Why Smriti Irani Faces A Daunting Task In Trying To Revive The Textile Industry

Smriti Irani _ textile minister

What Ms Smriti Irani could not or did not do as India’s Education Minister in fixing the education problem, she would do well to try and fix the jobs problem in her new role as Textiles Minister.

India’s textile industry directly or indirectly employs 45 million people and clocks revenues of around $100 billion. It has the potential to create some 100 million jobs in the next 10 years.

This also means a bulk of the country’s job creation needs could be driven by the textile industry. So what Ms Smriti Irani could not or did not do as India’s Education (HRD) Minister in fixing the education problem, she would do well to try and fix the jobs problem in her new role as Textiles Minister.

Admittedly, it won’t be that simple.

Ever since the U.S. quota regime was disbanded in 2004, India has lost ground. It’s share of global exports has remained at under 5% while China’s share of global exports is over 35% or about $280 billion, according to this report by Janmejaya Sinha & Rohit Vohra of Boston Consulting Group (BCG).

Moreover, as is pointed out by Sinha & Vohra as well as Morgan Stanley Chief Global Strategist Ruchir Sharma in his interview to me two weeks ago, India’s bigger loss has been textile manufacturing going away to smaller countries like Vietnam and Bangladesh, Pakistan and China.

India actually faces two kinds of disadvantages. The first is the 9.7% tariff disadvantage in exporting to zones like the European Union – with more tariff barriers coming up because of being on the wrong side of the trade negotiating table.

Second, Indian manufacturers have the traditional battles to fight, ranging from restrictive labour laws to infrastructure constraints. Thanks to which, the Sinha & Vohra report says, Vietnam and China are 3-4 weeks ahead in terms of time to market.

Despite all this, there is hope ahead.

Partly because some steps have already been taken. The first came in the form of a Rs 6,000 crore special textiles package announced two weeks ago – before the cabinet reshuffle which brought Ms Irani into textiles.

The package talks of creating 10 million new jobs in three years, attracting $11 billion of investments and generating $30 billion in exports. And hopes to do this by providing flexibility in labour laws to increase productivity as well as tax and production incentives.

“We will overtake Vietnam and Bangladesh in garment exports within the next three years, if we properly implement the package,” Textiles Secretary Rashmi Verma told theBusiness Standard newspaper.

But textiles does not function in isolation. Many of the problems faced by textiles are faced by several other industries and are to do with legacy as well as current approaches.

So how doable is this?

I put this question to Rahul Mehta, President of the Clothing Manufacturers Association of India (CMAI) and Prem Malik, past Chairman of the Confederation of Indian Textile Industry (CITI) on my show Policy Watch on Rajya Sabha TV that played out this weekend and on July 11.

Mehta acknowledges his industry’s immediate focus should be in putting up larger factories. “Because of inflexible labour laws, we mostly set up small sized factories. But we should now be able to put up larger ones,” he says.

He also says that Indian manufacturers need to expand into more markets, get into non-traditional products. “We are too focused on cotton-based summer season products and we have a good share there.” India now needs to focus on winter clothing, speciality clothing and man-made fabrics, he adds.

Malik says the Government's industry package attempted to correct several anomalies of the past, including flexibility in labour laws. For instance, the industry wanted flexibility because it is not a 12-month production cycle, rather comes with its peaks and lows.

But the larger challenge is the whole supply chain – from fabric to garment.

What he means is the Government policy should now focus on fabric. “We need to strengthen our fabric production, ensure good quality spinning, weaving and finishing."

And there is no substitute for a complete overhaul.

“You need a package for the entire value chain..we want to build larger factories, but for larger factories, you need larger inputs of raw material of which fabric is the key component,” he says.

Both Mehta and Malik say they are confident the textile industry has the financial wherewithal and the determination to expand and grow into larger factories for garment making.

There are bigger challenges as well.

India needs to direct its Make in India mission more towards low-end manufacturing, as Ruchir Sharma argues. “India has not been able to capture the low-end manufacturing space that China has vacated,” he says.

As an extension to that, India should bother less about China and more about Bangladesh and Vietnam. Because even if China is vacating this sector because of high costs, India has to grab its share before the smaller countries dive in completely.

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