If it took virtually no time for the majority of India’s textile companies to report dramatic deterioration of their financial health since the global economic crisis broke out, the blame lies mainly with a host of senseless government policies. Clearly, there isn’t any quick-fix solutions to the problems being faced by this labour-intensive industry which exports 55% of its output worth over $40 billion. Last week, the government cleared the backlog of interest-subsidy payments to the industry.
This, at best, would serve as a painkiller rather than the much-needed cure. What’s required is comprehensive policy reform, including removal of labour market rigidities. Most of all, there needs to be a fibre-neutral tax policy. Also, with no further delay, archaic policies like hank yarn obligation that interferes with the spinning units’ freedom to profitably use their production facilities, should be dispensed with.
The current fibre-use pattern in India favours cotton against man-made fibres (MMFs) because the latter used to be taxed at very high rates. Although the tax rates on MMFs saw significant reduction in the last few years, the excise duty was unexpectedly hiked from 4% to 8% in Budget 2009.
The policy of negative discrimination to MMFs is at odds with the global market realities — in the US and EU markets, MMFs account for 60% of the fibre content in textiles. Since the share of MMF-based products in India’s exports is less than 20%, our ability to make full use of the diversity of the world markets is greatly crippled. Below-optimal use of MMFs coupled with the fragmented nature of weaving and processing industries has affected the quality of fabrics produced in India. No wonder India’s large garment exporters mostly import fabrics for export production.
After the abolition of the export quotas it became evident within a few years that the Indian textile exporters had little ability to respond to price dips, even in comparison to Vietnamese and Bangladeshi traders. The industry invested a record Rs 1,60,000 crore in new plant and machinery in the last decade, pinning hopes on opportunities that post-quota export markets would throw up. Only right policies will ensure that these investments don’t go waste.
Source : The Economic Times