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Factors affecting the Textile Industry

Every industry has its own ups and downs. Textile industry is no exception. There are many factors, which influence the market and the growth rate of textile sectors. Major factors are infrastructure, volume of production, labour laws, availability of manpower, power tariffs, fluctuation of currency rates and government policies. Further, bulk production mainly depends on technology of the machine, utilization of the labour resource, financial assistances, etc. Global factors influencing textile industry The history of the textile and clothing industry has been replete with the use of various bilateral quotas, protectionist policies, discriminatory tariffs, etc. by the developed world against the developing countries. The result was a highly distorted structure. Despite the fact that GATT was established way back in 1947, the textile industry, till 1994, remained largely out of its liberalization agreements MultiFibre Agreement (MFA): On January 1st, 1974, the Arrangement Regarding the International Trade in Textiles, sought to achieve the expansion of trade, the reduction of barriers to trade and the progressive liberalization of world trade in textile products, while at the same time ensuring the orderly and equitable development of this trade and avoidance of disruptive effects in individual markets and on individual lines of production in both importing and exporting countries. Agreement on Textiles and Clothing (ATC): The ATC calls for a progressive phasing out of all the MFA restrictions and other discriminatory measures in a period of 10 years. In contrast to the MFA, the ATC is applicable to all members of the WTO.

Four Steps over 10 Years


Steps Percentage of products to be brought under GATT (including removal of quotas) 16 percent (minimum taking 1990 imports as base) 17 percent 18 percent 49 percent (maximum) How fast remaining quota should open up, if 1994 rate was 6% 6.96 percent annually

Step 1: 1st Jan 1995 31st Dec 1997

Step 2: 1st Jan 1998 31st Dec 2002 Step 3: 1st Jan 2002 31st Dec 2004 Step 4:1st Jan 2005: Full integration into GATT and final elimination of quotas, ATC terminates

8.70 percent annually 11.05 percent annually No quotas left

Macroeconomic factor affecting Indian textile industry The Indian government has been acting as a catalyst to promote this industry; as it is one of the most significant sectors of the economy. To make the industry more competitive several policies have been introduced by the Government. Government regulations 1. Quality improvement: Out of 250 textile companies that have been taken up by the Commission, 136 are certified by ISO 9001. 2. Modernization: Recently, Indias inclination towards western designers and other international brands (from UK, Italy, and France) has been observed to enter into a joint venture to cater the domestic market with more varieties. Carrera invested US$ 252.7 million in textile projects in India. 3. Setting up of SEZs: In 2005 the Maharashtra government proposed to setup two special economic zones in Navi Mumbai and Nagpur.

4. The Technology Upgradation Fund Scheme (TUFS): This ensures availability of credit at global rates for technology upgradation. To an extent, it has also helped in curbing the Chinese export market. 5. Texsummit, 2007: The Texsummit, 2007 was an initiative taken by ministry of textiles, Government of India, to explore new growth paradigms. 6. FDI policies: As liberalization in the economy has gathered up, FDI policies in the textile industry has reformed to a great extent. However this sector allows 100% FDI, but the firms are not taking enough initiatives to tap this opportunity. 7. Dismantling of quotas: For many years, the worlds textile market was subjected to a trade regime called Multi fibre Arrangement (MFA). For more than thirty years, many rich nations have sheltered their domestic textile industries from low-priced import goods being created in poorer countries. The Indian government has initiated various reforms to meet the challenges of post-MFA setup, which intended to encourage huge capital investments and tighten up arduous procedures related to the tax regime. Agreement on Textile and Clothing (ATC) was designed to facilitate the integration of the textiles and clothing sector into GATT 1994 Beyond Phase-out of Quota in Textile and Clothing Trading. 8. Appreciation of rupee: The Government is also trying to construct an environment to draw an investment of Rs 1,40,000 crore in the Eleventh Plan period once the textiles and garment exports are probable to rise from the current $14 billion to $40 billion. The introduction of such policies led to Indias market presence in world textile market and increased foreign investment in this sector. Dismantling of quotas has resulted presence of Indian Market amongst several big brands.

Limitations and Challenges Faced By Textile Industry India

The Indian textile industries largely compete on the following factors: Quality of products Cost effectiveness Effective supply chain management Designing and innovation 1. Appreciation of rupee value: At present, the Indian textile industry is highly disturbed due to economic recession in United States. The rupee appreciation has taken a toll on the existing thin margins of textile players. It has been realized that the Indian exporters are a lot dependent on US buyers, which has given rise to this terrible situation. 2. Labour reforms: Poor labour productivity in India has been killing economys cost advantage since very long. One of the biggest factors for deterred FDI is unfavorable labour policies. Establishment of flexible labour market can only help this sector, by protecting the workers from exploitation and catering to their needs. 3. Fragmented infrastructure: There are many exporters who outsource their raw material and other inputs from outside suppliers. They often face many problems regarding late deliveries, improper transportation. Foreign buyers will always prefer vertically integrated firms instead of firms with dispersed production units. 4. Obsolete technologies and strategies: The Indian textile industry is far from being sophisticated and up to date. The industry is still largely dependent on traditional methods of production and dyeing. Upbeat about the positive trend in the Indian textile sector, the time is ripe for this sector to attract higher FDI. 5. Indias Brand Value: At the moment the Indias brand value is not at a very influential position. In the present scenario, the trend of industrialization heads towards rising demand structure, in places like India. Therefore the industry in return should take advantage of its domestic market.

The fact remains that India's textile industry is prominent in the country's economy as well as globally. The Government and industry advocates should continue to push the industry to grow in new directions, to remain technologically advanced and to make production even more economically viable. By doing so, the industry will be able to adapt to global changes and to take on whatever challenges it faces and competitors that may come its way.