Loose weave

If the first month following the removal of all curbs on the global textiles trade is anything to go by, India has got off to a poor start.

Forget the surge the government was hoping for, textiles and clothing exports actually fell by 7.5 per cent in January, compared to January 2004.

To be sure, some of this is due to the uncertainty over the new post-quota regime, and over the continuation of export benefits like the DEPB (duty entitlement pass book) scheme owing to differences between the commerce and finance ministries. So exporters would have been cautious about booking orders.

One must presume that this picture will change. Given that India’s exports to key markets were constrained by quotas in the past, and since there was a price to be paid for buying such quotas, India’s exports should have become more competitive now that trade is free.

But even if you treat the January data as a blip, as most people in the textiles trade are doing, the question is whether exports can jump from around $13 billion today to the decade-end target of $50 billion.

The answer seems an unequivocal ‘no’, because India has not prepared itself for the opportunity. Till some time back, the dice was heavily loaded against large composite mills, with all manner of reservations in favour of small firms.

An interesting statistic worth keeping in mind is that in the spinning sector, which is dominated by large players, India’s share in global exports is 26 per cent.

In the weaving sector, where large players account for just 4 per cent of the market, India’s global export share is a mere 3 per cent.

The bias against scale has now been done away with, but there aren’t enough big firms that can quickly ramp up capacities.

The government began a technology upgrade fund some years ago which offered lucrative benefits, but the results have been tardy. It is true that loans from the fund have more than doubled last year, on top of doubling in the previous year.

But the total loans for 2004-05 were under Rs 3,000 crore. Assuming a 1:1 debt-equity ratio, technology-related investments last year would have been around Rs 6,000 crore in the organised sector that avails of such loans (no estimates are available of investment in the unorganised sector).

To put this in perspective, the industry estimates around Rs 140,000 crore is required to be invested till 2010 to achieve the government’s export target.

The investments can still happen, but the biggest hurdle remains the country’s labour policy that does not allow a flexible labour market; since the export business is risky, few would like to make fresh investments and take on more workers unless they can be retrenched in the case of a slowdown.

The onus for increasing exports still lies firmly with the government.