Shankar Raman D., Senior Vice President at a $1 Billion Textile Manufacturing company and a graduate of the One Year MBA at IIM A, Class of 2014 comments on the recently introduced draft Textile Policy of the Government of India and shares his recommendations
India has always been strong in devising strategy but has always lacked in implementation efficacy. In the current government, we hear about lot of consolidated initiatives from all quarters – pumping up thrust on manufacturing, control on inflation, conducive climate for investments, dynamic decision making etc., to attain confidence of both Indian & International investors.
From the textile industry’s point of view, the objective of increasing the export growth rate from 6-10% to 15-20% in next 5 years is commendable. The ministry seems to be clear on the short & long term objectives and seems to be developing strategies accordingly.
The allocation of INR 26000 crores by the planning commission to textile ministry for overall schemes & continuation of Technology Up-gradation Fund (TUF) are welcome initiatives in the right direction. We also see a thrust to increase exports of Textiles & Clothing to about USD 64 Bn in next 2 years by 2016-17. The Textile & Apparel export target of USD 300 Bn by 2024-25 is an achievable long term objective which is setting the pace for various initiatives.
Key initiatives taken by the government:
New Textile policy – a roadmap
In essence, the draft policy gives thrust on Creating 10mn jobs/ year, Better credit access, Promoting organic production etc.
I was reading the vision 2024-25 for textile industry. Let us dwell in to some data now:
In total, a USD 600bn textile & apparel industry by 2024-25!
Now, the question is – “Is it possible?” I would say, “Yes, it is achievable”. India has been growing at about 10%, while Bangladesh, Vietnam growing at 18%-20%
The states should not get in to a race for offering incentives alone to get short term benefits of attracting investments. Rather, they should also be competing on creating an environment with a focus on long term strategy to make the factors of production more efficient
India can also grow at 20% in exports provided all the factors are synchronized. We need to promote value addition within the country & need to make the factors of production more efficient. There is a potential to generate employment for 35 mn people.
Some of the issues that the textile policy should address directly or encourage are:
Additionally we need to make the business environment conducive by facilitating the reduction of operating costs. Factors of Production – manpower, capital etc. need to get more efficient. Addressing these issues would make the textile policy more effective.
Independent textile policy of each state & its impact on growth of the industry
We have Gujarat inviting spinners with 7% interest subsidy & power subsidy. It is logical for power surplus & highest cotton producing state such as Gujarat to move up in the value chain to spin yarn instead of selling just cotton. Target set – to attract INR 20,000 crores investments along with employment for 2.5 mn people over next 5 years.
Maharashtra is attracting investments across all segments of textile value chain and is not restricted only to spinning.
With 12.5% interest subsidy and 10% capital subsidy, Maharashtra is likely to give tough competition to Gujarat. In terms of cotton production, the difference between these 2 states is marginal albeit the yield/ hectare in Maharashtra is lesser than Gujarat. However, this is an additional advantage for Maharashtra, as growth in cotton yields in the future would give a larger production base of cotton.
Target set – an investment of INR 40,000 crores & creating employment for 1.1 mn people.
Also, there are some more attractive policies from few other states as well.
I don’t foresee any issue with each state vying for investments. The industry would move to a place which gives maximum returns on the factors of production. Seems like simple economics!
The concept of establishing focused textile park with investments from specific countries is another logical concept. This would bring cultural matching among the players and is likely to yield good results
But, what is more important for the states is to provide excellent infrastructure & trained human capital to make the manufacturing operations competitive & profitable. The states should not get in to a race for offering incentives alone to get short term benefits of attracting investments. Rather, they should also be competing on creating an environment with a focus on long term strategy to make the factors of production more efficient so that the units can thrive and become competitive in exports.
Relevance of new textile parks
As per my understanding, there are about 60 textile parks in India & some of these parks have been doing well also.
Just because some earlier parks are not doing well should not be the reason to discourage the establishment of new parks. In order to bring in a concerted competitive manufacturing, textile parks are indeed relevant. The macro environment needed for the industry with infrastructure & manpower support can be provided more efficiently through such textile parks.
The strategy should be to increase exports in new markets such as Latin American countries, Eastern European Countries, Middle East. With China’s Textile and Garment export growth rate projected to slow down in the next 10 years due to rising cost of production and increasing domestic demand, the export space that would be ceded by China would be open for other Asian countries including India to grab
The concept of establishing focused textile park with investments from specific countries is another logical concept. This would bring cultural matching among the players and is likely to yield good results. RIICO has created one such park to attract FDI from Japan & Korea. Establishing more such parks would help.
Mega textile parks with focused attention with good infrastructure, capital and manpower support are keys to create competitive products. Higher operating efficiency would drive down the costs to make the products competitive for the world market.
Need for an integrated textile policy
The Textile sector needs a long term road-map for sustainable growth and increasing competitiveness across each node of the textile value chain. National Textiles Policy should provide such a roadmap and stable policy framework for the sector.
India has 22% of world’s spindle capacity and is the No. 2 textile maker in the world. Further it has 61% world’s loom capacities (including handlooms). The strategy should be to exploit our strengths and increase exports in new markets such as Latin American countries, Eastern European Countries, Middle East. With China’s Textile and Garment export growth rate projected to slow down in the next 10 years due to rising cost of production and increasing domestic demand, the export space that would be ceded by China would be open for other Asian countries including India to grab.
It is a necessity to have an integrated policy, since as a country we need to move forward with higher value addition in exports. We are quite a geographically diverse country with different skill sets developed in each cluster. We have about 113 clusters – each one of them brilliant in a few product groups.
The logic should be to enable each cluster to concentrate on areas in which they have clear competitive advantage, so that as a country we get the most optimum output on the entire gamut of textile products. We should concentrate on achieving the global maxima instead of local maxima.
The industry could not achieve the envisaged growth rate during the last few years mainly due to various policies relating to cotton, cotton yarn, export incentives etc. There is a need for an integrated textile policy to support the domestic textiles and clothing industry to make it globally competitive by easing the regulatory burden, removing infrastructural bottlenecks, providing adequate raw materials and supporting exports.
Shankar Raman D. is a Senior Vice President at a large $1 Billion textile manufacturing company and a graduate of the One Year MBA (PGPX) at IIM A, Class of 2014
