GD capsule 7

Theme: Textiles
To what extent will the end of quota regime really benefit India?
Background: The Multi fiber agreement came to an end this January 2005. Prior to that, west sourced more than half of their textile imports from Latin-American and Caribbean countries, though they didn’t offer cost advantages like Asian counterparts. (End of MFA had been one of the principal demands of Asian countries at the WTO for a long time)

According to a Goldman Sachs report, China is set to capture 50% of world textile market in 2015, while India’s share will triple to 16%. But the road is not without hiccups.

Though the decision to end MFA was taken at WTO as early as 2001, the Indian companies had woken up to reality and went for capacity expansion of their plants only when the deadline was nearing. This is in sharp contrast to the well oiled Chinese machine, which employs whole towns to produce just one product, to reap in economies of scale.

Also, it looks increasingly difficult to china in mass production, which not only has low cost of labor (prices of Chinese goods is less than the cost of producing them in India) but gives subsidized power (cost of power Indian equivalent of 2 paisa/unit!) and host of concessions to its industries. But India can compete in different turf- home textiles.

I reiterate this point once more- If China has cheap manpower, India has cheap brainpower (see outsourcing). Home textiles are one area which requires less manpower and more designs. This is why US textile industry has managed stay afloat in this segment. The government has provided the industry with cheap 3% loans for capacity expansion, so it’s possible to compete in this capital intensive segment.