Textiles: On the threshold of a change

MUMBAI APRIL 15. The Indian textiles industry, which has witnessed a difficult phase for more than a decade, seems to be on the threshold of a change in fortunes. This could be due to the dismantling of quantitative restrictions (quota system) by the European Union (EU) and the duty rationalisation exercise, which was announced in the Union Budget 2003-04.

The EU, in all likelihood, will dismantle the quota restrictions against the Indian textile industry by end-2004. As part of the bargain, India would open up the industry to players from the EU. Over the last three years, textile exports have more or less been constant at around $3 billion.

The total Indian textile and apparel industry was valued at Rs. 150,000 crores ($32 billion) in 2002-03 and this included spinning, weaving, processing, garmenting and retailing sectors, according to KSA Technopak, a management consulting firm offering solutions to the retail, fashion, food and healthcare industries. Of this, the domestic sector accounted for Rs. 84,000 crores and exports Rs. 66,000 crores.

The Union Budget has done its bit to revive the flagging fortunes of the textile industry having proposed a restructuring. The thrust of the budget was to rationalise the duty structure and prepare the industry for the post-quota period. Bringing woven unprocessed fabrics produced by powerlooms under the ambit of the excise net is one of them. The powerloom sector is huge and accounts for over 90 per cent of all fabrics produced. Also, excise exemptions for handloom and khadi have been retained. But the exemption granted to the processing sector has been limited to genuine hand processors while that to units using power and steam have been withdrawn.

Job workers in the weaving segment are now excise exempt. The optional duties on grey fabrics, knitted fabrics and knitted garments have been removed from the excise net, all of which will render the finished product more price-competitive.

The budget also will do away with deemed Cenvat credit aimed at curbing excise evasion. So costs will be cut, world-class products can be produced backed by sound marketing. This along with the dismantling of the quota system will help revive the textile industry.

According to Prodipto Roy, head, Fashion Practice, KSA Technopak, "The budget has been favourable to the industry in a number of ways. The introduction of Cenvat to the entire chain is actually a process towards streamlining the chain and reducing the leakages. Also, the proposed Textile Restructuring Fund is a `must' for looking at the industry's health and the future potential that it promises. The reduction in import duties on machinery is also a healthy step. We feel that these initial steps are definitely in the right direction. Now the industry needs to reciprocate".

KSA Technopak estimates that the outlook looks good for the industry as opportunities open up in the domestic and export markets, "with the potential to be a $55 billion industry by the year 2010". Companies in the sector have also initiated efforts to right-size manpower, use latest technology and enter into marketing and branding tie-ups with global players.

Mr. Roy feels that the industry needs to do a lot. "The last decade has witnessed drastic changes in the way trade works, and most Indian companies are not yet in a position to mould themselves. Still the focus for the Indian exporter remains cotton-based while the growth is more in the case of manmade. Value addition remains low for exporters, as the processing sector remains a weak link. Lead times and servicing are way behind world averages and not many are working on these. Infrastructure, power costs and the like add to the key bottlenecks for the industry".

"Also some of the companies have read the global trends and are quickly orienting themselves. Also, units in India, which have been surviving primarily on quotas and drawbacks, would prefer to exit. Only the ones that are globally competitive will continue in business," said Mr. Roy.

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