ARTICLE
Textile Restructuring and The Impending Turbulence
— Shankar
The Indian textile industry is at a crossroads. Jan. 1, 2005 will mark a watershed for the Indian textile industry. The Indian markets will be opened without any hindrance to the foreign textile goods. The US and EU markets will do away with the textile ‘Quota Raj’ that protected Indian textile industry since the day the Agreement on Textile and Clothing (ATC), a modified version of the Multi-Fibre Agreement (MFA), was signed as per WTO guidelines. The fate of Indian textile industry, which is the second largest employer in the country next to agriculture and, in turn, the fate of 35 million workforce and a few lakhs of small-scale operators will be re-written on 1 st January, and this day will turn out to be a ‘Black Day’ for the Indian working class.
The Agreement on Textiles and Clothing (ATC) is a WTO agreement. It is the second phase of the MFA that makes domestic reforms necessary because of pressure from international competition. The agreement has put forward stage-by-stage integration of the domestic economy with the world trading system. The idea is to make the integration complete by 1 January, 2005 so that the GATT principles and regulations can come into full play. Market access for Indian textiles has not increased significantly in spite of phased opening of the US and the EU markets based on the ATC. Anti-dumping actions, transitional safeguards and rules of origin, etc., nullify whatever little market access results from the implementation of the ATC. On the other hand, the domestic industry has to undergo a painful transition to face the stiff competition resulting from the removal of quotas. The removal of quota cannot automatically increase market access, as it will be further governed by tariff and non-tariff barriers. Moreover, there are also many Regional Trade Agreements like the one between the US and the NAFTA countries, and preferential treatment to certain countries, like the one extended to Mexico by the US, etc., that forbid the easy entry of Indian exports to the US and the EU markets. On the other hand, the US will also look for ways to exploit the vast market in India. Being one of the largest exporters of cotton, the US is getting its garments done by Mexico and a few other African countries at a cheaper price. China is also waiting in the wings to flood Indian markets with cheaper goods. Indian goods flooding global markets in the wake of opening up is nothing but a mirage.
CPI (ML) will observe Jan. 1 as a Black Day in the textile belt covering districts of Salem, Erode, Coimbatore, Karur and powerloom centres of Namakkal in Tamil Nadu. Having textiles as the major industry, lakhs and lakhs of workers are dependent on powerloom, handloom and textile industry as their only occupation. Without any alternative employment, textile restructuring will deal a deadly blow to the workers in this belt. |
The share of mills in cloth production has sharply declined over the last ten years. In 1990-91 the mills produced 11.1% of the cloth but by the end of the decade this had more than halved to 4.2%. About 27 % of this declining contribution of the mills was compensated, on the one hand, by powerlooms (their share went up from 57.2 per cent to 59.1 per cent during this period) and on the other hand by hosiery sector that compensated for the remaining 73 per cent (the sector’s share increased from 11.6 per cent to 16.6 per cent). |
There are only 30,000 automatic looms (1.8 per cent) and around 5,000 shuttleless looms (0.3 per cent) out of 16.61 lakh total looms in the powerloom sector in the country. There are nearly four lakh semi-automatic drop-box looms, but nearly half of these are obsolete. The remaining are conventional shuttle looms with virtually no process or quality control attachments. The Textile Ministry, as a part of modernization of powerlooms, have plans to upgrade 2.5 lakh semi-automatic looms into automatic looms and to install 50,000 shuttleless looms by the end of 2004. |
In the name of facing competition, there are demands for withdrawing minimum wages and for linking wages with productivity instead of consumer price situation. The productivity of an Indian factory worker is considered to be low compared to one in Sri Lanka, Nepal, Bangaldesh and Dubai. Indian garments are also said to be 20-30 times costlier than those from China or Bangladesh. |
The Steering Group Report on Investment and Growth in Textile Industry, headed by Mr N. K. Singh, has estimated the total funds required for modernisation of all the segments of the industry at Rs 98,550 crore. The three segments that would need huge investments are: Weaving (Rs 22,950 crore); woven processing (Rs 25,800 crore) and clothing (Rs. 24,500 crore). Spinning and knit processing would need an investment of about Rs. 19,200 crore. |
The NTP targets to raise the industry's exports from $11 billion in 2000 to $50 billion by 2010. China's garment exports have already crossed $50 billion against India's $6 billion. Some of their large garment companies there have a turnover of $ 800-1,200 million, nearly three times the size of India's biggest garment firm, Orient-craft. |
‘Survival of the fittest’ is the mantra behind the removal of quota in textiles. Whether the Indian textile industry, dominated by small-scale operators, obsolete technology and unskilled workforce can stand up to the challenge is a question mark. New Textile Policy (NTP) — 2000 replies with a big ‘NO’. In order to make it the fittest, the NTP proposes consolidation of small firms, and introduction of new technology that has the potential to replace a large number of traditional workforce. The focus is on modernization and large-scale sector. The NTP is clearly tilted towards big capital in textile industry. It says that the industrial mill sector should be brought back to pre-eminence so as to withstand the global competition in terms of quality and price, for which it proposes large industrial complexes in strategic alliances with global players, with focus on new products and retailing strategies.
The concept of SSI (small scale industry) is replaced with SMEs (small and medium enterprises). The small-scale mill and powerloom sector is deprived of the benefit of reservation of certain textile items to be produced in the sector and are exposed to competition not only with domestic big capital but also with multinationals (MNCs). For instance, Arvind Mills has already entered small-scale powerloom sector and has installed a unit with 200 shuttleless looms. De-reservation is nothing but a strategy for growth without employment. The NTP does not talk about labour that will be displaced from small-scale sector and due to privatization and closure of sick NTC mills.
A green signal has been given to set up units fully owned by foreign operators with 100 percent Foreign Direct Investment (FDI). Their export obligation of exporting 50 percent of production has been given a go-by at the policy level. Now, MNCs and their home countries need not import anything from India; need not bring their own costly products in search of a vast market in India; rather, they can come and open their shops; take advantage of Indian skills, experience and cheap labour; sell their locally produced goods to Indians and the Indian markets; it is sufficient only if they repatriate the profits to their home country. In fact, there is information that a dozen global retailers have already set up their shops in India, over the last two years, to buy their requirements and have dispensed with the earlier practice of buying through their local agents.
A recent study by the firm Gherzi Eastern for the Cotton Textiles Export Promotion Council (TEXPROCIL) argues that cotton price needs to be reduced by at least 10 per cent for the industry to become competitive. To this end, it recommended strategies to reduce the cost of production such as mechanization of cotton farming, adoption of drip irrigation, and removal of land ceiling by amending the Land Ceiling Act etc., so that corporate sector can enter into cotton farming. There are also proposals to establish linkages between the industry and cotton cultivation so as to make it a comprehensive attempt at reducing prices.
Only 5% of fabric is produced in the organized mills while 57% is produced in the decentralised powerloom sector, apart from 17% in the knitted fabric units. The quality of fabric supply to the garment sector is considered to be poor. Moreover, there appears to be as many as 15 intermediaries between the farmer and the final consumer. The cotton worth Rs.100 that originates from the farmer becomes Rs.148 when it reaches the spinning unit and it costs Rs.365 by the time it reaches the final consumer. With this logic, modernization of spinning mills has been proposed in order to reduce the price and to increase the quality. Moreover, 50% hank yarn obligation for the mill sector is considered to be a burden and there are proposals to withdraw exemptions given to hank yarn that is supplied to the handloom sector. Hank yarn is exempted from excise and sales duties from the angle of protecting handloom industry, which is on the verge of extinction. The NTP has also proposed a review of the hank yarn obligations. If we go by the indications, the day is not too far, when the hank yarn and the cheap inputs for the handloom and powerloom sectors will be abolished and the mill sector will be completely ‘freed’. This might very well spell doom for the already limping handloom sector and pose a challenge of survival for the small-scale and tiny powerloom sectors that mostly enjoys the hank yarn concessions.
Demands for a level playing field between large and small mills has been articulated by Indian Cotton Mills Federation (ICMF). The recent policy pronouncements seem to have yielded to the demands of the big players. The budget 2002-3 removed the differential excise duty between process houses and composite mills.
In the name of making the industry competitive, small players are being left at the mercy of the market without any safeguards. Making the industry and government policies conducive to big capital, as against lakhs of small players with a large employment, allowing big units to swallow small units, bringing cotton cultivation under the control of corporate houses, removing hank yarn obligations for the handloom and powerloom sectors and modernization are some of the prescriptions by the government.
The weaving sector ranges from the handloom units producing around 5 metres a day to mills with advanced machines, each producing 250-300 metres in an eight-hour shift. The non-mill sector is also referred to as the Decentralized Sector that includes powerlooms, handlooms, and the hosiery sector. The decentralized sector produces around 95% of the total cloth in the country and is the major employer, income generator, as well as export earner for the weaving and knitting industry.
The competitiveness of powerlooms is slowly eroding. The advantage that powerlooms had in terms of smaller size is no longer important as the consolidation of firms is the order of the day. Rather, advanced technology and the level of flexibility are becoming more important that needs potential for huge capital investment which is possible only for bigger players. The looms used in the powerloom sector are mainly discarded old looms with less width and obsolete technology. The average number of looms per unit is around four, which is a tiny size that does not permit powerlooms to operate with economies of scale. A study by the textile committee suggests that units with less than 15-20 looms are unviable which means almost 70 per cent of units undertaking job work from traders would be ejected from the scene.
There are plans for integrating the larger organized sector and the powerloom sector so that the management of the powerloom units will be passed on to the hands of bigger units so as to overcome the scarcity of capital to face the competition. This vision of the integrated corporate entity is based on the experience of units such as Siyaram’s, S.Kumars and LNJ Bhilwara which started off as small players in the powerloom sector and gradually with specialization and backward and forward integration emerged as significant corporate entities in the industry. Accordingly, units with weaving, knitting and processing facilities or existing spinning mills might take over good powerloom units and set up processing houses.
In order to face the challenge, the government has resorted to the cluster approach and establishment of hi-tech weaving parks all over the country. The cluster approach is basically aimed at forming a consortium or amalgamation of powerloom units (consolidation) so as to make use of common infra-structural facilities and common facilities of trading, marketing and logistics. A cluster is one where availability of raw material to spinning, weaving, processing and garment units, along with the testing labs, etc. are developed in a compact geographical area based on the powerloom centres that already exist. These clusters are promoted as “Centres of Excellence”, very similar to Hollywood for entertainment and Silicon Valley for software. Tiruppur today is very much akin to a cluster in knitting/hosiery sector. Textiles ministry has identified around 19 clusters in the country and are planning to develop apparel parks around the clusters. Cauvery Hi-tech weaving park at Kumarapalayam near Erode in Tamil Nadu is one such example. Technology Upgradation Fund Scheme (TUFS) is aimed at promoting clusters with loans subsidized by the government. But, the lower rungs of the powerloom sector are yet to receive the benefit because of stringent conditions inappropriate to the present level of powerloom technology.
The government’s approach is to promote shuttleless looms with modern technology in apparel and weaving parks that have the potential to replace more than 50 workers of ordinary looms. This is being promoted by the government with the hope that traditional industry would face natural death. It is tragic that more than 90 per cent of powerloom and small-scale operators are unaware of what is in store for them. Modernisation may also create a small number of trained, elite workforce within the industry while a large number of traditional workers would be forced out.
The processing sector is one of the weak links in the textile supply chain. The processing industry is dominated by Hand Processing which constitutes 82.5 per cent of the total number of processing units. Power processing units can be divided into Independent Process Houses that do job work and those with composite mills that process their own fabric. Around 89 per cent of power processing units are Independent.
New units with modern processing technologies that can add value to garments such as anti-microbial and wrinkle-free finishes are being planned to face the competitive environment. In the backdrop of expected flood of imports, value-added processes are focused to offset the effect. If processing is not given adequate attention, there are opinions that exports will continue to be dominated by grey fabrics which are then processed abroad. With this logic, the Minstry of Textiles is proposing huge modernization and setting up of large modern processing houses to increase the export of processed fabrics. Upgradation in this segment is also intended to promote integrated large units with an improved quality and lower cost structure. Hand Processors will be phased out in a process. The earlier policy objective of employment generation through discrimination in favour of hand processors is replaced by modernization and skill-intensive employment.
Cutting, sewing and furnishing are the three major operations in the garment sector. The units engaged in sewing operations are called fabricators and it is the most labour intensive operation in the garment sector. 89.7% of the firms subcontract their sewing operations to the fabricators and only 0.3% engage in complete in-house production. Assembly line production and non-reliance on fabricators are being given focus and the investment pattern also moves accordingly. The future of independent fabricators is at the mercy of the people who control the assembly line production. Industry is demanding labour reforms in order to take over the fabrication segment which is labour intensive.
The focus of the industry is increasingly shifting towards marketing, brand names, design and retailing complexes and value-added diversified production such as ‘technical’ textiles. In integrating cultivation, manufacturing, processing and marketing, economies of scale occupy the central place. A new breed of monopoly traders come to control the entire industry with their large capital and the rest are left at their mercy. This new breed cares for nothing but for super profits. There are also demands to keep the role of state intervention at its minimum so that the market, that is under the complete command of the monopoly capital can call the shots.
In the whole process of making the industry competitive, crores and crores of workers are the worst affected. The government, which is offering Indian markets and the industry on a platter to the MNCs and corporate houses, has nothing to offer to the working class but misery, poverty and unemployment. There are also demands to legally ban work stoppages and strikes and to allow 12-hour work without any overtime wages. Business interests are vocal in demanding all unfair labour practices including contract system, hire-and-fire to be made legal in order to remove all bottlenecks on the way to super profits.
The orientation of the government planning does not address the issue of productive use of the abundant labour force; rather, the modernization processes and the accompanied planning focus only on machines, machine-based efficiency and creation of a smaller workforce that can cater to the restructured industry. The human labour is put at the altar of modernisation and markets. The policymakers do not understand that the country’s only advantage over other competitors in the developed and developing world, is its abundant labour; it cannot match them in either technology or scale of economy.
The social cost of this big capital-oriented restructuring will be much costlier than expected. The working class movement, the industry and the society will witness large-scale workers’ unrest in the days to come. At the end, clothes and garments may be cheaper but there would be no one to buy them.
Protecting domestic industry against the invasion of foreign goods by erecting tariff and non-tariff measures, reversal of big capital-oriented textile policy, growth with employment objective, cheaper and subsidized inputs such as yarn and electricity and export subsidy for handloom and powerloom sectors, revival of NTC mills, registration of all unorganized textile workers and social security and welfare fund for them, formulating a special act for powerloom workers along the lines of beedi and construction workers, etc., are emerging as major demands of the textile workers movement. The government should be forced to come up with an agenda favouring the workers.