India’s Competitiveness in Textiles and Clothing, Then and Now
The Indian Textile Industry is the second largest employer after agriculture, which provides direct employment to around 45 million people. The sector also accounts for 14% of India�s total industrial production, which is close to 4% of the country�s total GDP (Ministry of Textiles, Govt. of India Annual Report 2014-15). According to the WITS Comtrade 2014 data, India ranks only second after China in the list of the world�s largest exporters of Textile and Clothing, with an impressive export figure of around USD 38.6 billion.
This was the first organised industry that came up in the country (Kar, 2015). Being one of the oldest industries and holding a significant share in country�s total investment, employment and output, the textile and clothing industry occupies a central place in Indian economy. With an abundant availability of raw materials such as cotton, wool, silk and jute as well as of a relatively cheaper labour force, India enjoys a comparative advantage in terms of cost of production and of a skilled manpower relative to major textile producers.
The textile and clothing sector internationally, has been governed by several agreements which have sought to curb imports from developing countries to developed nations over the past few decades. The history of trade in Textile and Clothing can be dated back to the post World War II period, when there were several bilateral trade agreements taking place largely in response to the pressure posed on the industrial countries by Japan�s export-led industrialisation. Japan�s highly competitive textile exports to these countries made them wary of the international competition as well as the shrinking domestic market. These agreements, however, came to a halt in 1961, when a regulatory framework was signed by the then GATT member countries, which was named as the Short-Term Agreement. In 1962, this was replaced by the Long-Term Agreement, imposing controls on the exports of cotton textiles from the Developing countries to the Developed ones. The Long term arrangement was soon superseded by the Multi-Fibre Agreement (MFA) in 1974. Though the MFA was initially thought of as a temporary safeguard, it was extended several times in 1978, 1982, 1986, 1991 and 1992. Finally, it was at the Uruguay Round in 1994, that the participating countries agreed to abolish the MFA over a ten year transition period through the Agreement on Textile and Clothing (ATC) and eventually, on 1st January 2005, MFA was phased out completely (Article 1.1 of the ATC).
The phasing out of the MFA has had a positive impact on India�s share in world exports, which, according to the WITS Comtrade figures, grew from around 3.37% in 2005 to 4.53% in 2014, at a CAGR of around 3.01%. Comparing this growth with that in the previous decade, the share of India in world exports of Textiles and Clothing declined from 3.02% in 1994 to 2.94% in 2004 at a CAGR of (-)0.25% (WITS Comtrade).
Clearly, the removal of quota restrictions by the developed countries on the exports of textiles and clothing from the developing countries through the course of the MFA-phase out has provided the Indian textile exporters with greater opportunities for increased exports and for reaping benefits of the comparative advantage that India possesses in this sector.
According to the recent WITS Comtrade figures, the leading T&C exporters of the world in 2014 in order of ranking were : China (33.81%), India (4.53%), Italy (4.33%), Germany (4.16%), Turkey (3.41%), Bangladesh (3.17%), Vietnam (2.96%), United States (2.65%), France (1.94%) and Belgium (1.84%).
Interestingly, during the post-MFA regime, of these leading T&C exporters, leaving China, which stood out in terms of its export figures, as discussed earlier, only India, Vietnam and Bangladesh have experienced a positive CAGR in share of exports. All the other countries have witnessed a decline in share of global exports of T & C during the post MFA regime as shown in figure 1.
Figure1 Share of Leading T&C Exporters in 2014 (except China) in World Exports of T&C
Source: Author�s Calculation based on UN Comtrade database
However, in recent years, countries like Bangladesh and Vietnam have been posing a threat to India�s competitiveness. During the post-MFA regime, Vietnam and Bangladesh were the top two nations in terms of CAGR in share of exports for T&C (WITS Comtrade). Vietnam�s share in world exports rose sharply from 1.05% in 2005 to 2.96% in 2014 at a CAGR of 10.94%, whereas Bangladesh�s share increased from 1.52% in 2005 to 3.16% in 2014 at a CAGR of 7.61%. Therefore, Vietnam and Bangladesh could be seen as a potential threat to India�s rising dominance in terms of share in T & C exports to the world.
Moreover, following the Trans-Pacific Partnership (TPP) Agreement, which is a trade agreement among twelve Pacific Rim countries and which was reached finally on 5 October 2015, after 7 years of negotiation, it is strongly believed that Vietnam could be a major gainer. TPP, which will slash an estimated 18,000 tariffs among the participating countries, is likely to boost foreign investment into (and thereby exports out of) a low-wage economy like Vietnam. Bangladesh, also being a low wage economy, its textile industry is primarily based on low-cost apparel manufacturing. Therefore, enjoys a greater competitiveness vis-�-vis the competing exporters and thus, may pose a threat to India�s position in world exports of T&C, by inching closer every year.
Figures specified in parenthesis are the respective shares of the exporting countries in total world exports of T&C during 2014 (Source: Author�s computation based on WITS Comtrade Database)