1.

Introauction

1.1 Jlistorica{ f£vo{ution of!l(gatf!Jmatfe (jannents

1.2. !i(gview of Literature

1.2.1. Summarg of the 'Wor~ ana Iaentification of !l(esearcft

{jap

13. !Findings of the !l{esearcft ana !l{emmmentfations

 1

1. INTRODUCTION

Importance of the Textile and Clothing Sector:

The textile industry (including textile and clothing) has played a major

role in the initial industrialisation process in many countries of the world

(I CRIER, 1995). Its significance to the economy of a country is manifested in

terms of its major contribution to the industrial production, employment

generation and foreign exchange earnings. In the history of human civilization,

the importance of textile sector as a decisive factor in shaping and changing

the socio economic condition of a country can never be ignored. Textiles and

clothing are the basic necessities in all countries at all times and hence, there is

always a domestic demand in a country for these items. For this reason, it has

quite often been the focus of import substitution policies in many countries of

the world. Moreover, being labour intensive industry in nature, this sector has

high employment potential and can also be set up with a relatively lower

investment than that is required for any other industry. Compared to the

developed economies, where the textile industry has declined in importance,

textile manufacturing is very significant in developing countries for poverty

alleviation and women empowerment and forms a considerable portion of the

manufacturing output there.

The size of the global textile and clothing trade comes to US $590

billion approximately occupying a market share of 4% of the total global

merchandise exports (derived time series data on international trade, WTO,

2007). As far India is concerned, Indian exports of textiles and clothing comes

to 3.46% & 3.27% of the total world textiles and clothing exports in 2006 and
 2

2007 respectively (derived time series data on international trade, WTO,

2007). In India this sector adds about 14% to the Indian industrial production,

17% and 12% to the country's export earnings in 2007-08 and 2008-09

respectively and about 4% to the GDP (Annual Report, Ministry of Textiles,

2007-08 and 2008-09). Two most sophisticated markets like United States and

European Union import more than 85% of India's textile and clothing items

and India is one of the few countries that have a presence across the entire

value chain of the textiles and apparel business starting from fibre production,

spinning, weaving or knitting, processing, garment manufacturing, finishing

and exporting of textile items ..

Indian textile industry is composed of the sectors like Readymade

Garments, Manmade textiles, Handicrafts, Cotton textiles, Coir, Silk, Jute, and

Woollen garments.

Motivation behind selecting Readymade Garment as the subject of

research:

Potential of the readymade garment industry to act as the driver of the

economic growth in our country is enormous (Agarwal, 2007). It has the

lowest capital to labour ratio and it employs mainly semi skilled and unskilled

workers. Neither does this sector need heavy and specialized raw materials

and locations near raw materials suppliers, nor does it have any specific expiry

characteristics, which require location close to the areas of consumption. It is

an ideal industry for the women also, as it demands soft skill as handworks

without requiring hard labour. Besides these, this is a very important sector of
 3

one of the oldest and most traditional industry of the world i.e. textiles, and as

a manufacturing industry, it is very much environment friendly in nature.

Readymade Garments have been addressed as RMG in all Government

Reports as well as in the literatures for easy referral .So we have also

designated Readymade Garments as RMG in our study.

Importance of Readymade garment (RMG) in the Indian economy:

We shall start the discussion after defining readymade garment

industry and readymade garment as a product. The garment industry has been

classified in the United Nations International Standards Classification as

including 'those establishments, which cut, and/or stitch/make up

garments out of woven or kp.itted fabrics without being involved in the

manufacture of fabrics.'(Ramaswamy and Gereffl, 1999). Thus, the term

garment will include ready-made garments as well as knitwear or hosiery. For

the purpose of change we shall designate readymade garment (RMG) simply

as garments, clothing or apparel interchangeably as being defined in the

dictionary (clothing classified as SITC 84, Rev2) and by various authors.

The definition of RMG has been put as ready to wear, mass-

produced finished textile pr~ducts of the clothing industry fitted to

standard size measurements. '

RMG contributes about one fifth of the country's industrial production

and contributes about 6% of the GDP of India (Ministry of textiles, Annual

Report, 2007-08). It accounts for 18% of the foreign exchange earned by the

country and contributes about 42% of the total textile exports from the
 4

country. It occupied a market share of about 3 % & 2.7% in the years 2006 &

2007 respectively in the total ~lobal clothing exports (derived from time

series data on international trade, WTO). According to World Customs

Organisation, Readymade Garments across the world is recognized under code

or Chapter 61 & Chapter 62 under Harmonised Commodity Description and

Coding System better known as Harmonised system or the HS. HS Chapter 61

stands for articles of apparel and clothing, knitted or crocheted and HS

Chapter 62 represents articles of apparel and clothing, non-knitted or

crocheted. Various items of RMG have been incorporated as Subchapters

'
under these two Chapter Heads expressed as 4digits, 6 digits and 8digits

numbers (for example, 6102 or 620201). The garment sector is concentrated

mostly in the unorganised sector (Chandra, 2006, IBEF, 2008).

Like any other country, the role of RMG sector in India in employment

generation is worthy to be mentioned due to its high labour intensive nature.

According to the Indian Institute of Foreign Trade (liFT) estimation, direct

employment in the apparel industry was around 20 lakh in 1992-93 (Khanna,

1993). Going by the Wage Sur:vey of the Textile & Garments Industry

conducted by the Labour Bureau, Government of India, 1994-95, the total

work force in textile & garments together was estimated to be about 2.46 lakh.
'
In 1999-2000, the National Sample Survey Organisation (NSSO) estimated

the employment in the garment units to be 14.46 lakh. The Annual Survey of

Industries (ASI) covering factories registered under the Factories Act 5

estimated only the factories all over India to employ roughly 3 lakh workers in

1999-2000. These two estimates suggest that the garment industry in India in
 5

1999-2000 employed a total of roughly 17.45 lakh workers taking together the

informal sector and the factory sector. Of these, there were 12.97 lakh men

(74.31 per cent) and 4.48 lakh women (about 25.69 per cent). Similarly the

ASI estimated the total employment in the organised factory sector engaged in

wearing apparel, dressing & dying of fur in 2001-02, 2002-03, 2003-04, and

2004-05 to be 3.17lacs, 3.35lacs, 3. 79 lacs and 4. 7 lacs respectively.

According to the Office of the Textile Commissioner as on March 2006, the

total employment in the textile sector is 33.17 million of which readymade

garment sector employed abo ].It 5.57 million.

Characteristics of Readymade Garments

We shall now throw some light on the important features of readymade

garments and exporters must have a thorough knowledge about these

important traits of garments.

Product description of RMG-: Ready-made garments are mass-produced

finished textile products of the clothing industry. They are made from many

different fabrics and yarns. Their characteristics depend on the fibers used in

their manufacturing.
' '

Quality or Duration of storage: Extended exposure to light puts natural and

manmade fibers at risk due to photomechanical degradation processes. The

natural silk, polyamide fibers, jute and ramie fibres are particularly sensitive to

excessive exposure to sunlight.

Packaging: When transported by truck, the outer clothing items are often

carried as hanging garments, · while other clothing items are generally

transported in folding cartons and primarily containerized. Hanging garments

 6

must be inserted into tight-fitting individual dust covers, sealed at the bottom.

When outer clothing is shipped in folding cartons, it is essential, in particular

for higher quality goods, for the folding cartons to be lined with tissue paper

or other types of moisture ·absorbents. The cartons often consist of wet

strength corrugated boards.

Container transport: Standard containers are suitable for transporting ready-

made garments, subject to compliance with limits for water content of goods,

packaging and flooring. Garment containers are best suited to transporting

items of clothing, as they provide maximum protection against creasing, dust

and dirt. Garment containers have bars for hanging up items of clothing on

coat-hangers. The bars are generally anchored in perforated rails in the walls.

The coat- hangers are sequed by special clips. A horizontally opening curtain

is located between the door and the inside. The wooden floor is impregnated

and lined with floor covering (carpet).

Cargo Handling: In damp weather (rain, snow), the cargo must be protected

from moisture, since garments are strongly hygroscopic and readily absorb

moisture. Ready-made.· garments made from natural fibers are hygroscopic,

while those made from synthetic fibers are only slightly so and relative

humidity of 45 - 70% is considered optimal for them. Specified humidity

levels can be maintained in airtight packaging by using desiccants.

Excessively high humidity levels, seawater, rain and condensed water may

cause mustiness, stains and mold growth and increased risks of insect

infestation. Rust stains may also arise as a result of the corrosion of metal

strapping.
 7

Risk factors and loss prevention

Ready-made garments require particular temperature, humidity or moisture

and possibly ventilation conditions and favorable travel temperature of the

rangelO - 30°C. Excessive high temperature from solar radiation not only

leads to an increase in the risk from pests and microorganisms but also affects

the physical characteristics of the fibers, which may no longer comply with

tolerance limits with regard to strength, elongation, shrinkage, crease

tendency, electrical conductivity and brittleness. Synthetic materials may even

develop permanent creases. Excessive low temperature may also result in loss

of strength. Natural fibers converted into woven fabrics have a high swelling

index, caused by their histological microstructure. For instance, modified

cotton may absorb up to 25% of its own weight of water without feeling damp.

This has a significant effect on the physical characteristics of the fibers, such

as strength, elongation, ·creasing tendency and electrical conductivity. If

contacted with chloride solution is suspected, a seawater test using the silver

nitrate method must be performed.

The properties of the readymade garments make them vulnerable while

on transit. As a result,· there are greater risks of getting a defective

consignment by the importing countries and the exporters have to bear the

financial losses.

Reasons for the growth of Readymade Garments:

The growth of the Indian garment industry in the last decade has been

considerably more than the previous decades (pre 1990s), which contributes to

the liberalisation of trade and economic policies initiated by the Govt. in the
 8

1990s. Fiscal duty structure of the textile industry as a whole has also

influenced to a great extent the growth and the structure of the industry. While

looking for other reasons, we must mention some major changes in the

demographics of the Indian markets. The first and foremost change is that the

Indian population is shifting towards an increasing number of people in the

working population group with purchasing power which comprises bulk of the

customers for RMG (Majumdar, 2004). The other reasons are the growing

size of the urban market, increasing number of knowledgeable buyers and

growing purchase tendency of the young generation (including women). Again

as per the market segmentation of the Indian youth, we find that the age group

15 to 24 constituting 60% of the Indian population forms a major market for

RMG (Joshi, 2005). Other factors like increasing merchandising by the

marketers, media explosion, direct mails and home shopping, increasing

tendency to buy on credit, the emergence of service sector, exposure to foreign

brands due to liberalisation, the inflow of foreign brands in India, scopes of

foreign travel by the Indian customers also contribute a lot to the demand for

RMG. Again for the works of Roy and Saha (2007), we can know that the

consumer lifestyles can be divided into some categories like voluntary

' '

simplicity, me generation, blurred gender role, poverty of time and component

lifestyle. Among these, people belonging to all the categories, except the first

one form an increasingly good market of RMG as they are more concerned

with themselves, love to exhibit, or they prefer RMG as an work wear or

simply out of poverty of time to get their dresses tailored.

 9

Types and categories of Ready-made garments:

RMG is divided into the following types:

a) Outer clothing: Work wear and uniform, leisure wear, sportswear (e.g.

suits, pants, dresses, ladies' suits, blouses, blazers, jackets, cardigans,

pullovers, coats, sports iackets, skirts, shirts (short- or long-sleeved),

ties, jeans, shorts, T -shirts, polo shirts, sports shirts, tracksuits, bathing shorts,

bathing suits etc.).

b) Underclothing or underwear: Jersey goods, lingerie (e.g. underpants,

undershirts, briefs, socks, Stockings, etc.)

Going by the categorization by the apparel retailers (Banerjee, 2008),

Indian RMG can be divided into Men's Wear (Men's formal, Men's casual,

Men's ethnic and Men's Denims), Ladies wear (Ladies Ethnic and Ladies

Western) and Kids wear (Infant wear, Boys wear and Girls wear).

1.1 Historical Evolution of Readymade Garments:

The concept of garment Industry is said to have originated from the

'Tailors' who helped in the gradual transformation from the home made

garment to readymade garment (Sanmugasekar & Kiruthiga, 2006). The

first known garment manufacturing factory was established in Philadelphia in

1812 in USA for the production of military uniforms which got further

improved with the development of mechanized sewing machine in 1847.The

lafr half of the century showed the increase in readymade garment

consumption and production due to massive immigration of Europeans to the

 10

USA providing the supply of huge labour force needed for the garment

factories. The other reason contributing to this growth is the setting up of

departmental stores in the U.S.A & Western Europe in the years 1840-1880.

After World War 1 in 1919, the factory set up for army uniforms were

converted into RMG manufacturing units which resulted in the second phase

of growth of readymade garment industry. It is worth mentioning here that the

year 1920 is a landmark in which the modem global readymade garment

sector began its journey to prominence in the world (Packard, 1982). The

factory-made products gained wide acceptance from the consumers which

made the retailers to realise its business potential. The introduction of standard

body size measurements further facilitated the growth of readymade garment.

RMG again got a tremendous boost during the World War II in 1939, owing to

the demand for Military uniforms. The post World War II (1945 onwards) era

saw further growth of mass production and marketing of garments. Imports to

the developed nations also began to grow from this time. In the year 1947, a

General Agreement on Tariffs & Trade (GATT) was signed by 23 countries

regarding the market access to those countries. Later on, Agreement on

textiles and clothing (ATC) came into existence under WTO, according to

which quotas on garment exports ceased to exist after 31st December 2004.

While unearthing the history of Indian RMG industry, it can be seen

that in pre independent India, clothing styles were largely dictated and

influenced by the diversified dress habits of the royal dynasties that ruled India

in various times. The Indian people again got acquainted with the western

clothing patterns brought by the long British colonial rule for nearly 200 years.
 11

However, the modem textile industry took birth in India in the early

nineteenth century when the first textile mill in the country was established at

Fort Gloster near Calcutta in 1818 (Chellasamy and Sumathi, 2007).

Bombay was the pioneer in setting up cotton textile mills in India in an

organised way and the first of such kind was established in 1854 by a Parsi

cotton merchant, engaged in overseas and internal trade. It were the Parsi

merchants who took the initiative of setting up the vast majority of the early

mills as they were engaged in cloth trade both domestically and abroad (China

and Africa). Another cotton mill was established in 1861 in Ahmadabad in

Gujarat which prospered as a textile industry due to the Gujarati trading class.

The cotton textile industry underwent rapid progress in the later half of the

nineteenth century and by the end of the century there were as many as 178

cotton textile mills in India. But this uninterrupted growth suffered a major

setback in the year 1900 due to the great famine for a long period. Again it

gained momentum in the World War I and the Swadeshi movement provided

further stimulus to the Indian cotton textile industry. However the period 1922

to 1937 saw a number of the Bombay mills to change their ownerships. The

World War IT (1935 to 1945) brought about an unprecedented growth of this

. .

industry as imports from Japan stopped completely. More over, the increasing

settlement of Indians in the US & UK during the late 1960s and 1970s also

acted as importers of Indian cotton garments. The number of mills increased

from 178 with 4.05 lakh looms in 1901 to249 mills with 13.35 lakh looms in

1921 and further to 396 mills with over 20 lakh looms in 194l.By 1945, there

were almost 417 mills. After India got independence, the partition of the
 12

country at the time of independence affected the cotton textile industry as 14

mills and 22 per cent of the land under cotton cultivation went to Pakistan.

Post independence period also showed the growth of textile mills in Delhi and

the then Madras.

In the 1960s, the Indian garment industry had been going through a

long slow phase. But between1964 to 1965, an unprecedented demand for

Indian handloom shirts known as "Bleeding Madras" triggered off the demand

for Indian handloom products in the Western countries. The factories already

set up in India had the required facilities for communication and transport as

well as large source of labour force. The growing International Airport

facilities further eased the speedy transport of goods.

Initial! y in the 1960s, the exports constituted standard garments like

shirts, made in factories using power driven sewing machines. In 1966, the

Indian Government went for devaluation of the currency and all export

subsidies and other incentives were removed.

The Indian garments were unable to compete in the global market,

which led to the exit of many exporting firms. The situation became slightly

favourable by the end of the 1970s as the exports began to increase due to the

quota allotment by the Multi-Fibre Agreement (MFA), soaring labour costs in

East Asian countries and a rise in global demand for textile products

(Mezzadri, 2008). In spite of the implementation of Multi fibre Agreement in

1974, Indian exports enjoyed a more or less unrestricted growth.

 13

In the 1970s, Indian handloom products became very popular to the

overseas buyers for they selected them for novel designs, colors, hand styling

and low price. The growth of the industry was because of the exemption from

excise duty and quota restrictions. Yet, the demand was mainly seasonal. After

1976, western look of the garments became more in vogue and the demand for

garments from organised mills and power loom clothes increased. But the

stable demand for handloom products continued and handiwork in the form of

embroidery, lace trimmings or intricate tailoring continued to form an

aesthetical identity of the Indian garment exports.

Post-independence, till late 1980s, the Indian textile sector had been

crippled by the numerous protectionist policies and regulations of the

Government (FICCI, 2004). Large-scale production was discouraged by

restrictions and the labour regulations did not allow capital investment

resulting in high production costs .. The import substitution policies of the

Government, stringent licensing policies and export quotas for the organized

sector and the support for the decentralized sector at the cost of organised

sector restricted the path of the domestic industry from being competitive in

the global market. The exporters felt the urgent need of a shift in the domestic

demand from traditional garments to universal standardized & westernised

ones on demand from the foreign buyers after rejected exports assignments.

This continued till 1985 when the government relaxed the regulatory burden

on the composite mill sector by elimination of restrictions on composite mill,

loom capacity expansion and equalization of taxation among composite mills,

power looms and independent processing units in the National textile Policy,
 14

1985. The process got a further boost in the economic reforms in the

1990s.The textile industry was de-licensed as per the statement of Industrial

Policy of 1991 and the Textile Development and Regulation Order of 1992

also brought various fiscal reforms. The slow but consistent reform measures

onwards taken by the Government till date have helped the Indian RMG sector

in increasing competitiveness and thereby to glorify this sector as a 'Sunrise

Sector'.

1.2. Review of Literature:

Koshy (1997) had undertaken valuable research on the value

perceptions of different segments of overseas importers of RMG regarding

Indian garments by interviewing many respondents from eight major garment

importing countries and had identified four importer channels like the brand

manufacturer importers (like Levi Strauss, Tommy Hilfiger),departmental

stores, specialty stores and importer wholesalers (buying India's level). The

Indian garment exports received negative scores on all elements of value

importer chains like on time delivery, fabric and trims, design, product quality

and price with respect to the largest garment supplying country. The

perception of the importers of Indian apparel had been positive regarding

image, price and service delivery of RMG but even price competitiveness had

been considered as marginal.

The author carried out a SWOT analysis of the RMG sector. Among

the strengths, he mentioned India's raw materials advantage, labour cost

advantage, the rich cultural heritage of India and the flexibility of the factories
 15

(under Small Scale Industry) to be able to produce and supply in small

quantities. Among the weaknesses, he mentioned India's single fibre

orientation (cotton), poor infrastructure (roads, ports, communication) and

below state of the art technology. Regarding the opportunities, he pointed out

the falling import market share of the newly industrialised countries, the phase

out of the Multi Fibre Agreement (MFA), backward integrated garment

production and escalating manufacturing costs rates of many ASEAN

countries. He expressed concerns about the impending competition in the

MFA phase out stage in post 2005 era, NAFfA agreement of the US, the

customs Union Agreement of Turkey with the European countries, the

emergence of new production centres like Vietnam, India's lack of presence in

formal wears and winter garments and unbalanced investments in the

spinning, weaving, processing and garment sector.

The author has given the concept of value addition spectrum with

reference to the differences between basic and fashion garments and has come

up with a hierarchy of the retail channels dealing with different value systems

related to the garments. He has observed from the trends that at the top there

will be fantasy created by fashion designers that will be sold through

independent stores, boutiques and designer stores. This will be followed by the

ready to wear fashion garments (departmental stores, specialty stores), styled

wear (through mail order, mass merchandiser and departmental stores) and

basic updated & basic budget clothes (budget stores, discount stores).
 16

The author has prescribed that the Indian garment exporters will have

to defend themselves for the MFA phase out through effective transition

strategies, which include diversification of product mix and conquering new

markets etc. He suggested geographical clustering and product specialisation

for increasing unit value realisation of the Indian products. According to him,

the new product offering should contain denim garments, kids wear, knitwear,

structured garments, institutional garments, work wear, outerwear with greater

emphasis on lead time cycle, quality etc.

The author has also discussed long term winning strategies for gaining

competitive advantage. At the micro level strategies, he has mentioned

backward integration, management of lead-time, product diversipn, channel

selection and specialisation. Some of the other recommendations made by him

are fabric quality assurance, product quality assurance, design advantage and

product development support. The macro level strategies prescribed by him

are development of an integrated textile complex as a value chain,. competitive

positioning of the products by innovation, communication of fibre to fashion

approach, building up infrastructure and promoting apparel exports.

Kathuria and Bhardwaj (1998) had woven their report around the

primary data collected through interviews with various garment and textile

exporters and quota brokers in India in the main centers of Delhi and Mumbai

to obtain infonnation on quota rents. Here they have thrown a light on the

concept of Export Tax Equivalent (ETE), which has been defined as the value

of the quota divided by the price received by a producer who does not own
 17

quota for this product. ETE is calculated on the basis of unit values of exports,

as [QP/ (UV-QP)]*lOO, where QP is the quota premium and UV the unit value

of exports. It represents an excess demand in the form of a price, reflecting

how much extra importers are willing to pay for Indian garments, given that

they can also pay extra for garments of other countries.

The paper shows that the international trade in textiles aQ.d clothing

imposed a substantial ETE on Indian exports. Over the period 1993 to 1997,

ETEs for garment exports to the USA (11%) were found to be about twice of

those for the EU (5.3% ). But there was a decline in the ETE for the USA in

1996, which could have affected India, perhaps signaling increasing

competition from a NAFTA-empowered Mexico. Here the authors undertook

the pain to disaggregate ETE by fibre, which no other authors till date,

undertook, and confirmed in the case of USA that importing countries would

try to restrict Indian cotton (garment) exports more than synthetics, as India

has a strong comparative advantage in the production of cotton items. The

analysis also showed that in case of India, USA lags behind the EU in terms of

reducing the restrictiveness of the quota regime reflected through their ETE.

The authors have also opined that India's strengths lie basically in

natural resources and factor endowments- namely cheap labor and raw cotton.

But they have also mentioned about the domestic constraints related to the

policy bias against synthetic fibers, very high transaction costs of export

activities, handloom reservation and hank yarn obligation.

 18

Recommendations of the authors included dereservation of the garment

sector from the small-scale sector tag and greater flexibility in labor policy.

In the paper of Ramaswamy & Gereffi (2000), we can notice the

stress given by the authors on two subjects: globalization of RMG production

in a changing global competitive apparel market and the traits of the

production structure of India's apparel exports and the effects of policy

regulations. Globalisation has been defined by the authors as "The increasing

interaction of domestic economies with the world economy which is

reflected in the rising share of international trade in world output".

Another important statement by the authors is very much relevant here which

states "In the apparel industry, globalization of production activities has

meant that a garment can be designed in New York, produced by using

the fabric made in the Republic of Korea, cut in Hong Kong, and

assembled in China, for eventual distribution in the United Kingdom or

the United States".

The authors pointed out that the main factors contributing to the

globillization of apparel industry are the labour-intensive nature of the sector;

the rising labour cost of the developed countries vis-a-vis the emergence of the

developing countries as low cost manufacturing base and improvement and

reduced costs in communication technology. Here the authors have identified

the RMG industry as a buyer-driven global commodity chain (BDCC) which

implies the functional integration of internationally dispersed activities like

supplying raw materials to production, marketing, retailing and eventually

 19

exporting of the same requiring both forward as well as backward integration.

Here BDCC also requires the large retailers, marketers, and trading houses to

play the key role in setting up decentralized production networks in the third

world countries. The effect of this BDCC was manifested in the increasing

exports of the East Asian newly industrializing economies (NIEs) like Hong

Kong, Singapore etc in the late 1960s and 1970s who moved from assembly to

OEM (original equipment manufacturing) production.

While discussing the production structure of the Indian garment sector,

it has been found out that the sector is basically unorganized in nature and the

exports are predominantly cotton based. However the authors have made

certain recommendations, which include Indian RMG to move up the value

chain in cotton garments, and product diversification to include basic garment,

standard garments, and synthetic garments. They also prescribed investment

by the firms and greater access to imported inputs for the clothing sector. For

the government, they have suggested to remove product reservation and

foreign investment restrictions to facilitate the entry of hrrge domestic and

foreign firms into apparel and accessories production.

A report by Shetty (2001) has discussed the growth ,potential and trade

and investment opportunities in India's textile and apparel industry. The report

started with the emergency conditions in Indian economy pre 1991, which led

the Government of India to initiate the economic reforms in 1991 after signing

a standby .arrangement with the International Monetary Fund (IMF) for

undertaking fiscal and structural reforms known as New Economic Policy.

 20

While discussing the reasons behind fragmented structure of India's apparel

industry, it has pointed out that the Indian Government policies to promote

domestic employment have resulted in dominant role of the decentralized

power loom and handloom sectors at the cost of slow modernization in the

weaving and finishing segments of the organized mill sector. The

decentralised power loom sectors enjoyed from favourable tax treatment,

exemption from labour laws, and government subsidies for energy and water

and consequently significant cost advantage. The handloom sector also

benefitted from favourable Government policies because of its importance to

rural economies. The report also mentioned clearly that all these factors led to

low productivity in the organized mill sector due stagnant demand, rising input

costs and difficulties in obtaining timely adequate working capital which

resulted in closing down of many of them during the 1990s. H9wever, the

National Textile Policy 2000 deregulated India's apparel sector and allowed

FDI up to 100 percent.

The report also observed that India had historically protected its textile

and clothing industry from foreign competition through high tariffs and
' ' '

quantitative restrictions but entered into an agreement on reciprocal market

access commitments for textiles and apparel by the WTO Agreement on

Textiles and Clothing, providing the phase out of textile and apparel quotas by

January 1, 2005. Under the United States-India Textile Agreement of January

1, 1995, India agreed to reduce tariffs on textiles and apparel and remove all

import restrictions on these products.

 21

The report has pointed out the main drawbacks of the Indian garment

sector like limited fabric supply, technological backwardness, fragmented

nature and limited product range of the Indian clothing sector. Along with this,

it has discussed the special remedial measures taken by the Government to

improve the competitiveness of the Indian textile industry.

Ramachandran (2001) summarized available research works on

Indian Textile and clothing sector as well as collected valuable inputs data

from interviews conducted in the garment firms and identified the weak links

in the production chain of the sector. While describing the structure of India

garment sector, the author has found out that 90% of the value added items are

being manufactured by unregistered or unorganised sector and there is

dominance of cotton on the Indian garment exports (70% cotton and 30%

synthetic). He also mentioned that both the power loom and the composite

mill structure have suffered under a Government policy of being prohibited to

import power looms greater than ten years old that prevented the firms from

upgrading themselves to comply with international standards of technology

and quality. This further deteriorated the already fragmented nature of the

garment industry. Like other authors, he had also noticed the changing trends

in the international garment trade where developing and developed countries

are being selected as the manufacturing base. Triangle manufacturing is

another trend found by the author where buyers place their orders with the

manufacturers who in tum sources some or all of the orders from affiliated off

shore facilities in low wage countries.

 22

Verma (2002) has started with stating the importance of Indian RMG

for its contribution to the Indian economy. He has defined competiveness and

export competitiveness of a product and focussed on cotton garnients only as

they form a bulk of the Indian garment exports. Here he has also examined

that India's quota product categories are export competitive in the markets of

USA and European Union (EU). In the paper, he has also pointed out the

impending changes in the international trading environment after the phase out

of the MFA, which was likely to affect the global textile and clothing trade.

The study had underlined the areas requiring government policy intervention

to increase the competitiveness of the industry.

A report on EU-India Joint initiative for enhancing trade and

investment (2002) had been submitted to representatives both from the Indian

business federations and from European business associations at the EU-India

Business Forum held in Brussels.

The report has drawn the comparison between the EU garment sector

and Indian garment sector. Among the similarities, it stated the significant

contribution of the sector in both the countries and stressed on the stark

difference between the factors of competitiveness of EU RMG and Indian

RMG. According to the report, the competitiveness of EU RMG lies in their

technological sophistication, automation, design and develop~ent of high end

fashion products for the upper end customers and their exports comprise of

exporting high end clothing and fabrics while importing labor intensive
 23

garments under preferential agreements. This is in sharp contrast with the

IndianRMG.

The report presented a comparative picture of competitiveness of

Indian RMG sector with respect to the competitors like China, Taiwan, Korea,

Pakistan, and Bangladesh etc. India lags in the scale of operations, in the

number of powerlooms, shuttle less looms and in the level of investment in

special purpose machines that ensure a higher productivity. Higher costs of

finance, higher international freight and biased product mix composition have

made the industry less competitive than its competitors.

The recommendations made by the report both for EU and India

include jointly working out the content of marking and labeling provisions on

industrial trade transactions and adoption of an agreement fcir bilateral

protection against piracy for all registered textile designs. The

recommendations also include signing a customs cooperation agreement in

imports and export to smoothen out issues relating to customs valuation, to

establish a Joint Working Group to review all tariff- related issues and

customs procedures related issues, a bilateral trade Agreement for removal of

non-trade barriers and increased market access. Like other authors, the

recommendations for India in this report include allowing apparel cluster to

set up distributive power generation model, setting up apparel and textile

export parks, reduction of import duties on all foreign textile machinery for a

five years period and the removal of disparity in excise duty structures on the

basis of fibre and enterprise size in the textile sector. The report has also
 24

prepared an exhaustive list of Foreign Investment Approvals by the Indian

Government to the European countries during January 1991-March 2002.

Nordus (2002) assessed the probable impact of the quota free business

environment with special reference to developments in supply chain

management in the clothing and textiles sectors. He guessed that China and

India would dominate world trade in textiles and clothing, driven by changes

cost competitiveness. He had noticed that the inputs in the final product cross

borders several times and such trade was very sensitive to the tariff level and

the outcome of the phasing out of quotas would depend more on the prevailing

tariff rates and the preference margins of the receiving countries. Another

statement made by the author is that, time being a very important factor for

fashion marketing, countries close to the major destination markets are likely

to be less affected by competition from India and China. Thus, it is shown in

the paper that having a common border with the importer and facing low or

zero tariffs have a substantial positive impact on bilateral trade.

Singh & Sapra (2003) explored the impact of international and

domestic policy changes on production of RMG through a field-based study in

Tirupur in Tamil Nadu (South India) and Delhi Metropolitan area towns

(North India). Other than discussing the importance of garment sector in India,

they have given a glimpse of the Indian history of trade in textiles and

garments from 1955- 2005. They have discussed how the Indian Government

policies involved in spinning and weaving i.e. the handloom, power loom and

mill industries have affected the performance of readymade garment sector

 25

adversely. They have pointed out that the flexibility and better control of the

textile manufacturers over the powerlooms made them more competitive

which led to the ailment of the organised mill industry, the closure of the

textile mills in several Indian cities, and higher input costs.

The authors stated that the performance of the spinning sub sector was

affected by three government policies namely, The Yam Export Quota, the

Hank Yam Obligation (HYO) and taxation of man made fibres (MMF). We

can find from the report that the yam export quota set limits on yam while the

HYO had ensured the adequate supply of reasonably priced yam to the

handloom industry and required that spinning mills process 50 per cent of their

deliveries in hank form. The HYO had been retained in the new Textile policy

of 2000, but was cut by 20 per cent with effect from January 1, 2003.

Regarding policy on Man Made Fibres, restrictions on the imports of man-

made fibres by higher excise duties have been used historically to protect

domestic cotton weaving and spinning activities against competition.

About the labour policy the authors have added that in India, currently

there are nearly forty odd labour laws, which are fairly progressive and ensure

the protection of labour rights.

The authors have also thrown light on the Civil Regulatory Framework

related to various voluntary initiatives to regulate the working and

environmental conditions in the garment sector. These initiatives began to

emerge in early 1990s largely as a result of protest by the human right activists

and consumer pressure in developed countries. These voluntary efforts are

 26

most likely to be adopted by the registered firms only and exist as a distinct

legal entity limited to organised manufacturing. Some examples mentioned by

the authors are AA 1000, Clean Clothes Campaign, Ethical Trading Initiative,

Social Audit 8000 and Worldwide Responsible Apparel Production (WRAP).

According to D'Souza (2003), Indian textile and garment sector being

the leading sector in terms of creating employment and foreign exchange

earnings, the country's interest should be in the promotion of this sector. After

discussing the different segments like raw materials, Man made fibers, cotton,

spinning, weaving/knitting, processing sector and garment manufacturing, he

has pointed out the lobbying of the different interest groups who used to have

vested interest for the development of a particular sector. The author further

added that till 2004, they had resorted to seek exemptions and concessions

from the Government and pursued strategies of shifting tax burdens from their

part to other sectors within the industry. Now he has pointed out that the

Government should increasingly realise that in the wake of the competition to

be posed by all the exporting countries after the MFA phase out from January

2005, priority should be given to the restructuring of domestic industry.

Parthiban and Kumar (2003) have given a comprehensive overview

about the eco problems in the textile industry in India. According to them,

controlling pollution during the garment production process is as much

important as creating a product free from toxic effect. They have added that

textile chemical processing plants are shifting from the developed countries
 27

because the public awareness of health concerns to undeveloped countries

primarily due to the latter's less eco-restrictions and low-cost labour.

The authors have commented that the globalisation of Indian textile

industry badly requires that it reviews its production techniques, procedures

and product qualities to ensure that they comply with international eco-

standards. India is the second largest cultivator of cotton w~ose cultivation

itself consumes huge quantities of pesticides, fertilizers and water for

improving the crop yield and quality of fibre. Water if used in excessive

quantity in irrigation of cotton, can increase salinity of the land and thereby

reduces fertility. Spinning operations cause the individual fibres float in the air

and thereby pollute the atmosphere in spinning department. To minimise the

effect of these floating fibres or impurities, the humidified air circulated in the

spinning department is filtered so as to separate these floating impurities from

the air. In sizing operation, starch is applied in paste form to the yam to

increase its strength and abrasion resistance, which contains preservatives

toxic in nature. This can be avoided by using synthetic starch. The loom shed

also generates two types of pollutants, namely floating particles such as

' '

fibrous substances and size particles and noise pollution. Oil staining is

another possibility where it is washed with carbon tetrachloride, which is not

desirable. According to German legislation consumer goods ordinance, "No

articles of dresses (textiles, shoes, leather) and bed linen can be put in trade, if

this have been coloured with azo dyes that can release one of the twenty

named amines". According to the authors, printing colours should be non-

toxic and not based on forbidden amines. Dyes with high fixation properties
 28

and modified printing process needing fewer washouts are advisable to be

used in printing. Use of urea is minimised by replacing with other ingredients

and modifying the printing procedures. Citric acid in disperse prints should be

replaced by alternative chemicals. Next comes the finishing, which has

considerable significance because the value addition is realised through

functional finishing of cotton in fabric or garment form to impart desirable

properties like easy care, durable press, wrinkle-free finishes, softening and

enzyme/bio-finishing. For this, chemical formaldehyde based agents are

applied to cellulosic textiles which are the most toxic chemicals.

Regarding strategies for eco-friendly processmg, the authors have

suggested that the garment manufacturers should take the steps like, to drop a

procedure to improve the environmental situation, reduction of pollutant load,

and exhaustion and fixation of dyes close to 100%. The other options include

re-use of the dye bath to save scarce resources, recycling of natural fibres and

better synthetic fibres by melting down and re granulating with or without the

addition of fresh granules. The authors have further added that the stressing on

maintaining eco-standards and eco-labels in the apparel industry is a must to

have a successful export market on analysing the product's entire lifecycle.

Appelbaum (2004) commented on the eve of phase out of the quota

system, that it had resulted in the global dispersion of textile and apparel

production, by restricting imports from many efficient exporting nations. In

the backdrop of the mounting concerns of the developing countries that the

elimination of quotas will result in a loss of apparel and textile exports only to
 29

benefit a very handful of countries this research addresses some questions to

explain the dynamics of global sourcing of textile and clothing business. It is

based on a review of existing research works, case studies of individual

countries and World Bank data on textile and apparel exports. The study

showed that large retailers play a crucial role in determining the nature of

apparel production. The changing nature of clothing production and the

relationships between Asian suppliers and U.S. and EU buyers have been

discussed. The impact of MFA phase-out has been discussed, with greater

stress on several sub-Saharan African countries.

Verma (2004) predicted that the slow process in the abolition of

apparel export quotas and the possibility of a price decline as a result of it is an

indicator of tough situation for India. He expressed that the sudden price

decline may lead to 'Dumping' in the domestic sector which may attract

political wrath in the country for implementation of protectionist policies. This

may again nullify the good results achieved so far by the liberalisation policy

of the Government. He also apprehended of an increasing pressure on the

exporters from developing countries to adhere to some 'ethically certified'

norms of production before they could be eligible to supply some of the

world's biggest retailers. The author has further added that India's strong

orientation towards cotton is both strength and a limitation for export

development due to lack of product diversification in terms of fiber

composition.
 30

Verma has identified a list of Textile & clothing items to fall under

various categories of gainers and losers in the US and EU markets. He has

identified baby gannents, dresses, women's woven shirt and men's trousers as

the market leaders in US and men's knitted shirt, skirts, women trousers as the

gainers while Men's Woven Shirt has lost its market share. Suits, coats,

jackets and shirts are the market leaders in EU, cotton woven dresses, blouses,

knit shirts & woven trousers are the gainers while men's woven shirt is the

looser.

In an interesting survey work by FICCI (2004) it has been revealed

that dismantling of MFA quotas has been perceived as an opportunity for the

Indian textile industry by the respondents. 92% of the respondents has stressed

on technological upgradation, 67% stressed on benchmarking costs and

improving product quality standards and 58% stressed on reducing lead-time

in supplying orders. It has also been found that expansion of existing

capacities were given importance by 58% of them while obtaining

international certifications for quality, systems and processes were stressed

upon by 46% of the respondents. Emphasis on innovative designing,

' '

developing products for niche markets and moving towards specializing in a

single product line is among the relatively less preferred options as stated by

the respondents.

Gadia (2005) commented that liberalization is controversial in case of

both textiles and clothing as they contribute to employment in developed

countries as well as in the developing countries where alternative jobs may be

 ,31

difficult to find. In the European Union the sector is dominated by small and

medium-sized enterprises concentrated in a number of regions that are highly

dependent on this sector (Commission of the European Communities, 2003).

Textiles and clothing are also among the sectors where developing countries

have the most to gain from multilateral trade liberalization. Among the

weaknesses of the Indian RMG sector pointed by him, inability of poor overall

infrastructure to cater to huge exports, extremely fragmented nature of

garment supply chain in India due to the government policies, poor level of

technology in the weaving sector and lack of coordination between industry

and relevant trade bodies deserve special mention. He stressed on the fact that

of the 1.6 million power looms installed in Indian RMG sector, less than 1% is

shuttle less looms. To give a comparative picture, the author mentioned that in

the organised mill sector, there are only 5.8% shuttle less looms, compared to

80% in US, Taiwan and Korea, and 62% in Pakistan.

Among the threats for the sector pointed out by the author, India was

having the use of trade measures by the importers like the application of

labour standards or the use of environmental measures against the exports

from developing countries. The lack of competitiveness in the Indian man-

made fibre as found out by the authors due to high cost of raw materials and

the protection by government subsidies adds further to the list of the factors

leading to the inherent weaknesses of our clothing sector.

The report by Cygnus India (2006), apart from stating the contribution

of the RMG sector to the Indian economy, has discussed the major sectors of
 32

the textile industry which includes the organized cotton/ man-made fibre,

textile mill sector, man-made fibre/ filament yarn sector, the decentralised

power loom sector, woollen textiles, silk, handlooms, handicrafts and jute. It

has mentioned that preference for branded readymade garments for men and

western and Indo-western apparels among the working women is increasing

with the rise in urbanization and changing lifestyle of working women. This

changing preference in tum, is driving the manufacturer, and retailers of

branded apparel to explore more in this market segment. The report has

discussed that with the liberalisation of the Indian economy, Indian market has

opened up to foreign investors and the Foreign Direct Investment (FDI) limit

of 24% has been extended to 100% under the automatic route. A relatively

newer trend has been mentioned about the international buyers to outsource

their designing and manufacturing requirements from India. They include

apparel brands like Nike, GAP, Old Navy, Banana Republic, Tommy Hilfiger,

Abercrombie & Fitch, Hollister, The Children's Place, Reebok, Adidas,

O'Neil, Mexx, Decathlon, and Tom Tailor. The report also mentioned that the

Indian Apparel players work with the manufacturers like the Steilmann

Gruppe, Lebek, and retailers like Wal-Mart, Sears, and The Metro Group.

Today, Indian goods are very much in demand in the markets of USA,

Canada, Mexico, UK, Germany, Austria, Spain, Italy, France, Netherlands,

Middle East, South Africa, Japan, Denmark, and Taiwan & Hong Kong. The

issues and challenges like poor infrastructure, distribution in domestic market,

lack of FDI in textile & apparel sector, scale of operations, lower productivity

level and rigid labor laws have also been discussed to a great extent.
 33

IBEF report with ICRA Management Consulting Services Limited

(2006) has given an overall perspective of Indian Textile industry and stated

its contribution to the Indian economy. It has commented that abundant

availability of raw material is one of the key advantages of the Indian textile

industry. It had specially mentioned that India is the largest producer of jute,

second largest producer of silk, third largest producer of cotton(till 2006),

third largest producer of cellulosic fibre/yam, fifth largest producer of

synthetic fibres/yam and eleventh largest producer of wool. The Indian textile

industry comprises mostly small-scale, non-integrated spinning, weaving,

finishing and apparel making units. While finding the main driving force

behind exports of RMG, it has underlined the rising outsourcing budgets of

retail giants, the process of Indian companies' evolving from mere converters

to vendor partners of global buyers and large outsourcing orders from foreign

partners. On the other hand, growing young population, growth of organised

retail and rising household income levels are the drivers of growth in domestic

market. The report has made a clear distinction between Government

regulations & policy in the pre 1985 and post 1985 policy. As per the report,

in the pre 1985 period, greater importance had been given to cotton textiles
' '

and the power looms got favourable fiscal treatment as compared to composite

mills. The Government also imposed restrictions on installation of automatic

looms. Post 1985 saw many segments (especially readymade garments,

knitwear and hosiery) dereserved from SSI status and schemes for technology

upgradation and modernisation were introduced. Multifibre approach was

adopted with emphasis on man made and synthetic fibres, in addition to

 34

cotton. Several government initiatives targeted to attract investments were the

TUF scheme, liberal FDI policy and upgrading infrastructure. Business

opportunities with the foreign companies have also opened in the fonn of

setting buying and liaison offices, brand licensing, franchising and

manufacturing and manufacturing cum retailing.

Fredricsdotter & Stigzelius (2006) commented that the apparel or

garment industry across the globe for a constant look out for low prices, has

led to an outsourcing of apparel production to low cost developing countries.

In order to cater to the international clients, low wages for the workers and

extensive overtime work in a hazardous environment is not a new thing for the

garment producers. From the report we can find that in an attempt to improve

the social conditions, many companies have adopted codes of conduct and

social standards but at the same time they have reported about additional costs.

But for sustainability the garment producers need to develop both

economically and socially. This study explores the local-level experiences of

SA8000 (Social Accountability, an international standard set up by the Human

rights organization International, Social Accountability International, SAl) in

Indian garment manufacturing by examining the impacts of it's

implementation on the business practices and working conditions of the

factories in Bangalore and Tirupur in South India. During the implementation,

the major obstacles were found to be effective communication of the standard

at all levels in the factory and the costs involved in meeting the requirements

of the standard. While the authors have noticed the benefits in social tenns,

they have prescribed that the producers must bargain for a higher price or
 35

long-term contracts from the buyers to economically motivate the

implementation.

Chandra (2006) has given a schematic diagram of the Indian textile

and clothing supply chain. He has furnished various statistics about the

different sectors of Indian Textiles like weaving and knitting, spinning and

processing (dyeing, finishing and printing) against the backdrop of the

statistics of the competing nations. He has felt the paucity of technical

manpower in the garment sector and have urged the Government to come up

with new engineering courses on Textiles and related subjects through opening

up of more colleges or institutes in the country.

Sanmugasekar & Kiruthiga (2006) have given a detailed description

of the journey of RMG since its advent in the global market along till today in

a very lucid manner. Along with this, they have given a vivid picture of the

historical development of the Indian RMG in a chronological manner. They

have stated that the first known garment manufacturing factory was

established in Philadelphia in 1812 in USA for the production of military

uniforms which got further improved with the development of mechanized

sewing machine in 1847. The later half of the century showed growth of

consumption and production of readymade garment. The growth process got

further boost during the two World Wars. While narrating the case of Indian

RMG, he mentioned that RMG production in India gained momentum in the

World War I and the Swadeshi movement provided further stimulus to the

Indian cotton textile industry. The World War IT brought about an

 36

unprecedented growth of this industry as imports from Japan completely

stopped. More over, the increasing settlement of Indians in the US & UK

during the late 1960s and 1970s also acted as importers of Indian cotton

garments. In the 1970s, the increasing preference of the overseas customers

and Indian customers as well for the westemised style of RMG led to the

increasing production and exports of the same.

Agarwal (2007) in his interview has commented that the garment

industry is slowly being phased out from most of the developed countries an.d

India is emerging as one of the most favoured destinations for sourcing. He

has added some unique aspects of the garment industry which are requiring the

lowest capital to labour ratio, employing mainly semi skilled and unskilled

workers, giving employment scope to the women for the requirement of soft

skills. Non requirement of heavy or specialised raw materials which need

locations near raw material supplier and not having any expiry date for the

products are also some special qualities of apparel as a product.

U.S. Clothing and Textile Trade with China and the World:

Trends since the End of Quotas (2007) anticipated the probable results of the

MFA phase out era for the clothing era. It anticipated that three major changes

were expected for the U.S. domestic market after the end of the ATC quotas.

A sharp increase in U.S. clothing and t~xtile imports and the possibility of a

major shift in sourcing clothing and textile imports to China had been talked

about. The report also mentioned that the inflow of clothing and textile

imports to USA could have a detrimental effect on the employment situation

 37

of the textile and clothing industry there. The various probable trade remedial

measures by the U.S. Government to fend off the rising volume of clothing

and textile imports from different were also expected.

Chellasamy and Sumathi (2007) also narrated a brief history of the

Indian textile and clothing sector and discussed in details about the various

segments of the sector like the composite mills, spinning, weaving and

knitting section, fabric finishing and clothing sector. They have clearly stated

India's major competitors and the problem faced by the textile industry in

India. The authors also carried SWOT analysis of Indian textile industry.

Malik (2007) has pointed out some emerging issues in the world

clothing trade, going against the interests of the developing countries, which

include higher protection to the domestic sector by antidumping duty,

preferential trade agreements, intricate rules of origin etc. The author also

cautioned that ethical sourcing standards are increasingly being applied

against the manufacturers and sub contractors from developing countries.

Higher tariff rates also continue to pose a challenge to the Indian RMG sector.

-Increasing competition from low cost countries in Asia such as Vietnam,

Cambodia, Bangladesh and Sri Lanka is becoming a threat for India.

Basu (2007) has commented that India's overall performance in

garment exports and the sustainability of competitive advantage in this sector

can be assured by incorporating IT and ITES in the RMG sector. According to

him, the big players in the organized sector are already using machines with

the latest technology utilizing IT in product monitoring, quality monitoring,

 38

and control. ERP is also being used at varwus levels by them, yet the

penetration of IT in Indian RMG sector is below its potential Many Indian

Software developers are coming forward with cheap ERP packages. But

proper implementation of ERP requires the involvement and commitment

from the top management of a firm, selection of a core team and proper

training at all levels of the organisation.

Teli (2007) had stressed on the requirement of heavy investment for

the modernisation of the garment sector .He also felt the urgent need on the

part of the Government to give extra incentives to the manufacturers of the

garment machineries to enter into joint ventures with overseas manufacturers.

Adhikari and Yamamoto (2007) gave a description how the global

textile and clothing Industry adjusted to the post-quota world. According to

the authors, textiles and clothing are among the first manufactured products

produced by an industrializing economy and they played a crucial role in the

early stage of industrialization in the United Kingdom, North America, Japan

and also in the export-oriented growth of the East Asian economies like

Taiwan (Province of China), Hong Kong (China) and the Republic of Korea.

These economies upgraded their development toward more capital-intensive

manufacturing products while Southeast Asian and South Asian developing

countries and the other least developing countries started to join the race. The

clothing exports from Bangladesh increased ten-fold over the last 15 years and

the country is now one of the leading global exporters of clothing. As for

Cambodia, clothing exports took off in the late 1990s. Consistently, Asia has
 39

become a hub of manufacturing production. Regarding the trends in the global

market, the authors showed that global textile exports reached a high of

US$203 billion in 2005, and this value has nearly doubled from the 1990 level

of US$1 04 billion. In fact, the immediate effect of the expiry of quotas in the

global textile industry has benefitted the developing countries and a loss for

developed and semi-developed economies in Asia and European Union (EU).

The study has mainly been focused on 12 selected Asian countries- China,

India, Indonesia, Lao People's Democratic Republic, Nepal, Pakistan, the

Philippines, Sri Lanka, Bangladesh, Cambodia, Viet Nam and Thailand. It has

divided the nations as "( 1) Countries with a large production capability in both

textile and apparel production (China, India), (2) countries that have limited

production capability in both textiles and apparel (Indonesia, Pakistan,

Thailand, Viet Nam); (3) middle-income countries that mainly have apparel

production capability (Philippines, Sri Lanka); and (4) LDCs (Bangladesh,

Cambodia, Lao PDR, Nepal)". Then the report has concentrated on imports

from non-EU member countries, the share of extra-EU trade in total imports of

T&C products has increased to around 50 per cent in 2006 from 46 per cent in

2004. In contrast, exporting countries from other regions which have

' '

preferential arrangements with the United States continue to lose their market

shares. Nepal belongs to one such country which has lost its market share

during this time.

Textile Outlook International (2008): In this journal we have got a

comprehensive picture of the world textile and clothing production and export

trends. We have seen that clothing output in USA shrinked by 40% in volume
 40

but the average price of garments produced in USA rose by 25% as output was

to cater the high end niche market. The imports also slowed down, as there

was less demand for clothing. China continued to be the leader in the US

market and EU in spite of some quota restrictions in these markets. Mexico

lost a portion of the market share in USA as US importers shifted orders to

China and other low cost Asian countries. In EU market, the clothing

production rose in 2007despite a drop in exports and an increase in imports. In

Hong Kong the domestic exports shifted to Mainland China.

1.2.1. Summary of the Works and Identification of Research Gap:

We can now summarize the views of the authors with respect to the

RMG sector in India. To start with, the contribution of the Indian RMG sector

has been mentioned elaborately in the works of Verma (2002), EU-India

joint initiative for enhancing trade and investment (2002), Singh & Sapra

(2003) and Cygnus India (2006). The immense importance of Indian RMG

lies in its significant contribution to the country's industrial production, to

form a substantial part of GDP, to employment generation and in foreign

exchange earnings.

The historical journey of the RMG in the global arena as well as in the

Indian subcontinent has been discussed to a great length by the published

reports and authors like FICCI Study (Nov2004), Sanmugasekar &

Kiruthiga (2006), Chellasamy & Sumathi (2007).

The structure of the garment sector in India have been discussed by the

authors like Kathuria and Bhardwaj (1998), Ramaswamy & Gereffi

 41

(2000), Ramachandran (2001), Shetty (2001) and Singh & Sapra (2003).

All of them expressed their concern that unlike other major textile-producing

countries, India's textile industry is comprised mostly of unorganized, small-

scale, non-integrated spinning, weaving, finishing, and apparel-making

enterprises. This industry structure is primarily a result of government policies

that have discriminated against larger scale firms and promoted labour

intensive small-scale operations by meting out preferential treatment to them.

The report on EU-India joint initiative for enhancing trade and

investment (2002) and authors Verma (2004) and Chandra (2006) have

presented a comparative picture of competitiveness of Indian RMG sector with

respect to that of the competitors like China, Taiwan, Korea, Pakistan,

Bangladesh etc. They have compared the relative position of India with

respect to extent of fragmentation of the RMG sector, level of investment in

the sector, labour productivity and higher logistic costs.

Detailed discussions on SWOT analysis of the Indian apparel sector

has been done by the authors like Koshie (1997), Kathuria and Bhardwaj

(1998), Ramaswamy & Gereffi (2000), Ramachandran (2001) and

Chellasamy and Sumathi (2007).

The nature of shifting preferences of the developed countries for the

low cost manufacturing base like the least developed countries has been

mentioned repetitively in the works of Ramaswamy & Gereffi (2000),

Ramachandran (2001) and EU-India joint initiative for enhancing trade

and investment (2002).

 42

Shetty (2001) and Singh & Sapra (2003) and have discussed in

details the biased treatment by the government towards the handloom and the

Powerloom sector. As a result of government policies and other factors, the

Powerloom and the handloom sector had a significant cost advantage over the

organized mill sector in fabric production.

Importance of non-price factors of competitiveness of RMG and

ethical issues related to the production and exports of RMG across the world

have been mentioned repeatedly in the works of Koshie (1997), Verma

(2004) and Fredricsdotter & Stigzelius (2006).

Separate contributions have been made by Koshie (1997), Kathuria

and Bhardwaj (1998) and Ramaswamy & Gereffi (2001) and Chandra

(2006). Koshie has identified the value chain activities in the garment sector

by using the concept of 'value chain' propounded by Porter (1985). He had

made precious research findings on the value perceptions of different

segments of overseas importers by interviewing 92 respondents from eight

major garment importing countries and clearly outlined the areas of

improvement. Ramaswamy & Geretli (2001) have intelligently defined and

discussed the concept of globalisation and showed its application for the world

garment trade garment trade. Kathuria and Bhardwaj (1998) have used the

concept of Export Tax Equivalent (ETE) assuming that ETE can be equated

with restrictiveness of the import regime. With the help of mathematical

expression, they have shown that ETE represents an excess demand in the

form of a price, reflecting how much extra importers are willing to pay for
 43

Indian garments, provided they can also pay extra for garments of other

countries. Chandra (2006) stressed on the need of properly trained personnel

needed for the Indian garment sector as there is acute shortage of trained

operators and supervisors required for the garment sector in India.

Research Gap: While most of the authors have talked about the

competitiveness of the Indian RMG in the global world, none of them has

objectively tried to meas~ the degre~ of glog~ competition in this field of

' (

RMG and inspect the position of India as a global player. While most of the

authors have considered RMG as a whole, it was required to stud~tem

wise, so as to draw future plan of action. As RMG is a heterogeneous group,

consi'sting of different types of garments, researchers could have restricted

their study to a homogeneous category to arrive at more meaningful decisions.

None of the authors have analysed the trend of the Indian garments exports to

find out if there is any significant change in the market share of any importing

country in India's RMG export basket and also if there is any significant

increase of exports value wise or volume wise. Since none of them has picked

up the individual items in the readymade garment category chapter wise (61&
' '

62), they could not point out the main items of importance and also which of

them are showing declining trends. Though Verma (2004) made an attempt to

point out the leader, gainer and looser items, yet he did not come up with any

suggestions for the individual items. Again some authors have confined their

discussion to cotton garments only. But in spite of cotton forming bulk of

Indian exports, garment made up of other fibres should also come in their set

of consideration. Last but not the least, all the recommendations made by the
 44

authors are very much general in their approach and very few of them

mentioned any separate suggestions for the Indian firms and for government

as well.

1.3. Findings of the Research and Recommendations:

We have measured the degree and nature of global competition among the

RMG exporting countries in the world RMG market to find out if the

competition is stagnant or increasing to apprehend the position of Indian RMG

in the global competition. We have found that India secures sixth position

among the top ten RMG exporting nations in the world with China, Hong

Kong, Italy, Turkey & Bangladesh securing the first to fifth positions

consecutively. It has also been found out that the competition is increasing

over the years with India having a constant market share (3.1%) for the years

2005 & 2006 and dipping down to 2.8% of the global RMG trade in 2007.

Though increasing competition and decreased market share pose a threat for

India, yet it can still have some scope if it can manage to maintain a constant

market share in the global market.

Next, it has been examined if there are any continent wise, region wise, and

chapter wise change (for chapter 61 & chapter 62) in the structure of Indian

RMG exports over a period of twelve years from 1996-97 to 2007-08. There is

total absence of any structural changes in all these cases, which implies that

that the major policy reforms by the Indian Government in favour of the

textile and clothing sector failed to bring any substantial changes in the export

status of RMG.
 45

It has also been found out that though Indian RMG comprises 43% of the total

Indian Textile exports by value (2007-08), its share in India's total exports has

decreased from 13% in 1999-2000 to 5.9% in 2007-08 [calculations based on

Foreign Trade Statistics of India (Principal Commodities and Countries),

DGCI&S, Kolkata]. We have also studied the growth situation of Indian

RMG exports. It has been calculated from the WTO time series data that the

total global RMG exports is growing with respect to total global merchandise

exports but the rate of growth of Indian RMG exports is decreasing with

respect to global RMG exports. To find out the reasons, we have studied the

nature and direction of RMG exports. We have found that a major part of the

Indian RMG is exported to the continents like Europe, America, Asia and

Africa where the exports are significantly growing over the years. Europe and

America are the largest importers of Indian RMG followed by the Asia &

Africa. But garments exports are decreasing in the Commonwealth

Independent States (CIS) & Baltics and are very negligible in the Unspecified

region (USP). After this, we have analysed the export status of RMG both

value wise and volume wise, under the Chapter Heads 61& 62 to find that

clothing exports under both the Chapters have grown over the years. We have

identified the items securing the first top ten ranks in the years 2005-06,2006-

07 & 2007-08 having the maximum market share in the total garment exports

both value wise and volume wise. The two leaders enjoying the largest share

of clothing exports are the T-Shirts, singlets and other vests, knitted or

crocheted and Women's/girl's suits, ensembles, jackets, blazers, trousers, bib

 46

& brace, overall, breeches and shorts (other than swimwear) not knitted or

crocheted.

Global strategies adopted by the Indian players and major foreign players

operating in India:

The Indian players in the apparel market have mostly engaged in

investing within the country through manufacturing cum retailing, in setting

up vertically integrated large scale units, in setting up retail chains (single

brand), entering into marketing joint ventures with the foreign companies

entering into India. The foreign players operating in India have been mostly

procuring RMG by setting up buying and liaison offices in India, by giving

brand liCensing, by joint ventures with the top Indian apparel manufacturers

and by opening up franchises in the country with the Indian manufacturing

firms.

Strength & opportunities of the Indian clothing sector and its critical

issues and challenges:

Regarding the strength of Indian RMG sector, we find that India has

enjoyed comparative advantage in the production of garments solely because

of the ample availability of cotton, labour cost advantage, and the flexibility in

factories under the SSI umbrella and the ability to supply in small quantities

(Koshie, 1997). India's rich cultural heritage and immense diversity also add

further to this strength. Opportunity for this sector includes the dismantling of

export quotas in the post Multi Fibre Agreement era (January, 2005 onwards),

which has resulted in the increase of Indian exports to the continents like
 47

Europe and America worthy to be mentioned. The Indian Government has de-

reserved the garment sector, knitwear and hosiery sector from SSI (small scale

industry) tag, introduced schemes for technology up gradation (TUF scheme),

modernization and simplified the taxation structure which constitute the other

opportunities. India can also tap the market opportunities due to the falling

market share of the industrialized countries and the newly industrialized

countries like Mexico, Korea, Taiwan and Hong Kong, which used to be

among the top exporting countries in the world. Shift in the domestic market

from non-branded to branded garments and increased disposable income of the

domestic population have also given ample opportunity to grow the domestic

apparel market in India.

While exploring the reasons behind the decreasing growth rate of

Indian RMG exports with respect to global merchandise exports and India's

falling market share in the global market, we have found out the that the

challenges being faced by the Indian RMG sector are related to multiple

inherent problems within the country. The problems include poor

infrastructure of the Indian ports leading to higher waiting time of the Indian

vessels at the ports, the procedural delay and the inefficiency of the minor or

intermediate ports to process the increasing volume . of exports. Non-

availability of direct sailing vessels and too many government holidays

(currently about 160 days a year including Saturday and Sundays) lead to a

higher transit time from Indian ports to the destinations. Fashion garments

have very limited shelf life; hence it is important to device ways to deliver

them to the foreign customers at the quickest possible time. The freight costs
 48

are also higher in India as compared to the other countries. Transportation

problems and higher logistics costs require the inventory to be maintained at a

very high level. Insufficient FDI in textile sector till the year 2000 and lack of

promotional activity to project India as a textile and apparel outsourcing

destination have also hampered the image and growth of the Indian RMG

sector. Lower scale of operations of the Indian RMG manufacturers also badly

affect the country's capability to fulfill large orders which compels the Indian

manufacturers to import most of the fabrics from China due to lower prices &

lower lead times. Another constraint which had hampered the manufacturers

were the availability of good quality trimmings and embellishments such as

laces, buttons, zip fasteners, thread interlinings, and packaging materials. This

had been reserved for small-scale industry and their production lacked

international quality standards thereby forcing the large exporters to import or

to vertically integrate. Government interventions in the textile and RMG

sector also contributed a lot to decelerate the growth of Indian RMG. Other

inherent weaknesses of the Indian RMG sector which so long crippled the

sector are reservation of several textile products for exclusive manufacture by

the handlooms, reservation of woven garments, knit wear and hosiery for

exclusive manufacture by small scale enterprises, allocation of 40% of coarse

cotton yam output of mills to handloom sector and allocation of export quotas

to the organised sector. Preferential treatment by the Government regarding

taxes and duties for small enterprises and for cotton-based goods are also some

of the issues. Similarly, the Indian government policies have consistently

shown a bias in favour of cotton and thus prevented the emergence of

 49

synthetic fiber segment in India. This has disabled India's competitiveness in

the world market since synthetics comprises 60% of entire global garment

trade. Inflexible Indian Labor Laws also hinder the production of RMG for

the export markets, as it can't tailor its production according to the

fluctuations of the seasonal overseas demands. For these reasons, India

remains only a seasonal player in the international market, as Indian exports

are essentially cotton products suitable for the spring and summer (short)

seasons in the major foreign markets. This leaves the larger segment of these

markets - woolens and blends, untapped by the Indian exporters. More over,

India is facing severe threats in the form of stiff competition in apparel exports

even from the politically unstable, developing and least developed countries

like Bangladesh, Cambodia, Sri Lanka, Vietnam, Indonesia and even Pakistan

mainly because of their lower cost of labour. Bangladesh has already displaced

India from its fifth position in global RMG exports to sixth in 2006. The non-

price factors of competitiveness of the exporting countries are also posing a

threat to India as the developed nations are using these weapons to check the

imports of the exporters in this non-quota regime particularly from 2005

onwards.

Various export promotion schemes and remedial measures taken by the

Government:

The Indian Government has taken various export promotion schemes

and remedial measures from time to time to promote the growth of the textile

sector. Some of the important measures include setting up Apparel Export

Promotion Council (AEPC) on February22, 1978, to promote exports of

 50

readymade garments from India and setting up National Institute of Fashion

Technology or NIFT in 1986, an autonomous body under the Ministry Of

Textiles which later on became the Centre of Excellence in 2006 by Act of

Parliament. The Apparel Training & Design Centre set up in 1991, provided

solutions to fast growing garment industry to increase productivity &

technological enhancement through adequate human resources training.

Powerlooms Development Export Promotion Council was constituted by the

Government on September 8, 1995 to give thrust to the development of the

power loom sector, and to promote exports of fabrics made by the power

looms. The Indian Ministry of Textiles, launched a Technology Upgradation

Fund Scheme (TUFS) for the textile and jute industry w.e.f.Ol.04.1999

extended upto 2012 providing 5% interest reimbursement in respect of loans

availed by the manufacturers dividing it into two phases; Old TUF scheme

(1.4.1999 to 31.3.2007) and NEW TUF Scheme (1.4.2007 to 31.3.2012).The

New Textile Policy announced in November 2000 also had been very

significant for the garment sector which aimed at setting up Textile Centre

Infrastructure Development Scheme (TCDIS). Liberalization of FDI Policy for

foreign direct investment in the textile sector was also decided in this policy.

The other measures undertaken by the Government include Duty Drawback

Scheme (2002), removal of the restriction on import I export of cotton and

cotton waste, organisation of buyer seller meet, restructuring Export

Promotion Councils, Export Promotion Capital Goods (EPCG) Scheme,

Schemes for Integrated Textile Parks (SITP) and Memorandum Of

Understanding (MOU) between India and Sri Lanka regarding for free trade
 51

quotas in 2007 .In order to give further boost to textile sector as a whole, the

Ministry of Textiles has built up the Apparel International Mart (AIM), and

also setting up modem laboratories. The new Ministry in 2009 has untaken a

hundred days programme to safeguard the sector against the dipping exports

from 2007 till date firstly due to appreciation of rupee against dollar and less

demand from the largest clothing importers USA and EU due to economic

meltdown.

Recommendations:

We have made some recommendations both for the Indian firms, as

well as for the Indian Government. For the firms we have recommended that

they should put higher emphasis on value creation of the products, on time

delivery and service rather than concentrating only on their price. There

should be proper co- ordination between the spinning sector, weaving sector,

processing and garment manufacturing sector and the marketing channels.

Investment in product innovation, product differentiation and product

diversification based on consumer research has been prescribed for the

manufacturers cum exporters. Proper demand forecasting should be made by

the exporters to match the garment production according to the need of the

importers and lead -time should be reduced by efficient Supply Chain

Management. Proper use of Information Technology & Information

Technology Enabled Services should be properly integrated with the Textile

sector to facilitate the Supply Chain Management. While looking at the global

scenario, we can notice India's dipping exports to the largest exporting

countries like Europe and America whose economies have been severely
 52

crippled by recession. At this juncture, the Indian exporters should look for

new virgin markets like Australia and Japan, which have been stressed by

present Indian Textile Minister also. The Government policy also should aim

at investing in advanced factors like education, infrastructure, labour reforms,

rationalisation of charges and levies related to export logistics which are badly

needed for the sector in order to keep the close competitors like Bangladesh,

Pakistan and Sri Lanka at bay. There should be investment friendly

environment where the private sectors can come up with new ventures. There

should be clear policies regarding Foreign Direct Investment by the foreign

companies in India. Factors of competitiveness like cost of power, labour laws

should be in favour of the Indian companies. Lastly, we can end with few

important points that Indian exporters should know very well the potential of

their product, should be cognizant about the competition in the foreign market

and building a strong response base at home to resolve the queries and

complaints of the importers.

1.4. Limitations of our Work:

While progressing for the work, we have faced a number of problems.

Firstly, the total market size of the readymade garment has been difficult to

measure as the Indian apparel sector is highly unorganized and fragmented in

nature. Though the unorganized sector gives a tough competition to the

/"'(§)organized sector in case of mass apparels meant for the lower and middle
I

class of people for the domestic consumption, their contribution to the clothing

production is mostly unregistered. So we could not throw proper light on the

localized competition in the garment sector or could not furnish the exact
 53

market share of the branded sector as well as the unbranded one. Secondly,

getting certain financial data from some of the organized sectors has been

typically difficult for us as hardly the management allows certain things to

disclose. Also, the various financial data regarding the important apparel firms

available from the internet often are not very reliable as we have got different

facts and figures regarding the same organisation from time to time. Another

problem faced by us is that the company websites of different firms (except a

few big Companies) in most of the cases are not updated and the mails sent by

us expressing serious queries in the relevant field have bounced in many cases.

Thirdly; we have tried to include the opinions of the industry experts, CEOs of

the large readymade garment firms as well as the renowned authors and

researchers in this field. But in many of the cases, we have not received any

responses from them, probably due to their busy schedules. Lastly, we would

like to say that the global business environment has been very volatile due to

some major events in the international arena, which have been discussed in

our study. Accordingly, it was a difficult task for us to come to a conclusion

regarding certain trends in the RMG sector due to their continuous changes by

environmental influences. Accordingly, suggesting the strategies and

recommendations also have been a relatively difficult task for us.