THESIS ON

SCENARIO OF INDIAN READY MADE GARMENTS EXPORT IN THE POST

MFA REGIME

ABSTRACT

The present study aims to highlight the prospects and potential of Textile industry
in India, more specifically the role of emerging trade policy environmentspecifically, the role of Multi Fibre Agreement (MFA), discriminatory rules of origin
in Regional Trading Arrangements [RTAs], tariff peaks and environmental and
labour standards- as market access issues relevant to textile and clothing
exporting countries. To assess the supply-side factors of export competitiveness,
a preliminary interview was conducted with a few exporters. The interview sought
their views and opinions chiefly in respect of the supply-side bottlenecks that they
are facing in India. The supply-side framework is based more on opinions than
on data/ numbers. The inferences about the supply-side factors are therefore
based on the opinions expressed by exporters of identified products.

TABLE OF CONTENTS
INTRODUCTION

SCENARIO OF INDIAN READYMADE GARMENT EXPORT IN THE

POST MULTI FIBRE AGREEMENT

IMPORTANT GARMENT ITEMS EXPORTED FROM INDIA

OBJECTIVE & SCOPE OF THE STUDY

RESEARCH METHODOLOGY

NATURE OF DATA
DATA COLLECTION

REVIEW OF LITERATURE

THE STRUCTURE OF THE TEXTILE AND CLOTHING SECTOR

THE SUPPLY CHAIN
GLOBALISATION AND GARMENT INDUSTRY IN INDIA
THE RETAIL SECTOR
CLOTHING
TEXTILES
THE EXPORT MARKET
GLOBAL TRADE IN TEXTILE AND CLOTHING: INDIAS
COMPETITIVE PERFORMANCE
TRADE IN NINETIES
US IMPORT TREND
INDIAS COMPETITIVE PERFORMANCE IN THE US19
INDIAS COMPETITIVENESS IN EU MARKET

DISCUSSIONS & ANALYSIS

OUTCOMES UNDER THE MFA AND ATC

THE DISADVANTAGES OF REMOVING QUOTAS FOR INDIA
POLICY RECOMMENDATIONS
HOME DEMAND CREATION
PROMOTE FAIR COMPETITION

REMOVE MANUFACTURING OF KNIT GARMENT AND FABRIC

FROM SSI RESERVATION LIST.

CONCLUSIONS & IMPLICATIONS

FUTURE SCENARIO OF THE CLOTHING INDUSTRY

TARGETS AIMED AT THE NATIONAL TEXTILES POLICY (2000)
STEPS TAKEN BY THE INDIAN GOVERNMENT TO ENHANCE
COMPETITIVENESS

BIBLIOGRAPHY

INTRODUCTION
SCENARIO OF INDIAN READYMADE GARMENT EXPORT IN THE POST
MULTI FIBRE AGREEMENT
The foundations of the Indian textile trade with other countries began as early as
the second century BC. The silk fabric was a popular item of Indian exports to
Indonesia around the 13th century, where these were used as barter for spices.
Towards the end of the 17th century, the British East India Company had begun
exports of Indian silks and various other cotton fabrics to other countries. These
included the famous fine Muslin cloth of Bengal, Bihar and Orissa. The trade in
painted and printed cottons or chintz, a favorite in the European market at that
time, was extensively practiced between India, China, Java and the Phillipines,
long before the arrival of the Europeans. The textile industrys predominant
presence in the Indian economy is manifest in its significant contribution to the
industrial production, employment generation and foreign exchange earnings.
Currently, it adds about 14 percent to the industrial production and about 2.4
percent to the Gross Domestic Product (GDP). It provides employment to about
35 million work force. Together with allied agricultural sector, it provides
employment to over 82 million people by the end of the tenth plan period. The
contribution of this industry to the gross export earnings is over 23 percent while
it adds only three percent to the gross import bill of the country. It has been
estimated

that

India

has

approximately

30,000

readymade

garment

manufacturing units in the country. It is the only industry which is self-reliant, from
raw material to the highest value added products viz. garments/ made-ups.
Cotton accounts for more than 73 percent of the total fibre consumption in the
spinning mills and more than 58 percent of the total fibre consumption in the
textile sector. The Indian textile industry contributes substantially to Indias export
earnings. The 1996 Indian textile exports approximately amounted to Rs.35,000
crores of which apparel occupied over Rs14,000 crores. At present, the exports
of textiles account for about 24.46 percent of total exports from India and are the

largest net foreign exchange earner for the country as the import content in
textile goods is very little as compared to other major export products. Further,
the export baskets consists of wide range of items containing yarn and fabrics,
wool and silk fabrics, made-ups and variety of garments. During the period, AprilJanuary 2002-2003, the exports had amounted to USD 9850.34 million as
against USD 8995.20 million in the corresponding period of previous year, with a
positive growth to the extent of 9.5 percent. Today many leading fashion labels
are being associated with Indian products. India is increasingly being looked
upon as a major supplier of high quality fashion apparels and Indian apparels
have come to be appreciated in major markets internationally. The credit for this
goes to our exporter community. India's supply base is medium quality, relatively
high fashion, but small volume business. Recent recession in Europe and the
South Asian currency crisis has also contributed their own bits to the decimating
Indian exports.
The international trade in textile and clothing sectors has been a
egregious exception to the most favored nation principle of GATT and, since the
early 1960s, has been a case of managed trade through forced consensus 2.
However, the WTO Agreement on Textile and Clothing (ATC) marked a significant
turnaround. According to the ATC, beginning 1st January 1995, all textiles and
clothing products that had been hitherto subjected to MFA-quota, are scheduled
to be integrated3 into WTO over a period of ten years. The dismantling of the
quota regime represents both an opportunity as well as a threat. An opportunity
because markets will no longer be restricted; a threat because markets will no
longer be guaranteed by quotas, and even the domestic market will be open to
competition4. From 1st January 2005, therefore, all textile and clothing products
would be traded internationally without quota-restrictions5. And this impending
reality brings the issue of competitiveness to the fore for all firms in the textile
and clothing sectors, including those in India. It is imperative to understand the
true competitiveness of Indian textile and clothing firms in order to make an
assessment of what lies ahead in 2005 and beyond.

Since 1970, India has built up a large-scale clothing industry. During the
course of the first and second MFA, in the 1970s, Indias exporting companies
enjoyed significant growth. The abolition of quotas will certainly benefit some
developing countries, while others will lose out dramatically.
The textile industry contributes 20% of total industrial output (9% to
excise collection) and accounts for 18% of the industrial workforce. Despite this
impressive performance, the spinning sector continues to be plagued by a
number of problems. Levels of modernization in this sector are low. In a common
textile policy there are wide differences between the shares of states in the
production of textiles and garments. Only a few states have reached a 5% or
higher share. The biggest challenge the textile industry faces is to radically alter
its mindset. Indian industry will have to become competitive by raising its level of
efficiency to meet the challenge both in domestic and international markets.
Every countrys textile industry is of strategic importance, as it generates largescale employment. Thus it becomes necessary for countries to regulate the
import of garments. Regulation here takes a variety of forms including tariffs and
quotas. Indias Tenth Five-Year Plan provides for a programme to modernise 2.5
lakh powerlooms into semi-automatic looms, in important powerloom clusters
over the next three years; induct 50,000 shuttle-less looms in the next three
years; promote a labour-productive environment; and set up apparel export parks
at major readymade garment production centres.
During the last ten years cotton textiles (including yarn, made-ups and
fabrics) and garments have registered highest rates of growth in exports. The
exports of cotton textiles have grown to Rs 13,028 crores in 1997 as compared to
Rs 60 crores in 1961. According to the Tirupur Exporters' Association (TEA), the
readymade garment and knitwear exports from Tirupur have crossed
Rs 11000 crore during 2006-07 against the set target of Rs 10000 crore. The
Garment Manufacturing and Export industry is the real engine of growth for the
whole textiles sector in India. A significant point to be observed is that the share
of fabrics in total textile exports during 1988 was around 60% which has declined

to 30.77% in 1997. The USA and Bangladesh continue to be the largest markets
of Indian cotton textiles with a share of over 10% in total exports. South Asian
countries have emerged as the single most important export destination for
cotton textiles. The rapidly increasing number of cotton/ man made fibre textile
mills has led to the expansion of the spinning sector. This development coupled
with sharp demand rise in the Eastern countries facilitated leap in cotton yarn
exports. Trade barriers are increasingly falling and scope for expansion is
increasing, thus promising a better export scenario for India. The abundance of
cheap labour, proximity of raw material ie. cotton especially of the medium and
long staple varieties and high capital utilisation gives a cost advantage to Indian
textile industry. 12-15 % of export growth should be our target and it is very much
achievable within next four or five years. The garment sector is dominated by
small and medium-sized enterprises and concentrated in a number of regions
that are highly dependent on this sector.

Table 1
Growth in cotton textiles export (value :Rs. Crores)
Year

Fabrics

Made-ups

Yarn

Total

1988

622.66

172.47

236.64

1031.77

1989

765.40

248.49

314.71

1328.60

1990

997.98

423.09

478.91

1899.98

1991

1411.28

573.18

863.40

2847.86

1992

1778.70

850.24

1112.42

3741.36

1993

2001.88

1157.06

1466.60

4624.54

1994

2610.65

1605.44

2300.77

6516.86

1995

3263.88

2004.61

3131.21

8399.70

1996

3859.13

2420.27

4765.98

11045.39

1997

4008.81

2949.23

6070.15

13028.20

India's share of the world's textile trade is only about 4 per cent.
This could double to 8 per cent by 2010. The value of our exports at that level of
market share will be $50 billion, and it will provide 12 million additional jobs. Our

major competitor in garment exports is China. However, China has exceeded the
quotas agreed with the European Union in 6 out of 10 categories of goods. India
has the following major advantages in textile and garment exports:
(i) we grow both long staple and short staple cotton in more than one region
of the country;
(ii) we have a long established tradition of textile manufacturing;
(iii) our labour costs are much lower than those in the US, Europe and Japan;
(iv) we have specialised institutions training people in textile design;
(v) unlike in the case of China, the US does not see India as a threat.
The Indian garment and fabric industries have several major factors going in
their favor, in terms of cost-effectiveness in manufacture and raw material,
quick adjustment to what will sell, and a vast and relatively inexpensive skilled
work force. India offers the international fashion houses competitive prices,
shorter lead times, and a virtual monopoly in embellishments. All these have
facilitated India as the "bull's eye" of the Indian garment industry, and an
important nodal point in the world map of garment manufacturers and
exporters. In the embroidered garments segment, India has always been the
default source, but the recent devaluation of the rupee against the dollar has
further lowered prices and facilitated Indias export.
In spite of these advantages, the Indian export of garments was greatly
impeded by the government's misguided policy of reserving garments for smallscale industry. Garment manufacturing is labour-intensive, and mostly uses
female labour. It is also highly seasonal as people all over the world tend to buy
more new clothes in certain seasons. On the other hand, as fashions tend to
change, it is not possible to manufacture and keep stocks for any length of time.
Therefore, the garment industry tends to be highly seasonal.

Important garment items exported from India

Variety and quality of raw silks - tussars, matka silks, phaswas.

An amazing array of jaquards, moss crepes and georgette sheers.

The "madras check" - originally used for the ubiquitous "lungi", a simple
lower body wrap worn in southern India and in some other parts.

Benares and kanjibaram silk sarees.

OBJECTIVE & SCOPE OF THE STUDY

The objective of the project is to evaluate the export competitiveness of Indian
textile and clothing sectors. Because Indian textile and clothing sector is
predominantly cotton based, this study would focus mainly on the cotton textile
and apparel, and look at the entire value chain from fibre to garment and retail
distribution. With the aforementioned objective in mind, this study has first
identified the products in Indian export basket which have shown a promising
growth in value, or in unit value and have a considerable weight in the Indian
export basket on the basis of recent performance of Indian exports of textile and
clothing sectors in the international market. The objective of this paper is also to
assess the likely impact of liberalization, taking into account recent technological
and managerial developments in the sector, and focusing on recent
developments in supply chain management in the clothing and textiles sectors
with special reference to the Multi Fibre Agreement.

RESEARCH METHODOLOGY

A Research Methodology defines the purpose of the research, how it

proceeds, how to measure progress and what constitute success with
respect to the objectives determined for carrying out the research study.
The present study is an analytical presentation of the garment export scenario in
India with special reference to Multi Fibre Agreement (MFA). In order to evaluate
the demand-side of Indian textile and clothing exports, the study has analysed
the competitive performance of Indian exports of the identified products
international markets. It has also been used to highlight the role of emerging
trade policy environment- specifically, the role of Multi Fibre Agreement (MFA),
discriminatory rules of origin in Regional Trading Arrangements [RTAs], tariff
peaks and environmental and labour standards- as market access issues
relevant to textile and clothing exporting countries. To assess the supply-side
factors of export competitiveness, a preliminary interview was conducted with a
few exporters. The interview sought their views and opinions chiefly in respect of
the supply-side bottlenecks that they are facing in India. The supply-side
framework is based more on opinions than on data/ numbers. The inferences
about the supply-side factors are therefore based on the opinions expressed by
exporters of identified products.

NATURE OF DATA

Primary data: primary data has been collected through raising a

questionnaire in NCR Delhi area with 25 exporters/ traders/ manufacturers.
Secondary data: secondary data that is already available and published .it
could be internal and external source of data. Internal source: which

originates from the specific field or area where research is carried out e.g.
publish broachers, official reports etc.
External source: This originates outside the field of study like books,
periodicals, journals, newspapers and the Internet.

DATA COLLECTION

Secondary data has been used which is collected through

Articles,
Reports,
Journals,
Magazines,
Newspapers
Reports prepared by research scholars, and
Internet.

REVIEW OF LITERATURE

The Structure of the Textile and Clothing Sector

The clothing sector is both a labor-intensive, low wage industry and a dynamic,
innovative sector, depending on which market segments one focuses upon. In
the high-quality fashion market, the industry is characterized by modern
technology, relatively well-paid workers and designers and a high degree of
flexibility. The competitive advantage of firms in this market segment is related to
the ability to produce designs that capture tastes and preferences, and even
better influence such tastes and preferences in addition to cost effectiveness.
Another major market segment is mass production of lower-quality and/or
standard

products such

as t-

shirts,

uniforms, white

underwear

etc.

Manufacturers for this market segment are largely found in developing countries,
often in export processing zones and/or under outward processing agreements
with major importers.6 They employ mainly female workers semi-skilled and
unskilled and outsourcing to household production is quite common in the low
end of the market. In the low to middle priced market, the role of the retailer has
become increasingly prominent in the organization of the supply chain. The retail
market has become more concentrated, leaving more market power to
multinational retailers. These have market power not only in the consumer
market, but perhaps more importantly they have considerable buying power. In
addition, high-volume discount chains have developed their own brands and
source their clothing directly from the suppliers, whether foreign or local.
A. THE SUPPLY CHAIN
The textiles and clothing sectors can be seen as a supply chain consisting of a
number of discrete activities. Increasingly the supply chain from sourcing of raw
materials via design and production to distribution and marketing is being
organized as an integrated production network where the production is sliced into
specialized activities and each activity is located where it can contribute the most

to the value of the end product. When the location decision of each activity is
being made, costs, quality, reliability of delivery, access to quality inputs and
transport and transaction costs are important variables. The textile sector
produces for the clothing sector and for household use. In the former case there
is direct communication between retailers and textile mills when decisions are
made on patterns, colours and material. In the second case textile mills often
deliver household appliances directly to the retailers.

Globalisation and Garment Industry in India

Globalization has put forth Indias business community in the international
market. Various foreign trade policies and investment policies have been framed
to facilitate foreign trade and increase the profitability of the Indian garment
manufacturers. The advent of liberal trade policies in textile and garments sector
have made it possible of usage of modern technologies and international
methods of manufacturing clothes. This sector of garments is one of the most
successful and important in terms of foreign exchange generation and
employment generating field. It provides employment to lakhs of people and is
the most sort out and booming industry of India.
The Indian textile and garment industry is completely independent on
itself i.e. from fibre manufacturing to the finished garments without sourcing it
from other countries. India is becoming the most preferred destination for
sourcing readymade garments for the international market. Various garment
export companies are coming up with clothes that are fashionable keeping
international trend in mind and also of good quality. Many international brands
also source readymade garments from Indian market.
The capitalization in various garment manufacturing arenas is
increasing like- manpower, cotton production, multi-fiber production, etc. The
Indian garment export graph is witnessing a steep rise since last few years which
is a positive reinforcement for Indian exporters and foreign buyers. India is being
seen as the next pioneer country in readymade garment export business.

Foreseeing the present booming fashion industry, the foreign buyers are showing
interest in doing business with Indian exporters. Therefore it becomes mandatory
for exporters to constantly present variation in designs and patterns in garments
with quality maintenance.
Free trade scenario has been created in the Indian market, which has
resulted cut throat competition among the manufactures and exporters for
various things like quality, raw material base, manpower, cost of inputs, etc.
required for garment making. To sustain the competition various steps are to be
taken, the foremost one is to imbibe the latest manufacturing and production
technologies. The importance of merchandising has increased as it helps in
generating high dividends. Branding and presenting diversified products is a
value addition for the companies in order to conquer the global market.
Trade in textiles and clothing is a vital part of the world economy, with many
nations heavily dependent on this sector for foreign exchange earnings and
employment-generation. Textile and clothing trade accounts for nearly 6% of total
world exports. It was valued at US$ 342 billion in 2001; trade in clothing
accounted for 60% of this total.
China dominates the textile and apparel market. It is the largest textile
and clothing supplier to the US, with a share of 26% as against Indias 1.17%
share. Chinese workers, however, will not necessarily reap the benefits of quota
removal, which will lead to a fall in prices. There is unemployment in China, so
workers will be forced to compete more fiercely for work and wages are expected
to fall. India can compete with China, but it needs to invest substantially in this
sector to modernise the industry and produce high-quality fabrics. Chinas trade
balance is stronger than Indias, but both India and China have very high
productivity growth. Recently, both countries have also enjoyed high gross fixed
investments of capital. FDI flows also play an important role in both economies.
Though governance indicators are better in India than in China, obstacles to
trade and business exist in both countries.

India ranks third in the production of raw cotton, produces the finest variety of
cotton, and possesses educated manpower. The ability of the textile and clothing
sector to compete internationally depends on the strength of the domestic
industry. It relies on the production of quality products in various segments of the
supply chain, and the ability of the government to provide a favourable
atmosphere to safeguard the interests of the domestic industry in the global
arena by conducting effective negotiations at the WTO.

Textiles and clothing are also among the sectors where developing
countries have the most to gain from multilateral trade liberalization. In fact, the
prospect of liberalization of the textiles and clothing sectors was one of the
reasons why developing countries accepted to include services and intellectual
property rights areas to which they were sceptical at the outset in the
Uruguay Round (Reinert, 2000). The clothing industry is labour-intensive and it
offers entry-level jobs for unskilled labour in developed as well as developing
countries. Job creation in the sector has been particularly strong for women in
poor countries, who previously had no income opportunities other than the
household or the informal sector.2 Moreover, it is a sector where relatively
modern technology can be adopted even in poor countries at relatively low
investment costs. These technological features of the industry have made it
suitable as the first rung on the industrialization ladder in poor and developing
economies including India. At the same time, the textile and clothing industry has
high-value added segments where design, Research and Development (R&D)
are important competitive factors. The high end of the fashion industry uses
human capital intensively in design and marketing. The same applies to market
segments such as sportswear where both design and material technology are
important. Finally, R&D is important in industrial textiles where, again, material
technology is an important competitive factor. Textiles and clothing are closely
related both technologically and in terms of trade policy. Textiles provide the
major input to the clothing industry, creating vertical linkages between the two. At

the micro level, the two sectors are increasingly integrated through vertical
supply chains that also involve the distribution and sales activities. Indeed, the
retailers in the clothing sector increasingly manage the supply chain of the
clothing and textiles sectors.

The retail sector

Substantial changes in the retail sector have been observed during the
past few decades and modern retailing has been called "lean retailing" in a
recent comprehensive study (Abernathy et al, 1999). The technological building
blocks of lean retailing are bar codes and uniform product codes, electronic data
interchange (EDI) and data processing, distribution centres and common
standards across firms. The change most visible to consumers is the expansion
of large shopping malls at the outskirts of the cities at the expense of city centre
department stores and boutiques. The retail sector has become more
concentrated, particularly in the cities and urban areas. Lean retailing has a
bearing on suppliers and the technology applied in the clothing and textiles
sectors.
Clothing
The basic production technology of the apparel industry has not changed much
over the past century, and is characterized by the progressive bundle system.
Work is organized such that each worker is specialized in one or a few
operations. The fabric is first cut and then grouped by parts of the garment, tied
into bundles (pre-assembly) and then sewed together. The individual sewing
tasks are organized in a systematic fashion and specialized sewing machines
have been developed for the individual tasks. A worker receives a bundle of
unfinished garments, performs her single task and places the bundle in a buffer.
A buffer of about one day's work has been common at each operation. It takes
about 40 operations to complete a pair of pants, which implies that there is about

40 days of in-process inventory. For men's blazers, however, it takes as much as

100 operations. Although a number of improvements in terms of systematizing
the operations and reducing the time at each individual operation has taken place
over time, the basic system has remained the same. One explanation for this is
that technology changes cannot be implemented in a partial fashion involving
only a few operations. This would unbalance the system and any major
technological change therefore needs to involve the entire system (Abernathy,
1999). Even though the basic technology and the sequence of operations have
not changed much, new innovations have improved efficiency at each stage of
production and not least, improved coordination between stages and provided a
more seamless interface between them. However modern, the assembly stage of
the clothing sector is still labour-intensive and it is the stage that is most likely to
be farmed out to lower-cost firms. Table 1 below shows the cost structure of the
clothing sector, given as percentages of gross value of the sector's production.
The countries included in the table constitute the major exporters or importers
under the ATC for which data are available.

Table-I
The cost structure of the clothing industries, selected countries:
Country

Unskilled
labour

Skilled

Capital

Labour

Total

Intermedi

Of which

Value

-ate

imported

Added

inputs

Canada
USA
France
Italy
Japan
Hong Kong,

25.9
21.0
21.6
14.3
21.9
22.6

5.0
5.8
4.7
3.1
4.0
7.9

10.2
5.8
8.8
16.4
11.2
12.9

41.2
32.6
35.0
33.8
37.1
43.4

58.8
67.4
65.0
66.2
62.9
56.6

19.8
13.8
24.3
13.5
7.8
13.0

China
Korea
Chinese

15.0
20.8

2.9
3.5

4.7
6.0

22.6
30.3

77.4
69.7

15.9
10.9

Taipei
China
India
Vietnam
Czech

18.2
21.1
9.0
21.2

2.5
2.9
1.2
3.2

12.2
7.8
3.8
9.9

32.9
31.8
14.0
34.1

67.1
68.2
86.0
65.9

5.7
1.8
40.4
28.9

Republic
Morocco

14.6

2.1

10.9

27.6

72.4

37.9

Source: GTAP

Textiles
The textile industry is usually more capital intensive than the clothing industry
and it is highly automated, particularly in developed countries. It consists of
spinning, weaving and finishing, and the three functions are often undertaken in

integrated plants. Traditionally, and in many markets, it is still the case that lead
time in the textile sector is quite long and the capital intensity of the industry
results in relatively large minimum orders. The textile industry is therefore less
flexible in terms of adjusting to consumer tastes during a season than the
clothing and retail sectors. The textile sector is thus in many ways the bottleneck
in the supply chain. This is a more R&D intensive segment of the industry and
subject to less frequent changes in patterns, material and colours. The textile
sector is less unskilled labour-intensive than the clothing sector.

Table-2
The cost structure of the Textile industries, selected countries:
Country

Unskilled
labour

Skilled

Capital

Labour

Total

Intermedi

Of which

Value

-ate

imported

Added

inputs

Canada
USA
France
Italy
Japan
Hong Kong,

22.7
19.5
13.8
11.8
17.6
9.0

3.1
4.2
3.7
3.2
6.6
3.9

10.3
10.3
7.2
21.6
7.0
10.8

36.1
34.0
24.7
27.6
31.2
23.8

63.9
66.0
75.3
72.4
68.8
76.2

24.2
9.7
22.0
35.0
11.2
5.8

China
Korea
Chinese

12.0
10.4

2.3
3.3

15.2
8.3

29.5
22.0

70.5
78.0

20.0
10.2

Taipei
China
India
Vietnam
Czech

9.7
17.8
10.2
13.0

1.6
2.8
1.6
1.8

12.0
6.7
12.4
13.8

23.2
27.3
24.3
28.7

76.8
72.7
75.7
71.3

8.1
4.0
34.3
35.1

Republic
Morocco

5.8

0.9

6.2

13.0

87.0

44.3

Source: GTAP

Readymade garment is a part of the textile industry that consists of fabrics,

made-ups, yarn, thread, fibre, woolen textiles, silk textiles and readymade
garments. Readymade garments account for about half of India's textile exports.
The global apparel industry is among the most advanced, and yet the most

fragmented of all retail sectors. The global market is estimated at $183 billion,
much of it in the US.

The structure of the readymade garment industry is

complex as much as it is diverse. It is highly fragmented and a large part of it is

unorganised. The two markets, domestic and international, have their own
issues. The products are poorly classified and the distribution systems ill-defined,
making strategies and data difficult to evaluate.
The export market
The export market growth is now slowing. India's share of the global market is a
measly 3 per cent. India's combined textile exports grew 5.6 per cent, from
$106,54 million (Rs 44,821.37 crore) in 1998-99 to $112,60 million (Rs 48,811
crore) in 1999-2000. Exports amounted to 417.6 million pieces valued at
$1,545.2 million in the first five months this fiscal. Market sources expect the
trend to continue for the rest of the year. While the 15 per cent growth rate seems
reasonable for the domestic market, the National Textile Policy's plans of raising
exports from $5 billion to $25 billion in 2010 are ambitious. The readymade
segment grew 7.7 per cent to $5,524.5 million (Rs 23,983 crore) in 1999-2000
from the year before. While there has been a remarkable growth in value terms,
the growth rate has declined steadily. For instance, while exports have been on
the increase, the rate of growth year-on- year has fallen. From a growth rate of
20 per cent in 1992- 93, it fell to 1.04 per cent in 1998-99.
India's textile export performance has been stagnating mainly due to
unfavourable policy. Until recently companies in India were not able to source the
fabric required to export to the sophisticated international markets, requiring a
variety of fabrics and designs. Indian infrastructure is mainly attuned to for cotton
casuals that cater to a very small percentage of the international market. Heavy
investment in technology was also not viable as the readymade garments sector
was reserved for the small-scale sector which did not have adequate resources.
Now, after de-reservation, the potential can be realised. Investments will allow
big companies such as Raymond Apparel, Zodiac, and Pantaloon to expand

operations and achieve economies of scale. It is evident that near-term prospects

for the export market are shaky because of the global slowdown. The long run
depends on how companies use their resources to invest in technology.
The major problem with the Indian market is its size. It is also the
main reason why it has so much potential. It is being dubbed the second largest
retail opportunity for retailers. However, the exact size of the market in value
terms is not known. This is because it is highly fragmented and disorganised, and
the data available can only be considered an estimate. According to research by
McKinsey, the domestic clothing market is estimated at Rs 87,000 crore, 22 per
cent of which is made up by readymade garments. Of the 22 per cent, 20 per
cent belongs to the branded apparel market. This means that in a market worth
Rs 20,000 crore, only Rs 4,000 crore is catered to by branded apparel. So there
is still a Rs 16,000 crore market to be tapped.
One of the major issues facing the market is that there are not
enough good players that can translate into higher quality garments. Competition
will also engender innovation and research -- now sadly lacking in the industry.
Another drawback for the smaller players is that a newcomer may find it has no
place to showcase its product. Stores are coming up, but slowly and offer
homogeneous products. Differentiation is required. So while small players can
respond to changing trends faster than bigger players, the latter are able to
leverage their size to put up individual showrooms. The future potential of the
readymade garments market lies in companies trying to change consumer
perception and help them make a transition from tailor-made clothes to ready-towear clothing. This requires investment in infrastructure to increase quality and
design and also advertising -- brand management.

GLOBAL TRADE IN TEXTILE AND CLOTHING: INDIAS COMPETITIVE

PERFORMANCE
During the MFA period, the textile exporters from industrial countries and those

from developing countries merely changed shares between themselves during

the 24 years period. The share of industrial countries declined by almost as much
(19.2%) as was the gain in the share of developing countries (18.8%). Clothing
exporters13, however, exhibit significant changes, with the share of top 13
exporters having declined by 13.8%. New entrants have come in as well as some
old ones have been knocked out. Of these new entrants, most- if not all- are from
developing countries, since the share of industrial countries has declined during
the period, and that of developing countries has increased. The countries that are
gaining share in clothing exports are the ones whose industries are integrated to
one or the other advanced country through some policy-induced preferential
arrangements. Mexico, Caribbean region, East European countries and
Mediterranean countries are capturing much of the space vacated. There has
been a much deeper globalisation in clothing than in textiles. Indeed, that has
been one of the principal reasons for the developed countries agreeing to an
eventual phase-out of MFA quota in the UR of negotiations. During the MFA
period, (between 1973 to 1997, to be precise), while in textiles, there was an
inexorable shift away from developed countries and to developing countries at
large, in clothing the shift away from developed countries is increasingly being
grabbed by preferred developing countries. Thus, in clothing, the non-preferred
group of developing countries is fighting amongst themselves for a pie that is
increasingly declining. One should expect a much higher level of intra-industry
and intra-firm trade in clothing than in textiles. This is entirely compatible with the
fact that it is the trade in clothing that is growing faster than that in textiles. And
this trend is likely to deepen, as clothing retailers consolidate, and Outward
Processing Trade (OPT) traffic increases. The opportunity clearly lies much more
in clothing, though the caveat is that the exporting country would have to achieve
the preferred status, and integrate its manufacturing with that of an importing
country15 in order to continue exporting to the restricted markets. The pressure
to export would intensify in the years to come since 80% of additional output
during 1995-2005 is expected to be located in developing countries. On the other

hand, only 50% of the additional fibre consumption would originate in developing
countries.
Trade in Nineties
During the decade 1990-2000, textile trade grew at a rate of 4%, after having
grown at a rapid 15% annually during the quinquennium of 1985-90. The growth
rate turned negative in 1998 and in 1999 following the East Asian crisis, but
resumed to a robust growth of 7% in 2000. Clothing trade grew at a faster rate
compared to textile, and clocked 6% annual average rate during the ten years
from 1990-2000. It is noticeable, that, on an average, clothing trade grew at least
as rapidly as textile trade in all years since 1980. It is therefore not surprising that
the share of clothing trade in total textile and clothing trade has been rising and
now stands at 56%, higher than 50% in 1990.
US Import Trend
In terms of MFA fibres, the USA imported 32.9 billion square metre equivalent
(sme), worth US$ 71.69 billion of MFA fibres in the year 2000. It was the second
largest importer of textiles and clothing defined in MFA terms, importing 21% of
world import. Out of the total MFA fibre import value, 80% was in the form of
apparels and the rest 20% was non-apparel (textiles). Yarn, fabric and made-ups
constituted 10%, 39% and 51% of total textile imports for the year. On an
average, every sme that the US imported in 2000 was worth US$ 2.18. US
imported US$ 37.17 billion worth cotton fibres, which was 52% of all MFA fibres
imported, at a unit value of US$ 2.51. Man-made fibres constituted 38% of all
MFA fibres imported and had unit values of US$ 1.61. Rest was silk and other
vegetable fibres which constituted 10% of total MFA fibre imports in 2000. In
2000, the US imported US$ 57.2 billion of apparels with average unit values
equal to US$ 3.57 per sme. 56% of these, valued at US$ 32.01 billion were
cotton apparels, and only 34% were mmf apparels. Less than 10% were apparels
made from silk and vegetable fibres. The average unit values of cotton apparels
were higher at US$ 3.64 per sme compared to US$ 2.98 per sme.
Indias Competitive Performance in the US19

1. Of the eight cotton apparels, Indias market share (in 2000) in US import
market exceeded 10% in cotton dresses, W&G woven shirts, and cotton skirts.
Market share grew in 336 and 341. In 336, India exported higher quantity at
reduced prices, while in 341, India moved up the value chain. But the US import
market grew strongly in 341 and 342, and not as much in 336. However, in 341,
the size of quota is close to the size of US home market, whereas in 336, about
43% of US home market would be opened only on 1st January 2005. Therefore,
not much growth should be expected in 341 in terms of US market size. Besides,
there are no current threats from preferred developing countries in 341 yet.
Hence this is one category where India should very clearly focus, since the
competitor countries are essentially Asian. The one big threat, would be China.
Currently, China exports at an appreciably higher uvr compared to India. The
evidence from 1995-2000 indicate that China has upgraded its 341 faster than
India has. If China continues on that path, India may not worry too much, since
the gap between Indian and Chinese prices would be quite significant. But then,
if India also upgrades its product, as it has done in 341, competitiveness based
only on price will be extremely risky.
2. In descending order of uvr, Indian exports of the chosen cotton apparels
belong to between 40 and 50 percentile, among all supplier countries for a given
MFA product category. Which means India operates in the low value segment in
most cotton apparels in the US. However, it is interesting to note that there are
three cotton apparels whose uvr have been between percentiles 55 and 60. They
are knit shirts (cat 338) and trousers for M&B (cat 347) and for W&G (cat 348).
Incidentally, US imports of these products is growing fastest among all cotton
apparel categories. However, India has lost market share in all except 347 during
1995-2000. In 347, its unit prices have grown fastest among top ten suppliers.
And almost 70% of US market remain to become quota-free only on 1st January
2005. India must build up its strength in this product category quickly to capture
the huge market that would suddenly open in 2005. Quite apart from preferred
group of developing countries, Pakistan is one country which has done

exceedingly well in 347, and has been building its domestic manufacturing
facilities very fast. But Pakistan is not yet as much of a threat since its unit value
is considerably lower than India. China, however, is likely to emerge as a big
threat to India in 347 since their uvr is closer to Indias and they too are
upgrading their product rapidly. Their market share declined due wholly to quota
constraint. But they seem to be producing less numbers, and better quality of 347
for US export market. They would pose a big challenge to India.
3. In cotton apparels, the competitor countries- aside from preferred developing
countries- are Indonesia, Malaysia, Hong Kong, Philippines, Indonesia, Sri Lanka
and Bangladesh. From among these, Bangladesh is the lowest cost supplier in
almost all categories. In view of the threat from preferred developing countries,
India must move away from competing only on the basis of price, since the share
of this segment is any case declining with the preferred countries growing
rapidly in this segment. And when India upgrades its value, it would have to
contend with strong Asian competitors like Hong Kong, China and South Korea,
whose performance has been constrained due to quota ceilings. But once the
quotas are removed, India may find itself again losing in this upgraded market
segment due to sheer size of these countries exports. The important lesson for
India therefore is that it must not only upgrade its values, but also begin to find
ways of competing increasingly on non-price factors.
4. Within textiles, India has done commendably in made-ups (362 and 363). In
towels (363), Indian performance has been excellent. It was the largest supplier,
and yet managed to grow fastest in US import market among the top ten
suppliers. Besides, major portion of its growth has come from value upgradation,
rather than just quantity growth. This is an item of great potential for exports to
US. Moreover, 47% of US market remains to open on 1st January 2005. Indias
export in made-ups category 363 is expected to grow phenomenally in post2005. Threat from price-based competition is small since India is already among
the relatively high price suppliers among top ten suppliers. Mexico, Israel and Sri

Lanka are building huge domestic manufacturing facilities, but they are all lowprice segment players. This is likely to be Indias star performer. India has done
well in 362 also in terms of improved market share, as well as higher unit prices.
However, the one big threat, which is Indias close competitor, is Mexico. And
India can no longer afford to compete only on price-based factors, since Mexico
would have an advantage over India not only until 2004 (due to quotas) but also
beyond (due to tariffs). India must rapidly develop non-price based competencies
in this item of great potential. Countries such as Turkey too are building up
massive domestic facilities for manufacturing 362, but they are very low price
segment players and no threat to India at all.
5. In all chosen fabric20 exports to US, India has lost market share during 19952000. Except cotton sheeting fabric (313), India did not grow even in quantity
terms. So why havent quotas protected Indian fabric exports in the US market?
It would be useful to mention here that the protection by quotas does not imply
assured export growth, as is often (mis)understood. Exports are a function of
export order. However, quotas provide protection in an indirect fashion, by
prohibiting other supplier from exporting more than they are competitively
capable of. From an importers perspective therefore, all the order that the
importer may like to place with an exporter may not be importable from that
exporter due to quota limits on the exporter. The importer would therefore be
compelled to place the overspill order with someone who is second most
competitive in the product. In this sense, the second most competitive suppliers
exports are protected to the extent of the limited quota supply with the most
competitive supplier. This indeed is the sense in which quota protect.
Alternatively, it can be said that, but for quotas, the exports of Indian fabric to US
would have been much lower. In this sense, quotas have indubitably protected
the exports of Indian fabric in the US market during the quinquennium. Indian
fabric exports have not revealed to be competitive in the US market. All Indian
fabric chosen for this study is low-end fabrics, and the competitors are some of
the preferred countries like Mexico and Turkey, and Asian countries. Indias uvr

has been declining, but the intensity of price competition in these products could
be gauged from the fact that in all fabric products, the real prices of US imports
have declined.
6. In the 11 apparel categories- both cotton and mmf- China is not Indias close
competitor since uvr of its exports to US is significantly higher than Indias, and
these two countries operate in quite different price-segments23. In 339 and 347,
where it is Indias close competitor, its uvr is higher than Indias. However, China
is a strong competitor of India in cotton fabrics, even though in all chosen textile
categories, its uvr is (marginally) higher than Indias. The major threat from China
therefore lies in fabric exports, especially if China chooses to devalue. India is
one of the countries whose exports would be severely affected if China chooses
to devalue its currency. And that is not an unrealistic scenario. Indian fabric
exports to US would be almost wiped out. The lesson becomes stronger. India
must not only upgrade in fabric exports, but also seek newer non-price criterion
for competing. Or, as a country, perhaps begin to focus more on apparel and
made-ups exports.
As can be noticed, almost all of Indian garment exports to the US are
leaders, or gainers, only exception being 340 which is expected to be a loser.
The competitive situation in textiles is contrasting vis--vis the US market. It is
very clear that except made-ups- which are the leaders in the USA- Indian textile
export to the US has no future. And that is very much along expected lines. All
important textile product categories are outliers, but not losers. In other words,
their market share is declining, as well as Indian textile producers are not
showing any signs of investing in textile products that they export to the US
market. The tables above, showing the competitive performance of Indian textiles
in US, tells us why are so many Indian textile products outliers. It can be noticed
from the tables that unlike the rapid growth rates in garment imports, the US
import of textiles (save made-ups) has been declining. In other words, as we
have seen above also, US imports of textile is dwindling. One cause is the
growing US outward processing trade in North American Free Trade Association

(NAFTA) and Caribbean Basin Initiative (CBI) regions. Indeed, there has been
some evidence of Indian fabric exports now getting diverted to countries that
enjoy preferential access to the US market (such as Mexico and Bangladesh).
Indias competitiveness in EU market:
1.

EUs imports of yarns and fabric are on the decline whereas that of madeups and garments is noticeable. Except for some in garments, EU import of
all other garment categories have grown quite appreciably in value terms.
2.All sectors of yarn, fabric, made-ups and garments show a mixed picture.

The uvr of synthetic fabrics has grown quite significantly.

3.

India has performed reasonably well in the EU in terms both of value and

uvr. The leaders are yarn- both cotton and synthetic- and synthetic table linen. It
is interesting to note Indias good performance in synthetic products (yarn and
made-ups) in textiles. Among garments, the leaders are all W&G categories
suits, coats and jackets and skirts. The products whose exports to EU have been
constrained by quotas, and hence are likely to gain from quota dismantling in
2005, (Gainers) are cotton bleached fabric and woven bed linen. W&G dresses
and blouses, and knit shirts and woven trousers are the garment categories that
are expected to gain due to quota dismantling in 2005.
The losers are bleached fabric made of cotton as well as synthetic
fibres/yarns, and knit jerseys/pullovers. That synthetic fabric is an outlier is not
really surprising to anyone who knows Indias fibre strengths and weaknesses.
Woven shirts is another category that is likely to become a winner once the
quotas are lifted. These would become clearer from product-wise analysis.
4. Except yarn and made-ups, the share of extra-EU imports is, on average, less
than 50%, save category 8 (M&B woven shirts). The share of extra-EU import of
fabric and garment is less than half. Extra-EU import of fabric in fact is very
small. But the reason for that perhaps lies in the fact that the total fabric import by
EU has been almost stagnant in the five-year period. The story in cotton yarn is a
little different since almost entire cotton yarn requirement of EU is imported from
extra-EU sources.

5. The observation of interest to suppliers like India to EU is that the share of

extra-EU imports in almost all selected ATC product categories is on the rise. The
only category where the share of intra-EU imports has increased is synthetic
fabric and India is an outlier here. In all other categories, specially in all garment
categories, the share of extra-EU imports has increased significantly in the five
years. And that should be music to the ears of garment suppliers to EU. But it
must simultaneously be remembered that even within the garments category, the
uvr of extra-EU imports is higher than that of intra- EU imports of the same
categories. The message is quite clear. EU is importing less of yarn/fabric from
outside, but more of made-ups and garments. And the uvr of both made-ups and
garments from extra-EU sources are higher than that from intra-EU sources.
India is a high-ranking exporter to EU of yarns, made-ups and some
categories of garments. Export of Indian fabric to EU in future is likely to further
slow down substantially. Made-up exports to EU, like in US, are a very big
opportunity for India. In garments, Indian exports of W&G skirts and
suits/ensembles is another big opportunity where India has shown good
performance in the EU market over the five years 1995-2000.

QUESTIONNAIRE ANALYSIS
1. Kindly explain the kind of business activity you do?

Manufacturers
Traders
Manufacturer & Trader
Manufacturer & exporter

In the above figure it is clear that there are

31 % of Manufacturers,
22 % of Traders,
16 % of Manufacturer & Trader,
32 % of Manufacturer & exporter

Working in the Ready made Garment Business,.

2.

What kind of company is yours?

Partnership
Public limited company
Private limited company
Sole proprietorship

As there are 22% Traders working in the Woollen Carpet business and there are
23% of Private limited companies. This shows that only Traders have the Pvt. Ltd.
Companies in this business.

 Also Majority of the Companies 46% is Sole Proprietorship Companies and 31%
are Partnership firms.
There is no Public Limited Company in Woollen Carpet Business.

3.

What are the countries where you export your goods?

The major exporting countries to which the Ready made garments is exported are U.S.A,
Germany, U.K., Sweden and France. Ready made garments are also exported to Italy,
Australia, Canada, Japan, Switzerland, Denmark.

4.

What are Problems faced by Indian Manufacturers while

producing Ready made garments.

More than 60% of the respondents attributed to unskilled labour and old or
obsolete Machinery as the major problem while production of Carpets, which
they are facing.

While others believe that Low productivity, Poor processing of Raw Material,
Inadequate supply of suitable raw material as the major problem in which only
18%, 16%, 14% of the respondents respectively agree.

Very few respondents (9%) believed that Less Supervision creating problem
while production of carpets.

5.

Do you think there is a need for Hiring Designers for improving the
design?

An overwhelming majority of the respondents agreed to the statement that there is a need
to hire designers for improving the design in which 40% of the respondents Agree
somewhat and 38% agree strongly. Only 11% of the respondents disagreed to the
statement and 11% of no opining.

6.

Do you think there is a need to give Training to employees?

About 81% of the respondents agreed in which 50% are strongly agree and 31% agree
somewhat that employees are unskilled in ready made garments industry and there is a
need to give training to employees. Only about 12% of the respondents disagreed to the
statement and 7% of no opinion.

7.

what are the

Areas in which India is facing

competition from China

The major areas in which Indian Industry is Facing Competition from China are Low
pricing, High Quality of Product and Low cost of production. And Low cost of
Production.
Some steps must be taken to reduce the Prices of Woolen carpets; quality of the carpet
must be improved by hiring skilled labour and per unit Cost of production must be less in
order to compete with Chinese Industry.

7.

WHAT ARE THE Strategies adopted by Indians to meet the

competition.

Most of the Indian Companies are adopting different strategies to meet the Chinese
Competition as:
They are reducing the prices of Ready made garments.
They are hiring skilled labor for production of Ready made garments.
They are increasing their production capacity.
They are improving the quality of Ready made garments.
They are hiring the designers for improving the designs.
They are cutting the cost by using various means like Backward Diversification or
Forward Diversification.

8.

Do you advertise your Product?

Here 65% of the respondents do the advertisement for Ready Made Garments and in
those 65% of the respondents the media, which is choosed by majority of the companies
(62%), is related to internet in the form of Websites or E-Mail.

Very few people are using Direct mail and Magazine to advertise their product.

DISCUSSIONS & ANALYSIS

MULTI FIBRE AGREEMENT

Global trade in textile and clothing products is set to double, from US$ 353 billion
to US$ 655 billion by 2010 -- an average annual growth rate of 8.0%. The three
significant drivers of growth are increase in population, rising incomes, and expiry
of the Multi-Fibre Agreement (MFA). Though China is today the largest player in
the world market in textiles and clothing, it is under WTO restrictions until 2008.
This gives India the chance to grab as much of the market as possible through
strategic modernization.
Protection of the textile and clothing sector has a long history in United
States and Europe. In the 1950s, Japan; Hong Kong, China; India and Pakistan
agreed to voluntary export restraints for cotton textile products to the United
States. In 1962 a Long Term Agreement Regarding International Trade in Cotton
Textiles (LTA) was signed under the auspices of the GATT (replacing a 1-year
short-term agreement). The LTA was renegotiated several times until it was
replaced by the Multi Fibre Agreement (MFA), which came into force in 1974.
The conclusion of the Uruguay Round of General Agreement for Trade
and Tariff (GATT), on April 15, 1994 delivered the most significant decisions in
the recent history of the international, pervasive regime. The scope of multilateral
trade was expanded to cover three major areas that were previously not under
the jurisdiction of GATT, namely the General Agreement on Trade in Services
(GATS), Trade-Related Intellectual Property Rights (TRIPS) and Trade-Related
Investment Measures (TRIMS). GATT also addressed the other two major
sectors outside of its control, agriculture and textiles. The other significant event
at the Uruguay Round was the advent of the World Trade Organisation (WTO).
The WTO promised to provide a framework for the conduct of trade between its
members on matters related to the Uruguay Round Agreements. The WTO

pushes "liberalization" of trade in goods, services and related areas. This has
had a big impact upon the economies of both "developed" and "developing"
nations. The proponents or propagandists of the WTO regulations would argue
that the world community as a whole would benefit from such interventions.
However, critics have suggested that the WTO is simply another aggressive tool
of the developed world to further extract resources from the developing world for
their own benefits, to further serve global capital within the current economic
globalization paradigm.
Perhaps the most significant decision to emerge from the Uruguay
Round for Sri Lanka was to abolish the Multi-fibre Agreement (MFA) for the textile
and garment industries. Although it was only supposed to be a temporary
agreement, the MFA was extended four times, the last time being in 1986. Now
that the WTO wants textiles to be under its control, the abolition of the MFA over
a ten-year period commenced from January 1, 1995. As a result, the quota
system has provided some security (albeit with associated difficulties) for those in
the industry in India.
Up to the end of the Uruguay Round, textile and clothing quotas
were negotiated bilaterally and governed by the rules of the Multifibre
Arrangement (MFA). This provided for the application of selective quantitative
restrictions when surges in imports of particular products caused, or threatened
to cause, serious damage to the industry of the importing country. The Multifibre
Arrangement was a major departure from the basic GATT rules and particularly
the principle of non-discrimination. On 1 January 1995 it was replaced by the
WTO Agreement on Textiles and Clothing which sets out a transitional process
for the ultimate removal of these quotas.

The abolition of quotas has come

about as a result of decisions made by the WTO, of which India is a member. The
decision has affected not only India but other countries in South Asia, such as Sri
Lanka and Bangladesh, and the entire textile industry that from 1974 until the
end of the Uruguay Round was governed by the Multifibre Agreement (MFA).

The MFA, as the name suggests, extended restrictions on trade to

wool and man-made fibres in addition to cotton. The MFA governed trade in the
textile and clothing industry and consisted of A framework of bilateral agreements
or unilateral actions that established quotas limiting the amount of imports to
countries whose domestic industries were facing serious damage from rapidly
increasing imports. The MFA, intended only to be a temporary arrangement, has
been in existence for almost twenty-five years. It received four extensions; these
being in 1977, 1981, 1986 and 1994. One of the realties we must face is that the
MFA's existence did encourage the entrance of several countries into the export
of textiles and clothing that otherwise would not have been involved. The MFA
provided for the application of selective quantitative restrictions when surges in
imports of particular goods are caused. Or threatened to cause damage to the
industry of the importing country. On January 1 1995, WTO replaced the MFA
with the Agreement on Textiles and Clothing (ATC). The ATC has a number of
defining features. Some of these are:
a. The product coverage, encompassing yarns, fabrics, made-up textile
products and clothing;
b. A program for the progressive integration of these textile and clothing
products into GATT 1994 rules;
c. The liberalisation process to progressively enlarge existing quotas
(until they are completely removed) by increasing the annual growth
rate at each stage and:
d. Establishment of the Textiles Monitoring Body (TMB) to supervise the
implementation of the other provisions.
The MFA aimed at an orderly opening of restricted markets in
order to avoid "market disruptions". Like the LTA, it was supposed to be a
temporary measure. The science of quantitative trade policy analysis was not
very well developed in the 1970s. The burden of proof of what constituted a
"market disruption" was therefore relatively weak and the agreement came to
comprise most developing country exports to the United States and the EU. By

the end of the second MFA (1981), 80 per cent of imports of textiles and apparel
into United States were covered by bilateral quota agreements with 20 countries
and territories and by consultative mechanisms with another 11 countries
(Krishna and Tan, 1997). ATC is not an extension of the MFA. Rather, it is a
transitory regime between the MFA and the full integration of textiles and clothing
into the multilateral trading system. The MFA has certainly attracted foreign
investment and created many jobs. The MFA works through bilateral agreements
between governments. Indias most important markets are the US and EU..
When a government, for the example, the US government, decides to make an
agreement, they will negotiate with the exporting country the amount of quotas
that can be imported to the US. If a US importer wishes to import a certain
category that company must apply for an importing license. If the export quota for
that particular country has already expired then the importer will have to go to
another company that has a license to import the particular category from that
exporting country. If many countries are exporting the same category then it is
regulated by the MFA.
Concurrent with the integration process, there is a programme for liberalizing
the existing restrictions, that is, for enlarging the bilateral quotas carried over
from the former MFA on 1 January 1995 until such time as the products are
integrated into GATT, at which time the quotas terminate. These former MFA
quotas, when carried over into the ATC on 1 January 1995, represented the
starting point for an automatic liberalization process. The former MFA growth
rates applicable to each of these quotas were increased on 1 January 1995 by a
factor of 16 per cent for the first stage of the Agreement and the new growth rate
was applied annually. The stage 1 growth rate was further increased by a factor
of 25 per cent for the second stage on 1 January 1998; and has been increased
by a further 27 per cent for the last stage beginning 1 January 2002. To illustrate
this process, a 6 per cent growth rate under the MFA in 1994 became 6.9 per
cent under the ATC and applied each year 1995/96/97; then it was increased to
8.7 per cent for each year 1998/99/2000/01; and further to 11.05 per cent for

2002/3/4. There are additional provisions in Article 2 for early removal of quotas
and integration of products.
Article 3 deals with quantitative restrictions (or measures with
similar effect) other than those under the MFA. Members which had such
restrictions in place, which could not be justified under a GATT provision, were
required either to bring them into conformity with GATT rules or phase them out
within the ten year transitional period, according to a plan to be submitted by the
restraining Member to the Textiles Monitoring Body. There is no obligation to
eliminate restrictions that are permitted under GATT rules.
A key aspect of the ATC is the provision in Article 6 for a special
transitional safeguard mechanism intended to protect Members against
damaging surges in imports during the transition period from products which
have not yet been integrated into GATT and which are not already under quota.
This clause is based on a two-tiered approach - first, the importing Member must
determine that total imports of a specific product are causing serious damage, or
actual threat thereof, to its domestic industry and second, it must then decide to
which individual Member(s) this serious damage can be attributed. Specific
criteria and procedures are set out for each step. The importing Member must
then seek consultations with the exporting Member(s). Such safeguard measures
may be applied on a selective, country-by-country basis by mutual agreement or,
if agreement is not reached through the consultation process within 60 days, by
unilateral action. The quota may not be lower than the actual level of imports for
that exporting country during a recent 12 month period, and the action taken may
remain in place for up to three years only. If the measure is in place for more than
one year, growth shall, with one exception, be no less than 6 per cent. In
practice, the special safeguard was invoked on 24 occasions in 1995 by the
United States, 8 times in 1996 (Brazil 7, US 1), 2 times in 1997 by the United
States, and 10 times in 1998 (Colombia 9, US 1).

Article 5 of the ATC contains rules and procedures concerning

circumvention of the quotas through transshipment, re-routing, false
declaration of origin, or falsification of official documents. These require,
inter alia, consultation and full cooperation in the investigation of such practices
by Members concerned. When sufficient evidence is available, possible recourse
might include the denial of entry of goods. There is also a provision whereby all
Members should establish, consistent with their domestic laws and procedures,
the necessary legal provisions and/or administrative procedures to address and
take action against circumvention.
Administration of restrictions during the transition period will remain with the
exporting Members and any changes in practices, rules or procedures shall be
subject to consultations with a view to reaching mutually acceptable solutions
(Article 4).
Provisions relating to the commitments undertaken in all areas of
the Uruguay Round as they relate to textiles and clothing require that all
Members shall take such actions as may be necessary to abide by these rules
and disciplines so as to achieve improved market access, to ensure the
application of fair and equitable trading conditions and to avoid discrimination
against textiles and clothing imports (Article 7). If an exporting Member is found
not to be complying with its obligations, the Dispute Settlement Body or the
Council for Trade in Goods may authorize an adjustment to the quota growth for
that country which is otherwise an automatic growth.
The Textiles Monitoring Body has been established to supervise
the implementation of the ATC and to examine all measures taken under it, to
ensure that they are in conformity with the rules. It is a quasi-judicial, standing
body which consists of a Chairman and ten TMB members, discharging their
function on an ad personam basis and taking all decisions by consensus. The ten
members are appointed by WTO Member governments according to an agreed
grouping of WTO Members into constituencies. There can be rotation within the

constituencies. These characteristics make the TMB a unique institution within

the WTO framework. In January 1995, the General Council decided upon the
composition for the TMB for the first stage. In December 1997, the General
Council decided upon the composition for the second stage (1998-2001) with
TMB members to be appointed by WTO Members designated from the following
constituencies: (a) the ASEAN Member countries; (b) Canada and Norway; (c)
Pakistan and China (after accession); (d) the European Communities; (e) Korea
and Hong Kong, China; (f) India and Egypt/Morocco/Tunisia; (g) Japan; (h) Latin
American and Caribbean Members; (i) the United States; and (j) Turkey,
Switzerland and Bulgaria/Czech Republic/Hungary/ Poland/Romania, Slovak
Republic/Slovenia. Provisions were made for alternates to be appointed by the
members in each of the constituencies and in some cases second alternates;
there are also two non-participating observers from Members not already
represented in this structure, one from Africa and one from Asia. The TMB
Chairman is Mr Andrs Szepesi.

Outcomes under the MFA and ATC

Trade-restricting quotas on textiles and clothing have changed the global nature
and location of production. The two key outcomes with regard to geographic
location have been the protection of production centres in quota-imposing
countries, mainly the United States and Europe, and the concurrent dispersion of
production in quota unconstrained locations. An absence of quotas would in all
likelihood have lead to higher concentrations of textile and clothing production
centres in a small number of low-cost destinations. Even the two decades
preceding the formalisation of a quota regime under the MFA in the early 1970s
saw a rapid rise in production and exports mainly from South East and East
Asian countries. The MFA slowed down this trend and thus played an important
role in the further growth and development of this sector in industrialized
countries. Protectionist measures ensured the continuation of an incentive for the

sector to operate in an environment characterised not merely by low input costs,

but also by other competitive factors such as design, technical attributes and
fashion elements, which were allowed to flourish. Since quotas provide an
absolute rather than a relative measure of protection, as discussed earlier, they
immunised to a large extent against the downward pressure on prices that other
countries increasing competitiveness and generally low-cost base brought with
them. Quotas therefore played a key role in preserving and expanding the sector
in the countries such as the US, and the EU. But besides developing the sector
in industrialised countries, quotas also helped drive a much broader worldwide
dispersion of the sector than would have taken place otherwise. Since quotas
were imposed in a discriminate manner on certain countries, and in specific
quantities (at the product level), quantitative restrictions created a set of
incentives whereby production would locate in less constrained countries. This
was particularly evident where production was intended to cover more than just
the domestic market and was also geared towards exports, notably the EU and
US markets. With quotas against Chinese producers having long been
particularly restrictive, many producers there began locating outside of that
country or at least forming strategic production and sourcing partnerships. In fact,
anecdotal evidence suggests that Chinese and Taiwanese producers formed the
bulk of this textile diaspora and were to a significant extent responsible for the
development and growth of textile and clothing facilities in many parts of the
world. Many African countries in particular, notably Lesotho, Madagascar and
Kenya, have seen a revival of their sectors owing to investments from Chinese
and Taiwanese industrialists. here is of course some debate as to the long-term
sustainability and indeed desirability of some of the developments that have
taken place. As is discussed in greater detail later in the section dealing with
value chains, textile and especially clothing production is known to be notoriously
fickle and mobile. With clothing production requiring a relatively lower skilled
workforce than many other sectors, as well as lower capital investment (most of
which can be easily moved in and out of specific locations and countries),
location decisions are often the result of short-term incentives and opportunities

rather than a long-term commitment on the part of the investor. These factors,
and the highly competitive nature of the industry, particularly within the lower
value-added commodity type segments, have all contributed to driving down
wage rates and increasing mobility of industrial entities. Nevertheless, these
factors, together with the incentive provided by the absence of quota restrictions
in certain countries, have likewise played an important part in facilitating the
much wider development of this sector. With clothing manufacturing in particular
providing in many cases a first entry point for non-agricultural production and
economic upgrading, countries such as Mauritius and Lesotho have long ago
integrated these factors into their respective industrial strategies. Both were able
to offer investors quota and tariff-based preference margins vis--vis access to
key international markets that quota constrained countries did not have.
With the WTO Agreement on Textiles and Clothing providing a
scheduled removal of MFA quotas over the decade 1995 2005, little global
change relating to quota phase-out took place during the early stages of the
Agreement. As was illustrated earlier, the flexibility granted by the ATC, together
with the level and coverage of products on which it was based, meant that the
integration of sectoral trade with normal GATT disciplines took place only much
later. Considering also that the sector is highly mobile, certainly when compared
with other production sectors, both producers and buyers (retailers) felt little
pressure to reorganise production or sourcing decisions. While setting the scene
for future quota removal, the ATC had very little impact in practice for at least half
its period of application. The period covered by the ATC was also significant for
other developments, notably a broad reduction in import tariffs on industrial
goods. This also impacted on the textile and clothing sector, with the key
outcome being that margins of preference for countries not constrained by
quotas, or in possession of additional market preferences beyond those agreed
to under the WTO, took on further importance. China, which until its WTO
accession late in 2001 did not benefit from Most-Favoured Nation (MFN)
principles that member states extended toward each other, was thus constrained
not only in absolute terms (quotas) but also in relative terms with respect to the

margin of preference due to generally lower tariffs or within specific preferential

trade regimes and agreements. This helped sustain the continued dispersion of
the sector. Other factors also contributed to the apparent short-term sustainability
of these locational patterns. The rise in non-tariff barriers, in particular technical
standards (for example the use of ecological criteria and the rise of ecolabelling), additional customs procedures and requirements (ranging from
elaborate administrative criteria to pre-shipment inspections), rules of origin and
so forth, all contributed to the relative importance of preferential trade
agreements. For African countries, successive Lom Conventions and later the
Cotonou Agreement, as well as general GSP and Everything-But-Arms
programs, provided preferential access to the European market which further
increased the relative benefit accruing to quota unconstrained countries.
The conclusion of preferential trade agreements and
arrangements between developed and developing countries while not entirely
new are generally a more recent phenomenon. While there is no direct link
between the removal of quotas and the growth in bilateral and multilateral trade
arrangements, these have nevertheless contributed indirectly yet significantly to
the impact that the ATC quota regime has had on many developing countries. For
example, in 2001, the United States African Growth and Opportunity Act (AGOA)
substantially improved market access for items such as clothing when shipped
from eligible African countries. Although preferential clothing exports are subject
to special provisions and origin rules, as well as a quota, this applies only to the
duty-free preferences offered rather than overall market access for clothing
exports. However, AGOAs quantitative limits are set well above Africas current
exports to the US and therefore do not currently act as a de facto restriction.
Once again, these trade preferences are attractive largely on the back of quota
restrictions faced by many Asian exporters.
According to WTO estimates, world exports of textiles and clothing have
increased from USD 212mn in 1990 to USD 395 in 2003. This indicates an
increase of approximately 86% and represents an annual growth rate of 4-5%. Of
the total increase, clothing exports have more than doubled, while textiles have

increased by a substantially smaller margin. Among the leading textile and

clothing exporting countries, a large number are from the ranks of countries
classified as developing countries. Although the European Union is shown as the
leading exporter of textiles and clothing, much of this trade takes place within
Europe. This establishes China as the leading exporter globally, even without
taking into account the contribution of Hong Kong. When aggregating China and
Hong Kongs exports (not including Hong Kong re-exports), Chinas dominance
as a leading clothing exporter was already obvious in 2003. Other leading
clothing exporters include Turkey, Mexico, India, Bangladesh and the United
States. Among textile exporters, the list includes United States, Korea, Chinese
Taipei, India and Pakistan. As this cross-sectional data are currently available
only for 2003, they do not capture the likely significant growth in exporters
recorded mainly by South East Asian countries in subsequent years. However,
the section on post-quota trade developments illustrates recent surges of textile
and clothing imports into the EU/US from China.
In the textile sector, leading exporters after China are the United States,
Korea, Chinese Taipei, India, Japan and Pakistan. Here, the reliance on textile
exports (measured as a proportion of countries total merchandise exports) is
generally somewhat lower than is the case in the textile industry. Here Pakistan
stands out, with 49%, in the list of the worlds leading textile exporting countries.
Other smaller exporters with the next highest reliance on textile exports are India
(12%), Chinese Macao (12%), Turkey (11%) and Bangladesh (7%).
The clothing and textile industry in India is the largest manufacturing industry
in the country, accounting for nearly 20% of India's industrial output. For many
years, India has produced textiles, having the largest cotton acreage in the world.
Since the 1970s has India developed a large-scale clothing manufacturing
industry. Prior to this, the manufacturing of clothing was considered a cottage
industry. Initial markets were Africa and the Soviet Union. These markets
expanded into both the EU and US. By 1987, over 50% of India's garment
exports went to Europe. The reason why Indian garment industry has benefited

under the MFA is because of the reasonably large quotas it receives when
compared to other apparel exporting countries. The high quotas and a semiskilled, cheap labor force, supported by tax incentives and concessions to foreign
investors have made India an attractive country in which to invest. Investors view
India as having cheap flexible labor, which has attracted the likes of Levi-Strauss,
Benetton, Lacoste and Pierre Cardin. According to Martin (1996) India has
suffered under the MFA because it seems to discriminate against cotton
products. Indian cottons were taxed 20% more than other fibres. Quotas have
not yet been removed at all on cotton garments.
The disadvantages of removing quotas for India
The five most likely disadvantages or drawbacks for India are:
a) declining competitiveness;
b) heavy reliance upon quota categories;
c) high concentration on a few markets;
d) lack of direct marketing links with major purchasers and;
e) a heavy reliance on imported inputs/materials.
Decline in Competitiveness
The current trends in the Indian garment industry show a slowdown in market
growth, which could cause damage to the industry if measures are not taken to
address this backward trend. This has resulted in factories here being of an
inefficient size. The small size of the factories has prevented the achievement of
technical economies of scale in the industry as a whole. Compare this to the
massive manufacturing infrastructure in place in countries such as China.
Furthermore, it is widely believed that labour productivity in the
Indian garment industry is rather low due to lack of proper training, wastage and
absenteeism.

There is a lack of significant investment in advanced technology in the

country that could also affect competitiveness. The majority of factories are small
scale and there is an obviously lack of new investment in technology. More than
half of the firms in the industry work on old sewing machines.
Electricity prices in India are high when compared to other
countries in Asia and supply is often interrupted due to the reliance on hydroelectricity, which recently has been hampered due to unfavourable weather.
Reliance on Quota Categories
The introduction of the MFA can be clearly seen as one of the key factors in the
rapid expansion of the Indian textile and clothing industry. Foreign investment
was enticed with the assistance of more liberal economic policy.
Although rapid growth took place, the number of products was limited to those
that came under the MFA. More than 90% of Indias garment exports to the US,
such as shirts, blouses, trousers and undergarments come under the quota
(MFA) system. These items are nearly all of a standardised type. India has been
established as a supplier of low-price, low-medium quality garments. "It has only
recently moved into the high fashion, expensive branded clothing." Due to the
heavy reliance on low-priced quota-bound products, the Indian garment industry
is almost certain to face severe competition from other international garment
players.
Lack of Marketing Links
There is little established direct links between US-based entrepreneurs and
Indian manufacturers. US buyers know very little about India. It is estimated that
India has lost over USD$20 million due to the removal of duties of certain duties.

Dependence on imported Inputs

Despite the rapid growth in the industry over the last two decades, the
development of supporting industries such as fabrics and accessories has been
slow. As a result, the garment industry relies very much on imported inputs.. This
then affects local value adding keeping it at a low level.
Due to the need to import inputs there is often a long lead-time on
products from India, when compared to Taiwan, Hong Kong or South Korea,
which have established domestic sources for necessary inputs. India is also at
the mercy of delivery delays and the fluctuations of international prices for raw
materials. This in turn may result in delays in exporting the finished product to
overseas buyers. The prompt delivery of products is especially important edge
for manufacturers that can be easily lost because of the over dependence on
imported inputs. Turn around time for garments produced in Sri Lanka and India
is approximately six months; compare to an average of three months in China,
Taiwan and South Korea.
Policy Recommendations
India is a land of great potential since it is perhaps the only country in the world
that is self-sufficient and complete in the cotton value chain. This strong
advantage, however, has been frittered away due to fragmented and myopic
vision of the government that resulted in policies that ran counter to market
signals. The current industry structure is in a significant sense- a tribute to the
Indian textile and clothing sectors who have managed to perform despite the
throttling policy constraints. In view of the global developments in retail sector,
driven by emancipated consumer, and keeping in mind that the protection that
quota afforded to Indian textile market would soon disappear, it is imperative for
the Indian textile and clothing sectors to reform, and do that quickly. As is evident
by now, most of the impediments to Indias export competitiveness lies at home.
Market access conditions arise only after India develops the competence to
survive in the market. Also, it is clear that most of the problems are structural in

nature, and emerge from a lack of holistic view about the entire value chain- from
fibre to retail, which in itself is engendered by the fragmented government
policies. Needless to write, most of the reform in this industry pertains to changes
in government policies. However, before delineating the policy changes required
to make the Indian textile and clothing sectors globally competitive, it would be
useful to mention a few of the guiding principles which lay the foundation of
recommendations.
1. While the role of the government in creating and sustaining national advantage
is significant, it is inevitably partial because in the absence of underlying national
circumstances that support competitive advantage in a particular industry, the
best policy intentions would fail. India is endowed with these underlying national
circumstances in textile and clothing sectors in full measure.
2. Governments do not control national competitive advantage, they only
influence it. The central role of the government policy therefore, is to deploy a
nations resources (labour and capital) with high and rising levels of productivity,
since productivity is the root cause of a nations standard of living.
3. Governments cannot create competitive industries. Firms must do so.
Governments shape or influence the context and institutional structure
surrounding firms, as well as the inputs that firms draw from. Based on these
premises, following policy recommendations are made:
Home demand creation
1. Allow Foreign Direct Investment (FDI) in garment retailing to enable large,
modern retail showrooms to set up shops in India. Owing to comparative
advantages in clothing manufacture that would be available indigenously, the
government need not worry if these large retailers would begin to outsource their
clothing requirements. Presence of large retailers would create domestic demand
for ready-to-wear garments, and also push for higher productivity in garment
manufacturing through bulk orders. This would also help promote large-scale
manufacturing facilities for garmenting, and help Indian exports diversify into
standardised, mass-clothing items.

2. Reduce the import duty on textile and apparel to infuse competition in the
domestic market, which would, inter alia, drive up demand for higher and
better clothing. The Indian import tariffs in this industry are among the
highest in the world, ranging between 25-40%75. And with quota to be
abolished in 2004, the global attention would distinctly turn towards tariffs
in this industry. There already is tremendous pressure on India to improve
market access by reducing the high import tariff rates. India can use this
as an opportunity to minimise the threat from proliferating regional trading
arrangements. GOI can use reduction in import tariffs as a bargaining tool
to get MFN tariff rates (specially peak rates) in US and EU negotiated
downwards as a reciprocal measure. That would significantly reduce the
adverse tariff impact of PTAs on India vis--vis the PTA countries of
US/EU.
Promote fair competition
3. Rationalise excise duty structure across the entire value chain from fibre
to garment retailing. Levying of moderate, uniform VAT should be the longterm objective.
Do away with exemptions on ginned cotton, hank yarn77, grey fabric, hand
processors (and a few specified processes), knitwear and hosiery and SSI units
in garments.
Rationalise excise duty incidence at spinning stage. Spinning bears almost
55% of total excise revenue collections from this industry, but contributes only
39% to value addition.
Abolish Additional Excise Duty (Textile and Textile Articles)- AED (T&TA) on
mmf/yarn and cotton yarn These would go a long way in realignment of the
industry structure at all stages, since the structure of the textile sector particularly
has been the result of distortionary and discriminatory excise policy, replete with
exemptions. New industry structure based on market forces would be more
attractive for productive investments, thereby raising the technological standards
and quality levels of the entire industry.
Remove policy-bias against synthetic fibre/yarn.

 Rationalise excise duties on synthetic fibre to bring it in line with cotton fibre
Lower customs duty on raw materials used in manufacture of synthetic
fibre/yarn This would enable the development of a vibrant synthetic fibre base in
India, which is critical to correct the predominance of cotton in Indian exports and
consumption. Global consumption of synthetic is growing faster than that of
cotton, and share of cotton is expected to decline to less than that of synthetic
fibre. India has virtually no presence in this area. This is also essential to grow
into the vast area of technical textiles that is emerging as a special-use textile in
the world. India is just not present in the huge and growing area of non-apparel
textile applications. Most of standardised items of clothing too require some form
of blend. Moreover, that would enable Indian exports to diversify into nonquota
markets where the demand for synthetic apparel is much higher compared to
quota-markets. And finally, that would take off some pressure on cotton to clothe
the domestic market (due to which cotton prices have been subsidised in India).
Cotton then, can concentrate on higher value addition.
Remove manufacturing of knit garment and fabric from SSI reservation list.
One of the chief reasons for the current fragmented, decentralised garment
sector in India is that it is reserved for SSI81. De-reservation would attract largescale firms into manufacturing of mass-items of clothing, which reap scale
economies. Large-scale firms would not in any case enter the product lines,
where order size is small, and considerable manufacturing flexibility is required.
So SSIs would not be wiped out. Dereservation would allow India to enter into
markets segments, which are among the fastest growing and are factory-based.
Besides, ceiling on scale has prevented modernisation and investment in the
sector. That would also eliminate the peculiar dichotomy whereby the Indian
garment units were protected from Indian large-scale manufacturers, but had to
compete with foreign large-scale units in the domestic turf following removal of
quantitative restrictions on imports. De-reservation would allow processing of
bulk orders from large retailers overseas as well as at home (after FDI in retailing
is allowed). This would make the sector attractive for quality investment through
technological upgradation. Very importantly, this would also enable the sector to

invest in products not on the basis of SSI constraints, but on the basis of
composition

of

demand.

Finally,

since

building

non-price

competitive

competencies are crucial for export growth, the sector would begin to invest in
brands, designs, IT driven superior customer services, unique style and patterns
etc.
Inflexible Indian Labor laws, are the biggest disadvantage that we have. Garment
business around the world but particularly in India is subject to highs and lows of
seasonal overseas demands. While spring and summer production months have
very high demand for garments, but winter and Christmas seasons, demand is
considerably low. Hence all of us in the Garment Manufacturing sector, setup
factories to cater to the lower number as we do not have the ability to fire surplus
labor during lean months. This way country is losing a lot of export business
opportunity as well as employment potential, if piece rate contract or time bound
contract labor was permitted, huge amounts of new employment would be
created.
Lack of discipline amongst work force in the Indian garment factories is the
reason for very low productivity and high cost of Indian garments. The same
Indian worker, working in overseas factories produces 3-4 times more, because
of the fear of losing his job. Too much job security is no good for an industry
whose performance greatly depends on the performance of its labor force. If we
could allow productivity linked wage system and allow at least 25% flexibility, you
would suddenly see hundreds of new factories being set up which will generate
new employment for millions of people.
We believe government is coming out with some special incentives to be given to
exporting units to be housed in existing and upcoming export processing zones.
While this thought process is good, the govt. should not forget that over 90% of
the current exports are being effected by existing manufacturing units who have
built garment export business from zero to 6 billion. This is the main driving force,
which needs to be empowered and trusted, if we have to go from 6 billion to 50

billion, which is the stated target of the government new export processing zones
will take years to be developed with suitable infrastructure and many more years
for the exporting community to relocate or build manufacturing facilities in these
zones. Precious time and opportunity that is knocking at our door, in the quotafree regime next year, will be completely lost. government needs to trust the
exporting community in general and maybe punish heavily, a few bad ones.
Simpler and liberal export policies should be formed to facilitate import of world
class fabrics and trims from around the world, which may not be available in
India, or maybe more expensive in India. This would help even the small
exporters who cannot afford to deal with the current bureaucratic maze of
policies and procedures. I strongly suggest a textile export task force be formed
comprising of representative of various government departments in one location,
as single window authority, who could supervise and facilitate the growth of
textile industry out of India, as opposed to the current Inspector Raj.
2. Another hurdle in the path of growing textile exports from India is Artificial
pricing of the Chinese Currency: which is giving undue advantage to the Chinese
industry in the Global Market. Hardening of the Indian Rupee against US$ has
also seriously affected and eroded the bottom-lines of textile and garment
exporting companies. I suggest that government offers income- tax exemption to
the textile industry in particular for the next 5 years, so that, we are more
equipped to face undue competition from China and other competing nations.
3. Another challenge is shorter lead-time, Several of our competing countries
have substantially shorter transit times to Europe and USA, which are our main
markets. Non availability of direct sailing vessels and excessive government
holidays (currently about 160 days a year including Saturday and Sunday's) also
lead to a lot higher transit times from Indian ports. Most of Indian Garment
exports being fashion garments, have very limited shelf life, hence it is important
for us to device ways to deliver it to our customers in the quickest possible time. I
would like to recommend that all apparel shipments be given the status of

perishable items, so that it can be custom cleared on top priority, 24 hours a day
and 365 days a year, this will put export shipments on sailing vessels or flying
aircrafts, without any waste of time, to match or shorten the lead-times to various
foreign destinations.

Special Economic Zones (Apparel Parks) should be set up on the same lines as
software technology parks. Recognised units located in such apparel parks
should enjoy 100 per cent tax exemption. Having recognised it is a seasonal
industry, provision can be made to allow seasonal employment. In order to
sustain workers during the off-season, each manufacturer can be asked to create
a "Seasonality Fund" in a scheduled bank, with both employers and employees
contributing each month 10 per cent of the earnings of the worker to the fund.
Another aspect that requires attention is marketing. To exploit global markets
it is necessary for our garment industry to have better antenna in these markets.
This can be facilitated by collaboration with marketeers and fashion houses in the
United States, European and Japanese markets.
India has a natural competitive advantage in terms of a strong and large
MFA base, abundant and cheap skilled labour, and presence across the entire
value chain of the industry ranging from spinning, weaving and garment
manufacturing. However, both productivity and efficiency have to be stepped up
in order to meet the challenges of global competition. There must be a bold and
reasonable price policy for cotton all over India, to enable the textile and garment
industry to grow and catch up with China. The need of the hour is to evolve a
strategy aimed at improving levels of productivity and efficiency, quality control,
faster product innovation, quick responses to changes in consumer preference,
and the ability to move up in the value chain by building brand names. The point
was also made that Indias presence was largely confined to the lower end of the

value chain -- in making basic garments like T-shirts and shorts. China, on the
other hand, makes more value-added formal wear

CONCLUSIONS & IMPLICATIONS

The developed countries have "temporarily" protected their textiles and clothing
sectors for 40 years and these two sectors have represented anomalies in the
GATT ever since the LTA came into force in 1962. Among the most distorting
measures to have prevailed are import quotas allocated to some, mainly
developing countries on a country-by-country and product-by-product basis,
while other countries face no quotas. This has led to a pattern of specialization
where countries with the strongest comparative advantage for textiles and
clothing, such as China and India, face binding quotas, while others receive
investment in the sector motivated by unfilled quotas and may well find that these
investments are unsustainable in a trade regime based on the principles of the
GATT. There is no doubt that both China and India will gain market shares in the
European Union, the United States and Canada to a significant extent, but the
expected surge in market share may be less than anticipated, as proximity to
major markets assumes increasing economic significance and tariffs are
increasingly restraining trade due to the fact that products cross borders several
times. Furthermore, other developing countries are catching up with China in
terms of unit labour costs in the textile and clothing sector and China has of yet
not shown competitive strength in the design and fashion segments of the
markets.

Far from leading to the seamless and full integration of textile and clothing
trade with ordinary WTO disciplines, the phasing out of quotas has caused a
flurry of activity intended to stem the natural development of free trade. As
anticipated, the scheduled removal of quotas in accordance with the final stage
provisions of the ATC has had the most deep-seated impact. While the
conclusion of the ATC can be credited with being one of few agreements under
the WTO banner that has (for the most part) run its course in accordance with an
agreed framework and time schedule, it has also resulted in an extraordinary

number of actual and yet-to-be seen measures to counteract its impact. The
European Union and United States, being major beneficiaries and original
architects of textile and clothing quotas, have both moved swiftly to counter the
impact of surging imports, especially from China. Whereas the EU approach can
probably be described as having been based more on bilateral consensus with
China than that taken by the US, the outcome of both is relatively similar. Many
of the product categories originally protected by quantitative restrictions once
again enjoy similar protection. In the case of both the EU and US, safeguard
measures have put an end to certain imports from China for the rest of the year,
with further restrictions likely over the coming three to four years at least. While
the EU has negotiated an agreement with its Chinese counterparts regarding the
orderly growth in imports over the next three years, with stipulated growth rates,
the US safeguard measures are set to expire at the end of 2005, but are already
being set up for renewal.
The dismantling of the quota presents an opportunity for India to
increase its global export market share. We analyze the impact of the quota
elimination on India using GTAP 6. In addition to examining the impact of the full
removal of the quotas as is standard, we also analyze the impact of the removal
in the presence of safeguards on China. The results of the simulations do not
present an optimistic scenario for India in terms of export growth of T&C in a
quota-free world (Scenario I). They also show that Indian exports of T&C will
continue to expand in the presence of the safeguards on China, but will be
adversely affected once these are lifted (Scenario II), essentially providing Indias
T&C industry some respite until 2008, when all safeguards on China will be lifted.
It appears that in the face of falling prices, Indian industry needs to become more
competitive. Most of the domestic reforms in Indias T&C sector took place after
2000, with substantial policy initiatives in 2004. The impact of these policy
changes of the last few years in the T&C sector would produce results after a lag.
India could emerge much stronger and expand its trade in textiles and apparel at
a much faster pace if the some of the key weaknesses are overcome.

Future Scenario of the Clothing Industry

Information revolution promises to bring the world closer to cohesion. In the
emerging face of fast moving information, technological transfer is bound to take
place at a higher speed.

As the International borders blur Supply Chain

Management and Information Technology take a crucial role in Apparel

manufacturing. Global partners in the clothing supply chain are exchanging
information electronically, thus the need for Indian Clothing Industry to spruce up.

Upcoming technologies for mass customization such as three-dimensional

non-contact body measurement and digital printing ought to be discussed
thoroughly and implemented fast. This mass customisation shall be successful
for meeting unpredictable demand levels, for luxury goods, uncertain customer
wants and for heterogenous demand. It is to be noted that mass customisation is
different from mass production

The future requires generation of real value service for the customers,
comprehensive study of multifaceted and multi-layered supply chain, and global
integration of supply system in a cost and time effective manner. Inventory
planning, sales forecasting, manufacturing strategy, distribution network and
transportation management are some of the areas which need improvement. The
economic scene of US and its trade partners need to be eyed carefully if India is
to survive in the faster and throat cut competition of 21st century. In order to
ensure quality of garment exports the SSI restriction of the garment industry
should be removed. Present equity participation of 24% by the foreign partners
needs to be enhanced and Joint Ventures with majority share holding as well as
technical collaborations should be allowed. Labour laws need a remodelling and
libralisation. A research, development and training institute focused on post
garment processing like washing dyeing etc. is also needed. Indian government
should negotiate higher quotas from USA / EEC in accordance with its sizes and

capabilities. Stream lining Internal Quota Adminstration and freezing minimum

export prices is crucial for the future of the readymade garment export industry.
Thus the need of the hour is to enlarge both manufacturing as well as the
marketing base. Inculcation of a spirit of innovation by way of research and
development and tapping new markets especially in South Africa, Central Africa,
CIS, East European countries, Latin America and Australia is also mandatory for
export growth.
Targets aimed at the National Textiles Policy (2000)
Achieve the target of textile and clothing exports from the 2001 level of $11
billion to $50 billion by 2010 of which the share of garments will be $25
billion.
Implement, in a time-bound manner, the Technology Upgradation Fund
Scheme (TUFS) covering all manufacturing segments of the industry.
Achieve increase in cotton productivity by at least 50 percent and upgrade its
quality to international standards, through effective implementation of the
Technology Mission on Cotton.
Launch the Technology Mission on Jute to increase productivity and diversify
the use of this environment-friendly fiber.
Assist the private sector to set up specialized financial arrangements to fund the
diverse needs of the textile industry.
Set up a venture capital fund for tapping knowledge-based entrepreneurs of the
industry.
Encourage the private sector to set up world class, environment-friendly,
integrated textile complexes and textile processing units in different parts of the
country.
Dereserve the garment industry from the small scale industry sector;
Strengthen and encourage the handloom industry to produce value-added
items and assist the industry to forge joint ventures to secure global markets.
Redesign and revamp, during the Tenth Five-Year Plan, the schemes and
programs initiated in the handloom, sericulture, handicrafts, and jute sector to

ensure better returns for those belonging to the disadvantaged categories, and
the North East and other backward regions of the country.
Facilitate the growth and strengthen human resource development institutions,
including the National Institute of Fashion Technology on innovative lines.
Review and revitalize the working of the Textile Research Associations to
focus research on industry needs.

Steps Taken by the Indian Government to Enhance Competitiveness

Dereservation of woven readymade garment, and hosiery and knitted products
from SSI sector.
Allowing foreign equity participation up to 100 percent through automatic route
in this sector with certain exceptions.
Adoption of cluster development approach for the production and marketing of
handloom products, initially to take up to 20 clusters.
Introduction of the Technology Upgradation Fund Scheme (TUFS) to facilitate
the modernization and upgradation of the textile sector.
10 percent capital subsidy for the textile processing sector under TUFS.
Launch of hi-tech weaving and processing for modernizing power loom sector.
Launch of Cotton Technology Mission for boosting productivity and quality of
cotton.
Launch of a program to induct 50,000 shuttleless looms and to modernize
250,000 power looms in the decentralized sector by 2004.
Rationalization and progressive reduction of the excise duty structure in the
textile sector.
Import of textile machinery items and raw materials and parts for manufacture
of such machinery at concessional customs duty to reduce the cost of
production.
Introduction of a debt-restructuring package for organized textile mills.
Focus on health and life insurance for weavers and technical skill development.
Plans for massive investment in the textile sector. Banks to issue guarantees or

standby letters of credit in respect of external commercial borrowings raised by

textile companies for modernization or expansion of textile units.
Launch of the Scheme for Integrated Textile Parks (SITP) to provide the
industry with infrastructure facilities on the basis of public private partnerships.

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