A tectonic shift in the global textile industry

India can become a major player, but the government must accelerate economic reform

YaleGlobal has a series of articles on the coming tectonic shift in the global textile industry once the international export-quota regime comes to an end this year.

The new regime poses the most serious challenges for countries like Bangladesh and Cambodia, whose economies are centered around the textile industry that has grown thanks to the quota regime. Once the floodgates open, these countries would face serious competition from countries such as China and India, who not only have low cost of labour, but are also producer of raw-materials and other intermediate inputs.

China, according to most estimates, is best placed to increase its market share, both at the expense of other Asian producers and on its own as the global market expands.

India stands at a crossroads. While its textile industry shares several of the advantages of its Chinese counterpart, the government’s industrial policies place serious hurdles in its path to global competitiveness. McKinsey’s consultants encapsulate what needs to be done – make labour markets more flexible, get rid of the dogmatic preference for small-scale industries, improve infrastructure and attract foreign investment. [Related posts on The Acorn]

But the danger is that the Indian government, no doubt under the influence of its blinkered back-seat navigators, is moving in exactly the opposite direction. In spite of a slogan (reminiscent of India’s socialist days) that calls for ‘increasing employment’, the inflexibility of labour laws deters large-scale manufacturing and prevents the industry from achieving greater productivity and economies of scale.

It is quite unfortunate that this should happen with a reformist economist prime minister in charge.

9 thoughts on “A tectonic shift in the global textile industry”

  1. The “reformist prime minister” is beginning to remind me a lot of another much-hyped “reformist” – Iran’s Mohammed Khatami. A congenial, mild-mannered technocrat who does genuinely want some reform, and talks a good game on the issue, but doesn’t have the guts to stand up to the reactionaries in his way. And probably doesn’t care to stand up to them if doing so would bring down his government. Obviously, there are a lot of political differences between a democracy like India and a clerical dictatorship like Iran, but Singh and Khatami seem to be playing similar roles in each system.

  2. As JK say’s it can be turned into an India China battle.
    However most multinational companies would not like to put their eggs in one basket. For e.g. Wallmart has a strategy of not allowing any one supplier to be dominant.
    Therefore even if China is going to be the preferred supplier there is bound to be significant amount of work heading India’s way. Only hitch is the governmental policy which hopefully will change.
    Judging by his stand to scrap the press note18 the commerce minister Mr Kamalnath can be expected to push for more industry friendly policy.

  3. Brilliant analogy Eric. Only that in Iran’s case, the mullahs in the “supreme council of guardians” are there by constitutinal right. Our loony-lefties, backseat drivers are an extra-constitutional drag on the reformist PM.

    Secondly, India’s a long way from competing meaningfully with China, methinx. We needed massive world-scale companies like Arvind Mills and our lack of scale alone shall scare away the giant clients – Walnmart, JC Penny etc.

    But who knows, in time using botton-up innovation we may yet surprise ourselves in some 10-15 yr horizon, eh?

  4. Sandeep – Fixed it. I had used an accented character (é in cliché) which caused the XML to go into a fit. I’ve changed it back to ‘cliche’ now.

    Let me know if you still have problems.

  5. Thanks, Sudhir. But I don’t think the problem is limited to the Communists. If the entire Congress was hell-bent on economic reform, then they might have more success in forcing the Communists to yield ground. But it seems that there are also some Old Guard elements out there who don’t care for things like privatization and labor reforms, and are wary about FDI. Some of them are even willing to support absurdities like private sector quotas and employment guarantee schemes if they think it will win them some votes. Sonia, the real power behind the throne, is too stupid or too power-hungry to care about any of this.

    If the BJP had India’s national interests in mind, they’d offer to give the Congress their support on reform measures in the Parliament, thereby getting the measures passed and marginalizing the Communists. But they’re too busy playing coalition politics and pandering to their saffron base to do that.

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