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The post-graduate teaching department of economics, R T M Nagpur University, in collaboration with the Institute of Chinese Studies (ICS), Delhi, Centre for Trade and Development (Centad), Delhi, and the Vasantrao Naik State Agriculture and Management Training Institute, Nagpur, organised a two-day international seminar on ‘Present Scenario of Post MFA: A Comparative Study of India and China’, on January 27-28, 2006. Around 150 delegates from different parts of the country attended, along with their Chinese counterparts. The seminar was inaugurated by Dr Bhalchandra Mungekar, Member, Planning Commission, Government of India. The valedictory note was presented by Dr Jayant Patil, Finance Minister, Government of Maharashtra.
The completion of the first year of dismantling quotas on textiles needs in-depth analysis from academicians, administrators, representatives of trade and industry, and policymakers. The textile industry, perhaps the oldest organised industry in India, occupies an important position in the economy. Currently, it contributes around 14% to the country’s industrial production, and 4% to its GDP. The sector is the second largest provider of employment after agriculture, employing close to 85 million people, 35 million of whom are directly employed in the textile industry and 50 million in allied activities.
Global trade in textile and clothing products is set to double, from US$ 353 billion to US$ 655 billion by 2010 -- an average annual growth rate of 8.0%. The three significant drivers of growth are increase in population, rising incomes, and expiry of the Multi-Fibre Agreement (MFA). Though China is today the largest player in the world market in textiles and clothing, it is under WTO restrictions until 2008. This gives India the chance to grab as much of the market as possible through strategic modernisation.
The main theme of the seminar was distributed over five sub-themes, spread over five technical sessions. The sessions were on:
- Historical background of the MFA.
- International trade in cotton volumes, composition and direction.
- Comparative advantage of trade in textiles to India, China and other developing countries.
- Implications of the WTO agreement on the textile industry.
- Challenges and opportunities in the textile industry.
Experts presented several papers at each session. The following is a summary of discussions held in each session.
Historical background of the MFA
The aim of the Multi-Fibre Agreement (MFA) was to allocate export quotas to low-cost developing countries, limiting the amount of imports to countries whose domestic industries faced serious challenges from rapidly increasing imports. The expiration of the MFA did not, however, mean the end of quotas on textile and clothing exports from developing countries. The MFA regime served to protect newly industrialised countries like Korea, Taiwan and Hong Kong that have now become non-competitive due to substantial increases in domestic wages.
International trade in cotton volume, composition and direction
Trade in textiles and clothing is a vital part of the world economy, with many nations heavily dependent on this sector for foreign exchange earnings and employment-generation. Textile and clothing trade accounts for nearly 6% of total world exports. It was valued at US$ 342 billion in 2001; trade in clothing accounted for 60% of this total.
China dominates the textile and apparel market. It is the largest textile and clothing supplier to the US, with a share of 26% as against India’s 1.17% share. Chinese workers, however, will not necessarily reap the benefits of quota removal, which will lead to a fall in prices. There is unemployment in China, so workers will be forced to compete more fiercely for work and wages are expected to fall. India can compete with China, but it needs to invest substantially in this sector to modernise the industry and produce high-quality fabrics.
Comparative advantage of trade in textiles to India, China and other developing countries
Papers discussed both the strengths and weaknesses of the Chinese cotton textile industry, vis-à-vis India. China’s trade balance is stronger than India’s, but both India and China have very high productivity growth. Recently, both countries have also enjoyed high gross fixed investments of capital. FDI flows also play an important role in both economies. Though governance indicators are better in India than in China, obstacles to trade and business exist in both countries.
India ranks third in the production of raw cotton, produces the finest variety of cotton, and possesses educated manpower. The ability of the textile and clothing sector to compete internationally depends on the strength of the domestic industry. It relies on the production of quality products in various segments of the supply chain, and the ability of the government to provide a favourable atmosphere to safeguard the interests of the domestic industry in the global arena by conducting effective negotiations at the WTO.
Implications of WTO agreement on the textile industry
Since 1970, India has built up a large-scale clothing industry. During the course of the first and second MFA, in the 1970s, India’s exporting companies enjoyed significant growth. The abolition of quotas will certainly benefit some developing countries, while others will lose out dramatically.
The textile industry contributes 20% of total industrial output (9% to excise collection) and accounts for 18% of the industrial workforce. Despite this impressive performance, the spinning sector continues to be plagued by a number of problems. Levels of modernisation in this sector are low. In a common textile policy there are wide differences between the shares of states in the production of textiles and garments. Only a few states have reached a 5% or higher share.
The biggest challenge the textile industry faces is to radically alter its mindset. Indian industry will have to become competitive by raising its level of efficiency to meet the challenge both in domestic and international markets.
Every country’s textile industry is of strategic importance, as it generates large-scale employment. Thus it becomes necessary for countries to regulate the import of garments. Regulation here takes a variety of forms including tariffs and quotas.
India’s Tenth Five-Year Plan provides for a programme to modernise 2.5 lakh powerlooms into semi-automatic looms, in important powerloom clusters over the next three years; induct 50,000 shuttle-less looms in the next three years; promote a labour-productive environment; and set up apparel export parks at major readymade garment production centres.
Challenges and opportunities in the textile industry
India has a natural competitive advantage in terms of a strong and large MFA base, abundant and cheap skilled labour, and presence across the entire value chain of the industry ranging from spinning, weaving and garment manufacturing. However, both productivity and efficiency have to be stepped up in order to meet the challenges of global competition. There must be a bold and reasonable price policy for cotton all over India, to enable the textile and garment industry to grow and catch up with China.
The need of the hour is to evolve a strategy aimed at improving levels of productivity and efficiency, quality control, faster product innovation, quick responses to changes in consumer preference, and the ability to move up in the value chain by building brand names. The point was also made that India’s presence was largely confined to the lower end of the value chain -- in making basic garments like T-shirts and shorts. China, on the other hand, makes more value-added formal wear.
February, 2006
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