Deregulate handloom sector to attract FDI

Deregulate handloom sector to attract FDI
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First Published: Tue, Jul 24 2007. 03 12 PM IST
Updated: Tue, Jul 24 2007. 03 12 PM IST
New Delhi: Unless India’s handloom sector is not deregulated with flexibility in labour laws, the textile economy will not be able to attract FDI, upgrade technology and generate employment, according to a SWOT analysis carried out by Assocham on India’s textile sector.
Total FDI approval in India in the last 15 years has stood at Rs. 33.20 billion, of which Rs.0.65 billion was approved in 2006. This happened because domestic textile sector continued to struggle under shackles of stringent laws and is yet to be deregulated, as against China in which actual FDI’s are 50 times higher and its textile industry and exports are doing remarkably well.
Technology upgradation fund schemes (TUFs) for the sector were introduced in March 2006 but most investments fizzled out implying that textile units had chosen to invest by not taking recourse to TUFs route.
FDI’s attracted by domestic textile sector continue to remain quite low as in last 14-15 years, out of total FDI’s attracted, textile sector contributed to less than only 1.5%.
Status report of India’s textile industry
* Single largest net foreign exchange earner in the country, contributing 19% of total export earnings.
* Contributes nearly a third of the country’s export earnings.
* Accounting for around 14% of the country’s total industrial production.
* Provides direct employment to around 35 million people including manufacturers, suppliers, wholesalers and exporters of cotton textiles, handlooms, woolen textiles etc. from the production of textile machinery and equipment, dyes and raw materials to the delivery of finished textiles, fabrics and garments.
* There are 2722 textile mills with a spinning capacity of about 37.34 million spindles.
* The Indian textile industry continues to be predominantly based on cotton, with about 56% cotton and 34% other raw materials being consumed.
Findings
* There are opportunities and threats for India’s textile industry in the post-MFA era.
* India can capitalize on its strengths: Strong raw material base of cotton, man-made fibre, jute and silk; a large production capacity which includes 21% of the world’s spinning capacity and 33% of its weaving; vast pool of skilled manpower; entrepreneurship; flexible production process; long experience with US, EU.
* India’s weaknesses: Fragmented industry; constraints of processing; quality of cotton; high power cost; labour reforms; infrastructure bottlenecks.
* Likelihood of intense competition at the domestic and international level, especially from other low-cost exporting countries.
Recommendations
* Flexibility in labour laws in changed economic, commercial and fiscal policies to be considered.
* Make amendments to help free outsourcing to promote investment in labour intensive and export oriented garment sector.
* Contract labour norms to be liberalised for textiles and garments so that units can hire workers for a few months without the compulsion of having to absorb them permanently.
* Infrastructure and power sector reforms to be undertaken at high spped to facilitate smooth functioning of the industry.
* To deal with issues that increase production costs owing to India’s high energy and capital costs, multiple taxation and low productivity. Resultantly, textile and apparel products from India are less competitive than those of China and other developing countries.
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First Published: Tue, Jul 24 2007. 03 12 PM IST
More Topics: texto;e sector | India | FDI | dereguation | Assocham |