State of affairs

Presently, the entire textiles and clothing industry is going through a serious slowdown and there are no hopes of an immediate escape from this situation.

For the garment industry, the biggest setback to India's competitiveness has come from the sharp appreciation in rupee since early 2007-08. The rupee appreciated nearly 14% during the year as against 6.4% appreciation in China and 2.4% in Bangladesh. This, coupled with imminent recession in the US economy and the consequent cut in federal rates have maintained the pressure on the rupee and the exporter's margins. Given the not-so short term nature of the problem, the industry has to rework its strategies in terms of improving productivities and adopting new technologies.

Cost competitiveness is fast becoming a loosing game for India. The two areas where India had some cost advantage, i.e. labour and raw material, both seem to have diluted. Studies have showed that lower productivity has more than offset the low per hour wages in India. In fact India is 50% costilier than Bangladesh, 20% than Indonesia and 55% than Vietnam in total wage costs, though per hour wages are lower here.

The gains from better forward and backward linkages has been completely eroded due to rising prices on one end and sluggish demand from the end users at the other end. The entire supply chain, from yarn manufacturers to apparel exports are facing slow down in their demand.

Identifying issues

The industry is plagued with external deficiencies which have been affecting its performance like infrastructure, labour or policy related problems. But introspection shows that the industry also has lacked dynamism in many areas. One such area is lack of diversification in terms of product range as also destinations served. A comparison of the present product coverage of India and China in one of the biggest global market, the USA shows that of the 104 apparel items imported by USA, China has presence in 102 items, i.e. 98% of the import basket of USA, while India's Presence is in 66 items, i.e. 63% of the market. Also, 80% of India's exports come from 12 of these MFA categories while 80% of China's exports come from 34 of these MFA categories. It has been found that 38 RMG categories and 37% of the US market is still to be tapped by India.

A comparison of market coverage between India and China show that India's concentration levels in certain regions is very high. For India 3 Destinations comprised over 80% of India's export market in 1999-00. Same destinations constitute 86% of India's apparel exports in 2006-07

Destination wise analysis shows that at country level, 13 countries have shares more than 1% and the total contribution of these countries to the Indian apparel exports is around 87%. In the case of China, 6 Destinations accounted for 80% of China's exports in 2004. The number has increased to 12 in 2007. In 2005, the top 20 countries had 84% share. This has come down to 77% in 2006. Thus there is a movement towards lesser market concentration.

The other important issues are weak fabric base, restrictions on contract labour, Low level of investment have due to predominance of largely decentralized and small scaled units, low R&D and skill component leading to lower productivities.