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Textile exports: Fixing the warp

July 26, 2007 13:00 IST

Textile Minister Shankersinh Vaghela's disclosure that India's textile exports fell short of the target by 36 per cent in the first quarter of the financial year has to be taken with a pinch of salt since India does not set quarterly targets, and simply dividing the year's targets into four equal quarters misses out on seasonal variations in the business tempo.

Nevertheless, there can be little doubt that export growth is on a declining trend, partly due to the problems caused by the appreciating rupee.

One measure suggested by the textile industry is that the government return to it all taxes that are not rebated; according to one estimate, this adds up to 5-6 per cent of the industry's sale prices. But even though this is WTO-compatible, it is unlikely that the finance ministry will agree to it since it will trigger similar demands from other industries. And since the bulk of unrebated taxes are those charged by the states, how is the Centre to recover the money from them?

While considering the options before it, what the government can do is revive the defunct Textile Upgradation Fund Scheme, which lapsed on March 31, 2007. While the government hopes to revive the scheme by next month, it is clear that allowing it to lapse was a mistake, given how much the industry needs to modernise.

While the TUFS has been around since 1999, it was only when the global market began looking attractive that industry began using it with some enthusiasm and half the total funding done through the TUFS took place only last year.

That said, it should be obvious that the problems of the textile industry, created over decades, are not going to be resolved overnight. Labour laws that do not allow any flexibility in hiring and downsizing are largely responsible for India having fragmented units and the accompanying problems associated with this -- high costs and inability to execute very large orders.

Most weaving/processing units cannot supply fabric of uniform quality in the quantities required for large export orders. Tax exemptions were another big reason for dispersed capacity -- till a few years ago, handloom-processing units (which, ironically, could include 12 equipment that ran on electrical power!) were exempt from excise duties.

The biggest garment exporters from India typically have annual turnovers of barely Rs 600-700 crore (Rs 6 to 7 billion), distributed over 40-50 individual units in most cases. In the weaving and processing segments, much of the industry continues to be in the unorganised sector and has small capacities.

Till the government relaxes labour laws, it is unlikely that there will be any great consolidation of the industry along organised lines.

Enthused by the rural employment guarantee law, which promises jobs for 100 days a year to every member of a poor family, the textile industry has proposed that it be allowed to hire labour for at least 200 days a year, but be free to dismiss them after that, if need be, so as to reduce costs/liabilities in an industry where demand is highly seasonal.

This would allow the larger units to increase production, with all the associated benefits of increased productivity, but the government is yet to respond to the suggestion.

Until there is some movement on this front, it is unlikely that India's textile exports will do well. They may grow in numbers, but an important opportunity is being lost since India's share in global exports is still just around 4 per cent.

Business Standard
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