The phasing out of the Multi Fiber Arrangement (MFA) in January 2005, opens up new challenges and opportunities for the Indian textile industry. Is the industry geared up to meet the challenges?
In 2003-04, the Indian textile industry accounted for 21% of the global spinning capacity and 33% of the weaving capacity. India's share in world trade of cotton yarn was around 25%. The industry has high levels of operational efficiencies in spinning and weaving: Around 96% for spinning and 85-90% for weaving. The skilled work force available in India has been relatively low-cost in an industry where labor adds to the largest component of manufacturing cost in textiles (Refer Exhibit I for labor cost of textile units of various countries).
The wide availability of skilled labor in India has been another differentiator. India is adept at traditional apparel making like embroidery, mirror work and beading, design and at making complex garments. Some Chinese buyers have been planning to manufacture part of their value added products in India. Existence of training institutions like the National Institute of Fashion Technology, which produces nearly 1000 graduates a year, has enhanced design capabilities of India in the fashion industry. The government has also ensured a liberal policy on external borrowings and concessions on capital goods imports for the textile industry. With the shift of the manufacturing facilities from the west to low-cost countries, analysts feel that India is well positioned to take advantage of the new order to become a global textile and apparel hub.
However, textile export orders for the season beginning January 2005, when the quotas ended, did not show a sharp increase. Export orders from major retail companies have risen only by 5-6%. Moreover, these orders have been contracted at prices 5% lower than existing ones. While slackening retail sales in the US has being cited as a reason, overseas buyers like Wal-Mart, Target, GAP and J C Penney have not increased sourcing from India for the season beginning January 2005 due to a slew of factors. There was neither clarity in the price ranges that Indian players could offer to the buyers, nor were they sure of the volumes they could offer. |
