion and exploring new avenues for exports.

"Keeping in mind the removal of quotas from January 2005 and the tremendous opportunities that will be available to Indian textile manufacturers, the company has planned for an expansion project, increasing the weaving capacity by 14 million metres and spinning capacity at cost of over Rs 40 crore. Commercial production on the expanded capacity is expected to start by April next year," said Shreyas Parikh, financial controller and company secretary of Arvee Denims and Export.

"The company is planning to offer packaged solutions to customers. It will be targeting sale of readymade garments to existing and new customers.Presently over 30 per cent of the Rs 430 crore of turnover comes from exports, and the company is keen to have 70 per cent of its turnover coming from exports in the post-quota regime of WTO," said B Ravi, vice president, corporate finance and company secretary, Ashima Group.

Large exporters from India were on the threshold of exponential growth akin to the software industry in the mid to late 1990's due to a triple leverage.

With quotas being scheduled for removal from January 1, 2005, the global textile trade was expected to rise three-fold to $500 billion, according to Raghav Gupta, associate director of research firm KSA Technopak.

Arvind Mills would be setting up a cotton trouser unit and a jeans plant in the readymade garments sector in Bangalore.

This will double Arvind's production capacity to over 14.4 million pieces of garments on a single shift basis from existing 7.2 million pieces.

Garment production would rise to over 28.8 million pieces on a double shift basis in the next three years.

"The new 2.1 million pieces per annum jeans unit and the 1.5 million pieces per annum Khakis unit at Bangalore is on schedule with completion due by end of the financial year 2005. Arvind is also expanding its knits garment capacity in Ahmedabad to 4.2 million pieces per annum," said Jayesh Shah, chief financial officer and director of Arvind Mills.

India had only two per cent share of the US denim garment quota allocation, while China and Hong Kong had 21 per cent of the garment quota allocation.

India's quota allocation in the European Union (EU) was only four per cent at present while China and Hong Kong had 39 per cent of the quota allocated.

Owing to the low quota allocation for the US and EU markets, India's share of global clothing exports was limited to 2.8 per cent, despite the low cost advantage it offered.

Around 84 per cent of the export quotas would be dismantled from January 1, 2005. India and China were expected to be the key beneficiaries.

India's textile exports were expected to grow at a CAGR of 21 per cent, with the larger players growing faster.

Global buyers like Wal-Mart, Target, JC Penney and Tommy Hilfiger were keen to substantially step up sourcing from India, and the textile majors were gearing up to take every advantage of this opportunity as well.

Competitive cost of labour, keen understanding of markets and a large pool of trained manpower were the advantages that Indian units seeking to produce world-class products enjoyed.

India's share of the global trade was expected forecast to grow the fastest as its current quota allocation was among the lowest.

The CAGR of textile exports from India was expected to be 21 per cent, rising to $50 billion by 2010. The CAGR for the global textile trade was expected to be 10 per cent.

Wal-Mart alone intended to source around $10 billion of goods from India.