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.