Indian Economy Overview
1. The economy of India is the fourth largest in the world, with a GDP of $3.63 trillion at
PPP, and is the tenth largest in the world with a $691.9 billion at 2004 USD exchange
rates and has a real GDP growth rate of 6.2% at PPP.
2. Growth in the Indian economy has steadily increased since 1979, averaging 5.7%
per year in the 23­year growth record.
3. Indian economy has posted an excellent average GDP growth of 6.8% since 1994
India, the fastest growing free­market democracy in the world, registered a growth rate
of 8.2 percent in FY 2004.
4. India has emerged the global leader in software and business process outsourcing
services, raking in revenues of US$12.5 billion in the year that ended March 2004.
5. Agriculture has fall to a drop because of a bad monsoon in 2005. There is a
paramount need to bring more area under irrigation.
6. Export revenues from the sector are expected to grow from $8 billion in 2003 to $48
billion in 2009.
7. India’s foreign exchange reserves are over US$ 102 billion and exceed the forex
reserves of USA, France, Russia and Germany. This has strengthened the Rupee and
boosted investor confidence greatly.
8. A strong BOP position in recent years has resulted in a steady accumulation of
foreign exchange reserves. The level of foreign exchange reserves crossed the US
$100 billion mark on Dec 19, 2003 and was $142.13 billion on March 18, 2005.
9. Reserve money growth had doubled to 18.3% in 2003­04 from 9.2 in 2002­03,
driven entirely by the increase in the net foreign exchange assets of the RBI.
10. Reserve money growth declined to 6.4% in the year 2005.
11. During the financial year 2004­05, broad money stock increased by 7.4 per cent
12. Economics experts and various studies conducted across the globe envisage India
and China to rule the world in the 21st century.
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Exports
The competitive advantage that India enjoys across a range of sectors has led to rapid
increase in India's exports. Back on the robust 23.88 per cent growth in exports during
2006­07, cumulative value of exports during 2007­08 grew by 23.02 per cent to total
US$ 155.51 billion as against US$ 126.41 billion in the corresponding period last year.
Spice exports grew by 20 per cent in export volumes in April­May, totalling up to
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98,570 tonnes as against 82,210 tonnes a year back.
Jewellery exports rose 22.27 per cent during 2007­08 compared to the
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corresponding period last fiscal, to reach US$ 20.88 billion.
Automobile Exports grew by 22.30 per cent during 2007­08 over 2006­07, with
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Two Wheelers growing by 32.31 per cent and Commercial Vehicles by 19.10
per cent.
Software and services exports grew by 26.33 per cent to register revenues of
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US$ 27.49 billion during April­December 2007 as against US$ 21.76 billion
during same period last year. It is estimated that annual exports are likely to
grow to US$ 43.89 billion during 2007­08.
Foreign tourist earnings have increased by 30.1 per cent during 2007 to touch
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US$ 11.62 billion compared to US$ 8.93 billion in 2006. During January­April
2008, foreign tourists earnings further rose by 28.9 per cent to US$ 4.84 billion.
The new fiscal (2008–09) has continued the robust performance of the economy on
the trade front. Exports have risen by a healthy 31.5 per cent to US$ 14.4 billion during
April 2008, as against US$ 10.95 billion during the corresponding period last year.
With such continued buoyancy on the trade front, the Government has set a target of
US$ 200 billion in export earnings for the current fiscal year.
WHAT IS ECONOMIC SELF-RELIANCE?
Economic self­reliance (ESR) represents a different way of thinking about the
processes and outcomes of economic development. ESR is an individual's ability to
garner and hold economic resources in excess of their basic needs.
The concept of ESR recognizes that there are individuals who are unable (due to
physical or mental disability) to garner any surplus resources, individuals with
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surpluses large and secure enough to meet any conceivable need, and individuals at
every point in between. ESR affects the entire spectrum.
ESR is also context specific; what constitutes basic needs for someone in a
developed country will differ drastically from someone in a developing country. But the
core principles of economic development are the same throughout the world.
WHY IS ESR IMPORTANT?
Individuals who are economically self­reliant have greater resilience in the face of
negative economic shocks. Those with greater resilience will suffer lower intensity
(less severe) or shorter duration (quicker recovery). ESR represents a type of
insurance against the disruptions caused by adverse economic events.
More important than its insurance value, ESR provides a solid platform from which
people can develop and reach their full human potential. Once people possess a
sustainable surplus, they can turn their attention to the pursuit that psychologist
Abraham Maslow termed self­actualization: developing and expressing talents, skills,
emotions, and values to the fullest extent.2 It's hard to reach our full potential when we
are worried about our next meal.
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Export-Import Bank of India
Export­Import Bank of India is the premier export finance
institution of the country, set up in 1982 under the Export­
Import Bank of India Act 1981. Government of India launched
the institution with a mandate, not just to enhance exports from
India, but to integrate the country’s foreign trade and
investment with the overall economic growth. Since its
inception, Exim Bank of India has been both a catalyst and a key player in the
promotion of cross border trade and investment. Commencing operations as a
purveyor of export credit, like other Export Credit Agencies in the world, Exim Bank of
India has, over the period, evolved into an institution that plays a major role in
partnering Indian industries, particularly the Small and Medium Enterprises, in their
globalisation efforts, through a wide range of products and services offered at all
stages of the business cycle, starting from import of technology and export product
development to export production, export marketing, pre­shipment and post­shipment
and overseas investment.
THE INITIATIVES
Exim Bank of India has been the prime mover in encouraging project exports
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from India. The Bank provides Indian project exporters with a comprehensive
range of services to enhance the prospect of their securing export contracts,
particularly those funded by Multilateral Funding Agencies like the World Bank,
Asian Development Bank, African Development Bank and European Bank for
Reconstruction and Development.
The Bank extends lines of credit to overseas financial institutions, foreign
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governments and their agencies, enabling them to finance imports of goods and
services from India on deferred credit terms. Exim Bank’s lines of Credit obviate
credit risks for Indian exporters and are of particular relevance to SME
exporters.
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The Bank’s Overseas Investment Finance programme offers a variety of
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facilities for Indian investments and acquisitions overseas. The facilities include
loan to Indian companies for equity participation in overseas ventures, direct
equity participation by Exim Bank in the overseas venture and non­funded
facilities such as letters of credit and guarantees to facilitate local borrowings by
the overseas venture.
The Bank provides financial assistance by way of term loans in Indian
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rupees/foreign currencies for setting up new production facility
expansion/modernization/upgradation of existing facilities and for acquisition of
production equipment/technology. Such facilities particularly help export
oriented Small and Medium Enterprises for creation of export capabilities and
enhancement of international competitiveness.
Under its Export Marketing Finance programme, Exim Bank supports Small and
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Medium Enterprises in their export marketing efforts including financing the soft
expenditure relating to implementation of strategic and systematic export
market development plans.
The Bank has launched the Rural Initiatives Programme with the objective of
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linking Indian rural industry to the global market. The programme is intended to
benefit rural poor through creation of export capability in rural enterprises.
In order to assist the Small and Medium Enterprises, the Bank has put in place
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the Export Marketing Services (EMS) Programme. Through EMS, the Bank
seeks to establish, on best efforts basis, SME sector products in overseas
markets, starting from identification of prospective business partners to
facilitating placement of final orders. The service is provided on success fee
basis.
Exim Bank supplements its financing programmes with a wide range of value­
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added information, advisory and support services, which enable exporters to
evaluate international risks, exploit export opportunities and improve
competitiveness, thereby helping them in their globalisation efforts.
5

Indian
Textile
Industry
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7

Indian Textile Industry
The term ‘Textile' is a Latin word which cones from the word ‘texere' which means ‘to
weave'. Textile originally referred to a woven fabric but latter on the term textile
as well as the plural textiles refers to fibers, filaments and yarns. Textile industry
occupies a significant position in India.
The primary contribution of textile industry :
Export earning for the country, textile industry occupies 16% of the country's
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export earning.
Generating employment, second largest employment generator after
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agricultural sector
Industrial output sums up to 14% of total industrial production and
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approximately contributes to 30 % of total export products.
The primary sectors which comprise of the textile industry
• Manmade fiber mill textile mill industry
• Filament yarn industry
• Deconcentrated power loom sector
• Woolen textile industry
• Silk industry
• Jute industry
• Handicraft industry
Textile industry is constituted of the following segments
• Readymade Garments
• Cotton Textiles including Handlooms (Millmade / Powerloom/ Handloom)
• Man­made Textiles
• Silk Textiles
• Woollen Textiles
• Handicrafts including Carpets
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• Coir
• Jute
Advantages and Limitations of Textile Industry
Indian textile industries enjoy certain favorable factors which contribute in retaining its
leading position in national and international scenario. These factors can be fully
utilized to ensure further growth and development.
Large raw material base including cotton, wool, silk, jute and other manmade
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fibers.
Huge capacity of production
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Easy accessibility to large scale skilled man power
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Entrepreneurship
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Flexible production process
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But there are certain limitations as well which constrict the pace of growth in textile
sector.
The whole industry is split up
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Cotton quality
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Limitation and hazards in procedure of processing
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Labor reform problems
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Infrastructural limitations and bottlenecks
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Major products of textile industries
Awnings, textile
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Blankets and Towels
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Bags or sacks, textile
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Blinds, textile
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Canvas goods, textile
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Fabrics, textile
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Felts ( except floor coverings)
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Glass fiber fabric
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Household linen, Lace
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Narrow fabric
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Netting, textile
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Piece goods
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Ropes (except wire ropes)
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Sail cloth
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Sewing thread / String
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Tarpaulin
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Trimmings, textile
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Yarns
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Main aspects of Textile industry
Textile apparel which includes clothing and garment
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Textile fabric
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Fibers, yarns and threads
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Textile chemical , Textile products , Textile machinery, Textile services
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Textile Industry in India
Textile Industry in India is the second largest employment generator after agriculture. It
holds significant status in India as it provides one of the most fundamental necessities
of the people. Textile industry was one of the earliest industries to come into existence
in India and it accounts for more than 30% of the total exports. In fact Indian textile
industry is the second largest in the world, second only to China.
Textile Industry is unique in the terms that it is an independent industry, from the basic
requirement of raw materials to the final products, with huge value­addition at every
stage of processing. Textile industry in India has vast potential for creation of
employment opportunities in the agricultural, industrial, organised and decentralised
sectors & rural and urban areas, particularly for women and the disadvantaged.
Till the year 1985, development of textile sector in India took place in terms of general
policies. In 1985, for the first time the importance of textile sector was recognized and
a separate policy statement was announced with regard to development of textile
sector. In the year 2000, National Textile Policy was announced. Its main objective
was: to provide cloth of acceptable quality at reasonable prices for the vast majority of
the population of the country, to increasingly contribute to the provision of sustainable
employment and the economic growth of the nation; and to compete with confidence
for an increasing share of the global market. The policy also aimed at achieving the
target of textile and apparel exports of US $ 50 billion by 2010 of which the share of
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garments will be US $ 25 billion.
Strengths of Indian textile Industry
India has rich resources of raw materials of textile industry. It is one of the
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largest producers of cotton in the world and is also rich in resources of fibres
like polyester, silk, viscose etc.
India is rich in highly trained manpower. The country has a huge advantage due
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to lower wage rates. Because of low labor rates the manufacturing cost in
textile automatically comes down to very reasonable rates.
India is highly competitive in spinning sector and has presence in almost all
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processes of the value chain.
Indian garment industry is very diverse in size, manufacturing facility, type of
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apparel produced, quantity and quality of output, cost, requirement for fabric
etc. It comprises suppliers of ready­made garments for both, domestic or export
markets.
Weaknesses of Indian textile Industry
Indian textile industry is highly fragmented in industry structure, and is led by
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small scale companies. The reservation of production for very small companies
that was imposed with the intention to help out small scale companies across
the country, led substantial fragmentation that distorted the competitiveness of
industry. Smaller companies do not have the fiscal resources to enhance
technology or invest in the high­end engineering of processes. Hence they lose
in productivity.
Indian labour laws are relatively unfavorable to the trades and there is an
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urgent need for labour reforms in India.
India seriously lacks in trade pact memberships, which leads to restricted
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access to the other major markets.
Outlook for Indian textile Industry
The outlook for textile industry in India is very optimistic. It is expected that Indian
textile industry would continue to grow at an impressive rate. Textile industry is being
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modernized by an exclusive scheme, which has set aside $5bn for investment in
improvisation of machinery. India can also grab opportunities in the export market. The
textile industry is anticipated to generate 12mn new jobs in various sectors.
The textile industry is the largest industry of modern India. It accounts for over 20
percent of industrial production and is closely linked with the agricultural and rural
economy. It is the single largest employer in the industrial sector employing about 38
million people. If employment in allied sectors like ginning, agriculture, pressing,
cotton trade, jute, etc. are added then the total employment is estimated at 93 million.
The net foreign exchange earnings in this sector are one of the highest and, together
with carpet and handicrafts, account for over 37 percent of total export earnings at
over US $ 10 billion. Textiles, alone, account for about 25 percent of India’s total forex
earnings.
India’s textile industry since its beginning continues to be predominantly cotton based
with about 65 percent of fabric consumption in the country being accounted for by
cotton. The industry is highly localised in Ahmedabad and Bombay in the western part
of the country though other centres exist including Kanpur, Calcutta, Indore,
Coimbatore, and Sholapur.
The structure of the textile industry is extremely complex with the modern,
sophisticated and highly mechanised mill sector on the one hand and the
handspinning and handweaving (handloom) sector on the other. Between the two falls
the small­scale powerloom sector. The latter two are together known as the
decentralised sector. Over the years, the government has granted a whole range of
concessions to the non­mill sector as a result of which the share of the decentralised
sector has increased considerably in the total production. Of the two sub­sectors of
the decentralised sector, the powerloom sector has shown the faster rate of growth. In
the production of fabrics the decentralised sector accounts for roughly 94 percent
while the mill sector has a share of only 6 percent.
Being an agro­based industry the production of raw material varies from year to year
depending on weather and rainfall conditions. Accordingly the price fluctuates too.
India's trade in textiles and its share in world trade can be categorized as follows:
India’s Trade in Textiles Annual Growth Rate
Compound
(CAGR) of different segments
(1998)
Type India's Share in Type CAGR (1993-98)
World Trade
Yarn 31.79%
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Fabric 9.04%
Made-ups 15.18%

Yarn 22%
Fabrics 3.2%
Apparel 2%
Made-ups 9%
Over-all 2.8%
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SECTOR- WISE ANALYSIS
(i) Readymade Garments: Readymade Garments account for approximately 45%
of the country’s total textiles exports. During the year 2004–2005, Readymade
Garment exports were US$ 6 billion, recording an increase of 4.1% as compared to
the corresponding period of 2003­04. During 2005­2006 the Readymade Garment
exports have amounted to US$ 7.75 billion, recording an increase of 28.69 % over the
exports during 2004­2005. During the first quarter of 2006­2007 the Readymade
Garment exports have amounted to US$ 2.17 billion, recording an increase of 15.70%
over the exports during the corresponding period of 2005­2006.
(ii) Cotton Textiles including Handlooms: Cotton Textiles i.e. yarn, fabrics
and made­ups (Mill made / Powerloom/ Handloom) constitute more than 2/3rd of our
exports of all fibres/yarns/made­ups. During 2004–2005, Cotton Textile exports
including Handlooms were US$ 3.54 billion, recording a decline of 1.5% as compared
to the corresponding period of 2003­04. During 2005­2006 the Cotton Textiles exports
have amounted to US$ 4.49 billion, recording a healthy increase of 26.78% over the
exports during the corresponding period of 2004­2005. During the first quarter of 2006­
2007 the Cotton Textiles including Handlooms exports have amounted to US$ 1.25
billion, recording an increase of 25.70% over the exports during the corresponding
period of 2005­2006.
(iii) Man-made Textiles: During 2004 –2005, man­made Textiles exports were
US$ 2.05 billion, recording a growth of 12.6% as compared to the corresponding
period of 2003­04. During 2005­2006 the man­made Textile exports have amounted to
US$ 2.00 billion, recording a decline of 2.47% over the exports during the
corresponding period of 2004­2005. During the first quarter of 2006­2007 the Man­
made Textiles exports have amounted to US$ 0.52 billion, recording an increase of
13.15% over the exports during the corresponding period of 2005­2006.
(iv) Silk Textiles: During 2004–2005, Silk Textiles exports were US$ 0.59 billion,
recording a growth of 9.0% as compared to the corresponding period of 2003­04.
During 2005­2006 the silk exports have amounted to US$ 0.69 billion, recording an
increase of 16.37% over the exports during the corresponding period of 2004­2005.
During the first quarter of 2006­2007 the Silk Textiles exports have amounted to US$
0.165 billion, recording an increase of 4.23% over the exports during the
corresponding period of 2005­2006.
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(v) Woolen Textiles: During 2004–2005, woolen Textiles exports were US$ 0.42
billion, recording a growth of 23.4% as compared to the corresponding period of 2003­
04. During the period of April­March, 2005­2006 the woolen Textile exports have
amounted to US$ 0.47 billion, recording an increase 13.63% over the exports during
the corresponding period of 2004­2005. During the first quarter of 2006­2007 the
Woolen Textiles exports have amounted to US$ 0.114 billion, recording an increase of
11.96% over the exports during the corresponding period of 2005­2006.
(vi) Handicrafts including Carpets: During 2004 –2005, handicrafts including
carpet exports were US$ 1.01 billion, showing a decline of 6.6% as compared to the
corresponding period of 2003­04. During 2005­2006 the handicrafts exports have
amounted to US$ 1.24 billion, recording an increase of 22.24% over the exports
during 2004­2005. During the first quarter of 2006­2007 the Handicrafts including
Carpets exports have amounted to US$ 0.301 billion, recording a marginal decline of
1.31% over the exports during the corresponding period of 2005­2006.
(vii) Coir: During 2004 –2005, coir exports were US$ 0.106 billion, recording a
growth of 35.7% as compared to the corresponding period of 2003­04. During 2005­
2006 the coir exports have amounted to US$ 0.134 billion recording an increase of
27.19% over the exports during 2004­2005. During the first quarter of 2006­2007 the
Coir exports have amounted to US$ 0.032 billion, recording an increase of 10.03%
over the exports during the corresponding period of 2005­2006.
(viii) Jute: During 2004 –2005, jute exports were US$ 0.276 billion, recording a
growth of 14% as compared to the corresponding period of 2003­04. During 2005­
2006 the Jute exports have amounted to US$ 0.295 billion, recording an increase of
6.64% over the exports during the corresponding period of 2004­2005.
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Global Scenario
The textile and clothing trade is governed by the Multi­Fibre Agreement (MFA) which
came into force on January 1, 1974 replacing short­term and long­term arrangements
of the 1960’s which protected US textile producers from booming Japanese textiles
exports. Later, it was extended to other developing countries like India, Korea, Hong
Kong, etc. which had acquired a comparative advantage in textiles. Currently, India
has bilateral arrangements under MFA with USA, Canada, Australia, countries of the
European Commission, etc. Under MFA, foreign trade is subject to relatively high
tariffs and export quotas restricting India’s penetration into these markets. India was
interested in the early phasing out of these quotas in the Uruguay Round of
Negotiations but this did not happen due to the reluctance of the developed countries
like the US and EC to open up their textile markets to Third World imports because of
high labour costs. With the removal of quotas, exports of textiles have now to cope
with new challenges in the form of growing non­tariff / non­trade barriers such as
growing regionalisation of trade between blocks of nations, child labour, anti­dumping
duties, etc.
Nevertheless, it must be realised that the picture is not all rosy. It is now being
admitted universally and even officially that the year 2005 AD is likely to present more
of a challenge than opportunity. If the industry does not pay attention to the very vital
needs of modernisation, quality control, technology upgradation, etc. it is likely to be
left behind. Already, its comparative advantage of cheap labour is being nullified by
the use of outmoded machinery.
With the dismantling of the MFA, it becomes imperative for the textile industry to take
on competitors like China, Pakistan, etc., which enjoy lower labour costs. In fact the
seriousness of the situation becomes even more apparent when it is realised that the
non­quota exports have not really risen dramatically over the past few years. The
continued dominance of yarn in exports of cotton, synthetics, and blends, is another
cause for worry while exports of fabrics is not growing. The lack of value added
products in textile exports do not augur well for India in a non­MFA world.
Textile exports alone earn almost 25 percent of foreign exchange for India yet its
share in global trade is dismal, having declined from 10.9 percent in 1955 to 3.23
percent in 1996. More significantly, the share of China in world trade in textiles, in
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1994, was 13.24 percent, up from 4.36 percent in 1980. Hong Kong, too, improved its
share from 7.06 percent to 12.65 percent over the same period. Growth rate, in US$
terms, of exports of textiles, including apparel, was over 17 percent between 1993­94
to 1995­96. It declined to 10.5 percent in 1996­97 and to 5 percent in 1997­98.
Another disconcerting aspect that reflects the declining international competitiveness
of Indian textile industry is the surge in imports in the last two years. Imports grew by
12 percent in dollar terms in 1997­98, against an average of 5.8 percent for all imports
into India. Imports from China went up by 50 percent while those from Hong Kong
jumped by 23 percent.
Global factors influencing textile industry
The history of the textile and clothing industry has been replete with the use of various
bilateral quotas, protectionist policies, discriminatory tariffs, etc. by the developed
world against the developing countries. The result was a highly distorted structure,
which imposed hidden costs on the export sectors of the Third World. Despite the fact
that GATT was established way back in 1947, the textile industry, till 1994, remained
largely out of its liberalisation agreements. In fact, trade in this sector, until the
Uruguay Round, evolved in the opposite direction. Consequently, since 1974 global
trade in the textiles and clothing sector had been governed by the Multi­fibre
agreement, which was the sequel to an increasingly pervasive quota regime that
began with the Short­term arrangement on cotton products in 1962 and followed by
the Long­Term arrangement. After the successful conclusion of the Uruguay Round in
1994, the MFA was replaced by the Agreement on Textiles and Clothing (ATC), which
had the same MFA framework in the context of an agreed, ten year phasing out of all
quotas by the year 2005.
Current Scenario
Textile exports are targeted to reach $50 billion by 2010, $25 billion of which will go to
the US. Other markets include UAE, UK, Germany, France, Italy, Russia, Canada,
Bangladesh and Japan. The name of these countries with their background can give
thousands of insights to a thinking mind. The slant cut that will be producing a
readymade garment will sell at a price of 600 Indian rupees, making the value addition
to be profitable by 300 %.
Currently, because of the lifting up of the import restrictions of the multi­fibre
arrangement (MFA) since 1st January, 2005 under the World Trade Organization
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(WTO) Agreement on Textiles and Clothing, the market has become competitive; on
closer look however, it sounds an opportunity because better material will be possible
with the traditional inputs so far available with the Indian market.
At present, the textile industry is undergoing a substantial re­orientation towards other
then clothing segments of textile sector, which is commonly called as technical textiles.
It is moving vertically with an average growing rate of nearly two times of textiles for
clothing applications and now account for more than half of the total textile output. The
processes in making technical textiles require costly machinery and skilled workers.
The application that comes under technical textiles are filtration, bed sheets and
abrasive materials, healthcare upholstery and furniture, blood­absorbing materials and
thermal protection, adhesive tape, seatbelts, and other specialized application and
products.
Strengths
India enjoys benefit of having plentiful resources of raw materials. It is one of the
largest producers of cotton yarn around the globe, and also there are good resources
of fibres like polyester, silk, viscose etc.
There is wide range of cotton fibre available, and has a rapidly developing synthetic
fibre industry.
India has great competitiveness in spinning sector and has presence in almost all
processes of the value chain.
Availability of highly trained manpower in both, management and technical. The
country has a huge advantage due to lower wage rates. Because of low labor rates the
manufacturing cost in textile automatically comes down to very reasonable rates.
The installed capacity of spindles in India contributes for 24% share of the world, and it
is one of the biggest exporters of yarns in the global market. Having modern functions
and favorable fiscal policies, it accounts about 25% of the world trade in cotton yarn.
The apparel industry is largest foreign exchange earning sector, contributing 12% of
the country's total exports. The garment industry is very diverse in size, manufacturing
facility, type of apparel produced, quantity and quality of output, cost, requirement for
fabric etc. It comprises suppliers of ready­made garments for both, domestic or export
markets.
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Weakness
Massive Fragmentation:
A major loop­hole in Indian textile industry is its huge fragmentation in industry
structure, which is led by small scale companies. Despite the government policies,
which made this deformation, have been gradually removed now, but their impact will
be seen for some time more. Since most of the companies are small in size, the
examples of industry leadership are very few, which can be inspirational model for the
rest of the industry.
The industry veterans portrays the present productivity of factories at half to as low as
one­third of levels, which might be attained. In many cases, smaller companies do not
have the fiscal resources to enhance technology or invest in the high­end engineering
of processes. The skilled labor is cheap in absolute terms; however, most of this
benefit is lost by small companies.
The uneven supply base also leads barriers in attaining integration between the links
in supply chain. This issue creates uncontrollable, unreliable and inconsistent
performance.
Political and Government Diversity:
The reservation of production for very small companies that was imposed with an
intention to help out small scale companies across the country, led substantial
fragmentation that distorted the competitiveness of industry. However, most of the
sectors now have been de­reserved, and major entrepreneurs and corporate are
putting­in huge amount of money in establishing big facilities or in expansion of their
existing plants.
Secondly, the foreign investment was kept out of textile and apparel production. Now,
the Government has gradually eliminated these restrictions, by bringing down import
duties on capital equipment, offering foreign investors to set up manufacturing facilities
in India. In recent years, India has provided a global manufacturing platform to other
multi­national companies that manufactures other than textile products; it can certainly
provide a base for textiles and apparel companies.
Despite some motivating step taken by the government, other problems still sustains
like various taxes and excise imbalances due to diversification into 35 states and
Union Territories. However, an outline of VAT is being implemented in place of all
other tax diversifications, which will clear these imbalances once it is imposed fully.
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Labour Laws:
In India, labour laws are still found to be relatively unfavorable to the trades, with
companies having not more than ideal model to follow a 'hire and fire' policy. Even the
companies have often broken their business down into small units to avoid any trouble
created by labour unionization.
In past few years, there has been movement gradually towards reforming labour laws,
and it is anticipated that this movement will uphold the environment more favorable.
Distant Geographic Location:
There are some high­level disadvantages for India due to its geographic location. For
the foreign companies, it has a global logistics disadvantage due the shipping cost is
higher and also takes much more time comparing to some other manufacturing
countries like Mexico, Turkey, China etc. The inbound freight traffic has been also low,
which affects cost of shipping ­ though, movement of containers are not at reasonable
costs.
Lack of trade memberships:
India is serious lacking in trade pact memberships, which leads to restricted access to
the other major markets. This issue made others to impose quota and duty, which put
scissors on the sourcing quantities from India.
Opportunities
It is anticipated that India's textile industry is likely to do much better. Since the
consumption of domestic fibre is low, the growth in domestic consumption in tandem is
anticipated with GDP of 6 to 8 % and this would support the growth of the local textile
market at about 6 to 7 % a year.
India can also grab opportunities in the export market. The industry has the potential of
attaining $34bn export earnings by the year 2010. The regulatory polices is helping out
to enhance infrastructures of apparel parks, Specialized textile parks, EPZs and
EOUs.
The Government support has ensured fast consumption of clothing as well as of fibre.
A single rate will now be prevalent throughout the country.
The Indian manufacturers and suppliers are improving design skills, which include
different fabrics according to different markets. Indian fashion industry and fashion
20

designers are marking their name at international platform. Indian silk industry that is
known for its fine and exclusive brocades, is also adding massive strength to the textile
industry.
The industry is being modernized via an exclusive scheme, which has set aside $5bn
for investment in improvisation of machinery. International brands, such as Levis, Wal­
Mart, JC Penny, Gap, Marks & Spencer and other industry giants are sourcing more
and more fabrics and garments from India. Alone Wal­Mart had purchased products
worth $200mn last year and plans to increase buying up to $3bn in the coming year.
The clothing giant from Europe, GAP is also sourcing from India.
Anticipation
As a result of various initiatives taken by the government, there has been new
investment of Rs.50,000 crore in the textile industry in the last five years. Nine textile
majors invested Rs.2,600 crore and plan to invest another Rs.6,400 crore. Further,
India's cotton production increased by 57% over the last five years; and 3 million
additional spindles and 30,000 shuttle­less looms were installed.
Forecast till 2010 for textiles by the government along with the industry and Export
Promotion Councils is to attain double the GDP, and the export is likely attain $85bn.
The industry is anticipated to generate 12mn new jobs in various sectors.
21

Multi –Fibre Agreement (MFA)
On January 1st, 1974, the Arrangement Regarding the International Trade in Textiles,
otherwise known as the MFA came into force. It superseded all existing
arrangements that had been governing trade in cotton textiles since 1961. The
MFA sought to achieve the expansion of trade, the reduction of barriers to trade
and the progressive liberalisation of world trade in textile products, while at the
same time ensuring the orderly and equitable development of this trade and
avoidance of disruptive effects in individual markets and on individual lines of
production in both importing and exporting countries. Though it was supposed
to be a short­term arrangement to enable the adjustment of the industry to a
free trade regime, the MFA was extended in 1974, 1982, 1986, 1991, and 1992.
Because of the quotas allotted, the MFA resulted in a regular shift of production
from quota restricted countries to less restricted ones as soon as the quotas
began to cause problems for the traders in importing countries. The first three
extensions of the MFA, instead of liberalising the trade in textiles and clothing,
further intensified restrictions on imports, specifically affecting the developing
country exporters of the textile and clothing products. Increased usage of
several MFA measures tended to further erode the trust which developing
countries had originally placed in the MFA.
The MFA set the terms and conditions for governing quantitative restrictions on textile
and clothing exports of developing countries either through negotiations or
bilateral agreements or on a unilateral basis. The bilateral agreements
negotiated between importing and exporting country’s contained provisions
relating to the products traded but they differed in the details. The restraints
under the MFA were often negotiated, or unilaterally imposed at relatively short
intervals, practically annually. The quotas could be either by function or fibre
22

Under the MFA, product coverage was extended to include textiles and clothing made
of wool and man­made fibres (MMF), as well as cotton and blends thereof.
With regard to applications of safeguard measures, import restrictions could be
imposed unilaterally in a situation of actual market disruption in the absence of
a mutually agreed situation. However, in situations involving a real risk of
market disruption only bilateral restraint agreements were possible. The Textile
Surveillance Body (TSB) was set up to monitor disputes regarding actions
taken in response to market disruptions.
The MFA permitted certain flexibility in quota restrictions for the exporters so that they
could adjust to changing market conditions, export demands and their own
capabilities. The MFA also provided for higher quotas and liberal growth for
developing countries whose exports were already restrained. The MFA asked
the participants to refrain from restraining the trade of small suppliers under
normal circumstances. In general, developed countries, under MFA, chose not
to impose restrictions on imports from other developed countries
The TSB ensured compliance by all parties to the obligations of bilateral agreements
or unilateral agreements. It called for notification of all restrictive measures. A
Textiles Committee – established as a management body consisting of all
member countries – was the final arbiter under the MFA and worked as a court
of appeal for disputes that could not be resolved under TSB.
The eventual outcome of prolonged negotiations was the Agreement on Textiles and
Clothing.
Agreement on Textiles and Clothing (ATC)
The ATC calls for a progressive phasing out of all the MFA restrictions and other
discriminatory measures in a period of 10 years. In contrast to the MFA, the
ATC is applicable to all members of the WTO.
The Agreement on Textiles and Clothing (ATC) is made to abolish MFA quotas
marked a significant turnaround in the global textile trade. The ATC mandated
progressive phase out of import quotas established under MFA, and the integration of
textiles and clothing into the multilateral trading system before January 2005.
Estimated Gains in USA and EU For China and India
23

(US $ Billions)
Textiles Clothing Total
Markets Present Future (2014) Present (2003) Future (2014) 2014
(2003)
Gains in China India China India China India China India China India
USA 3.6 1.5 13.0 5.0 12.0 2.3 67 13 80 18
(20) (8.4) (32) (13.5) (16.9) (3.2) (42) (8) (40) (9)
EU 2.8 1.9 12 8 12.3 3.0 60 16 72 24
(5.3) (3.2) (12) (8) (12.2) (3.0) (30) (8) (24) (8)
Textiles and Garments Exports from India
The share of textiles and garments exports in India’s total exports in the year 2003­04
stood at about 20 percent, amounting to US $ 12.5 billion. The quota countries, USA,
EU and Canada accounted for nearly 70 percent of India’s garments exports and 44
percent of India’s textile exports. Amongst non­quota countries, UAE is the largest
market for Indian textiles and garments; UAE accounted for 7 percent of India’s total
textile exports and 10 percent of India’s garments exports.
In terms of products, cotton yarn, fabrics and made­ups are the leading export items in
the textile category. In the clothing category, the major item of exports was cotton
readymade garments and accessories. However, in terms of share in total imports by
EU and USA from India, these products hold relatively lesser share than products
made of other fibers, thus showing the restrain in this category.
Critical Factors that Need Attention
Though India is one of the major producers of cotton yarn and fabric, the productivity
of cotton as measured by yield has been found to be lower than many countries. The
level of productivity in China, Turkey and Brazil is over 1 tonne / hector, while in India it
is only about 0.3 tonne / hector. In the manmade fiber sector, India is ranked at fifth
position in terms of capacity. However, the capacity and technology infusion in this
sector need to be further enhanced in view of the changing fiber consumption in the
world. It may be mentioned that the share of cotton in world fiber demand declined
from around 50 percent (14.7 mn tons) in 1982 to around 38 percent (20.12 mn tons)
24

in 2003, while the share of manmade fiber has increased from 44 percent (13.10 mn
tons) to around 60 percent (31.76 mn tons) over the same period.
Apart from low cost labour, other factors that are having impact on final consumer cost
are relative interest cost, power tariff, structural anomalies and productivity level
(affected by technological obsolescence). A study by International Textile
Manufacturers Federation revealed high power costs in India as compared to other
countries like Brazil, China, Italy, Korea, Turkey and USA. Percentage share of power
in total cost of production in spinning, weaving and knitting of ring and O­E yarn for
India ranged from 10 percent to 17 percent, which is also higher than that of countries
like Brazil, Korea and China. Percentage share of capital cost in total production cost
in India was also higher ranging from 20 percent to 29 percent as compared to a range
of 12 to 26 percent in China.
In India, very few exporters have gone in for integrated production facility. It is noted
that countries that would emerge as globally competitive would have significantly
consolidated supply chain. For instance, competitor countries like Korea, China,
Turkey, Pakistan and Mexico have a consolidated supply chain. In contrast, apart from
spinning, the rest of the activities like weaving, processing, made­ups and garmenting
are all found to be fragmented in India. Besides, the level of technology in the Indian
weaving sector is low compared to other countries of the world. The share of shuttle
less looms to total loomage in India is 1.8% as compared to Indonesia (10%),
Bangladesh (10%), Sri Lanka (12%), China (14%) and Mexico (29%).
The supply chain in this industry is not only highly fragmented but is beset with
bottlenecks that could very well slow down the growth of this sector. As a result the
average delivery lead times (from procurement to fabrication and shipment of
garments) still takes about 45­60 days. With international lead delivery times coming
down to 30­35 days, India needs to cut down the production cycle time substantially to
stay in the market. Besides, erratic supply of power and water, availability of adequate
road connectivity, inadequacies in port facilities and other export infrastructure have
been adversely affecting the competitiveness of Indian textiles sector.
25

Measures taken by Government
To promote exports of textiles from the country and to strengthen the textiles sector of
the country, Government has taken a number of measures from time to time as
follows:­
(i) To improve productivity and quality of cotton for manufacture and export of
competitive downstream textile products, Government has launched the Technology
Mission on Cotton (TMC). The Mission has achieved success in increasing the
productivity and reducing the contamination through upgradation of cotton market
yards and modernisation of Ginning & Pressing factories.
(ii) The Technology Upgradation Fund Scheme (TUFS) was launched to facilitate the
modernization and upgradation of the textile industry both in the organized and
unorganized sector. The Scheme has been further fine tuned to increase the rapid
investments in the targeted sub­sectors of the textile industry. The cost of machinery
has been further brought down by reducing the customs duty on imports.
(iii) To provide the textile industry with world­class infrastructure facilities for setting up
their textile units meeting international environmental and social standards, a Public­
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Private Partnership (PPP) based Scheme known as the “Scheme for Integrated Textile
Park (SITP)” has been introduced in August 2005.
(iv) In 2004­05 Budget, the entire textile sector, except for man­made fibre and
filament yarn was provided optional exemption from excise duty. In 2005­06 Budget,
Central Value­aided Tax (CENVAT) on Polyester Filament Yarn has been reduced
from 24% to 16%. These modifications in fiscal levies aim at attracting more
investments for modernization of textile sector.
(v) To facilitate import of state of the art machinery to make our products internationally
competitive in post quota regime, in 2005­06 Budget, the customs duty on textile
machinery has been brought down to 10% except 23 machinery appearing in List 49
which attracts Basic Customs Duty (BCD) of 15%. The concessional duty of 5%
continues to be at 5% on most of the machinery items.
(vi) Government has launched the Debt Restructuring Scheme w.e.f. Sept., 2003 with
the principal objective to permit banks to lend to the textile sector at 8­9% rate of
interest.
(vii) Government has allowed 100% Foreign Direct Investment in the textile sector
under automatic route.
(viii) Government has de­reserved the readymade garments, hosiery and knitwear
from SSI sector so that large scale investments may be encouraged in these sectors.
(ix) National Institute of Fashion Technology (NIFT) has been set up to provide the
leadership role in sensitizing the Industry to the concept of value addition by inducting
trained professionals to manage the industry. This has resulted in an increased
demand for trained professionals in various sectors servicing the industry.
(x) Government has extended a number of relief measures to textiles exporters such
as enhanced DEPB & Duty drawback rates, reduced ECGC premium, subvention on
credit rates, refund of service tax paid by exporters on various services etc.;
(xi) Apparel Training Design Centres (ATDCs) have been set up throughout the
country to cope up the requirement of skilled / semi­skilled manpower for the textile
industry.
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(xii) To take a serious look at Fashion Education in the changing business context of
the opening up of World Economies, Government is taking steps for:­
a) Establishing an institution of National Excellence for imparting Fashion
Business Education with International Benchmarking.
b) Appointing a nodal agency for standardizing and benchmarking Fashion
Business Education in the country.
c) Setting up an Apex Body to train the teachers / trainers imparting Fashion
Business Education in the country.
How to promote Textile exports
For promotion of exports the measures which should be taken up are
Up gradation of textiles sector
•
Simplifying the procedures and bringing down transaction costs;
•
Procedures for obtaining trading licences were also relaxed and simplified
•
and public awareness of licensing rules and regulations increased.
Reinforce export promotion, especially with India, by market studies to
•
explore the potential for textile industry.
28

Conduct training courses/workshops for the private sector on export
•
documentation procedures, business negotiation, changes in the world trade
scenario and adjustments required.
Liaise with the Government of India with regard to the road, transit, customs
•
and related facilities in India.
Promoting innovation in both products and production processes, through
•
increased research and development, the uptake of new technologies, and
leading edge design that meets customer needs and expectations;
Improving market access and development through better servicing and
•
developing the domestic market, identifying and developing export markets,
and ensuring interested domestic firms have appropriate products and
processes;
Policy level decision to achieve export target
•
Woven segment of readymade garment sector and knitwear have been de­
•
reserved
Technology Up­gradation Fund Scheme to be pursued till next five years
•
Liberalization of FDI Policy with up to 100 per cent foreign equity
•
participation
Import of capital goods at 5% concession rate of duty with appropriate
•
export obligation under
Export Promotion Capital Goods (EPCG) Scheme and clearly laid out EXIM
•
policy
Advance Licensing Scheme with standard input­output norms
•
Prescribed Duty Exemption Pass Book (DEPB) Scheme credit rates
•
Duty Drawback Scheme wherein the exporters are allowed refund of the
•
excise and import duty loss on raw materials
Construction of Apparel International Mart by Apparel Export Promotion
•
Council to provide a world class facility to the apparel exporters to exhibit
products and built international reputation
Setting up of quality checking laboratories
•
Apparel Park for Exports Scheme to invite international production units
•
along with in­house production floors.
By putting more retail outlets, with better value added products,
•
By taking the lowest end of the chain into confidence and building their
•
capability to innovate more and more.
By upholding the market knowledge at every level that happens at higher­
•
end that lifts the chain.
29

By building on the expertise for technical textiles that include bed sheets;
•
filtration and abrasive materials; furniture and healthcare upholstery; thermal
protection and blood­absorbing materials; seatbelts; adhesive tape, etc
which need skilled workers who are not easy to find in an Indian market.
By keeping a regular research and development department with regards to
•
the industry
By building up the peripheral market with regular update of new
•
accessories.
By integrating the disorganized sectors into one segment that is functionally
•
independent of each other's unwanted stranglehold
By creating a state owned cargo­shipping mechanism : with rationalizing
•
fiscal duties; upgrading technology through the Technology Up­gradation
Fund Scheme (TUFS);
By setting up of Apparel Parks
•
By clearing off bottlenecks in the form of regulatory practices
•
By replacing the indirect taxes with a single nationwide VAT
•
with liberalization of contract norms for textile and garments units.
By curtailing the drawback claims falsely boosted invoice value of exports
•
By effectively installing a price discovery mechanism to track market trend to
•
take effective measures before hand a slump
30

Conclusion
It is believed the quota regime has frozen the market share, providing export
opportunities even for high cost producers. Thus, in the free trade regime, the pattern
of imports in the quota countries would undergo changes. The issues that would
govern the market share in the post quota regime would eventually be productivity, raw
material base, quality, cost of inputs, including labour, design skills and operation of
economies of scale.
It is believed that quotas, by limiting the supply of goods have kept export prices
artificially high. Thus, it is estimated that there would be price war in the post quota
regime, with competitive price cuts. The price and quantity effects would depend on
the efficiency in production process, supply chain management and the price elasticity
of demand.
Due to the expected fall in prices, developing countries with high production cost have
little choice but to compete head­on with the biggest low cost suppliers. In this
process, it is presumed that there would be better resource reallocation in these
economies.
It is assumed that quota restrictions would continue beyond 2005 in various forms. It is
also widely recognized that removal of quota may not directly provide easy and
unrestricted access to developed country markets. There would be non­tariff barriers
as well. Standards related to health, safety, environment, quality of work life and child
labour would gain further momentum in international trade in textiles and clothing.
Strategies and Recommendations
Cost competitiveness in Indian garments sector has been restrained by limited scale
operations, obsolete technology and reservation under SSI policies. While retaining its
traditional cost advantages of home grown cotton and low cost labor, India needs to
sharpen its competitive edge by lowering the cost of operations through efficient use of
production inputs and scale operations. Besides, there are needs for rationalization of
charges, levies related to usage of export logistics to remain cost competitive.
As fallout to the quota regime, there would be consolidation of production and
restriction on supplying countries, which would necessarily mean improved scale
31

operations. Indian players should also integrate to achieve operating leverage and
demonstrate high bargaining power.
In India, organised players in this sector would require huge investments to remain
competitive in the quota free world. These players need to expand and integrate
vertically to achieve scale operations and introduce new technologies. It is estimated
that the industry would require Rs. 1.5 trillion (US $ 35 billion) new capital investment
in the next five years (by 2014) to lap the potential export opportunities of US $ 70
billion. It is estimated that USA and EU together would offer a market of US $ 42 billion
for Indian textiles and garments in 2014.
Technology would play a lead role in the weaving and processing, which would
improve quality and productivity levels. Innovations would also be happening in this
sector, as many developed countries would innovate new generation machineries that
are likely to have low manual interface and power cost. Indian textile industry should
also turn into high technology mode to reap the benefits of scale operations and
quality. Foreign investments coupled with foreign technology transfer would help the
industry to turn into high­tech mode.
Internationally, trading in textile and garment sector is concentrated in the hands of
large retail firms. Majority of them are looking for few vendors with bulk orders and
hence opting for vertically integrated companies. Thus, there is need for integrating the
operations in India also, from spinning to garment making, to gain their attention. This
would also bring down the turn around time and improve quality. Indian players should
also improve upon their soft skills, viz., design capabilities, textile technology,
management and negotiating skills.
Garment manufacturing business is order driven. It would be difficult for the players to
keep the workforce full time, even in lean season. This calls for changes in contract
labour laws.
Logistics and supply chain would also play a crucial role as timely delivery would be an
important requirement for success in international trade. The logistics and supply chain
management of Indian textile firms are relatively weak and needs improvement and
efficiency. China has already created a world class export infrastructure. Given the
volume of projections for exports by India, it may be necessary to create additional
export infrastructure, especially investment for modernization of ports. In addition,
India needs to invest for creating brand equity, supply chain management and apparel
industry education.
32

To sum up, the ability of Indian textile industry to take advantage of quota phase­out
would depend upon their ability to enhance overall competitiveness through
exploitation of economies of scale in manufacturing and supply chain. The need of the
hour therefore is to evolve a well chalked out strategy, aimed at improvement in the
levels of productivity and efficiency, quality control, faster product innovation, quick
response to changes in consumer preferences and the ability to move up in the value
chain by building brand names and acquiring channels of distribution so as to
outweigh the advantages of competitors in the long run.
Acknowledgement
I, Bhansali Jayantilal, would like to take this opportunity to thank Prof. Shital Mody for
giving me such an interesting topic for the assignment which has enlightened my
knowledge on Export­Import (EXIM) procedure and documentation.
You have always being a source of inspiration and have always guided me throughout
the assignment. I hope that this will be helpful to me in my near future.
Thank you madam for all your support provided to me.
References
The information is taken from the following sources:
www.iloveindia.com
•
http://www.bis.doc.gov/licensing/facts3.htm.com
•
www.indiatimes.co.in
•
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http://www.eximbankindia.com/sme.asp.com
•
www.infobsnc.com
•
http://dgft.gov.in
•
http://www.intracen.org
•
Ministry of Finance, Government of India: Budget 2007­08.
•
34