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The State of India’s Textile Sector

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On May 26, 2014, Narendra Modi became Prime Minister of India. In his victory speech, he promised that “10 years is all that is needed” for India’s modernization. In an interview a year later he repeated that his government is committed to the country’s poor and the he would work to enhance employment opportunities.

So how does his first year job-creation record look in the textile and clothing (T&C) industry–India’s largest  employer after agriculture?

Hard to say.

The previous government had announced a $45 billion T&C export target (14.5% growth) for its financial year ended March 21, 2015. A month after his victory, Modi’s Textile Minster, Santosh Gangwar, told the Clothing Manufacturers Association of India (CMAI) that exports are expected to reach $50 billion–or 27 percent growth in a year.

Yet in May this year, Modi left it to Sanjay Kumar Panda his permanent official to reveal that T&C exports had managed a mere 3 percent growth. Nonetheless, Panda insisted that T&C exports would grow 13.5% in the following year. And he repeated the 2025 Textile Vision first announced (with no supporting evidence) in Modi’s heady first few weeks: $300 billion T&C exports by 2025 (22 percent annual growth), creating 39 million new jobs, or just over three million a year–about  the same as the previous government’s annual targets. In the 12 months to September 2014 (latest data available), India created just 154,000 new T&C jobs.

Possibly worse: in the first three months of this year, Clothesource Tradetrak shows the volume of Indian apparel imports (measured in square metres of fabric) into the E.U. and U.S. grew slightly more slowly than China’s.

Just over-enthusiastic forecasting—or has Modi’s team got something revolutionary up its sleeve?

Over the past year, most T&C manufacturers agreed on five priorities for Modi.

Labor laws

Indian law makes adjusting workforces in larger factories almost impossible. Business owners want it easier to fire staff when sales turn down. Modi’s official reply has been that he’ll bring together all stakeholders to review those laws—though in practice he seems to be looking for a few individual states to pioneer more radical changes than he judges it will be possible to impose nationally. He looks likely to increase minimum wages across the country to make it easier for unions to accept simpler firing.

This certainly means no immediate national easing of employment laws–and unions are threatening widespread agitation even with what’s proposed. So far, there’s been practically no progress, either in changing employment laws or in hiking wages.

Trade access

Garment businesses want more free trade—especially with the E.U., since they believe they get a worse deal there than in Bangladesh and Pakistan, which get duty free access to the E.U.

Modi has shown little interest in this—and will need to offer better access to India for Europe’s car makers, retailers, and insurance companies if its T&C makers are to be allowed to export duty-free to the E.U.

They have duty free access to Japan (negotiated under Modi’s predecessor), though it’s unlikely the U.S. will want to discuss a similar deal in the foreseeable future.

Factory construction

The central argument Panda and Gangwar made this May was that the government’s great program for new textile parks would give India’s T&C businesses the infrastructure they need. Gangwar claimed the Modi government had approved 20 textiles parks, likely to create 75,000 jobs.

Well, sort of. The government has agreed on the plans—but the parks have to be built, populated (by real businesses investing their own money in factories) and even if built as planned, Gangwar’s own numbers show they’ll account for just 0.2% of the job growth he predicts—which, remember, is 20 times the level achieved in the last year.

India’s got four times the U.S. population, but less than a third of its area. Each of those parks is someone’s livelihood, and converting them to industrial estates will mean thousands of landowners—and far more peasantsresisting and at the very least demanding compensation. India’s not China: it just isn’t possible to send the troops in, throw the peasants off the land and start the bulldozers in the same morning.

Fiber bias

T&C businesses constantly ask Modi for the same tax rates on manmade fibers (MMF) as on cotton. Modi’s team never agree, but MMF accounts for 70 percent of the clothes worn worldwide.

Better basic infrastructure

India’s creaking roads, highways and unreliable power supplies are a constant complaint from all businesses. Modi’s government did provide funds in its February annual budget for an ambitious program that practically all businesses supported enthusiastically.

Interest rates

India has begun to cut its high base rates—but they’re still over twice China’s, and he’s done little about banks’ higher margins. T&C firms’ irritation at this wasn’t helped by the February budget cutting their interest subsidies.

Not much getting worse—though Modi’s persecution of Greenpeace, and India’s continuing problem (according to the Labor Department) with child labor in our industry, aren’t going to make India the first sourcing choice for any brand wanting a reputation for ethical sourcing.

And certainly no grounds for expecting T&C jobs to increase twenty-fold. I don’t think Modi is ducking T&C firms’ demands because he’s daft or unenthusiastic about their potential. Each of the things T&C firms want looks risky for other parts of the economy, and Modi is Prime Minister for all of India, not just for textile and apparel makers.

As it happens, however, many other industries share a growing skepticism about Modi’s ability to supercharge India’s economy. Though its growth rate is now faster than China’s, its population is also growing, so the gap between the two countries in income per head is actually rising. India’s leading Business Sentiment Indicator, which gauges attitudes among companies listed on its stock exchanges, fell this May to its lowest level since before Modi was elected.

Nothing we’ve seen from the Indian government since Modi came to power gives any reason for accepting that its T&C export growth rate will treble over the next 10 years. Unless his team really does have something extraordinary to share with us, it’s very tempting to agree with the Modi critic whose summary of the first year was: “When all’s said and done, more’s been said than done.”

 

Mike Flanagan, CEO Clothesource. Clothesource offers consultancy on the world garment industry using the wide resources of The Clothesource Knowledge Base – the most comprehensive collection of information anywhere about sourcing for the apparel industry. He can be contacted at Flanagan@clothesource.net.

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