Foreign Trade Law

2BUL945 Foreign Trade Law

TEXTILE INDUSTRY IN INDIA: AN ANALYSIS OF

EXPORTS

Submitted To: Submitted

By:
Mr. Devang Chhatrapati Gahna Rajani
Asst. Prof. 18BBL012
Institute of Law,
Nirma University
 Foreign Trade Law

TEXTILE INDUSTRY IN INDIA: AN ANALYSIS OF EXPORTS

(i) INTRODUCTION

From the historical past to the contemporary world, clothing has maintained a significant
part in human life. 1In today's market, the apparel industry is a worldwide one. It is possible
to date the beginning of clothes creation to 2000 BC. Next to agriculture, the creation of
clothing became a key source of employment on a huge scale. The development of garment
units is largely attributed to the highly skilled and semi-skilled labour force that the Indian
textile and clothing sector offers.2 The textile and garment sectors are important to the
global economy because they employ millions of people, largely women, in around 200
nations. Globally, the clothing sector is undergoing organisational and manufacturing
changes, and growing trade activity is changing employer-employee relations. The global
apparel industry is about to experience significant institutional changes.3 Despite being one
of the most globally interconnected businesses, advanced economies continue to benefit
from distortions in the world's exceptional trade practises. Trade limitations, price, and
quality have all evolved over the past three to four decades to become significant
determinants of the sector's development patterns.4
China, India, Pakistan, and Vietnam are traditional heavyweights in the manufacture of
textiles and clothing, and they are in competition with one another. Despite the fact that the
sectors are geographically spread out around the globe, China currently rules the textile and
clothing market. The greatest producer and exporter of textiles in the world, China has
made the most investments in spinning and weaving machinery. 5 Despite positive growth
factors like cotton's eco-friendly, biodegradable nature, its versatility, exports and export
potential, and the employment it creates in the agricultural and industrial sectors, among
others, outdated technology and a persistent labour problem are among the many factors
that contribute to the sickness in the cotton textile industry globally. To sustain its level of
output and employment as well as to allow it to diversify, modernise, and increase its
productivity levels and effectively compete in both domestic and international markets, it
was deemed that the entire cotton sector needed to receive the appropriate protection. Given
the state of the global economy today, globalisation is both inevitable and inescapable. The
movement toward globalisation has an impact on numerous industries, either positively or
badly.6 There is no exception in the textile sector. In the recent years, it has been dealing
with a crisis. It contends with fierce competition on the global market. Between 1962 and
2003, the global textile and apparel trade expanded by around 60 times, from $6 billion to
$395 billion. In the trade of textiles and apparel, it has often been observed that developing
nations enjoy a comparative advantage.

1
Raghbir Singh and Lalit Mohan Kathwia: Preparedness of Indian apparel exporters after multifibre
arrangement, an analysis of selected firms; The ICFAI University Press, 2005. p.26.
2
D.K. Nair: “ Indian Cotton Mills Federation” , Yojana, February, 2005.
3
“Global Printed textile Industry”, Times of India, 2003
4
K.D. Saksena: “Dynamics of India’s Textile Economy”, p. 111
5
K. Regupathy Subramanian: “Energy Management in Textile Industry “, Allied Publishers Pvt. Ltd., New
Delhi, 2004.
6
Id.
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(ii) ANALYSIS OF THE INDIAN TEXTILE MARKET

“The textile sector in India employs 45 million people, generates 14 percent of industrial
output (4 percent of GDP), and makes up almost 11 percent of the total exports of the
nation.7
India has seen a steady rise in its exports of clothes and textiles over the past few years,
especially since the removal of the textile export restriction in 2004. According to the
WTO's International Trade and Market Access Data, India exported textiles worth
US$15016 million in 2011. In the fiscal year 2010–2011, readymade garments accounted
for about 39% of all textile exports. Nearly 73 percent of all textile exports are made up of
apparel and cotton-based products. India exports textiles, including handlooms and
handicrafts, to more than a hundred other nations. However, nearly two-thirds of India's
textile exports go to the US and the EU. China, the United Arab Emirates, Sri Lanka, Saudi
Arabia, the Republic of Korea, Bangladesh, Turkey, Pakistan, Brazil, Hong Kong, Canada,
and Egypt are some of the other important export markets. 16.4 million people are working
worldwide in the textile industry. With 3.1 million people employed worldwide, or 19% of
all employment worldwide, China was the greatest employer. The former USSR came in
second with 14% of the global total, followed by India with 11% and the United States with
5%. Japan makes up less than 5%. Germany, Spain, Taiwan, and Italy are among countries
with large textile industries. Numerous nations' textile exports and production have seen
significant shifts. By employing 41% of all textile workers worldwide, China rose in
prominence. India is the second-largest textile industry employer. In terms of output,
foreign exchange earnings, and employment creation, the Indian textile industry is one of
the biggest and most significant economic sectors. 8 About 14% of the nation's industrial
output and 35% of all export revenues are contributed by the textile industry in India. India
has contributed significantly to the world textile markets as well. It ranks third in terms of
cotton production, second in terms of silk production, largest in terms of jute production,
and fifth in terms of production of synthetic fibres and yarn. The Indian textile industry, one
of the country's oldest and most significant industries, generates significant amounts of
foreign cash and employs a sizeable portion of the population in both urban and rural areas.
Cotton exports have become a significant source of revenue for the nation in terms of
foreign exchange. India grows cotton on 84 million hectares for commercial purposes,
however when compared to nations like Israel, Australia, Syria, Turkey, China, and the
United States, India's yield per hectare is the lowest and its quality falls short of
international standards.”

(iii) EMERGING TRENDS IN THE TEXTILE MARKET

“Consumer knowledge of and preference for sustainable products, compliance standards,

and the realisation that it is crucial to take action now in order to ensure the future have all
contributed to the importance of sustainability in today's world. Assuring the three elements
of sustainability—social, economic, and environmental—are part of the life cycle approach
to sustainability in the textile and garment business. The following stages are being
addressed: production of fibres, production of textiles and clothing, distribution, retailing,
consumption, and aftermarket. 19 The government's earlier goal of maintaining the nascent
export growth momentum has been replaced by increasing production and productivity in
7
P. Radha Krishnaiah & G. Thilagavathy: “Indian Textile / Apparel Exports in the Post – Quota Region”,
ITCM, 2004.
8
Id.
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the cotton and cotton yarn sectors, enhancing value addition in the apparel and garmenting
industries, promoting the rich heritage of handlooms and handicrafts, institutional
strengthening in the jute sector, and increasing acreages under mulberry production, all
while preserving job opportunities.”

“By providing fiscal stimulus, it has boosted the plan allocation from Rs 4,090 crore to Rs
4,500 crore, which includes a higher allocation of Rs 3,140 crore for the Technology
Upgradation Fund Scheme. As a result, it is now attracting larger capital flows and foreign
direct investment (TUFS).”

“The Government launched the Technology Upgradation Fund Scheme (TUFS) with the
goal of modernising the textile sector. The first time that a single tranche of subsidies was
published on August 6, 2009, the funds were credited to the bank accounts of all recipients
within three working days, effectively adding to the government's previously announced
stimulus packages.”

“E-Marketing: The Central Cottage Industries Corporation of India (CCIC) and the
Handicrafts and Handlooms Export Corporation of India have created e-marketing
platforms (HHEC). On the website of the National Centre for Textiles Design, more than
1000 modern designs with technical specifications and regional language interface are
available for no charge to download (NCTD).9

Common Effluent Treatment Plant (CETP): To ensure that there is no liquid discharge, 20
Common Effluent Treatment Plants erected by dyeing plants in Tirupur, Tamil Nadu, have
received a one-time grant of Rs. 200 crore.

Marketing Initiatives: In December 2009, "Handloom Week" provided a marketing

platform for specialised handloom and handicraft products. These marketing initiatives,
known as "pradarshinis" and "mela," are occasionally held in all 50 states.”

“Cotton Sales Depots: In Tamil Nadu, Cotton Sales Depots have been established in
Coimbatore and Rajapalayam. The Indian state of Tamilnadu is where the majority of
clothing is produced. It has a solid manufacturing foundation, responsible for nearly one-
third of the nation's textile industry, and contributes 37.5% of India's overall production.
Coimbatore, known as the Manchester of South India, Rajapalayam, Karur, and Erode are
the main locations for textile mills. There are over 1,400 textile mills in Tamilnadu, of
which 650 are spinning mills with an installed spinning capacity of more than 13.0 million
spindles. 30 percent or more of India's textile exports come from Tamilnadu. Tamilnadu has
more than 4,500 registered exporters in the clothing industry, mostly based in Chennai and
Tiruppur. While Chennai focuses on the export of woven clothing, Tiruppur has become a
significant hub for knitted clothing.”

“Integrated Textile Parks Scheme (SITP): Out of the 40 parks being implemented through
public-private partnerships, 90% of the government grants have been released for 17 parks,
infrastructure development is complete in 5 parks, and production has started in 17 parks.

NTC, the National Textile Corporation, has updated 17 mills. There are four of these mills
in Coimbatore, Tamil Nadu, and three in Mumbai.

9
Compendium of Textile Statistics, Textile Commission of India, Bombay.
 Foreign Trade Law

An ambitious skill development programme with a budget of Rs. 2,200 crore has been
developed to teach 30 lakh workers over the course of five years.

Indian School of Textiles and Business: By modernising the existing, an Indian School of
Textiles and Business has been established to provide professional education, including
research and consultancy, encompassing the entire spectrum of textiles. Coimbatore, Tamil
Nadu's Sardar Vallabh Bhai Patel Institute of Textile Management (SVPITM).10”

“Promotion of exports: Despite the global slowdown, the percentage of textile and apparel
exports in total merchandise exports climbed to 12.36 percent (US$17.37 million) from
11.03 percent in 2008–09 In a "Look East Policy," new markets have been explored in
order to boost exports while also combining already-established markets like the EU and
US. Mega textile shows have been held as part of the initiatives to take hold of new markets
in South Asia, Australia, Japan, Australia, Latin America, and South Africa.11”

“The Twelfth Center of the National Institute of Fashion Technology (NIFT) was opened in
Kangra, Himachal Pradesh, according to the NIFT website. In addition to a speciality centre
in Coimbatore, there will be two additional NIFT locations opening in Bhubaneswar and
Jodhpur.

Handicraft artisans' abilities have been upgraded thanks to the Ambedkar Hastshilp Vikas
Yojana, the Human Resource Development, and the Design & Technology Upgradation
Schemes, which provided support to 1,00,155 artisans in this area.”12

“Energy availability to energy efficiency, printed papers to digital development, increasing

worldwide campaigns, increased consumer and governmental pressure, and increased
invention and creativity at various supply chain phases are all examples of how technology
is changing.13

Welfare Programs: 5.10 lakh workers received life insurance coverage and 16.11 lakh
weavers and ancillary workers received health insurance coverage under the Handloom
Weavers Comprehensive Welfare Scheme. Health insurance was made available to 7.33
lakh craftsmen through the Rajiv Gandhi Shilpi Swasthya Bima Yojana.”

“Migrant Labor: According to industry experts, there are many job chances for migrant
workers in their hometowns as a result of the rapid expansion of infrastructure projects
there. Additionally, they have several options to make money through various government
programmes like NREGA. According to Devesh Patel, president of the Katargam Weavers
Association, "There will be a labour shortage, so we must raise wages to get competent
employees to work in our units. For migratory workers, the cost of living in the metropolis
is far higher than it is in their home areas. To reduce costs, the majority of them are looking
for work in their home communities ".”

10
K. Rangarajan: International Trade in Textile and Clothing”, ITCM, 2004, p. 28.
11
Future Trends in textile and apparel industry: http://www.businessstandard.com/article/management/kit-
future-trends-in-textile-and-apparel-industry.
12
http:/texmin.nic.in, Textile resurgence 2010-2011.
13
Veeramani, C. (2008), “Impact of Exchange Rate Appreciation on India’s Exports”, Economic and Political
Weekly, Vol 43, No 22, pp 10-14.
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(iv) FACTORS AFFECTING INDIAN TEXTILE EXPORT

To comprehend the long-term relationship between the trade balance and the real effective
exchange rate, a study was carried out. The research supports the cointegration of the real
effective exchange rate and trade balance. Further research revealed that most LDCs' trade
balances improve over time as a result of devaluation.

the difficulties facing Indian garment exports on the international market. According to the
survey, India's percentage of global garment exports has not increased since 1994. The
United States and the EU, two of India's main export destinations, have slowed down their
import growth, which is the apparent immediate cause. Since the garment industry is still
subject to entrance restrictions (licence for large-scale facilities), the policy reforms of the
1990s had little impact on it.14

According to a study, the inconsistent government policies in India after 1947 have had a
significant negative impact on the country's textile and apparel industries. It must now alter
nevertheless. It must adapt if it wants to avoid being swept away by pressures of the
international market and imports into the domestic market. 15

If we use a panel data analysis for chosen states between 1989 and 1997, we may look at
the cost and productivity aspects for the three main textile industries, namely cotton yarn,
man-made textiles, and ready-made clothing. The study comes to the conclusion that the
mill sector, which manufactures practically all of the cotton yarn, needs equal playing space
with the handloom and powerloom industries.16 Additionally, there is a need to promote
mass production, especially in the apparel and manufactured goods industries. Credit
distribution, the availability of less expensive raw materials, more affordable electricity
availability, encouraging better capacity utilisation, flexible labour laws, and simple entry-
exit regulations for businesses are some of the fundamental policy measures that would
help the Indian textile and garment industry become more cost-effective.17

The Multi Fibre Agreement (MFA) and the South Asian textile industry. According to the
study, nations that were typically the more effective exporters of textile goods, including
China, Bangladesh, India, and Pakistan, benefited during the ten-year phase-out of the
MFA. After the MFA was withdrawn, certain Asian nations who benefited from bilateral
import quotas but were not always the most effective producers suffered.

(v) PROBLEMS AND CHALLENGES FOR RAPID GROWTH

In several industries, including Bangladesh's cotton industry, a lack of research and

development (R and D) has led to lower-than-average cotton quality when compared to the
rest of Asia. Farmers are switching to other cash crops, such sugar cane, as a result of the

14
Id.
15
Future Trends in textile and apparel industry: http://www.businessstandard.com/article/management/kit-
future-trends-in-textile-and-apparel-industry.
16
Kar, Mausmi (2010), “Multi Fibre Arrangement and the Textile Industry in South Asia,” SouthSouth
globalization challenges and opportunities for development, Chapter 7, Routledge.
17
Oskoee (1991), “Is there a long-run relation between the trade balance and the real effective exchange rate
of LDCs” ? Economics Letters, Vol 36 ,pp 403-407.
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ensuing low profitability in cotton crops. The cause of this situation is a lack of appropriate
research and development. They also charge cartels for obstructing appropriate R and D,
particularly in the pesticide industry. Stifling local R and D will assist the pesticide industry
since greater yield cotton is more pesticide resistant. Additionally, detractors claim that the
textile sector uses outdated machinery and equipment. India's textile competitiveness has
decreased as a result of a failure to modernise equipment and machines in a timely manner.
India has greater production costs than China and China due to outdated technology. The
inescapable introduction of a minimum tax on domestic sales would exacerbate the already
grave liquidity issue. The textile industry was also struggling to generate money because of
an exorbitant markup rate on the one hand and a severe lack of energy supplies and an
unfathomable power tariff for industry on the other. Numerous factors, such as rising
interest rates, double-digit inflation, and a falling value of the Indian rupee, all contribute to
an increase in the cost of producing textiles. The aforementioned factors raised the cost of
production for the textile sector, making it harder for that business to compete on the global
market. The intensive rise in interest rates, which has exacerbated the industry's issues, is to
blame for the high cost of doing business.