National Textile Policy 2000-Review

Dr. D. Narasimha Reddy, Independent Textile Analyst 1/20

National Textile Policy 2000:

Need for a Review 1.0 Introduction Indian textile and clothing industry contributes about 4% of GDP and 14% of industrial output and it is the second largest employer after agriculture, it is estimated that this industry provides direct employment to 35 million people including substantial segments of weaker sections of society. With a very low import-intensity of about 1.5% only, it is the largest net foreign exchange earner in India, earning almost 35% of foreign exchange. National Textile Policy was brought out in 2000 five years after India signed the Agreement on Textiles and Clothing. This policy was aimed to energize Indian textile sector, in order for it to face the free global textile trade and its consequences by 2005. However, even five years after, there is no review of this policy. 2.0 Macro Environment Before 2000, there were different conditions and thinking, which led to the development of National Textile Policy. Understanding this macro environment is important, before the National Textile Policy is analysed. Every analysis, then, surmised India has the potential to benefit substantially from the abolition of quotas in terms of increased market access, employment and output growth, and productivity gains. Policy constraints need to be eased for another and even more immediate reason-the threat of increased imports arising from the removal of domestic import restrictions with effect from April 2001. Many of the distortions that reduce the efficiency of the sector are quite complex, and assessments of their impact require detailed studies of the sectors. Analysts attributed structure of Indian textile sector as a barrier for not only its competitiveness but also for its poor quality levels. India operates in the low value segment in most cotton apparels. The important lesson for India therefore is that it must improve commendably in made-ups and towels especially in the US market. To retain its position as the largest supplier and upgrade its values, India must work on price and non-price factors. The key export markets of EU and US for Indian export of textiles and clothing would tend to lower the price of textile products. India was perceived by analysts satisfactorily on price, quality, technology, flexibility, small order quantity etc. However, it was perceived unfavorably on lead times, responsiveness, communication, trust, meeting contractual obligations, ethical standards etc. With regard to India, World Bank said, “Dismantling the quota regime represents both an opportunity (for developing countries to expand exports) and a threat (because quotas will no


longer guarantee markets and even the domestic market will be open to competition)….Growth in Indian exports may require a shift to an assembly - line, factory - type system…….making labour policy more flexible.” Though the national textile policy 2000 does not clearly enunciate this approach, going by the initiatives of the Central government, it is apparent that these recommendations are being seriously followed. International Assessment It was very clear that from 2005, trade in textiles and clothing will change completely. It was a general consensus that larger countries with an integrated textile industry, including cotton-growing facilities, will likely to be the main beneficiaries of the removal of quotas. Most people regard China as the major beneficiary, followed by India and Pakistan, who are also expected to gain considerably. With regard to almost all other countries, the future is rather uncertain. It would be very challenging for many developing countries to translate these opportunities into actual trade, given the constraints in the domestic industries. It is generally said that the competitiveness of many countries needs to be improved. Mr. Mathias Knappe says, as the textiles and clothing sector is fully integrated into the WTO/GATT, those countries and companies which adapt first to the challenges of the new market will be better placed to secure their market position. Pure economic performance and well-managed competitive advantages will count more than ever before. Finally, in 2005, it was expected that large producers notably China P.R. and India together with those countries that have developed new products and new markets will dominate commodity type cotton apparel products. The industries in developed economies will increasingly move towards specialty products in the apparel sector and concentrate attention on technical and industrial textiles. Bloc-level trade arrangements will be the more significant with control being in the United States, the European Community and China and Japan. Further rationalisation will occur globally. Unfair trade practices are likely to continue as also the subsidies. Environmental issues will be crucial. While there is no doubt that the sector will be faced with many new challenges, the issue remains how best to react to them. One issue is the level of assistance provided by the governments to the sectors in terms of subsidies and other forms of State support. For example, extensive state support has been available for synthetic fibre manufacturers in the European Community for over two decades. Imperfect competition is a major concern. If some producers behave more efficiently than others, expand their markets, undersell rivals and indeed overcome economic problems, other producers exit the market. Therefore, the cause of oligopoly and ultimately monopoly is competition. However, there is a difference between competition and competitiveness. The competitiveness of a sector in a country is generally determined in comparison with that of the other country. However, not much work has been done, how the same factor would affect competition within the chain of production. Atleast, the results of such assessment has not reached the policy makers and definitely not the national textile policy 2000.


Competitiveness and Competition

Determinants of competitiveness of a sector are both policy and politics in the international trade and commerce as well as domestic institutional, policy, infrastructure and managerial dynamics that affect its performance. There is a positive correlation between the textile and apparel trade and the standard of living in a country1. Hence in evaluating competitiveness of a sector like textile it is pertinent that focus should be paid to the international trade dimension apart from the domestic sectoral scenario2. In profiling the competitive landscape analysts predict that there would be greater competition with respect to trade in clothing than in textiles. Labour standards, environmental friendliness, product safety standards, documentation formalities and rules of origin are all being sought to be used to thwart the very ethos of international trade regime in different sectors in general and textile and clothing sector in particular. Over and above these, there is a growing trend of private initiatives which are acting as non trade barriers to developing countries’ exporters to the developed countries. Some of these non-governmental and voluntary initiatives include Worldwide Responsible Apparel Production (WRAP) and Apparel Industry Initiative (AIP) which are attempting to instill social and environmental standards in textile and clothing sectors. It is in this ‘buyer-driven global commodity chain’ that India has to position itself. Quite aside from some of the State-led changes, the global marketplace in textiles and clothing has witnessed several new features. Retailers are becoming stronger and are wielding more power over manufacturers. It means that suppliers not only need to increase their variety but also be price competitive as retailers are shopping globally in search of the best terms. Thus increasing internationalization of the textile and clothing industry requires Indian firms to acquire new tools, skill sets and strategies to sustain their business and to grow. There is need for strategic attention both at the government level as well as firm level to chalk out new course of direction for the industry to meet the challenges and opportunities thrown open in the post 2004 scenario. The abolition of the quotas will create opportunities for developing countries, but will also expose them to additional competition from other, formerly restrained exporters. The outcome for any individual country will depend heavily on its policy response. Countries that take the opportunity to streamline their policies, and improve their competitiveness, are likely to increase their gains from quota abolition. Pressures can be expected in the form of increased imports from other countries as well as entry of MNCs in existing domestic product segments. Pressures could be in the form of:

• new products • technology • stronger environment compliances both from the citizens and the legislature

1 Diao X and Somwaru A, 2001 2 T. R. Kolanu and Jitendra Swamy, Technology mapping in textile industry in India for enhancing competitivness, ASCI, 2006


• Optimizing weaving practices • Reduction in lead times • Building market strategies and shares

Studies have shown factors such as delivery and reliability, quality and price are important factors in considering import destination choices in the international textile and clothing trade. Other factors in descending order of importance were size standards, fashion and styling, fabric and fabrication, developed manufacturing base, and exclusivity. A number of other studies have identified areas where national policy measures will be necessary to improve the competitiveness of the textiles and clothing industries in developing countries. These include development of niche-based exports, support for technology upgrades, and streamlining of transport, shipping and customs clearance, including the aspect of trade facilitation3. Motivation for Human resources Though small scale sector is better suited to meet the changing fashion demands of the global garments market but the ‘constancy’ in capabilities of the employees in textile industry impedes its ability to meet these requirements. The low wage paying capabilities of small scale mechanized sector does not attract required talent nor does the management in these units have orientation to spend resources to invest in building capacities of the employees. It is said that high wage levels attract higher levels of skill and constant attention towards technology upgradation would contribute to high levels of productivity and export competitiveness. Thus, higher efficiency of labour (as reflected in productivity per worker) can enable payment of higher wage rate as well as employing larger number of workers). Firm level analysis carried out within Indian textile and clothing sector also reveals that higher wages rates are one of the determinants of better export performance of Indian garment units. Indian is one of lowest wage labour paying country in the world. The relative lower quality, of the technical workforce and the operators, is directly linked with low investment in training by Indian firms. On the average, Chinese textile firms give 70 hours of training each year to an experienced worker as opposed to 32 hours in Canada and 10 hours in India. About 16 percent of Indian firms did not provide any training to a new employee as compared to 1.8 percent in China. Studies have attributed that higher wage rates would lead to unique and indispensable skills of designers, pattern makers and craftsmen, as well as to better-trained cutters and tailors employed by exporting firms. Structure of the Textile sector Analysts attribute structure of Indian textile sector as a barrier for not only its competitiveness but also for its poor quality levels. Garmenting has been extremely fragmented structure that has arisen chiefly due to the SSI reservation policy. This has prevented modernization, quality 3 Assuring Development Gains from the International Trading System and Trade Negotiations: Implications of ATC Termination on 31 December 2004, Note by the UNCTAD Secretariat


investments, scale adoption, and change in product mix from exclusive reliance on cotton garments to mass clothing items based on synthetic and man-made fibres. It is said that Indian textile and clothing industries have one of the longest and most complex supply chains in the world with as many as 15 intermediaries between the farmer and the final consumer. Each of these intermediaries contributes towards time lags and cost enhancements. It is estimated that more than 3.5 times increase over the initial costs by the time product reaches the consumer. Hence there is a need to rationalize the costs at different stages of value chain. Firms that are globally competitive are the ones that have consolidated their supply chain networks. There is poor co-ordination between different entities that comprise the supply chain, like the cotton producers, ginners, spinners, weavers, dyers and finishers, knitters and apparel producers. Adhoc supply chains based on short-term advantages and poor co-ordination between various entities are resulting in delayed information and product flow between various entities. Poor managerial practices and technology in the processing sector is limiting the ability of many yarn and cloth producers to climb up the quality and value added ladder. There appears to be too much conflict between the small, medium and the large players in the industry. To improve the competitiveness of the sector will require new industry policies, more investment in workforce education and technology on a continuous basis, improvement of manufacturing practices in plant, better linkages between various entities that form the textile supply chain and continuous investment in process and product R and D. 3.0 Thrust Areas of National Textile Policy 2000 While the national textile policy 2000 does not have any analysis, broadly it was based on the thinking explained above. Following such a trend of thinking, national textile policy 2000 has identified the following as the thrust areas: Technological upgradation, enhancement of productivity, quality consciousness, strengthening of the raw material base, product diversification, increase in exports and innovative marketing strategies, financing arrangements, maximising employment opportunities and integrated human resource development. Some of the thrust areas are required. But, some seem to be mere slogans. Primarily, most of the analyses are oriented towards exports and increasing export competitiveness. Competitiveness of Indian textile sector is compared with that of other countries. However, such comparisons are not based on thorough understanding of Indian problems rather than based on comprehensive understanding of the textile sectors in different competing countries. Sometimes what is perceived as a weakness is strength. Low wages are considered as advantageous. In fact, most global analyses attribute favourable trade atmosphere to China and India because of this factor. But, studies show that low wages are directly linked to low skills. Secondly, a weakness at the firm level cannot be the issue of the policy. Productivity and efficiency at the firm level is generally made out to be a policy issue, particularly in a liberal state. A government that wants the market to decide on many issues can at best encourage firms


to be more efficient and productive. Productivity at sectoral level means various issues and cannot be limited to per unit of output. National textile policy fails to differentiate this and tries to ‘own up’ objectives which are essentially that of firms. Secondly, textile sector in every country has weaknesses and strengths. In a competitive atmosphere, a weakness repeated everywhere as such may not matter. But, the ranking of the country in terms of such weakness is important. Technology is considered as a major weakness of Indian textile sector. But, technology is the strength of the textile sector in US and European countries. Yet, both US and European industries are apprehensive of competition from India and China. Based on some studies, which recommended technology upgradation, modernisation has become the thrust of the national textile policy. But, when one looks at the situation of EU and US sectors, does it mean that we are going from a position of strength to a position of weakness? 4.0 Analysis of National Textile Policy 2000 The present textile policy is lopsided, not merely because it discriminates against the handloom sector, but it is destroying the strengths of the Indian textile sector and at the same time weakening the ‘immune system’ of the sector to withstand international economic fluctuations.

Handloom Sector: Worst Hit Despite this policy, which states that its endeavour is to “strengthen and encourage the handloom industry to produce value added items and assist the industry to forge joint ventures to secure global markets”, handloom sector is in a dire situation. Because of this policy, formulated under the overall approach to economic liberalization and integration into global textile trade, handloom weavers are finding it increasingly difficult to move their products in the market. With a more than willing government, competitors of handloom sector have been adopting practices and methods, which are much beyond the scope of understanding and counter action by the weavers. Handloom weavers are not organized, and each one’s production is independent akin to that of a farmer. Typical to the situation of a farmer, handloom weavers are facing marketing problems not because their products have lost the consumers, but solely because of the games played by the market forces. Poor weavers and the artisans are not getting proper institutional support. In the handloom sector, despite substantial contribution to the Gross National Product, financial base of the handloom weavers is very weak. They do not get adequate and timely credit facilities. Weavers have to depend on an exploitative trade mechanism, operated by traders and businessmen. They lack marketing facilities, and access to design development, training, infrastructure, information about the new international trade regime and developments, and no proper institutional support to adapt to consumer preferences. Even where this institutional support exists it suffers because of faulty, inadequate and delayed implementation. Handloom weavers did not benefit from government schemes in their production and marketing functions.


World Bank in 1997 forwarded three complementary options. Firstly, provision of an explicit, targeted, demand-based, per unit subsidy for hank yarn or handloom fabric. The second option is to initiate programs to convert handlooms to powerlooms and to upgrade product quality for raising weavers' productivity. A third option involves mitigating employment and income losses in the handloom industry through training and job conversion programs to help weavers move to more productive employment, including garment-making. The New Textile Policy 2000 took up the last two options. An important element of the liberalisation process has been the policy of dereservation. Satyam Committee had recommended the abolition of Handloom Reservation Act and remove the Hank Yarn obligation. However the new Textile Policy of 2000 has not accepted these recommendations. Parallel to these macro-developments, there have been a number of suicides by handloom weavers across the country. Many more families are living on precarious incomes. The cause of handloom weavers is not likely to improve without proper policy support. Handloom industry is increasingly faced unfair competition from powerlooms and mills. In the name of restructuring the textile sector, government has been providing concessions to the powerlooms and mills. Yarn prices are rising with increasing yarn exports. With no credit facilities from the formal financial sector, an average weaving family cannot hope of buying the yarn, and sell the finished goods in the market, with stiff competition from powerlooms and mills supported by the government. But this is not all. More is promised. With further 'liberalisation', families of weavers have no hopes of sustaining their present income, leave alone improving upon it. Handloom sector is further pushed into a deeper crisis by the shift in government policies, reduced allocations and deliberate strategies to kill the sector in favour of exports and 'big' corporations. It is no wonder for an average handloom weaver family they have reached the end of the road.

Ghost of Satyam Committee recommendations In general, the approach and policy of the government with regard to handloom sector in the last five years has been based on the recommendations of the Satyam Committee. Various schemes and budget allocations are clearly in favour of powerlooms and mill sector. While the Central government has ‘assured’ the Members of Parliament that Satyam Committee’s recommendations are not accepted, in reality the recommendations are being implemented in true letter and spirit.

Strengthening Automation Under rationalization of textile policy and textile industry structure in India, which is supposed to ‘strengthen the entire sector’ to face the international competition in the quota-free market in 2005, with regard to handloom sector, government has been withdrawing welfare schemes, reducing budget allocations and active promotion of modernisation. At the same time, government is shying away from saying this boldly. Every assessment shows that handloom sector is ridden in crisis because of unfair practices of powerlooms and mill sector, lax


enforcement machinery, governmental interference in cooperative societies and corruption. New schemes such as apparel parks, technology upgradation funds, credit schemes, central excise taxation on hank yarn, etc., would harm the interests of the handloom sector. Even though it is not known whether the powerloom and mill sector were able to withstand competition from imports, and in exports, through these schemes, it is apparent that using this ghost, these sectors are gaining funds and policies at the cost of handloom sector. Powerloom lobby has successfully diverted the attention of the government from the fact that many powerloom products thrive on the demand for handloom products. There is a deliberate attempt to blur the differentiation between powerloom and handloom products by resorting to improper labeling of other products as handloom products. While the Satyam Committee, the World Bank and the government eulogize the tradition, skill and the finery of the handloom products, they have done nothing to protect these products from cheap imitations and false claims.

The Factor of Employment and sustaining the employment The Vision of the national textile policy 2000 was: “it shall be the policy of the Government to develop a strong and vibrant industry that can increasingly contribute to the provision of sustainable employment and the economic growth of the nation.” On the other hand the Planning Commission Task Force on Ten Million Jobs, in its report, said, “All (these) Reports bring out a common message that if the experiences of the late nineties are extrapolated i.e., repeated in future, then India is going to face increasingly higher incidence of unemployment, with an ever-increasing gap between the demand for jobs and supply of job opportunities. The Report has concluded by giving a caution that unless the cause of employment is taken up on a high priority and not on “business as usual” basis, the unemployment at the end of the Tenth Plan will reach around 40 million i.e., nearly ten per cent of the labour force, with severe socio-economic implications, especially in certain areas and among certain sections of the population. The Group, however, felt that because the private organised sector has become highly capital intensive and the capital input going to the unorganised sector is relatively declining fast, appropriate programmes and policies should be devised for suitable reallocation of capital in favour of the labour intensive industries and economising the use of capital in the highly capital intensive organised sector (appropriate for a labour surplus, capital scarce economy) to boost the growth and to make 8 per cent growth feasible. This is corroborated by the fact that the capital efficiency in the unorganised sector is estimated to be much higher than in the organised sector.” Pertinently, handloom sector, contrary to the general notion that its share of production has declined, however, has stabilized around 20% for the past two to three decades. At present it stands at 18.75% of the total cloth production. The major contribution of handloom sector is however in terms of providing employment to 124 lakhs people and thus stands next to agriculture. Out of this, 60% are women, 12% SC and 20% ST (Ministry of Textiles: 2001). There are 38.91 lakhs handlooms in India. Though its share in total textile exports is 10%


(EXIM: 2001), its labour intensive character, decentralized nature and optimum utilization of scarce capital resources give it a unique position in the Indian economy. National textile policy 2000 fails to have specific focus on methods and practices that can fructify its vision. Ofcourse, it might be as well that the policy believes sustainable employment is found in capital intensive industry and not in labour intensive industry such as handloom. But, this is not made clear and hence the ambiguity. The policy is ambiguous about this. Governments have failed in targeting the growth of the unorganised sector, specifically handloom sector, as the main source for employment generation. Indian government is yet to realise that the handloom sector, to be made viable and competitive under the new circumstances, requires suitable policies and programmes to become more productive and quality conscious. Employment figures, as projected in various schemes, mention creation of employment. However, no assessment has been done how many jobs would be lost due to such modernisation. This is distinctly possible with stress on capital intensification from labour intensification of the Indian textile industry. However, it is not that the policy makers are not aware of such a situation. The presence of Textile workers rehabilitation scheme and various welfare schemes in the budget allocations prove this. The textile policy 2000 has skirted this issue completely. Secondly, even after five years of heavy public investment of more than Rs.20,000 crores in various forms, employment has not risen commensurately. However, definitely because of this policy, livelihoods are at stake, creating unemployment in rural and semi-urban areas.

Big is beautiful, small is out of fashion In the era of economic liberalization and globalisation, there is a general thinking in the bureaucrats and policy makers that some sectors, which have been given primacy in the previous years of governance, should not be given any more of the policy benefits. Stemming from this attitude, the national textile policy has this objective, “Liberalise controls and regulations so that the different segments of the textile industry are enabled to perform in a greater competitive environment.” The justification given is that subsidy to unorganised sector had not helped the growth of Indian economy, and continuation of the same in future would not help in gaining benefits from the integration of Indian economy with the global economy. However, it is being conveniently forgotten that most of the so-called policy benefits have never reached the actual beneficiaries, basically because of corruption, top-down approach in planning and design of programmes, and half-hearted implementation. Now, the current thinking is market competition is the best, and all subsidies are wrong. However, it is not yet realized that in the most developed countries, subsidies are still offered by the governments to sectors, which are not competitive, and which serve the common interests of the people. In India, this is ignored, and a general philosophy of competition is being applied everywhere. Apparently, this is also not followed in principle and practice. Subsidies, sops, tax reliefs and other benefits are being offered to the most powerful sectors and associates, on the sly. Lobbying is the key. Today, it is not political representation which begets some policy


benefits. It is achieved through lobbying done by associations based on business connections and offers to political parties. In the case of handloom sector, policy benefits offered on paper are being withdrawn, while tax reliefs and subsidies are being offered to the powerloom and mill sectors in the name of encouragement to exports. These recent measures are clearly intended to change the diverse, broad-based structure of textile sector in India. Creating a monolithic structure, in the name of modernization, would prove detrimental to the interests of the poor in India, and poverty is definitely likely to rise with the ongoing policy steps. Policy scenario today is muddled with more corruption, fissiparous tendencies, nepotism, secrecy, and misunderstanding. National Textile Policy 2000 has created a race for policy sops among the competitors within the Indian textile industry. Presently, powerloom lobby which were vociferous about liberalization, are demanding that import tariffs should not be reduced, lest the competition from imports wrecks them. Textile mills are lobbying for controls. It is evident that the term competition has become a convenient tool to be used, and the losers in this game are people who are competitive and do not understand the need for policy support to be competitive. Knowledge is the key to prepare for competition. But, there is not even a minimum programme of information sharing with the industry on the global scenario.

Preparation for the free textile trade The National Textile policy 2000 is based on a fundamental rethinking of the government’s approach previously. This approach believes that the phase-out of the Multi-Fiber Agreement (MFA) which long restrained developing country exports is opening tremendous opportunities for India to enlarge its share of existing markets and capture new ones. With more open global trade, however, comes heightened competition for India in both export markets targeted by other exporters including China, Korea, Thailand, and Vietnam and from imports in the domestic market, notably of yarn and fabrics, which are projected to increase dramatically over the next eight years.

As part of its Vision, one of the objective of the national textile policy 2000 was to prepare the Indian textile industry for the global competition, and also utilise the opportunities arising from global free trade. Thus, its objectives, in this regard, were to facilitate the textile industry to attain and sustain a pre-eminent global standing in the manufacture and export of clothing, equip the Industry to withstand pressures of import penetration and maintain a dominant presence in the domestic market, liberalise controls and regulations so that the different segments of the textile industry are enabled to perform in a greater competitive environment, enable the industry to build world class state-of-the-art manufacturing capabilities in conformity with environmental standards, and for this purpose to encourage both Foreign Direct Investment as well as research and development in the sector and develop a strong multi-fibre base with thrust of product

upgradation and diversification. However, the policy has failed to provide a strategy to

achieve these objectives.


While there are supposed to be some sops for traditional industries such as handlooms in the WTO agreement, governments in India have failed to educate the handloom weavers on what these provisions are, and how the application of the same would benefit or affect them negatively. In any case, it is obvious that Interests of the handloom sector have not been integrated into the national trade negotiating positions. In fact, none is aware of the government’s position on handloom sector. Everybody agrees that it is not easy to analyse market access barriers, influence international standards or track the impact of multilateral negotiations on exporters in handlooms. This becomes much more difficult when the governments want to intentionally keep out the handloom sector, as part of restructuring the Indian textile sector. Interests of crores of handloom weavers are being ignored in this country. Post-2004, it is expected that sectors have to strengthen themselves to face the challenges posed by the free textile trade regime. However, World Bank recommendations tend to ‘Westernise’ the sector, and thus bringing in the pitfalls and problems arising out of such ‘alien’ system of production. The success of South Asian countries, even in industrial products, shows that assembly-line production can be avoided. There are many ways and methods in India, which can help us to meet the demands of the global markets. Unfortunately, current public policies would destroy the Indian textile sector, wipe out our advantages and enable dumping of Western textiles.

Lessons from modernized EU and US textile sectors Textiles and clothing was and is a labour intensive sector. But it has increasingly become capital intensive over the last few decades. Because of this there have been dramatic falls in employment levels worldwide. Even in china, around 3 million people have left the sector since mid-1990s constituting a 50 percent reduction in the size of the workforce. Clothing manufacturing still remains labour intensive as tasks like cutting and sewing remained difficult to automate. Thus many jobs, at best semi-skilled, do get transferred to competitive-wage locations and the relation between the two (jobs and competitive wages) is straightforward. It is for this reason that much of the clothing manufacturing has moved to developing countries. As a result, there is a depression in the wages of workers in Europe as companies have attempted to remain price-competitive. The European Community (15 countries) textiles and clothing sector employs 20 lakh people in 177,000 enterprises. Textile companies here tend to be large concerns, employing high-tech machinery. Clothing manufacture is more labour intensive and tends to be performed in smaller firms. Per location the number of employed varies from about 12 (Spanish and Italian) to 100 (France and Germany). During the past 20 years, the distribution of textile and clothing production has undergone radical change. While EU output dropped by 32.4 per cent over the period, the outputs of Asia and the USA increased by 97.7 per cent and 76.3 per cent respectively. Figures show that Europe’s share of world output fell from 53 per cent in 1980 to 29 per cent in 1995 (ILO, 2000).With reduced production comes an inevitable decline in employment.


The European industry now faces the challenge of maintaining and improving its position in the market in the face of increasing international competition. EU textile industry has come to a situation where there is no other way but to modernize more and concentrate on high-quality products with a greater added value. Labour-intensive products would anyway move to developing countries. Reducing their technology is not feasible or possible. US industry is also embracing high technology and the flexibility to respond to fast fashion rates. European textiles producers already have large market shares in technical/industrial textiles and non-wovens (for example industrial filters, geotextiles, hygiene products, or products for the automotive industry or the medical sector), as well as in high-quality garments with a high design content (CEC, 2003a). To maintain and build on this competitive advantage, European firms are focussing developments in production technologies (e.g. process technologies, automation); information and communication technologies (ICTs); and new materials (e.g. multi-functional textiles and garments). Michael Keenan, Ozcan Saritas and Inga Kroener4, in their paper “A dying industry – or not? The future of the European textiles and clothing industry”, identified five central “drivers” that lie behind the visible and/or anticipated trends and developments in the sector:

∗ International trade relations ∗ Organization and structure of the industry ∗ New and emerging technologies ∗ Human resources ∗ Enforcing international rules and conventions.

In other words, EC is looking towards increased market access to other countries, environmental and labour standards, subsidies, high technologies, IPRs, and other forms of protection to ensure the continuation of EU textile industry. Keenan and others say, “….European competitiveness depends on innovation, research, fashion and design, creation and quality, and the use of new technologies, together with positive industrial relations. Moreover, the keys of sustained competitiveness are the preservation and the development of know-how and skills through effective education and training, as the importance of knowledge-intensive tasks and flexible skills in the sector rises.” Harvard researchers said, the US textile industry faces near-certain devastation, especially in the manufacture of clothing, when the current quota system is dismantled in 2005, on account of comparative labour costs. They wanted the US industry to embrace high technology and attain flexibility to respond to fast fashion tastes. With pressure mounting from international competition, for the European and US industries, there is no other way but to climb up the ladder of high technology, and confine themselves to

4 www.emeraldinsight.com/1463-6689.htm


technical textiles, simply because they are at the top of the ladder and cannot come down. There is no diversity for them to have other options. Diversity indeed is strength for Indian textile sector.

Discriminatory Liberalisation National Textile Policy 2000 has ushered in a era of selective liberalization, which is in itself discriminatory. There is no balanced approach in liberalization. Dereservation of SSI lists was done on priority. Export and import liberalization was not on same par. Monopolies in certain segments were encouraged. Except textile mills, powerlooms and spinning sub-sectors, other sub-sectors have not seen any worthwhile content in the National Textile Policy 2000. It can be seen that the NTP 2000 and the corporate thinking are same and similar, leaving out small-scale, non-corporate entities and unorganized sector. NTP 2000 has failed to understand and bring in issues concerning these sectors. Though it mentions all the sub-sectors, the effort is not commensurate. Thus, there is discrimination in the policy. The principles are also applied selectively. Liberalisation of the state functions is not done across the board. Government through various means has merely shifted its focus – from declared subsidies based on social growth approach to indirect subsidies based on export growth. As per the Economic Survey, 2005-06, “budgetary concessions, rationalization of duty structure and assistance under the Technology Upgradation Fund Scheme (TUFS) started paying dividends in the textile sector. A moderate turnaround in the performance of this sector has now become visible in increased production. During 2004-05, production of fabrics touched a peak of 45,378 million square meters. In the year 2005-06 (up to November), production of fabrics registered a further growth of 9 percent over the corresponding period of the previous year. Significant improvement in performance was observed in cotton textiles and textile products. The sectors where there has been a perceptible slow-down were wool, silk and man-made fibre textiles.”

Sectoral Conflict in Indian Textile Sector Indian textile sector is diverse and varied in terms of scale, size, technology, production methods, origin, etc. According to a World Bank Report, “The structure of the textile industry is both complex and uniquely Indian”. Unlike the textile industries in other countries, the Indian textile industry is characterized by: (i) the coexistence of a broad spectrum of production techniques--from hand-operated to sophisticated automated technology; (ii) a dualistic manufacturing structure dominated by a fast expanding decentralized or "unorganized" small-scale manufacturing segment and a declining vertically integrated, large-scale "composite" mill segment; (iii) a predominance of cotton as a primary raw material; (iv) the existence of a large public sector (20 percent of domestic fabric production), composed mainly of nationalized and sick mills taken over by the government; and (v) a predominantly small-scale apparel sector. During the last decade, the industry displayed rapid growth in output and exports.”


Given the complexities involved in the textile sector and preponderant role of the government and its policies, there have been conflicts across different segments of the sector. There is a widely held, unsubstantiated belief that handloom sector has the political support, over and above every other sector. Other sectors have been complaining about such policies claiming that they are restricting their growth. In reality, it is true that handloom sector was given special treatment owing to the huge socio- economic externalities till 1985. But there has been a gradual change in this scenario from 1985 onwards. From then on, one can discern the increasing political and bureaucratic support to modernize textile sector. At the same time, interest groups from different sub-sectors such as powerlooms, man-made fibres, spinning mills have been calling for ‘level playing field’. In response to different pressures from 2000 onwards, the situation has reversed. Gradually, handloom sector lost political and bureaucratic support since many see benefits in modernization and liberalization, far above the losses, in supporting SMEs. Subsequently, government initiated deregulation and dereservation of various segments of the textile industry and ‘rationalized’ excise and customs duties. This was done at the cost of handloom sector. Surely, the unevenness in the playing field has shifted to modern sectors. In 2005, already, these neo-liberal sectors have already started feeling the heat of price pressure. The imminent prospect of reduction in import custom duties and tariffs is being opposed by these sectors, though they continue to carry the slogan of ‘growth through liberalization’. This is not strange – just that the history is repeated. Indian corporates have been and continue to be dependent on the ‘crutches of government support’. As a corollary to competition, knitwear, garment and hosiery sectors have started importing fabric for their sectors, leaving their erstwhile suppliers high and dry. Mill and powerloom sector are worried about this shift. Textile machinery sector is troubled because with lowering of tariffs, imports of second-hand machinery have affected their business. Further, on the strength of the so-called ‘rationalization’ sops, the segment of man-made fibres (MMF) has strengthened itself. Presently, with mounting price pressure and related responses, lobbying for ‘biased’ policies have increased. The tilt towards MMF is also being questioned. Leaders of textile sector who championed liberalization and rationalization currently find themselves asking for firm-level favourable policies and sectoral policy tilt. However, neither these leaders nor the government seem to recognize the strengths of diversity and the difference between ‘fragmented’ policies and policies that enable competition. Firm-level and sub-sectoral level policy lobbying is causing damage to the fabric of Indian textile industry. This fragmentation is the root cause of stunted growth of Indian textile exports in 2005. NTP 2000 is silent on this issue, and this is where a prognosis would have been helpful. But, most studies, analyses and opinions on which this policy seems to have based itself have been led on the wrong path. There has been no neutral, national interest oriented study to properly plan for the growth of Indian textile sector.


Domestic and Export Markets Given that the focus of the NTP 2000 was principally on exports, one needs to look at the performance in exports. A Ministry of Textiles document in 2005 says, “India’s exports of textile items recorded a marginal growth of 0.6% in 2005 over 2004 during the period of April-September in rupee term, whereas in dollar term it was 4.9%. The total textile exports for the period of April-November, 2005 are US$ 8.727 billion, which is 57.57% of the total textile exports target for the year 2005-06 (US$ 15.160 billion). It is estimated that India would be able export textile items worth US$ 15 billion during 2005-06.” Results on export front have been marginal, though there are predictions that this would rise. Under performance is primarily caused due to rise in cost of production. Wages are anyway lowest in India, compared with any other country. However, this fact (of price competition) is lost on Indian policy makers and leaders of neo-liberal sectors, seeped as they are in reaping firm level benefits. Despite the expectations on export boom, the Indian textile industry is primarily oriented to domestic markets. Domestic consumption of yarn and fabrics still accounts for about 89 and 90 percent of total domestic output respectively. The large domestic market and rapidly rising domestic incomes therefore open important market opportunities for the textile industry. In 1993, per capita consumption of cloth was estimated at 2.8 kgs per year. This is lower than the developing country average of 3.8 kgs and about one-sixth of average developed country per capita consumption levels. Although cotton cloth dominates consumption, the share of man-made fibre products is increasing steadily. Per capita non-cotton cloth consumption nearly tripled in the last 15 years to 6.7 sq.m.. Its share of total cloth consumption doubled from 13 percent in 1980-81 to 26 percent in 1993-94. The higher durability associated with man-made fibres, the increased “comfort factor" associated with mixed blends, and improvements in relative costs due to reductions in domestic duties on man-made fibres seem to have facilitated these substitutions. Ms. Shashi Singh, Joint Textile Commissioner, said, “The total size of India’s textile market was US$ 36 billion with the projected size by 2010 being US$ 85 billion. Of this, our total exports were US$ 13 billion, while the projected exports by 2010 would be US$ 50 billion. Thus, though there is the promise of rising exports and the lure of US and EU markets, domestic markets are also crucial. Sectoral shares of domestic market are not obvious, due to data problems. But definitely there is competition to increase market shares. In post-ATC scenario, the competition is not only from domestic sectors but also from other countries as well, especially China, South East Asia and South Asia. Said Ms. Shashi Singh, “.…domestic market has been growing at a rate of eight percent. This growth will get a further push from the growing organized retail market which has a three percent share in the US$ 330 billion retail market. This share is likely to grow at 20-25 percent in


the coming years. This gives an ideal cushion for textile manufactures to fall back upon. So they should stop worrying about Chinese competition, rather use this opportunity to strengthen their hold on the domestic market even further, especially with the likes of Pakistan and China vying for the Indian market”. (Express Textile, 1-15, November, 2005, p.23). Given this potential, there is clamour from non-handloom sectors for removal of Handloom Reservation Act and Hank yarn Obligation on spinning mills. The argument is that while the domestic non-handloom sector has to follow this reservation, imports do not necessarily have to follow this. But really, none of the items reserved are produced in any other country, except in India, on the scale they are produced here. Secondly, even if the Chinese or any country does produce these reserved items, the choice of the consumers is with the Indian brands. NTP 2000 completely ignores the domestic markets and how Indian textile sector needs to respond to domestic demands, imports and sectoral conflicts.

Achieving Targets NTP 2000 has many targets. It says the endeavour will be to achieve the target of textile and apparel exports from the present level of US $ 11 billion to US $ 50 billion by 2010 of which the share of garments will be US $ 25 billion. This target appears more to be wish than a definite, defined, strategic target. No steps have been enunciated to achieve this target, except the reliance on international assessments, and the potential benefits from free textile trade. While there is a estimate on the investment needed to achieve this growth in exports, about Rs.1,94,000 crores, there is no commensurate estimates of how much fibre, machinery, human resources are required. There is no estimation on the intensive usage of energy required for this investment, and how that will be provided for. Cotton being the main fibre for Indian textile sector, there is no estimate on the how much cotton is required to achieve these targets. It includes lack of any estimation with regard to number of acres required, investment on agricultural inputs, infrastructural investments (transport and processing) and the human resources required for supporting such export-led growth. NTP 2000 has failed to integrate itself into the overall growth and development policies. Appallingly, both the Tenth and 11th Plans do not seem to be of any consequence here.

Gender in Textile Policy Labour market implications of the NTP 2000 in general and its effects on access to employment, in particular, have been neglected completely. Further, long-term implications of liberal textile policies on the composition of the workforce are not yet clear. NTP 2000 completely ignores this important factor for social growth. This is despite the widely known fact that the textile and clothing sector has a large share of female employment globally and also in India. Women account for more than two thirds of the


global labour force in the sector and employment in textile and clothing accounts for almost one fifth of the total world female labour force in manufacturing (Joekes, 1995). The textile and clothing sector is the largest employer of female workers. Research shows that trade liberalisation has often increased relative female employment in labour-intensive manufacturing (Çağatay, 2001), especially in garments and apparels. Whether such female labour market integration leads to women’s economic empowerment (Sen, 1990) as assumed in the citation above, or rather increases their total workload without changing their inferior social position (Elson, 1999) is highly disputed. Traditional sectors such as handlooms, silk, jute and woolen do employ large of women. However, NTP 2000 seems to think that these women can find jobs in modern textile sector, which is impossible. Critical Issues Shri N.K. Singh, Chairman of the Steering Group on Investment and Growth in Textile Industry, 2003, raised the following issues:

i. Whether textile industry has a long time future? There is a general perception that this sector has very serious endemic problems. What are the basic parameters on which this future depends?

ii. What kind of fiscal regime would be necessary for nursing the textile industry back to health and for generating the kind of large investment which are required for sustaining high levels of productivity in this sector?

iii. What kind of changes are necessary in the pattern of credit and financing mechanism? iv. What could be the creative ways for debt restructuring in the textile sector and the

sources of putting such large investments? v. What are other overarching considerations like the kind of labour laws structure and

other macro parameters, which also have impact on the textile industry? 5.0 Summary on NTP 2000 This policy has failed to weave the interests and needs of the handloom, silk, jute and woolen sectors into the Indian textile sector growth. It is discriminatory liberalization in practice and the schemes and strategies that have flown out re-emphasise the primacy given to corporate interests. Because of this policy suicides among handloom weavers has increased and they are likely to increase in the coming years. Under rationalization of textile policy and textile industry structure in India, which is supposed to ‘strengthen the entire sector’ to face the international competition in the quota-free market in 2005, government has brought in deliberate policies to withdraw welfare schemes, and reduce budget allocations and active promotion of advanced technologies. NTP 2000 believes in modernisation and big sizes and has not understood the realities of the world textile trade and the strengths and weaknesses of the Indian textile sector.


The national Textile policy 2000 is based on a fundamental rethinking of the government’s approach previously. This policy is evidently based on the World Bank recommendations and Satyam Committee report. Though the vision of the national textile policy 2000 is on sustainable employment, there is no specific focus on methods and practices that can fructify this vision. Unless, the policy believes that sustainable employment is found in capital intensive industry and not in labour intensive industry such handloom. But, this is not made clear and hence the ambiguity. The policy is ambiguous about this. NTP 2000 is completely is silent about weavers and workers whose families would be displaced by the modernization in the textile sector. It has created a race for policy sops among the competitors within the Indian textile industry. One of the objective of the national textile policy 2000 was to prepare the Indian textile industry for the global competition, and also utilise the opportunities arising from global free trade. Knowledge is the key to prepare for competition. But, there is not even a minimum programme of information sharing with the industry. Imperfect competition, both in export and domestic markets, is a major concern. National textile policy 2000 has failed in addressing this issue. It has not done any comprehensive assessment, nor had tried to integrate documented concerns into its strategies. Measures with regard to streamlining of transport, shipping and customs clearance, including the aspect of trade facilitation have not been integrated into NTP 2000. Thrust areas of NTP 2000 are based on a short-sighted prognosis, and were necessarily based on the paradigm of export-oriented growth. The present textile policy is lopsided, not merely because it discriminates against the handloom sector, but it is destroying the strengths of the Indian textile sector and at the same time weakening the ‘immune system’ of the sector to withstand international economic fluctuations. Climbing up the technology ladder, behind the US and EU industries, would be problematic for the Indian textile sector. Productivity at a sectoral level means various issues and cannot be limited to per unit of output. National textile policy fails to differentiate this and tries to ‘own up’ objectives which are essentially that of firms. Firm-level and sub-sectoral level policy lobbying is causing damage to the fabric of Indian textile industry. This fragmentation is the root cause of stunted growth of Indian textile exports in 2005. NTP 2000 is silent on the sectoral conflict in India, among the different sub-sectors. This is where a prognosis would have been helpful. But, most studies, analyses and opinions on which the current policy seems to have based itself have been led on the wrong path. There has been no neutral, national interest oriented study to properly plan for the growth of Indian textile sector.


Thus, results of the NTP 2000 on export front have been marginal, though there are predictions that this would rise. Even after five years of heavy investment of more than Rs.10,000 crores in various forms, employment has not risen commensurately. However, definitely because of this policy, livelihoods are at stake, creating unemployment in rural and semi-urban areas. NTP 2000 completely ignores the domestic markets and how Indian textile sector needs to respond to domestic demands, imports and sectoral conflicts. Labour market implications of the NTP 2000 in general and its effects on access to employment, in particular, have been neglected completely. This includes the gender composition of the workforce and how the NTP 2000 would impact on this composition. NTP 2000 has many targets. But they appear more to be a wish than a definite, defined, strategic target. No steps have been enunciated to achieve this target, except the reliance on international assessments, and the potential benefits from free textile trade. NTP 2000 would mean lot of investments on energy production and infrastructure investments. NTP 2000 has failed to integrate itself into the overall growth and development policies. Appallingly, both the Tenth and 11th Plans do not seem to be of any consequence here. It can be seen that the NTP 2000 and the corporate thinking are same and similar, leaving out small-scale, non-corporate entities and unorganized sector. NTP 2000 has failed to understand and bring in issues concerning these sectors. Though it mentions all the sub-sectors, the effort is not commensurate. Thus, there is discrimination in the policy. The principles are also applied selectively. Liberalisation of the state functions is not done across the board. Government through various means has merely shifted its focus – from declared subsidies based on social growth approach to indirect subsidies based on export growth. In addition, the recently developed National Fibre Policy (draft version) has targeted the ratio between natural fibres and man-made fibres. It seeks to increase the production and consumption of man-made fibres. 6.0 Challenges for India It is known that Indian textile growth is predicated on increasing access to EU and US markets. For this to happen, principally, it has to contend with the competition from China and other countries, discriminatory policies of US and EU (in the form of FTAs, RTAs, WTO provisos such as environmental and labour standards, GSP schemes, etc.), weaknesses and deficiencies in Indian textile sector, and competition in domestic market. In the next ten years or so, the textile scenario will change drastically. While competition is bound to increase, there is a prediction on increasing protection to domestic industries. According to Tirthankar Roy, the strengths of the Indian industry are cheap cotton, wage, knowledge and an accumulating advantage in man-mades. Given this, the Indian textile policy is merely emphasizing on modernization and nothing else. But, Indian textile sector has to do the following:


1. Textile negotiations at the WTO have to thwart the EU and US approaches 2. Promote the strengths of the Indian textile sector 3. Address the weaknesses and deficiencies in the domestic sector 4. Enable policies that protect the domestic market from cheaper competition and dumping 5. Growth policies that ensure flexibility in production and marketing – SMEs, informal

sector and home workers. The key for all this lies in maintaining the diversity of the Indian textile sector, and not in creating a monolith. Given this, there is a definite case for growth of handloom sector. 7.0 Conclusion In conclusion, India needs a proper textile policy making body that takes care of country interests and a policy which maximizes on the strengths and improves on weaknesses. Maintaining the diversity is the key to the growth of Indian textile sector. Ideologues and ideologies do not help. National Textile Policy 2000 needs to be reviewed, completely and comprehensively. A new textile policy is needed which addresses the problems and concerns of all segments of Indian textile sector, and links itself to the social development goals of India.

National Textile Policy 2000-Review

Documents

Transcript of National Textile Policy 2000-Review