Indian textile export industry: challenges & recommendations

Abstract

The textile industry is a significant contributor to Indian economy, in terms of output, employment generation and foreign exchange. Over the period, it has gone through several changes. In recent times, it is facing dual challenge of increased foreign competition and pressures on factors of production like power and labour. As a result of this, India is witnessing a declining trend in its share of world exports. In the light of this, an attempt has been made to present an overview of Indian textile industry in terms of its value chain, the key challenges facing the industry and potential improvement points to regain India’s position in the world textile market. The case studies of success stories have also helped in the key recommendations. The analysis of the trend of India’s share in the world textile exports exhibits that India is starting to witness a declining trend in its share in the world’s textile export market. The three-year moving average growth rate of Indian textile exports elucidates that the growth in the textile exports has started falling since 2013. Readymade garments, which contribute to almost half of the total Indian textile exports, has faced a sharp downhill in its three-year moving average growth rate. This fall has arrived in the light of tough competition from emerging textile nations like Vietnam and Bangladesh which have larger share in world’s export in the apparel/clothing category. An overview of the textile value chain suggests that while India has a dominant position in the raw material category, with India being the largest producer and exporter of cotton yarn, it’s position in the forward stages of textile production like clothing renders it globally uncompetitive. Industrial landscape dominated by small scall firms, usage of older and obsolete technology machines, and cost disadvantage to nations like Bangladesh and Vietnam which have extremely low cost of labour, are some of the reasons that contribute to the poor competitiveness. A further detailed analysis of the challenges reveals some fault points that need timely attention. India has lagged behind in getting preferential trade agreements with major textile consumption bases like EU. Bangladesh, being a Least Developed Country, enjoys duty-free access to major importing nations, rendering low cost of its exports, as compared to India, and hence grabbing more export share. Countries like Bangladesh, Pakistan and Vietnam have lower wage rates than India, owing partly to their loose labour laws, and absorption of labour supply from women. Though, the labour productivity levels do not differ much between Indian and Bangladesh, implying cost advantage is an important factor. We also find that while China, Vietnam and Bangladesh have significantly improved on various ease of doing business, India has not been able to catch up and this results in major hindrances while setting up or scaling a garment manufacturing business. Similarly, poor logistics infrastructure dependent on roads, primitive technology used by firms and widespread power shortages challenge the efficiency. The rationale behind selecting Welspun India Limited was to analyse an Indian company which has made it big in the international market and discover the factors which can be replicated to the overall industry to increase India’s competitiveness in the global market. On the basis of challenges and successful case studies, we find that being capital intensive with focus on upgradation, diversifying into high value products and geographies, and ninterrupted power supply at low tariff rates are some of the solutions that address the current challenges.