$14b textile industry awaits its turn

The ten-year old contortion called the Agreement on Textiles and Clothing (ATC) will ease on the next New Year’s day. Under this multilateral protectionist racket, quotas were imposed on the textile exports of different countries leading causing great anguish in India, China, Pakistan & Bangladesh. These countries could manufacture quality textiles at low costs. It hurts countries like Pakistan and Bangladesh most because the textile industry forms the bedrock of the manufacturing sector of these countries.

Siddharth Srivastava writes that India’s US$14 billion textile industry is poised for growth once the ATC is consigned to the dustbin – with industry revenues poised to grow to US$50 billion by 2010. The main competition will come from China who is the only other country with a strong enough vertical integration (jargon for having everything from cotton farms to apparel factories) capable of competing with India. However China has a slight disadvantage until 2008, until which it is still subject to some quotas due to its late entry into the WTO.

The other major challenge is, perhaps unsurprisingly, US protectionism

The impact in the US could be significant. A study by the American Textile Manufacturing Institute says the looming shift to low-cost destinations could shut down 1,300 plants, abolishing more than 630,000 jobs. When the two largest US home-based textile companies, Pillowtex and Westpoint Stevans, shut shop and filed for bankruptcy last year, substantial manufacturing capacity fled to India.

In India, US firms are already pitching for new business. Wal-Mart, JC Penney, Target, Federated Group, Russell Corporation, and Sears Roebuck are among major US companies entering into new textile-outsourcing deals. Business Today reported that Wal-Mart last month placed orders worth US$500 million; JC Penney, US$300 million and French retail giant Carrefour, US$100 million. JC Penney has reportedly sourced US$700-800 million worth of apparel from India over the next few years.

All Indian textile majors, including Raymond, Zodiac, Welspun and Arvind – and even some medium and small companies – are expanding capacity. In Bangalore, Arvind Mills has doubled its garment capacity, and Raymond is setting up a plant to make suits and trousers. Zodiac Clothing has recently expanded its shirt manufacturing capacity from five million to six million shirts a year.[The Straits Times]

Places like Tirupur, Coimbatore, Bombay and Ahmedabad should be happy with this. Bangalore too.

Related Link: The EU imposes tariffs on Pakistani bed-linen, causing importers to procure from India and Bangladesh.