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Textiles policy indifferent to languishing mill sector 

Nilanjan Banik Save for the garments sector, de-reservation, the New Textiles Policy (NTP), 2000, announced on November 2, has little to cheer about. The NTP moots de-reservation of the garments sector and removal of the cap on foreign direct investment, earlier at 24 per cent, in an effort to promote economies of scale and help textiles units attain cost competitiveness in the world market. Through these policy measures, the government aims at increasing the textile exports from the present level of $10 billion to $50 billion within a span of 10 years. The NTP has, however, failed to address a host of other issues contributing to the inefficiencies in the textiles sector.

The Indian textiles industry is the single largest foreign exchange earner for India - accounting for around 20 per cent of India's industrial output and over 30 per cent of India's exports. About 38 million people are gainfully employed in the industry, making it the second largest employment provider next only to agriculture. India contributes 15 per cent to the world production of cotton textiles, against 12 per cent a decade back.

There are more than 1,100 operating units in the organised sector.The Indian cotton textiles industry can be divided into three primary sectors - the organised mill sector (traditional weaving and spinning), the powerloom sector (modern mechanised looms) and the craft sector. The policies pursued by the government have led to distorted growth and unhealthy competition within the industry. In its development policies, the state discriminated against the mill sector in favour of the handloom sector, which was perceived as an engine of growth. This was done through preferential import and export quotas for the powerloom and handloom sector.

As a result, these two sectors flourished at the expense of the mill sector.It is to be noted in most of the successful textiles producing nations like South Korea and Taiwan, it is the organised sector (mill sector) that plays a pivotal role in creating a brand name for the industry. The government here, failed to understand that even a capital-intensive mode of production can lead to growth of employment through a higher scale of operation.

The NTP talks of reviving the handloom sector, but with regard to the mill sector the policy has little to say. As many as 342 cotton or man-made fibre textile mills were lying closed in India as on March 31, 2000. The government is squarely responsible for a situation like this. Measures capping restrictions on firm size and the requirement of licenses to produce synthetic items have gone against the mill sector.

The NTC only spells out some promises, like mentioning the words such as "efforts" and "encouragement" for reviving the mill sector but as such spelt out no concrete measures. There has also been a policy distortion against production of man-made fibres vis-a-vis cotton textiles, in the form of higher excise duties on the former as compared to the latter. However, the international demand for textile products suggests that a man-made fibre is on the rise. The NTP fails to address this issue of distorted duty structure, save for saying that the duty structure will be harmonised in due course.

At present, the excise duties of cotton is hovering around 5 per cent whereas blended yarn and polypropylene on average attracts a duty of more than 20 per cent. It is to be noted, that man-made and synthetic fibres account for as much as 80 per cent of the world trade in apparel.

The lack of a flexible labour policy has also contributed to productivity slippages. Labour productivity has fallen in the post-liberalisation period.

In case of textiles as a whole, four out of seven segments - cotton garments and clothing, handloom cotton textiles, cotton khadi and powerloom cotton textiles - witnessed a fall in total factor productivity by 0.67 per cent, 1.88 per cent, 3.87 per cent and 0.01 per cent, respectively. Companies should have the right to retrench excess labour without seeking government approvals as long as they pay 60 days average wages for every completed years of service instead of the present practice of 15 days. The NTP completely overlooks this issue.

(The writer is a senior business analyst with E-indiabiz Pvt. Ltd.)

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