ABSTRACT

The study is to analyze the impact of trade liberalization and textile

policies on growth, factor productivities, sources of productivity growth
and Technical progress of Indian textile industry during post-reform and
post-MFA regime. The study is exploratory in nature and covers the
period 1980-81 to 2009-10. All textile manufacturing units covered by
Annual Survey of Industries (ASI) have been included for the purpose of
analysis. The entire period is divided into three phases as preliberalization period (1980-81 to 1991-92) post- liberalization period
(1992-93 to 2005-06) and post-MFA regime (2005-06 to 2009-10).

TABLE OF CONTENTS
Introduction

Background 3
objective

4
1

Research
methodology4
Research questions
4
Scope 4

Literature
review 4

Textile and Garments Sector Global

Scenario7
Structure of Global Textile & Clothing
Market7

Indian Textile & Garments

Sector 8
Indias Textile & Garments
Trade...10

Performance of Indian Textile & Garments

Sector13
FDI and ICT Usage
14
Measures adopted by the Industry for improving
competitiveness14
Recommendations
16
References 19

Introduction
2

Background:
The phenomenal growth of textile industry in India has been contributing in
the economic development of the country since independence. It has
contributed to the overall growth of the country in terms of Gross Domestic
Product (GDP), employment generation and export. It has acquired a
prominent place in the socioeconomic development of the country during the
past four and a half decades. Performance of the textile sector, which forms a
major part of industrial sector, has therefore got direct impact on the growth
of the national economy. The research deals with the growth of Indian textile
industry during the period from 1991-2000 to 2009-10 which represents postliberalization (1992-93-2004-05) and post-MFA regime (2005-06-2009-10).
Industrialization and economic growth has produced more amounts of
waste, including hazardous and toxic wastes. In India Waste generation per
capita has increased and is expected to continue to climb with growing
population, wealth, and consumerism throughout the world. Approaches to
solving this waste problem in a scalable and sustainable manner would lead
us to a model that uses waste as an input in the production of commodities
and value monetized, making waste management a true profit center.
Industrial wastes in textile industry containing toxic pollutant requires
specialized treatment systems. Can India be able to prevail all those
adversaries coming with the challenges of higher economic growth? Does
India have the zeal, technology, manpower to overcome these challenges
with its growing need for imminent growth strategy in a world of competition
among countries to show their economic might? All these questions are the
needs of the hour and the measures should be taken so that a better
sustainable environment can be created. Ensuring that the amount of waste
is reduced to the economically efficient level, and is optimally managed, will
ensure that waste policy is delivering net benefits for society as a whole.
Finally, choosing interventions, or a mix of interventions, which deliver the
pollution reductions cost effectively will minimize costs to businesses, the
Government (central and local), and the economy more widely something
which is especially important in the current scenario.

Objective:

To find the implications of industrialization in India on the growth of

textile industry
The measures to improve the current scenario of textile industry by
the in depth analysis of various secondary data.

Research Methodology:
The research is of exploratory style and the data used are of secondary
collected from various portals of govt. of India, annual survey of industries, &
FICCI etc.
3

Research questions:
The economy of India is the tenth-largest in the world by nominal GDP and
the third-largest by purchasing power parity. And the textile industry is
worlds second largest in terms production as well as a significant amount of
exports. The research questions are based upon the pro-industry strategy
being followed by India and can it sustain the growth with a certain
advantage with environmental friendly measures are being taken care of
alongside. The research questions are based upon:
1. Is Indias economic growth can be sustainable?
2. Do Indias textile industry has the scope to implement the technologies
that will prevent the environmental damage?
3. What are the sustainable measures can be taken?
4. How the government policies and the ambitious projects like Make in
India will be more successful in a longer run in contrast to the Textile
industry.
5. How the textile industry fared in comparison to foreign markets?
Scope:
The research is conducted on current economic scenario of textile industry
in India with the challenge of making it as the worlds largest textile industry
but in a more sustainable manner.

Literature Review:
Due to greater integration with world economy, India though having a robust
domestic demand is also affected by the recent global financial crisis.
However, strong domestic demand, which has been a key growth driver for
the Indian economy, has provided a buffer against global turbulence.
However, it should be noted that even before the onset of the global crisis,
the Indian economy had started slowing down on account of proactive
monetary tightening policy adopted by RBI during the first half of 2008,
aimed at controlling domestic price inflation. As a result of the combined
effect of global and domestic slowdown, GDP growth declined to moderate to
6.5-7.0 per cent in 2008-09 (CRISIL-NMCC, (March 2009).
Though the MFA has expired with effect from 1st January 2005, certain
provisions of quota policy were extended initially for a period of one year;
again it was extended till 1st December 2006. Hence, the changing scenario
definitely indicates that the future of Indian textile and clothing industry is
bright. It has been recently reported that textile exports in 2009-10 period
will be equal or could be even lower than the one achieved in 2008-09. In this
global financial meltdown situation, it is an immediate task for all stake
holders to note takes a note of situation and takes stock of the difficulties and
chart plans for sustainability and growth of the Indian textile industry.
Export and import growth rates also play a key role in determining the growth
of an economy, Alok Kumar Pandey, in one of his works, discussed the
causal relation between export and economic growth in India using causality
and error correction mechanism and found presence of causality between the
two.
4

Capital formation is also crucial for economic growth that is higher savings
and investments in economy will promote growth in all sectors. S Bisaliah,
has emphasized on the role of capital formation in promoting textile
agricultural growth rate and reducing poverty by arguing that with more
capital in place, policy objectives of government for reducing poverty and
ensuring food security can be met by stimulation public investment in the
concerned sectors. This, in turn, would not only help in achieving mentioned
policies targets but would also indirectly fuel growth for textile agriculture
sector in the economy.
The MFA has expired with effect from 1st January 2005, certain provisions of
quota policy were extended initially for a period of one year; again it was
extended till 31st December 2006. Hence, the changing scenario definitely
indicates that the future of Indian textile and clothing industry is bright. It has
been recently reported that textile exports in 2009-10 period will be equal or
could be even lower than the one achieved in 2008-09. In this global financial
meltdown situation, it is an immediate task for all stake holders to note takes
a note of situation and takes stock of the difficulties and chart plans for
sustainability and growth of the Indian textile industry. (WTO REPORT)
National Manufacturing Competitiveness Council NMCC (2008) points out
that despite the fact that all the reforms undertaken were conducive to rapid
GDP growth in the range of 6 percent during 1991 to 2006 and 9 percent
during the last two years, Indian firms in general, barring a few exceptions,
have not been adequately successful in measuring up to the world standards.
The scale at which such improvements are needed has not occurred.
Considering the employment aspects of the Textile and Garments sector,
which is phenomenally high, the important determinant of competitiveness
could be its labor productivity. Textile and garments sector is one of the
important sectors among the various constituents of the manufacturing
sector in India, mainly due to its contribution towards employment. It is the
second largest employment provider after agriculture, both direct and
indirect employment put together. The textiles and garments sector alone
employed 20% of the workforce in the organized manufacturing sector.
Further, the share of textiles and garments sector in total workforce and
number of enterprises is higher in the unorganized manufacturing sector as
compared to the organized manufacturing sector which indicates that labor
intensive small and medium enterprises dominate this industry as compared
to other manufacturing sectors. The share of textiles and garments in total
workforce in unorganized manufacturing sector is estimated at 34% of the
total workforce in the unorganized sector.
Porter (1992) made a strong case for Indias garment sector in the post-MFA
regime and cautioned that in garments too, there is no room for India to be
complacent as there will be tough competition from countries like China,
which manufacture in a much larger scale using better technology.
Chandra (1999) recorded that the global textile trade regime changed
drastically from the year 2005 with phase-out of MFA. The implication of the
5

policies is that firm have been improving their capabilities are the ones that
are going to benefit the most. The study discussed the nature of competition
that Indian textile firms are going to face domestically and globally.
Landes et al., (2005) examined the growth prospects of Indias cotton and
textile industries. They argued that the demand for cotton and man-made
fibers of India will increase in response to rising consumer demand in India
and increasing in exports of textiles and apparel the removal of the Multi-fiber
arrangement quotas, and various studies related to growth have been
undertaken.

Textile and Garments Sector Global Scenario:

Textile and garments sector occupies significant position in total volume of
merchandise trade across countries. World trade in textiles and clothing
amounts to US $ 400 billion and is growing constantly. Developing countries
are the major exporters and they account for little over two-third of world
exports in textiles and clothing.
Structure of Global Textile & Clothing Market:
In the global textile market the major importers are USA, European Union and
Canada. Asia has been the principal sourcing region for imports of textiles
and clothing by both USA and European Union. The next important sourcing
region for imports of textile and clothing by USA has been Latin American
region while the same for European Union have been Central and East
European countries.
As far as the position of individual countries in all these markets are
concerned, the countries like China, Mexico, Turkey and India occupy the
dominant positions. India is one of the leading suppliers of readymade
garments in USA. In the EU market also, India is a leading supplier for many
of the textile products. It is estimated that Turkey would emerge as a biggest
competitor for both India and China.
Countries like Mexico, Caribbean Basin Initiative (CBI) countries, many of
the African countries and Bangladesh emerged as exporters of readymade
garments without having much of textile base, utilizing the preferential tariff
arrangement under the quota regime.
But in the post quota regime they may lose their market share. As maintained
earlier, the structure of the world trade in the post integration period will
solely be dictated by the comparative cost advantages.
It may be said that countries like China, USA, India, Pakistan, Uzbekistan and
Turkey have resource based advantages in cotton; China, India, Vietnam and
Brazil have resource based advantages in silk; Australia, China, New Zealand
and India have resource based advantages in wool; China, India, Indonesia,
Taiwan, Turkey, USA, Korea and few CIS countries have resource based
advantages in manmade fibers. In addition, China, India, Pakistan, USA and
Indonesia have capacity based advantages in the textile spinning and
weaving. However, India hasnt been able to make Optimal capacity
utilization due to lack of Knowledge, training, TPM & TQM, Disguised
Unemployment and Lack of professional management.
China is cost competitive with regard to manufacture of textured yarn,
knitted yarn fabric and woven textured fabric. Brazil is cost competitive with
regard to manufacture of woven ring yarn. India is cost competitive with
6

regard to manufacture of ring-yarn, O-E yarn and woven O-E yarn fabric,
knitted ring yarn fabric and knitted O-E yarn fabric. According to Werner
Management Consultants, USA, the hourly wage costs in textile industry is
very high for many of the developed countries. Even in developing economies
like Argentina, Brazil, Mexico, Turkey and Mauritius, the hourly wage is higher
as compared to India, China, Pakistan, Bangladesh and Indonesia.
From the above analysis, it may be concluded that China, India, Pakistan,
Taiwan, Hong
Kong, Brazil, Indonesia, Turkey and Egypt would emerge as winners in the
post quota regime. The market losers in the short term (1-2 years) would
include Caribbean Basin Initiative (CBI) countries, many of the sub-Saharan
African countries, Asian countries like
Bangladesh and Sri Lanka. The market losers in the long term (by 2014)
would include high cost producers, like EU, USA, Canada, Mexico, Japan and
many east Asian countries. In the long run, there are possibilities of
contraction in intra-EU trade in textile and garments, reduction of market
share of Turkey in EU and market share of Mexico and Canada in USA, and
thus provide more opportunities for developing countries like India.
It is estimated that India would have a market share of 13.5 percent in
textiles and 8 percent in garments in the USA market. With regard to EU, it is
estimated that the benefits are mainly in the garments sector, with China
taking a major share of 30 percent and India gaining a market share of 8
percent. The potential gain in the textile sector is limited in the EU market
considering the proposed further enlargement of EU. It is estimated that India