This document discusses India's integration into the global textile and apparel industry in a post-MFA world. It notes that unlike other major exporters, India's integration has occurred without significant foreign direct investment, entry into trade agreements, or deep insertion into global supply chains. Instead, competitive domestic firms restructured themselves in the 1980s and built new ties, leading to export growth. It also argues that India is developing capabilities in design-focused, niche exports that could position it for higher value-added upgrading, unlike other low-cost labor exporters.

1. 1 Introduction
The final phaseout of the Multi-fiber Arrangement (MFA) on 1 January 2005 has
significantly altered the rules of trade in the textile and clothing industry.(1) As global
competition intensifies under the new quota-free trading rules, countries around
the world are bracing for major changes in the structure of sourcing and apparel
supply worldwide. The widely held expectation is that, as supply networks become
more consolidated post-MFA, large countries with stable supply networks and well-
developed capacities for scaling upösuch as China and, secondarily, India, Mexico,
and some East Asian and Eastern European countriesöwill benefit from the elimina-
tion of quotas, while smaller countries that had benefited from assured, though limited,
access to export markets under quotas, will lose out (Knappe, 2003; NordÔs, 2004;
UNCTAD, 2005; USITC, 2004). Already, countries such as Mauritius and Madagascar
have seen an erosion of foreign direct investment (FDI) in the apparel sector (Gibbon,
2000, Palpacuer et al, 2005), and analysts are widely projecting that China will emerge
as the `supplier of choice' for the world's largest retailers and buyers, accounting for over
half the global supply of apparel, followed by India with an estimated 15% share
(NordÔs, 2004; USITC, 2004). With China and India's combined export share projected
to be a staggering 65% post-MFA, compared with their combined share of 20% in 2003
(NordÔs, 2004, page 30), it is little wonder that countries are worried about their place
in the international division of labor in textiles and clothing as quotas are phased out.
These concerns are exacerbated by the importance of textiles and apparel to
the employment base and economic structure of most countries. Though generally
Adjustment in India's textile and apparel industry: reworking
historical legacies in a post-MFA world
Meenu Tewari
Department of City and Regional Planning, University of North Carolina, Chapel Hill,
NC 27599, USA; e-mail: mtewari@unc.edu
Received 23 July 2005; in revised form 8 February 2006
Environment and Planning A 2006, volume 38, pages 2325 ^ 2344
Abstract. India, a late integrator in the global market for clothing, has followed a path to integration
that is quite different from the experience of some of its major competitors. Unlike China, Mexico,
Eastern Europe, and other South Asian countries, India's recent surge in clothing exports has
occurred despite the lack of major foreign direct investment in textile and apparel production, the
lack of entry into preferential regional trade agreements with buyer countries, or the lack of any
significant direct role of global buyers. Arguing that changes in domestic policy and in the structure of
domestic demand throughout the 1980s and 1990s played an important role in triggering new growth
in India's textiles and apparel exports, and in reshaping the capabilities of local firms, I examine three
features of India's recent integration into global clothing markets: the striking emergence of design as a
source of comparative advantage in Indian apparel, the growing importance of outward-bound invest-
ment by Indian clothing firms in recent years, and the powerful new role that retail is playing in
organizing the Indian domestic market, driven in part by surging consumer demand from entirely new
mid-market youth segments associated with the country's information technology ^ business process
outsourcing boom.
DOI:10.1068/a38279
(1) See Abernathy et al (2004) for a review of recent shifts in the apparel trade regime from the
perspective of the United States; Begg et al (2003) and Smith et al (2004) for a discussion from
the perspective of the European Union (EU), and Gereffi and Memedovic (2003) for a developing
country perspective.

2. portrayed as a sunset industry, the textile and apparel sector continues to be a major
employer in both developed and developing countries, often serving as the first point
of entry for many unskilled workers (see Berger et al, 1997). For many countriesösuch
as Bangladesh, Lesotho, and El Salvador, where clothing exports constitute up to 86%,
94%, and 60% of total merchandise exports, respectively (USITC, 2004, page 1 ^ 4)öthe
textile and apparel sector is the mainstay of the economy and a key contributor to
industrial output, foreign exchange, and national development. As competition escalates
in this sector at home and abroad, a central policy concern among suppliers worldwide is
how firms and governments can shore up the competitiveness of textile and apparel firms
in this altered institutional environment, and maintain if not enhance their place in the
global market.
In this paper I use the case of India, which has been repeatedly cited as a major
potential beneficiary of the postquota regime, to examine the emerging pathways of
adjustment in the global textile and clothing industry. Famously inward looking until
the 1980s, the Indian textile and clothing industry has become increasingly integrated
into global markets since the late 1980s, emerging as one of the top-ten exporters of
textiles and clothing in the world after 1998. India's apparel exports grew at an average
compound rate of 22% per year throughout the 1980s (Chatterjee and Mohan, 1993),
and by about 13% in the 1990s (UN Statistical Division, 2005). By 2003, India exported
more than $13.5 billion worth of textile and apparel, up fifteenfold from the $0.9 billion
it exported in 1985 when apparel exports were just taking off (UN Statistical Division,
2005). This export growth, though slow in comparison with countries such as China
and Mexico, is impressive because it occurred despite the persistence of many factors
that are popularly cited as shackling Indian productivity in textiles and apparel:
technological obsolescence, fragmented capacities, low scales of operation, lack of an
exit policy, and rigid labor laws. Drawing on findings from three rounds of fieldwork in
India's textile and apparel industry carried out between 2000 and 2005, I examine the
microfoundations of India's rapid recent incorporation into international markets,
focusing on how Indian firms have become inserted within global textile and apparel
networks in recent years, and how these processes of insertion are changing as the
rules of trade change.
The main findings in the paper are twofold, and are outlined in sections 2 and 3. In
section 2, I show that India's path to global integration in textiles and apparel differs
from the path of its close competitors, in that it has occurred without significant FDI,
entry into regional free-trade agreements, or deep insertion into dominant global
clothing supply chains. Rather, at the vanguard of India's growing global presence
are a tier of competitive domestic firms that were able to restructure themselves during
the deregulation of the textile and apparel industry in the mid-1980s (which first
triggered export growth in Indian apparel, as distinct from the trade liberalization of
the early 1990s), and build new ties with buyers and suppliers at home and abroad
in the late 1980s and early 1990s. India's external-sector reforms of 1991 deepened this
process of integration that originated in the mid-1980s.
In section 3 I argue that the same legacies that resulted in India's slow integration
into global textile and apparel markets have also inadvertently produced capabilities
that are leading Indian apparel and textile exports toward a path of integration that
could, if nurtured well, move the apparel industry to a higher value-added, design-
intensive path of upgrading and adjustment. This emerging pattern of in upgrading of
Indian apparel resembles more the early experience of Italy and Hong Kong's value-
added, small-batch, niche-market exports than it does the experience of other major
apparel exporters, such as China, with factor endowments similar to India'söabundant
labor, and low wages.
2326 M Tewari

3. The rest of the paper proceeds as follows. After a brief framing of the institutional
context and market conditions within which the phaseout of textile quotas has taken
place, in section 4 I examine the structure of India's apparel and garment industry and
its emerging place in the global market. In section 5 I focus on firm strategies in the
years leading up to the dissolution of quotas to discuss three unexpected themes that
are shaping the post-MFA response of the Indian textile and clothing industry: the
striking emergence of design as a source of comparative advantage in Indian apparel,
the growing importance of outward-bound investment by Indian clothing firms
in recent years, and the powerful new role that retail is playing in organizing the
Indian domestic market, fuelled in part by surging demand from new market segments
associated with the country's booming IT (information technology) and BPO (business
process outsourcing) sectors.
2 Global sourcing and the growing `stickiness' of market access
As countries search for ways to strengthen their textile and clothing base in the face of
intensified quota-free competition, at least three issues complicate adjustment, each
blunting the ostensibly freer market access implied by quota removal. First, firms do
not simply export into undifferentiated economic space; global trade in the apparel
industry is increasingly mediated by institutional arrangements, including powerful
buyers, retailers, and branded merchandisers who coordinate the design, production,
and distribution of apparel within highly mobile, globally dispersed `buyer-driven'
value chains (Feenstra, 1998; Gereffi, 1999; Gereffi and Kaplinksy, 2001; Humphrey
and Schmitz, 2000). Trade is `sticky' in this framework because market access is often
contingent upon suppliers' entry into increasingly concentrated, `buyer-driven' clothing
chains and production networks. With the removal of quotas, most observers expect
entry barriers into these chains to tighten even further as buyers consolidate their
supply networks, creating winners and losers (Gereffi, 2004; Palpacuer et al, 2005;
USITC, 2004, pages 2 ^ 7).
This implies that, after the dissolution of quotas, access to major markets may in
fact become more constrained as global buyers turn toward more capable `full-package'
suppliersöwho have capabilities that go beyond assembly operations to accommodate
flexibility and variability in design, proximate sourcing of high-quality fabric, and
the ability to handle small-batch as well as large-volume production cost-effectively
(Gereffi, 2004; Palpacuer et al, 2005). Market access, in this view then, depends not only
on low costs, or freer trade, but on the ability of local suppliers to meet increasingly
stringent buyer demands for quality, customization, and full-package supply, in addition
to low costs.
Second, the emergence of new considerations in sourcing such as the importance of
`short-cycle replenishment' or short turnaround times in the procurement of time-
sensitive, quick-selling items (such as jeans and T-shirts) has added further stickiness
to the flow of apparel and textile trade, reinforcing the importance of location in
supplier choice (Abernathy et al, 1999; 2004; NordÔs, 2004). Acting in a direction
opposite to the dynamic of extensive outsourcing within globally dispersed production
chains, the rise of `lean retailing' or the adoption of sophisticated IT to manage the
sourcing of replenishment-intensive items is privileging under certain conditions,
speedy delivery and proximity over considerations of price. For example, Abernathy
et al (1999) point out, Mexico or the Caribbean Basin, despite their higher production
costs, may be preferred by US buyers over lower cost China for the supply of certain
items. These new trends are making sourcing patterns sticky by creating new spatial
divisions where proximity is valued over price (see also NordÔs, 2004).
Adjustment in India's textile and apparel industry 2327

4. Third, these spatial divisions are further reinforced by the rise of regionalism within
world trade, and by the proliferation of regional free-trade agreements.(2) By privileging
some countries over others in terms of tariff-free market entry, regional trade agree-
ments are segmenting market access on the basis of differentially applicable tariff levels.
In a world without quotas, where tariffs (or their absence) and non-tariff barriers
assume much greater power in shaping market access, regional trade agreements can
produce highly differentiated and uneven geographies of apparel sourcing and supply.
At a time when the dissolution of quotas is restructuring the rules of trade in
textiles and clothing, and the emergence of preferential regional trade agreements as
well as new forms of sourcing are complicating market access, it is important to
understand the diversity of ways in which suppliers are becoming incorporated into
global markets and the varied pathways of upgrading that are emerging. In the follow-
ing sections, I examine India's recent integration into the global apparel market as a
lens to explore one such pathway of global insertion and upgrading.
3 A nontraditional trajectory of global integration
Like in many countries, the textile and apparel industry has played a `leading-sector'
role in the Indian economy. It employs a large number of peopleöan estimated 38
million people nationwide, compared with an estimated 1.2 million in the IT sector,
and about 650 000 in the booming BPO industry (Ministry of Textiles, 2004; Nasscom,
2005)ötextiles and apparel contribute 7% to gross domestic product, 14% to industrial
output, and about 18% to industrial employment (Hashim, 2005; Ministry of Textiles,
2005). Moreover, with low import intensitiesöof only 1.2% (Ministry of Textiles, 2005;
Verma, 2002)öthe textile and clothing industry is one of India's largest net earners of
foreign exchange, accounting for 21% of India's export earnings annually (Ministry
of Textiles, 2005; WTO Statistics, 2005). India's main markets are the USA and the EU
(EU-15). In 2003 the two regions together absorbed nearly 83% of India's apparel exports
(see tables 1 and 2).(3) While India's clothing exports are relatively concentrated in the USA
and EU, its textile exports are more diversified. Nearly half (48%) of India's textile exports
were directed to countries outside the USA and EU in 2003, compared with only 17% in
the case of apparel. Overall, India's share in the $408 billion world clothing and textile
market, though smallöa modest 3.3% compared with China's spectacular 20%öhas
grown steadily in the last two decades, from 1.5% in 1980 to 2.3% in 1993, and 3.3% in
2003 (UN Statistical Division, 2005).
Three features stand out when one compares India's trajectory of global integration
with that of other successful exporters.
An extensive textile base. Unlike many import-substituting countries whose textile
and clothing sectors originated with export-oriented apparel assembly in the 1970s and
1980s, India's apparel exports are embedded within a well-established, largely cotton-
based textile industry that predates the rise of apparel exports by decades. The presence
of a domestic textile industry is a legacy of the country's vast cotton production
capabilities (9 million ha under cotton(4)) and the government's efforts to harness
this raw material base to generate employment and ensure adequate availability of
(2) These include agreements such as the North American Free Trade Agreement (NAFTA), the
Caribbean Basin Initiative (CBI), the African Growth Opportunities Act (AGOA), the Central
American Free Trade Agreement, EU enlargements, and customs unions between the EU and its
regional suppliers in North Africa, the Mediterranean basin, East and Central Europe, and Turkey.
(3) For a brief period in the 1960s and 1970söduring the apogee of the cold war and amid tensions
between the US and India leading up to the Bangladesh war in 1971öthe former Soviet Union
became India's major market (UN Trade Statistics; compare Chatterjee and Mohan, 1993, M-99).
(4) Despite the large area under cotton, Indian cotton yields are notoriously low.
2328 M Tewari

5. cloth for domestic consumers. India's overall fabric-production capacity and raw
material availability is large, second only to that of China. With a 13% share in the
global production of textile fibres, India is the third-largest global producer of cotton
yarn, the second-largest producer of silk, and the fifth-largest producer of synthetic
fiber or yarn (Ministry of Textiles, 2004). India's apparel industry draws heavily on its
local fibre and fabric baseöa distinct competitive advantage as we see below
Slow global integration. Yet, despite raw-material availability and extensive production
capacities, India's share in the global textile and apparel market has risen slowly
relative to many of its comparatorsöfrom 1.4% in 1975 to just 3.3% in 2003, or less
than 2 percentage points in nearly three decades, compared with China's 9 percentage-
point jump in just one decade (1993 to 2003) (UN Statistical Division, 2005). This slow
global integration reflects in part the late start of India's apparel exportsöwhich
picked up pace only in the mid-1980s, well after the first and second waves of global
outsourcing in the 1970s and 1980s had established strong apparel export platforms
across East Asia, Latin America, China, and Southern Africa. In part, this export
growth reflects the effect of restrictive quotas. India's apparel exports were always
directed toward countries with the most stringent quotasöthe USA and EU. This is
in contrast to countries such as China whose diversified export markets meant that
Table 1. Direction of India's clothing and textile exports 1985, 2003 (source: WTO Statistics,
2005).
Clothing exports Textile exports, 2003
value (US $ million) share (%) value share
1985 2003 1985 2003
(US $ million) (%)
EU-15 332 3012 36 47 1888 29
USA 263 2309 29 36 1528 23
Japan 25 95 3 1 176 3
Former USSR 172 0 19 0 0 0
Rest of the world 121 1146 13 16 3529 45
Total 914 6562 100 100 6851 100
Table 2. Indian apparel exports to major partners, in US $ billion (source: UN Statistical
Division, 2005).
1995 1996 1997 1998 1999 2000 2001 2002 2003
Product code 84 SITC.R3
USA 1.23 1.37 1.37 1.49 1.54 1.99 1.58 1.78 1.66
United Arab Emirates 0.12 0.14 0.18 0.41 0.49 0.55 0.37 0.40 0.61
Germany 0.57 0.57 0.51 0.51 0.41 0.46 0.44 0.54 0.57
United Kingdom 0.40 0.40 0.36 0.33 0.40 0.47 0.46 0.54 0.56
France 0.30 0.30 0.32 0.34 0.37 0.39 0.37 0.41 0.46
World 4.11 4.22 4.34 4.78 5.15 6.18 5.48 6.04 6.62
Product code 65 SITC.R3
USA 0.60 0.76 0.76 0.77 0.89 1.05 0.91 1.17 1.28
United Arab Emirates 0.27 0.24 0.27 0.25 0.28 0.32 0.33 0.40 0.50
United Kingdom 0.40 0.42 0.41 0.34 0.33 0.35 0.32 0.31 0.37
Germany 0.38 0.38 0.34 0.30 0.33 0.33 0.26 0.26 0.32
Italy 0.21 0.18 0.24 0.23 0.21 0.27 0.25 0.25 0.30
World 4.36 4.94 5.24 4.56 5.09 6.00 5.38 6.03 6.85
Adjustment in India's textile and apparel industry 2329

6. they were less dependent on quota countries and hence freer to raise volumes
(Kathuria et al, 2001; Verma, 2002).(5) But although quotas played a role in slowing
India's apparel export volumes, India's slow global integration in textiles and apparel
reflects mostly a strong domestic turn in Indian industrial policy in the late 1960s.
Strong domestic focus. The trajectory of India's textile exports illustrates this autarkic
turn well. In 1965 India was among the world's six top textile exporters, with a 7.3%
share in the global market just ahead of the USA (with 6.6%), and well ahead of Hong
Kong at eleventh place with a 2% market share. By the early 1980s this picture had
essentially reversed. India had slipped to fourteenth place in textile exports (just behind
Turkey), while Hong Kong had surged to third place, then to first before being overtaken
by China in 1995 as the top global exporter of textiles and apparel. While the export
shares of India's competitors rose briskly during the 1970s and 1980s, India's export share
in textiles fell from over 7% in 1965 to less than 2% in the early 1980s (UN Statistical
Division, 2005). The country virtually withdrew from exports for the next two decades.
Though a wider discussion of the political economy of India's industrial policy
shifts is outside the scope of this paper, this withdrawal from exports and the strong
focus on the domestic market starting in the late 1960s followed major internal policy
struggles within the Indian government over the course of industrial policy after a brief
liberalization that followed, the passing of Nehru, the country's first postindependence
prime minister (see Chibber, 2003). The withdrawal from exports and strong focus on
the domestic market followed as well, a confusing phase in external relations in the
mid-1960s when a severe foreign-exchange crisis triggered by two devastating droughts
put India at odds with the USA and World Bank over loan conditionalities. A forced
devaluation of the rupee (by 58%) in 1966 created a strong domestic backlash in
1967 ^ 68, ushering in one of the most inward-looking phases of Indian industrial
policy (Panagariya, 2004). The textile and apparel sector, listed under the Essential
Commodities Act, faced strong restrictions on both exports and imports as domestic
demand came to be prioritized by the government.
Throughout the late 1960s, 1970s, and early 1980s the Indian state used a variety of
regulatory mechanisms to orient the textile and apparel industry toward the domestic
market and shape its structure in key ways. By using a strict licensing regime that
required firms to seek government permission before establishing new operations or
expanding capacity, the government controlled the size, location, scale, and growth of
the textile and apparel industry. It used labor laws, which many have criticized as too
restrictive (eg Besley and Burgess, 2004), to protect employment among small pro-
ducers. A mandatory `hank yarn obligation', for example, required all spinning mills
to produce up to 50% of their output in a special form suitable for handlooms and
small power-looms. Driven by twin prioritiesöof ensuring adequate and low-cost
availability of locally produced cloth for domestic consumers (self-reliance),(6) and
maintaining employment in the small-scale sectoröthe government restricted both
exports and imports of textiles and clothing through a complex system of taxation,
licenses, and subsidies. These arrangements kept the textile and apparel industry
oriented primarily towards domestic consumption. Even as late as 1990, exports
constituted only 3% of the combined sales of India's ten largest textile mills (Prowess
database, 2005, Center for the Monitoring of the Indian Economy).
(5) In the mid-1980s when India's apparel exports took off, 65% of its exports were to the USA and
EU, compared with 42% in the case of China. In 2003 China's exports to quota countries was 47%;
India's exports to quota countries had risen to 83%.
(6) In India clothing has long been custom tailored in local markets. Many widely used items such
as saris require minimal stitching. The availability of fabric per capita has thus been the metric of
accessibility.
2330 M Tewari

7. 4 A policy turnaround in the mid-1980s
Things began to change after 1985. As a consequence of a larger series of shifts in
India's industrial policy in the early to mid-1980s(7)öinduced in part by the global
energy crises of the 1970s and early 1980s which triggered a search for fresh sources of
foreign revenue and lower production costsöthe government revised its textile policies
to shore up the international competitiveness of the sector and to increase its foreign-
exchange earnings. First, the government carved out a new and separate Ministry of
Textiles from the more generic Ministry of Commerce, which had hitherto overseen
and implemented India's textile policies. Second, to provide the new ministry with a
fresh mandate, the government charged a special advisory committee to formulate
a revised textile policy in light of the concerns about the competitiveness and exports
of the sector. The Verma Committee's report and recommendations were adopted as
the country's `New Textile Policy' in 1985öa first step in the gradual deregulation of the
Indian textile industry.
Under the New Textile Policy, the government relaxed several licensing require-
ments, allowing firms to expand and diversify their fabric and fiber base; it raised
the maximum limits on allowable investment in all firms, especially small and medium-
sized firms; it encouraged firms to modernize their technological base through the
disbursement of cheaper lines of credit and specifically vested funds that allowed firms
(especially exporters) to import capital goods and technology at near world prices; it
reduced some import controls, lowered tariffs, and actively promoted exports through
a variety of duty ^ drawback programs; finally, it deployed `boundary-spanning' institu-
tions such as the Apparel Export Promotion Council and the Textile Export Promotion
Council, which were jointly managed by an elected industry leader and a government
official to administer a variety of export-assistance programs (Ministry of Textiles,
1999).(8) In subsequent years, one of the major roles that these institutions played
was to help the highly decentralized textile and apparel industry adjust to global
standardsöincluding the ban on Azo dyes in the mid-1990s (Tewari and Pillai, 2005).
These `pro-incumbent reforms' (Gangopadhyay and Krishnen, 2005) fuelled growth
in investment and exports, spurred technical change in the industry, and generated a
tier of strong domestic firms who later took advantage of the even more generous
export-promotion policies that accompanied India's external sector reforms in 1991.
Apparel exports more than doubled in just five years after the adoption of the new
policyörising from $914 million in 1985 to $2.5 billion in 1990, an annual compound
growth rate of more than 19.3% per yearöan impressive resurgence by any standards.
By 2003 apparel exports had risen to $6.6 billion from barely $30 million in 1970, thus
increasing over 220 times in thirty-three years (Ministry of Textiles, 2005).
Many in the literature associate this recent growth of apparel and textile exports
with the opening up of India's economy to freer trade in 1991 (McKinsey Global
Institute, 2001). But, as we have seen, the timing of India's apparel export growth
does not fit the standard neoliberal narrative of exports being unleashed by the liberal-
ization of the economy in the early 1990s. The turning point came earlier. As figure 1
shows, and as some scholars have documented for Indian manufacturing as a
whole (Chatterjee and Mohan, 1993; DeLong, 2003; Rodrik and Subramanian, 2004;
(7) For a fuller discussion of the political and bureaucratic underpinnings of this shift see Chibber
(2003).
(8) Specifically, these reforms included the broad-banding of licenses, the removal of restrictions on
business houses if they operated in designated `backward' areas or were 100% export oriented, an
increase in the maximum assets of small firms, duty-free import of technology for export-oriented
firms or when imports significantly improved productivity or lowered costs (see Gangopadhyay
and Krishnen, 2005).
Adjustment in India's textile and apparel industry 2331

8. Virmani, 2004), 1985 ^ 86 represents something of a structural break in the export
trajectory of Indian apparel. After growing relatively slowly in the late 1970s to early
1980s (with a compound annual growth rate of 1.4% per year in the first half of
the 1980s), apparel exports surged at an annual compound growth rate of more than
19% between 1985 and 1990öjust prior to the initiation of external sector reforms in
India in 1991. After liberalization, and following several further revisions in the nation's
textile policy (in 1988, 1990, 2000, 2003), this export growth has continued, albeit at a
slower pace. The noteworthy point is not only that apparel export growth preceded
trade liberalization, but that the lowering of tariff barriers did not automatically map
into sustained export growth. India's internal policy revisions in supporting exports,
encouraging investment, and helping finance technical change were critical.
Indeed, evidence from an earlier period of Indian apparel-export growth under-
scores this point by illustrating how external demand, when unsupported by domestic
policy changes, can prove to be fickle. As table 3 shows, the export surge of the mid-
1980s was preceded by a prior phase of growth in the early 1970s, when, despite tight
domestic controls, apparel exports surged as a result of strong external demand. The
external pull came from growing consumer demand in the USA and Europe for Indian
handloom garments and cotton clothing in the early 1970s (Chatterjee and Mohan,
1993). Between 1970 and 1976 India's apparel exports grew sevenfoldörising from less
US
$
billion
8
7
6
5
4
3
2
1
0
Textile exports
Apparel exports
1965 1970 1975 1980 1985 1990 1995 2000 2003
Figure 1. Growth of India's textile and apparel exports showing 1980s structural break.
Table 3. Indian apparel exports: disaggregation of growth trends (US $ millions) [source: calculated
from UN statistics and Chatterjee and Mohan, 1993 (table 4); trade value in current US $ (million)
deflated by consumer price index base 1995 (source: WDI)].
Year Compound annual growth rate
1980 ± 1990 10.1
1991 ± 2000 6.8
1980 ± 1984 1.4
1985 ± 1990 19.3
1991 ± 1995 7.8
1996 ± 2000 5.9
2001 ± 2003 5.2
2332 M Tewari

9. than $30 million to $200 million, and growing from 3.8% of India's merchandise
exports in 1970 to 11% in 1976 (UN Statistical Division, 2005). But, without explicit
domestic policy support, this external-demand-led export surge proved short-lived.
It waned in the late 1970s as consumer demand in the USA and EU for cotton
handlooms shifted, and as costs rose when handloom exports became subject to quota
restraints in the USA and EU after the MFA came into existence in 1974 (Chatterjee
and Mohan, 1993).
A sustained turnaround did not arrive till 1985 when, as we saw, the new Ministry
of Textiles loosened some of the prior controls on the sector to allow it to grow
and diversify domestically, while at the same time actively intervening to encourage and
support export growth. The process of deregulation that this revised policy worked in
three specific ways: (a) it induced cycles of investment and technical upgrading in the
sector, (b) it helped to diversify the fiber base of the sector, especially after 1988; and
(c) it specifically promoted exports. Thus, after a late start, India's apparel exports
finally began to grow in the late 1980s. By 2003 India's apparel exports had risen
more than sevenfold from their level in 1985. This growth is impressive, not the least
because it differs in three striking ways from the experience of other developing
countries that have emerged as major exporters of textiles and apparel in recent years.
Little FDI. First, unlike the importance of FDI in some of the fastest growing apparel
exporters in the developing world (Mexico, China, Eastern Europe, Bangladesh) there
is little FDI in India's recent export growth. In part, this is because the government
had restricted FDI in textiles and apparel till recently. The Indian textile industry
received only $351 million, or 1% of the country's total FDI inflows (of $32 billion),
between 1991 and 2004. By contrast, Bangladesh's apparel industry received over 27% of
the country's total FDI (Bangladesh Board of Investment, 2005, http://www.boi.gov.bd/),
and South Korean joint ventures played a critical role in helping to trigger Bangladesh's
apparel exports in the 1980s (Rhee, 1990). Similarly, foreign-invested firms account for a
third of China's apparel exports (UNCTAD, 2005), and nearly 50% of Sri Lanka's
garment exporters are joint ventures approved by the Board of Investment, accounting
for 90% of Sri Lanka's garment exports (SAARC, no date). Mauritius, Mexico, and the
Caribbean Basin nations similarly have a significant presence of foreign-invested capital
in apparel and textile exports. India's textile and apparel exports, by contrast, are
dominated by domestic firms, and it was only in 2003 ^ 05 that FDI was allowed in
the manufacturing of textiles and apparel.
Weak penetration of global retailers and textile chains. Second, although Indian apparel
exports are channeled through many foreign buyers today, few of the largest global
clothing chains were present in India in any significant way when Indian apparel
exports first took off in the mid-1980s. Large buyers, major department stores, and
global retailers such as Wal Mart, Sears, Nike, Liz Claiborne, and others played a key
role in organizing the East Asian, Bangladeshi, Sri Lankan, and Latin American
apparel export market (Bair and Gereffi, 2003; Rhee, 1990). By contrast, India's export
upsurge in the mid-1980s was mediated by buying agents and driven primarily by small-
volume exports from medium-sized Indian producers to small retailers, wholesalers,
and mid-sized buyers and department storesöinitially in the EU, and subsequently in
the USA. Though today the biggest names in apparel are sourcing directly from India
(The Gap, Banana Republic, Ann Taylor, Nike, Reebok, Ralph Lauren), few of the
largest global buyers played any direct role in building up sourcing networks among
Indian producers at the start of India's export surge in the mid-1980s.
Exclusion from prominent regional trade agreements. A third factor that has driven apparel
exports in many supplier countries is the incorporation of the supplier nation into major
regional or preferential trade agreements with their main buyer countriesösuch as
Adjustment in India's textile and apparel industry 2333

10. NAFTA CBI, EU enlargement, and AGOA. India's recent export growth has occurred
despite its absence from every major regional free-trade agreement. In the last decade,
the fastest growing apparel exportersöMexico, Romania, Bangladesh, Turkeyöhave
all been part of preferential trade agreements. Apart from Chinaöwhich received
massive FDI from Hong Kong, Taiwan, and Japan throughout the 1980s, and which
along with Hong Kong had already emerged as a leading exporter of apparel in the late
1980söeach of the others experienced their largest spikes after joining their respective
regional trade agreements, customs union, or bilateral trade arrangements (such as
Bangladesh's tariff-free access to the EU). Mexico's apparel exports grew at an annual
average rate of 17.5% between 1993 and 2003, Romania's grew by 14%, and Bangladesh's
grew by 11% during the same period. India's export growth of 8% on average per year
during the same period (on par with Turkey's export growth), by contrast, occurred
without the country's participation in trade-enhancing regional trade agreements.
In sum, then, I have made two points in this section. First, the domestic reforms of
the mid-1980s were critical in triggering growth in the apparel and textile sector. Their
initial focus on investment and technical upgrading in the textile and apparel sector
created a tier of strong domestic firms in the spinning and apparel sector, which
increased investment, modernized their technical base, diversified their product mix,
and over time emerged as leading exporters. Trade liberalization in the 1990s deepened
the processes that domestic deregulation had already triggered in the mid-1980s.
Second, the early phase of export growth in India's textile and apparel industry
was different in important ways from the experience of other countries that have
emerged as major apparel exporters recently. Compared with some of its closest
competitors, India's recent export growth was achieved with relatively little FDI,
without a major role of foreign buyers in organizing Indian supply networks, and with-
out the trade-channeling effect of participation in any major regional trade agreements.
These patterns can be read in two ways. First, it can be argued that India's export
growth, though more rapid in recent years, has merely tracked rising global growth in
apparel exports during this period (see Ramaswamy and Gereffi, 1998), and that, with
greater FDI, a deeper insertion of Indian suppliers into major global buyer networks,
and participation in regional trade agreements, India's growth would have been much
faster. Although this may well be the case, as many have argued in the literature (for
example, McKinsey Global Institute, 2001), a second reading of the data, which I argue
for in this paper, is that, regardless of the debate over the ills or benefits of the
government's autarkic turn in the late 1960s and 1970s, the same factors that have
contributed to the slow global integration of the Indian textile and apparel sector
have also generated traits that are offering unexpected opportunities for the industry
to upgrade itself and cultivate new sources of competitive advantage that are not based
merely on low wages. If nurtured well, these opportunities have the potential to move
the apparel industry along a higher value-added and more diversified growth path of
adjustment and upgrading. It is to these traits that I turn next.
5 Reworking historical legacies in a postquota world
Four key legacies of India's import substitution period have shaped the production
structure in textiles and apparel: (1) small scales of operation, and a history of small
batch production, which was reinforced by the government's licensing policies, reserva-
tion policies, and labor laws; (2) a proliferation of generalist skills in the production
workforce (such as of the master tailor and the master weaver), rather than narrower
specializations associated with a deeper division of labor, automation, and large
volumes; (3) low labor costs, but also low productivity [India's labor costs are 30%
lower than even China's labor costs but its productivity is less than half of China's in
2334 M Tewari

11. some product categories (Mckinsey Global Institute, 2001, Subramanian, 2004)];
and (4) a large domestic market, and a home-market focus, until recently. These
institutional legacies are often criticized as hampering productivity, impeding growth,
and keeping quality low. But, as we see below, these same legacies are also providing
unforeseen competitive advantages to local producers.
5.1 Sleeper effects of small production runs and a large domestic market: flexibility, variability,
experimentation, and a growing design capability
The long history of India's small scales of operation in apparel has shaped its emerging
export trajectory in a two important ways: it has forced producers to learn how to
manage small production runs, handle uncertainty, and demand variability in cost-
effective ways; and it has helped to insert Indian exporters into export channels that
in effect bypassed the largest global retailers, who sought low prices and large volumes.
This influenced the nature of the buyer ^ supplier relations that Indian exporters
became embedded in early in that export history.
In contrast to countries such as China and Bangladesh, where large production
volumes attracted giant global buyersöWal Mart, Sears, Targetöwho in turn placed
mega orders, thus further reinforcing large scales of production, India's small-scale
operations kept Indian exporters tied to small and medium-sized overseas buyers
(small importers, buying agents, wholesalers, department stores, and specialty shops),
initially in Europe and then in the United States, Middle East and elsewhere. One
outcome of links to a diversity of small buyers was that they prevented the early
`Wal-Martization' of India's apparel sector. By that I mean an overdependence of
suppliers on powerful buyer-driven chains where price competition is most fierce,
and where the division of labor is such that small suppliers are often stripped of
functions other than narrow assembly, as large foreign buyers absorb value-adding
functions such as design, pattern making, branding, sourcing of fabric, accessories,
and input supply (Bair, 2005; Gibbon, 2005).
Many of the small buyers and importers that Indian exporters worked with, by
contrast, welcomed design inputs from their suppliers (even if simple), sought greater
variety over a wider range of products and services, and encouraged an enlargement of
suppliers' tasks and capabilities because, in part, this lowered their own business costs.
These importers and wholesalers were also more inclined to build mutually depend-
able, longer term ties with their suppliers given the costs of repeatedly establishing
reliable supply relationships across large distances. Several exporters in Tirupur,
Ludhiana, and Bangalore reported having buyers of fifteen or twenty years' standing,
and relationships where feedback and tutelage had become important features of their
exchange and learning (interviews, Ludhiana, 1997, 2005; Bangalore, 2005; Tirupur,
2005). At the same time, some firms also noted the unpredictability associated with
working long-term with small and medium-sized customers. Sometimes orders fell
through because the importer lost a client, or because designs needed to be changed
quickly, or because orders increased at short notice. Working with such buyers thus
meant that suppliers had to acquire the ability to handle changes in designs, orders,
and specifications flexibly (interview, Nair, Asia-Pacific Apparel Exports, Tirupur,
2005).
The most successful firms have learned to use (and reproduce) workers with
generalized skills, such as master tailors, master weavers, skilled machinists, networks
of buying agents, distributors, and yarn traders as well as public institutions that allow
them access to specialized equipment and know-how so as to lower the cost of
variability, diversity in demand, and small scales. The knitwear clusters of Tirupur
and Ludhiana are the best-known examples of the geographies that these production
Adjustment in India's textile and apparel industry 2335

12. relations have produced. Densely interlinked small and medium-sized producers in
these clusters collectively draw on local institutions and a skilled workforce to defray
risks and jointly attain economies of scale (and scope) at the level of the region
(Cawthorne, 1995; Chari, 2004; Tewari, 1999). These very traits, nurtured through
past export ties with small and medium-sized buyers throughout the 1980s and 1990s,
have provided a subset of Indian apparel exporters with skills that are proving valuable
in today's volatile markets, especially as they transition toward quota-free trade, and
toward higher-value, upmarket buyers who routinely demand flexibility and small runs
of good-quality products and variable designs at low costs.(9)
A central part of the competitive advantage of good performing firms that are
supplying to higher value, relatively upmarket specialty buyers, such as Gap, Banana
Republic, Ralph Lauren, J Crew, is their ability to contribute to designönot only in
preparing samples and prototypes, but also in translating concepts into varieties of
finished designs, as well as introducing designs of their own in consultation with
the buyer. One knitwear firm in Tirupur, whose clients include specialty stores in the
United Kingdom and the United States, reported how its designers and master crafts-
men had codeveloped the prototype for a complicated knit polo shirt for Firetrap with
the buyer's agents. The shirt, which required ``100 ^ 160 different operations including
yarn-dyed elements, patches and multiple finishing operations'', cost the firm $22 to
produce (free on board), and was retailed at $80 at key stores, including Harrods in the
United Kingdom (interview, Eastman, Tirupur, 2005). In a recent survey of French
retailers, Palpacuer et al (2005) similarly found that some retailers, in her sample, who
sourced from India reported having chosen Indian firms because of their design ability.
The owner of a firm that supplies to several major European and US brands gave
the following explanation for this growing trend:
``When items have complicated designs, with complex patterns, many fabrics, a
variety of colors _ you cannot run them on an assembly line. Many different
operations and techniques are required ... you have to break them down'' (interview,
Gokuldas Exports, Bangalore, 2005).
Buyers who source large volumes from China and Bangladesh may simultaneously
turn to India for smaller runs of more complicated designs.
``A Chinese firm would probably refuse such orders. In their system, the more
complicated the design, the more complicated the line gets ... . This lowers effi-
ciency and complicates the bottom line. It is not worth their while, [especially if the
volumes are small]'' (interview, Gokuldas Exports, Bangalore, 2005).
Indian firms are willing to execute such orders, the manager said, because they have
always worked this way; they are used to handling small runs.
``We have skilled manpower available cheaply. We have tailors who have the ability
and willingness to [execute] complex designs. They have been doing it for years.
In China the line workers are industrial workers, not tailors'' (interview, Gokuldas
Exports, 2005).
A growing number of small and medium-sized exporters are harnessing these
local skills to move to design-intensive export niches, as a way to get out of direct
price competition with volume-based Chinese and Bangladeshi exporters. For example,
a medium-sized apparel exporter in Bangalore (the Choudhury group) until two
years ago used to produce whatever orders came our wayöshirts, pants, kids wear''
(interview, 2005). The company, which has 1500 machines in ten units, followed a
`turnover'-based modelölow prices and substantial runs per style, but with neither
(9) Mass distributors and discount retailers such as Wal Mart, Target, and others are only now
intensifying their procurement from India. Wal Mart did not have an office in India till 2005.
2336 M Tewari

13. the massive scales needed to make the `high-turnover, low-margins' model profitable,
nor the work organization to deal with variable designs. The company changed strat-
egies in the early 2000s. Feeling the pressure on prices and the squeeze on margins
(which were about 5%), the company decided to move out of the turnover business,
and into a niche where large-volume producers such as China and Bangladesh were not
threats. It chose fashion-based women's and girls' tops and clothing which had a
predominance of handcrafted finishes and complex operations (embroidery, sequins,
and other labor-intensive processes). Although it modernized and automated some of
its production process (buttonholing, hemming), it intensified the use of skilled workers
overall. The company now produces small batches (500 ^ 5000 per order) of women's
fashion-wear for retailers and specialty stores in the EU and the United States. The
company's profits have risen to over 35% from 5%, and sales have increased each year
(interview, Vishal, Choudhury group, Bangalore, 2005). Its biggest worries are short-
ages of skilled workers, and labor turnover (about 10 ^ 15%), which puts pressure on
turnaround times, quality, and consistency.
The use of traditionally skilled craft workers to move into higher value, customized,
design-intensive niches is not limited to small and medium-sized exporters of apparel.
Some major textile companies are following the same strategy. Himmatsingka
Seide Ltd (HSL), a leading exporter of high-end silk furnishings, for example, is an
integrated company. It has invested heavily in state-of-the-art processing technology
(including 115 computerized looms), and carries out all functions (from processing of
yarn to designing, weaving, dyeing, finishing, and packaging) within its Bangalore
plant, with a capacity of 2 million meters per year. Yet, despite this integration,
HSL produces highly customized, uniquely crafted furnishing fabric in very small
runs, typically 120 ^ 150 meters per design for high-end European and US buyers
(Zimmer + Rhode, Christian Fischbacher, J. J. Anstoetz, Ralph Lauren Home, Robert
Allen, and others). Using highly skilled workers and technically sophisticated design
and production arrangements, HSL has assembled a portfolio of over 20 000 products
and introduces 2000 new products and designs every year. Traditional craft workers
from Southern India, with deep roots in silk-weaving and design, are as much a part of
HSL's workforce of 650 as are skilled production workers, fabric designers, and textile
engineers.(10) The firm's wages are twice (and in a few cases four times) the industry
average,(11) reflecting, in the words of the manager, the firm's commitment to main-
taining the human capital that sets them apart from their competitors (Interview,
Bangalore, 2005). HSL's production costs are not lowö$20 per meter on averageöbut
its products retail at $100 ^ $120 per meter in Europe (where 48% of HSL's output is
sold) and the United States (where 34% is sold) (interview, Bangalore, 2005). For ten
years in a row, the company has had the highest profit margins (40%) in the industry,
and the sixth-largest market capitalization rate even though its net sales are a tenth
of the country's top textile firms. The firm has thus leveraged traditional skills,
long-nurtured by India's much-criticized protection of the handloom industry, just as
small and medium-sized exporters have done, and combined them with modern tech-
nologies and marketing skills to forge a distinctive and successful path into global
markets.
The historically small average scales of production in Indian apparel have thus shaped
export trajectories among Indian exporters in two important ways. On the one hand, they
(10) Access to Karnataka's traditional silk-weaving skills was an important reason why the firm
located in Bangalore in the first place (interview, 2005).
(11) Compared with an average production wage of Rs 7000 per month, HSL's production workers
earn Rs12 000 per month; skilled workers earn Rs14 000 per month; and engineers earn Rs. 24 000
per month (interview, 2005).
Adjustment in India's textile and apparel industry 2337

14. have made a subset of apparel exporters proficient at flexible, small-batch production. On
the other, the flatter division of labor associated with small operations, short runs, and
variable designs has created space for generalist skillsöof the master tailor, designer,
and master weaveröat the core of the work organization. Even as formally trained
designers from the country's newly created premier design schools enter the Indian
apparel market and are hired by firms, many of them work alongside traditional
designers, tailors, and craft workers to produce new products and execute small
batches of complex designs at low cost.(12) The craft workers are essential to keeping
the costs of flexibility and customization low in India's apparel exportsötraits that
are, in turn, valued by the small and medium-sized export channels that many Indian
exporters are tied into. It is the shortage of precisely these skills that is causing
concern across India's apparel hubs in Tirupur, Ludhiana, Delhi, Chennai, and
Bangalore as exports have grown post-MFA (http://www.Fibre2Fashion.org, 2005;
field visits, 2005).
Yet, it is these very characteristics of the Indian apparel sectorösmall scales of
operation, and the proliferation of generalist skills (master weaver, master tailor) in the
industry's production structureöthat have been widely criticized as impeding growth,
stunting exports, and keeping productivity low (Besley and Burgess, 2004; Hashim,
2005; McKinsey Global Institute, 2001). A recent study by McKinsey Global Institute
in fact makes an explicit case that Indian productivity in apparel is subpar interna-
tionally not because Indian apparel firms are unaware of frontier technologies, nor
because they do not have access to the latest production processes (because a subset of
Indian firms have adopted them), but because their scale of operation on average is too
small to allow them to adopt these technologies profitably (McKinsey Global Institute,
2001). The McKinsey study further links small production scales with the dominance of
the tailor in the industry as causes of the low productivity of the sector (Banerjee and
Duflo, 2004; McKinsey Global Institute, 2001)öan argument that is just the opposite
of the dynamic illustrated above.
Clearly, the issue of scale can operate at multipleöapparently contradictoryö
levels: the same factor that pulls down productivity at one level can open up new and
quite distinct paths to upward mobility at another level. The larger point, however, is
that alongside the purported downside of small scales of production (low productivity,
obsolete technology, fragmentation) this same history has produced important capa-
bilities (flexibility, experimentation, design capabilities) that are of particular value in
the current environment of uncertainty and volatility that characterizes apparel trade
today. If nurtured and supported, these traits can help to move a growing segment of
the garment industry, especially small and medium-sized firms, toward a value-adding,
design-intensive, higher quality path to upgrading. Indeed, as figure 2 illustrates, this
growing shift toward higher value exports may already be reflected in the rising unit
values of some of India's fastest growing apparel-export categories. Between 1995 and
2003, for example, the unit value realization in men's or boys' cotton trousers (nonknit)
increased by 50% in real dollars (constant 1995); that of women's cotton trousers or
shorts rose by 28%, and that of men's cotton knitted shirts rose by 10%. High-volume
Chinese exporters, by contrast, experienced a downward trend in unit values over the
same time period (UN Statistical Division, 2005).
(12) In some cases, formally trained designers do seem to be supplanting the master designer, at
least in the firm's wage hierarchy, as some have pointed out (Martha Chen, personal communication,
2005). Further research in this area would be very important.
2338 M Tewari

15. 5.2 Retail, branding, and design: a blurring of boundaries between exports and the domestic market
Not all of India's textile and apparel exports are by any means in high-value niche
markets. Several firms, especially textile firms with roots in yarn and fabric making,
are rapidly increasing their scale of production and level of automation. The largest
Indian mills (Arvind, Indian Rayon, Vardhman, Raymonds, Welspun, Madura, and
others) have invested over $2.5 billion in new plant, equipment, and technology in
2004 ^ 05 alone, by some estimates (Kriplani, 2004). The government's Technology
Upgradation Fund, launched in 1999, has aided this process, and several textile firms
have integrated forward into value-added exportsöapparel, home furnishings, made-
ups, and higher value technical textiles such as `smart fabrics' and nonapparel textiles.
Many large firms are entering into joint ventures with foreign partnersöMadura
Garments recently signed a technical collaboration with Outlast Technologies of the
United States to develop a new range of `smart garments' under the Van Heusen label
for the Indian market (Business Standard 2005). Another firm has a tie-up with Cone
Mills, and another has one with Lee and Levis for the production of denim with state-
of-the-art finishes, and so on. Some firms (such as Welspun, the world's fifth-largest
producer of terry towels) have already emerged as India's largest suppliers to buyers
such as Wal Mart. Yet, despite these rapid increases in capacity, the self-conception of
the industry is that large scales of operation (as in China and Bangladesh) are unlikely
to be key sources of India's competitive advantage. The largest Indian factories are still
a tenth of the size of most Chinese factories (Business World 2005), and a variety of
institutional factors (such as the controversies over India's labor laws, FDI policies,
and its uncertain coalition politics) make further escalations in scale unlikely. Even as
they scale up and automate, most firms are betting on quality and design as the key to
future growth.
``Prices may fall at the lower end of the product chain ... . But at the higher end _
customers will be willing to pay a better price for the better quality that we deliver''
(Manager, Raymond, quoted in Subramanian, 2004).
This is associated with the emergence of three additional factors that are shaping
India's emerging export trajectories in apparel and textiles: (a) a simultaneous focus on
the domestic and export market, especially the rapid rise of domestic brands driven
in part by shifts in organized retail; (b) the emergence of design as a competitive
advantage; and (c) the forging of innovative distribution channels for exports, such as
through outward-bound investment, in the absence of preferential access to major
markets and direct ties into major global chains.
Years Years
US
$
per
unit
(CPI
base
ˆ
1995)
4.3
4.1
3.9
3.7
3.5
3.3
3.1
2.9
2.7
2.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
1995 1997 1999 2001 2003 1995 1997 1999 2001 2003
India India
China
China
Figure 2. India and China's unit values (inflation-adjusted dollars per unit) (source: UN statistics):
(a) men's or boys' cotton trousers and shorts (woven) HS 620462; (b) women's or girls' cotton
trousers and shorts (woven) HS 620342.
Adjustment in India's textile and apparel industry 2339

16. Even as several large and medium-sized textile and apparel firms are entering into
partnerships with foreign buyers, several are seeking their own, dedicated avenues of
distribution in major industrial markets. They are doing so either by purchasing small-
sized wholesalers and distributors ($10 ^ 20 million in turnover) in countries such as
the United Kingdom, Italy, Greece, Hong Kong as a way to establish a foothold in
markets where Indian apparel firms have no preferential access (Tewari, 2004); or by
investing in manufacturing capacity overseas (Ambattur Clothing Ltd, a leading appa-
rel exporter has a manufacturing facility in Bahrain; a textile firm from Gujarat
recently bought Dan River, a Virginia-based company in the USA; Raymond has
invested in several manufacturing plants abroad, including in Thailand; another garment
company, Zodiac, has a shirt-making plant in Dubai). A handful of firms has tried to gain
knowledge of, and access to, key markets by investing in small design centers in
countries such as Italy and the United States (interview, Bharatiya International,
2003). This outward investment in the First World by Indian firms is as much an effort
by Indian exporters to overcome their lack of access to world-class distribution
networks (access that Chinese firms have in plenty) as it is an attempt to learn about
design, quality, and the nature of demand in foreign markets firsthand (interview
Loyal, 2001, interview, Bharatiya International, Delhi, 2003).
The demand for design and product development in apparel is being fuelled not
only by growing exports, but also by important changes in organized retail within the
domestic market. For example, the rise of the BPO and IT sectorsöthe fastest growing
industries in the past decadeöis fuelling demand via important income effects for
higher value products, which in turn is supporting the expansionöindeed, creationö
of new domestic market segments that are higher value and more skill-intensive. The
BPO and IT sector boom has endowed a new, and younger, segment of the (urban)
workforce with much higher purchasing power than it previously had access to. This
segment of consumersöwith a taste for Western clothingöis fuelling demand for
branded apparel at a pace not seen in the home market before. As FDI in retail is
not yet permitted, overseas brands are available only though expensive franchises.
Domestic firms have, therefore, rushed to fill the space with trendy, high-quality, and
low-cost branded wear.
The top twenty to thirty textile and apparel firms have all introduced a range of
domestic brands in the past decade. For example, HSL, the silk exporter discussed in
the previous section, launched its own store and brand (Atmosphere) in the domestic
market last year, even as it signed an agreement with an upscale Italian chain to
supply branded bed-linen ensembles. In 1994, Ambattur Clothing Company became
the first major firm to leverage its decade-long export experience, access to new
technologies, knowledge of world-class finishes, fabrics, colors, and styles, and the
expertise of its in-house design department to launch India's first major domestic
brand in premium casual wear, `ColorPlus' (interviews, Ambattur Clothing Ltd, 2000;
http://www.bcfIndia.org 2005). The hugely successful brand was bought by a much larger
textile giant, Raymond, a few years later, and has now spread across India and to the
Middle East.
The distribution of branded apparel is not targeted solely to urban markets. For
example, one of the top textile companies, Arvind Mills, which is the largest Indian
supplier of denim to Lee and Levis, has not only launched its own brand of designer
jeans in urban metros, but also deployed a novel distribution system to launch very
low-cost bare-bones jeans to rural markets. Rather than selling stitched jeans, Arvind's
innovation is to sell precut `jean-assembly kits' (under the Ruf and Tuf brand)
marketed through a network of local tailoring shops. Given consumer preferences for
2340 M Tewari

17. custom-tailored clothing, buyers purchase the kits from the tailor, who also stitches
them up to size (interview, Arvind Mills, Ahmedabad, 2005).
This demand for ready-to-wear apparel is augmented by the arrival on the scene of
retailing formats such as shopping malls, which are providing new space for goods
catering to middle-class and upmarket consumers. Thus, from the demand side, this
preference for ready-to-wear, branded, higher value apparel, and the growing availability
of organized distribution channels through which these products can be marketed, is
creating the conditions for the development of whole new segments in the apparel
industryösuch as private labels and retailer-driven local supply chainsöthat did not
exist in India before. With larger apparel and textile firms launching their own brands,
the emergent retailers with private labels are increasingly creating their own network of
small and medium-sized suppliers. This, in turn, can fuel the development of new
capabilities, such as quality, timely delivery, and variety, among smaller garment
producers on the supply side, and across the value chain. Investments by the govern-
ment in institutions such as the National Institute of Fashion Technology and in the
numerous smaller technical training, design, and finishing centers that are coming up
in several garment clusters, such as Tirupur and Ludhiana, are reinforcing this `market-
creating' cycle by generating a supply of skilled local designers who are progressively
becoming absorbed in the new cycles of demand. These shifts are blurring the bounda-
ries between export and domestic markets creating skills that are portable from one to
the other.
6 Conclusions
In this paper I have examined India's recent integration into the global apparel market
to understand alternative forms on global insertion that are occurring, especially in
light of the elimination of quotas. I made three points. First, I showed that India's
(evolving) path to integration in the world market in clothing has been quite different
from the experience of many of its competitors. India's trajectory does not fit well
either with neoliberal arguments about the deregulation of the Indian economy in the
early 1990s unleashing the growth potential of Indian apparel (Indian apparel exports
took off in the mid-1980s), nor with the trajectories of other successful exporters öfor
example, FDI-led integration into vertical clothing chains controlled by dominant
global buyers (as in the case of Bangladesh, Sri Lanka, Mauritius, China), or controlled
by entry into regional trade agreements with major importing countries (Mexico,
Caribbean basin, Eastern Europe, and North African countries on the European
rim), or controlled by massively scaling up production capacities driven by sustained
and deep incorporation into the outsourcing networks of some of the world's leading
clothing buyers (China, East, and Southeast Asia). Though the Indian government is
now attempting to attract FDI into textiles, apparel, and retail, and though domestic
firms are scaling up rapidly as well as exploring global partnerships, these features
have followed successful integration into export markets rather than led to it. An under-
standing of the Indian case thus offers insights into alternative trajectories of upgrading
and global integration that do not depend so centrally on prior participation in
regional trade agreements, on major FDI, or on deep integration into the world's
major clothing value chains.
Second, I argued that India's rather quick emergence as a successful textile and
garment exporter after years of inward orientation had more to do with changes in
domestic policy that took place throughout the 1980s and 1990söand how these
changes interacted with global trade regulations, on the one hand, and with ongoing
transformations in the Indian domestic market, on the otheröthan with purely exter-
nal factors. The internal deregulation of the mid-1980s encouraged a steady buildup of
Adjustment in India's textile and apparel industry 2341

18. domestic investment and induced cycles of technological upgrading within the textile
and apparel sector in ways that targeted both exports and the home market. The
external sector reforms (trade liberalization) of 1991 deepened some of the trends that
deregulation had produced. The strong tier of domestic firms that the earlier reforms
had created are now at the vanguard of India's growing global presence in clothing
and textiles. These domestic firms, with their backward linkages into an extensive
domestic textile base, have now increasingly transitioned into full-package supply and
branded manufacturing. These domestic firms are thus playing a stronger role in the
internationalization of Indian textiles and apparel than major external drivers such as
the role of global buyers, FDI, or preferential trade agreements.
Third, I argued that some of the same factors that account for India's slow
integration into global textile and apparel markets have also, indirectly, provided a
segment of the industry with opportunities to move along a different, more high-road
path to upgrading and export growth. The features associated with this growth path are
a flexible organization of production that can accommodate small batches of increas-
ingly design-intensive and higher value product categories. Selective automation
accompanied by a rising demand for skilled workers has put a premium on training
which in turn is associated ironically with a tight labor market, improving working
conditions, and higher than minimum wages for a subset of the workers in this labor-
intensive sector. Although the growing demand for skills by exporters is creating
conditions for the improvement of working conditions for a subset of the workforce,
many workers do continue to work under quite exploitative conditions. Nonetheless,
growing concerns for timely deliveries, consistency, and the problem of turnover are
working to alleviate some of the worst excesses. As the Indian textile and apparel
industry adjusts to the uncertainties of the post-MFA world, an understanding of the
diverse paths of adjustment at the firm level is critical. The presence of a strong set of
domestic firms that are incorporated into export markets, a growing design sensibility,
and the emergence of a set of upgrading processes that are not necessarily tied to
commoditized labor or deep dependence on footloose global value chains is a hopeful
finding.
Acknowledgements. I would like to thank John Pickles, Jamie Peck, David Weil, Jennifer Bair, Gary
Gereffi, Arvind Virmani, Danish Hashim, Arpita Mukherjee, and three anonymous referees for
very helpful comments on previous versions of the paper. I also thank participants at three recent
conferencesöthe Global Networks conference at Yale University, the workshop on `The End of
Global Quotas' at the Labor and Worklife Program at Harvard Law School, and the workshop on
`Clothing Europe' at the University of North Carolina for useful feedback. Karan Singh provided
excellent research assistance. Funding from the Indian Council for Research on International
Economic Relations, the Office of the Associate Provost for International Studies at the University
of North Carolina at Chapel Hill, and the University Center for International Studies is gratefully
acknowledged. The arguments made herein and all errors of fact and interpretation are my
responsibility.
References
Abernathy F H, Dunlop J T, Hammond J,Weil D, 1999 A Stitch in Time: Lean Retailing and the
Transformation of Manufacturing: Lessons from the Apparel and Textile Industry (Oxford
University Press, Oxford)
Abernathy F,Volpe A,Weil D, 2004, ``The apparel and textile industries after 2005: prospects and
choices'', draft paper, Harvard Center for Textile and Apparel Research, Harvard University,
Cambridge, MA
Bair J, 2005,``Global capitalism and commodity chains: looking back, going forward'' Competition
and Change 9(2) 163 ^ 180
Bair J, Gereffi G, 2003,``Upgrading, uneven development, and jobs in the North American apparel
industry'' Global Networks 3 143 ^ 169
2342 M Tewari

19. Banerjee A, Duflo E, 2004,``Growth theory through the lens of development economics'' Handbook
of Development Economics forthcoming
Begg B, Pickles J, Smith A, 2003, ``Cutting it: European integration, trade regimes, and the
reconfiguration of East ^ Central European apparel production'' Environment and Planning
A 35 2191 ^ 2207
Berger S, Gartner D, Kevin K, 1997,``Textiles and clothing in Hong Kong'', in Made by Hong Kong
Eds S Berger, R Lester (Oxford University Press, Oxford) chapter 9
Besley T, Burgess R, 2004, ``Can labor regulations hinder economic performance? Evidence from
India'' The Quarterly Journal of Economics 119(1) 91 ^ 134
Business Standard 2005, ``Madura Garments to push smart fabrics'', 16 March
Business World 2005, ``The big factories are coming'', 15 November
Cawthorne P, 1995, ``Of netorks and markets: the rise of a south Indian town. The example of
Tirupur's cotton knitwear industry'' World Development 23(1) 43 ^ 56
Chari S, 2004 Fraternal Capital (Stanford University Press, Stanford, CA)
Chatterjee S, Mohan R, 1993, ``India's garment exports'' Economic and Political Weekly 27(35)
M95 ^ M118
Chibber V, 2003 Locked in Place (Princeton University Press, Princeton, NJ)
DeLong B J, 2003, ``India'', in In Search of Prosperity: Analytic Narratives on Economic Growth
Ed. D Rodrik (Princeton University Press, Princeton, NJ) pp 184 ^ 204
Feenstra R C, 1998, ``Integration of trade and disintegration of production in the global economy''
Journal of Economic Perspectives 12(4) 31 ^ 50
Gangopadhyay S, Krishnan S, 2005, ``Churning in Indian industry: cases of textiles and electrical
machinery in the eighties and the nineties'', presentation, India Development Foundation; copy
available from Dr Tewari
Gereffi G, 1999, ``International trade and industrial upgrading in the apparel commodity chain''
Journal of International Economics 48(1) 37 ^ 70
Gereffi G, 2004, ``Europe and global value chains'', presentation at the Global Apparel/Clothing
Europe Conference, University of North Carolina at Chapel Hill, 15 ^ 16 October; copy
available from the author
Gereffi G, Kaplinsky R (Eds), 2001, ``Special issue on the value of value chains'' IDS Bulletin
32(3)
Gereffi G, Memedovic O, 2003,``The global apparel value chain: what prospects for development in
developing countries'', report, United Nations Industrial Development Organization,Vienna
Gibbon P, 2000, ``Back to the basics through delocalization: the Mauritius garment industry at
the end of the 20th century'',WP 00.07, Center for Development Research, Copenhagen
Gibbon P, 2005, ``Governance entry barriers, upgrading: reinterpretation of some GVC concepts
from the experience of African garment exports'', paper presented at the Global Production
Networks, Conference held at Yale University, March; copy available from the author
Hashim D, 2005, ``Making the textile industry competitive after MFA'' Economic and Political
Weekly XL 8 ^ 14 January, 117 ^ 127
Humphrey J, Schmitz H, 2000, ``Governance and upgrading: linking industrial cluster and global
value-chain research'', WP 120, Institute of Development Studies, University of Sussex,
Brighton, Sussex
Kathuria S, Martin W, Bharadwaj A, 2001 Export Quotas and Policy Constraints in the Indian
Textile and Garment Industries (World Bank,Washington, DC)
Knappe M, 2003, ``Textiles and clothing: what happens after 2005?'' International Trade Forum
number 2, page 16, International Trade Center, http://www.tradeforum.org/news/fullstory.php/
aid/550/Textiles and Clothing: What Happens After 2005 .html
Kriplani M, 2004, ``India: speed up the sewing machines'' Business Week Online 3 May, Asian
Business
McKinsey Global Institute, 2001, ``Apparel'', in India: the Growth Imperative McKinsey Global
Institute,Washington, DC
Ministry of Industrial Policy and Promotion, 2005 Secretariat for Industrial Assistance 13(9),
Government of India, New Delhi
Ministry of Textiles, 1999 Report of the Expert Committee on Textile Policy, Government of India
August (Udyog Bhavan, New Delhi)
Ministry of Textiles, 2005, ``Annual report 2004 ^ 05'', http://texmin.nic.in/annualrep/ar05 con.htm
Mukherjee A, Patel N, 2005 FDI in Retail Sector in India (Academic Foundation, New Delhi)
Nasscom, 2005 Facts and Yearbook (National Association of Software and Service Companies,
International Youth Centre, Teen Murti Mag, Chanakyapuri, New Delhi 110021
Adjustment in India's textile and apparel industry 2343

20. NordÔs H K, 2004, ``The global textile and clothing industry post the Agreement on Textiles and
Clothing'', draft paper 15,World Trade Organization, Geneva
Palpacuer F, Gibbon P, Thornsen L, 2005, ``New challenges for developing country suppliers in
global clothing chains: a comparative European perspective'' World Development 33 409 ^ 430
Panagariya A, 2004, ``India in the 1980s and 1990s: a triumph of Reforms'',WP/04/43,
International Monetary Fund,Washington, DC
Ramaswamy K V, Gereffi G, 1998, ``India's apparel sector in the global economy: catching up or
falling behind?'' Economic and Political Weekly 33(3)122 ^ 130
Rhee Y W, 1990, ``The catalyst model of development: lessons from Bangladesh's success with
garment exports'' World Development 18 333 ^ 346
Rodrik D, Subramanian A, 2004, ``From Hindu growth to productivity surge: the mystery of the
Indian growth transition'', draft, Kennedy School of Government, Cambridge, MA
SAARC, no date, ``Sri Lanka's garment industry'', mimeo, South Asian Association for Regional
Cooperation, PO Box 4222, Tridevi Marg, Kathmandu, Nepal
Smith A, Pickles J, Begg R, Roukova P, Buce
­ k M, 2004, ``Upgrading the East European apparel
industry: outsourcing and the `embedded geographies' of production'', paper presented at the
Global Apparel/Clothing Europe Conference, University of North Carolina at Chapel Hill,
NC, 15 ^ 16 October; copy available from Dr Pickles, Department of Geography, University
of North Carolina, Chapel Hill, NC
Subramanian S, 2004, ``The textiles gold rush'', 27 July, http://www.rediff.com/money/2004/jul/
27specl.htm
Tewari M, 1999,``Successful adjustment in Indian industry: the case of Ludhiana's woolen knitwear
industry'' World Development 27 1651 ^ 1671
Tewari M, 2004, ``Regional repositioning within India's garment industry: elements of a third
generation narrative in global commodity chains'', draft paper, 14 October; copy available
from the author
Tewari M, Pillai P, 2005, ``Global standards and the dynamics of environmental compliance in
India's leather industry'' Oxford Development Studies 33 245 ^ 267
UNCTAD, 2005 TNCs and the Removalof Textiles and Clothing Quotas (United Nations Conference
on Trade and Development, New York)
UN Statistical Division, 2005, Comtrade database'', http://unstats.un.org/unsd/comtrade/
USITC, 2004 Textiles and Apparel: Assessment of the Competitiveness of Certain Foreign Suppliers
to the US Market United States International Trade Commission,Washington, DC
Verma S, 2002, ``Export competitiveness of the Indian textile and garment industry'', working
paper 94, Indian Council for Research on International Economic Relations, India Habitat
Centre, Core 6A, Lodhi Road, New Delhi 110003
Virmani A, 2004,``Economic reforms: policy and institutionsösome lessons from Indian reforms'',
working paper 121, Indian Council for Research on International Economic Relations,
New Delhi
WTO Statistics, 2005 Trade Statistics (World Trade Organization,Washington, DC)
ß 2006 a Pion publication printed in Great Britain
2344 M Tewari

21. Conditions of use. This article may be downloaded from the E&P website for personal research
by members of subscribing organisations. This PDF may not be placed on any website (or other
online distribution system) without permission of the publisher.