A wind of change has been blowing over the Indian garment sector in particular with the end of the quota era. Slowly but surely it is changing the entire economic scenario. Delicensing, De-regularisation and decontrol have increased the sphere of competition. The globalisation of Indian economy has made it easy for capital and technology from abroad to enter the country. Indian companies at the small and middle level have already begun to feel the crunch. Mergers and takeovers are on the increase. As more capital and technology flow in, Indian companies will face even more stiff competition. The question being asked is will they be able to face the challenge or go down under competition by the multi-nationals and their surrogates who have far greater resources of finance, technology and skilled manpower and have the capacity to diversify and restructure themselves.

The globalisation of economies has intensified international competition. The economic landscape of the world is undergoing a rapid change with the emergence of regional trade blocs, which makes it all the more difficult for countries outside the group to penetrate and compete. The market access would become an important aspect of translating competitiveness into export performance.

The Indian economy is passing through a critical phase of transition and restructuring. It continues to be under severe strain because of demand recession and declining trend in industrial production and exports. The tight credit policy, high interest rate, severe liquidity crunch and poor infrastructure have caused a setback to industrial production. The garment export industry is one of the most dynamic sectors of the Indian economy. It has made significant progress over the years not only in respect of its contributions to industrial production, exports and generation of employment but also in achieving a high degree of sophistication, quality upgradation, cost reduction and standardisation capable of withstanding stiff international competition. The long-term aim is to increase exports from the current target of $ 6 billion to $ 25 billion by 2010. India is now the strategic choice with a vertically integrated, flexible and comprehensive production infrastructure. Skilled labour, production-friendly systems and stable economic environment helped India deliver wide varieties and huge volumes for the global market.

Under the WTO, Multi Fibre Agreement (MFA) quota restrictions on apparel exports ended from January 1, 2005 providing an opportunity to India and other developing countries to export textiles, including apparel items, free of any quantitative restrictions. The unshackling of the apparel sector from the quota regime has opened up opportunities for the Indian apparel industry to fully realise its potential by converting the comparative advantages available in the country into competitive benefits to further strengthen its position in the international market. However, abolition of quotas has removed only one major impediment in the path of export growth. It is very essential that we increase our production and productivity, modernise equipment, motivate and discipline our labour force so as to ensure efficient use of all factors of production. The guiding light of our export vision should be governed by three principles i.e. quality, price competitiveness and timely delivery of shipments.

As the international market, which is highly competitive, has become more tough and intense with the phasing out of the quota regime, the garment exporters have urged the government
to provide a suitable package of incentives including adequate and need-based funds to exporters at reasonable rate of interest and assured labour reforms with flexible labour laws to prepare the Indian textile Industry for competing in the new quota-free environment where only efficiency along with quality can ensure survival. The government should allow garment export units to hire workers on contract basis for short duration to meet seasonal order from overseas buyers.

Garment manufacturing is extremely labour-intensive and will remain so even with greater automation. A congenial labour environment is, therefore, necessary to ensure maximum productivity. The obsolete and antiquated labour legislation has hindered the growth of the extremely labour-intensive garment manufacturing. The restrictive industrial and labour laws restrain the management's capability to respond professionally, effectively and speedily to the fast changing dynamic international textile scenario. The government should have pragmatic, balanced and flexible labour laws, keeping in view the recent changes in economic, commercial and fiscal policies.

With productivity rates being among the lowest in the region, there is a need for productivity-linked wages by de-linking of wages from the consumer price index. Since the increase in dearness allowance is linked to inflation and unrelated to productivity, the wage cost per unit of production keeps on escalating. This adversely affected the garment sector where price-sensitive demand patterns restricted the scope for cost plus pricing.

The government should provide a suitable package of incentives including higher duty drawback rates and adequate and needbased funds to exporters at reasonable rates of interest to enable garment exporters to face the emerging challenges, which demand a fresh strategy to further intensify export promotion measures. It is essential that an export climate is created where the policies and procedures are made pragmatic and exporters are able to produce export quality goods of international standards with the least procedural and policy regulations.

The government should also exempt exporters from Service Tax and VAT to avoid blockage of capital of exporters, as the procedure for refund is time-consuming, resulting in unnecessary delays and harassment. The government should also abolish the Textile Committee Cess. It has been collecting Textiles Committee Cess from 1975-76. The cess was introduced for funding the activities of the Textile Committee. However, the amounts collected have been several times more than the Textile committee needs funding. The interest on excess funds collected so far would be more than sufficient to fund all the current activities of the Textiles Committee. The Textiles Committee Cess was introduced with a view to having strict control on the quality of garments and other textiles and inspections were conducted by the inspectors of the Textiles Committee for each and every consignment but now this procedure has been abolished and hence the cess is no more justified. The abolition of the cess would not only reduce the transaction cost of the exporters but also avoid unnecessary paper work.(The Cess has been abolished at the time of our going to the press)

The Indian industry will have to attain a higher level of productivity and economic viability. Upgradation of technologies and modernisation of industry will have to be combined with better efficiency in the use of all factors of production. The resultant improvement in product quality and cost reduction would not only stimulate domestic demand but would also enable our industry to compete in the international market.

To achieve a high rate of export growth, the government should realise the need to reorganise the economic set-up, remodel development strategy and improve infrastructure. There is need for an innovative and radical credit policy for the export sector to ensure easy supply of need-based funds at reasonable cost so as to provide them better competitive ability in the international market. The exporters should also be encouraged to go ahead with their modernisation plans with latest technology by providing them adequate and timely credit at internationally competitive interest rates.

The government is implementing a Technology Upgradation Fund Scheme (TUFS) for the Textile sector for providing financial assistance to modernising units at internationally competitive interest rates. Under the TUFS, manufacturing units are eligible for long term and medium term loans from IDBI, SIDBI and IFCI at five per cent lower rate of interest than the normal lending rates of banks. However, the normal utilisation of funds under this scheme has been disappointing. The scheme which was launched from 1st April, 1999 has been extended upto 31st March, 2007, which is the terminal year of the Tenth-Plan. The small Industries Development Bank of India (SIDBI) has recommended that financial institution and banks follow the Chinese example of providing credit at three per cent interest for technology upgradation in the textile industry. The government should also accept the recommendations of the textile industry for further extension of the TUF Scheme till 31st March, 2010 with enhanced allocation to further improve the competitive strength of the Indian apparel industry which is committed to quality, credibility and professional excellence. The continued and increased availability of the funds scheme would encourage technology upgradation in the garment export industry, which is making fresh investments in plant equipment to expand their capacity to the optimum level to enjoy the economies of scale.

About the author:

Mr. Surinder Anand is the executive secretary of Garments Exporters Association (GEA). He had earlierworked with the Indian Newspaper Society, the All India Manufacturers organisation (AIMO), The Indian spinners association, the Shriram Centre for Industrial Relations and the Institute of Economic Growth Delhi. He has been associated with the garment industry for well over 10 years.

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