India might be feted as one of the leading fashion suppliers of the future, but its textile and apparel industry is still hampered by many constraints, as Jozef De Coster reports from New Delhi.

According to Textile Minister Vaghela, the biggest constraints in the Indian textile and apparel industry are "labour laws and the power supply." But this is just the tip of the iceberg; there are, unfortunately, a lot more factors hampering the industry.

Indian labour laws are, indeed, restrictive. The Textile Minister is in favour of relaxing the existing and cumbersome personnel procedures and increasing the maximum weekly working time from 48 to 60 hours.

And as long as power supply is unpredictable, Indian textile companies have to invest in built-in captive power generators - a cost disadvantage compared with other countries.

However, other flaws in the field of human resources and infrastructure also hamper the industry. India may boast superiority in ICT, but the country's general literacy lags behind that of China. In 2002, India's adult literacy rate stood at 61.3% compared to 90.9% for China.

The low labour costs in textile and garment factories are counterbalanced by poor productivity. Small entrepreneurs often don't know or understand what the government has in store for them.

Shri HP Kumar, the chairman of the National Small Industries Corporation, recently said that most of the schemes designed to help small-scale industries go unnoticed. A special Textile Technology Upgradation Fund scheme, which came with a 50% subsidy for small companies, found very few takers.

India's infrastructure is not only deficient in terms of power and water supply, but also in terms of logistics, with inefficient ports and poor roads.

Former 'generous' government policies, devised to help the small-scale industry rather than the big mills, have India left with a highly fractured textile and clothing industry.

Figures from the office of the Textile Commissioner in Mumbai reveal that in 2005 nearly 83% of total Indian fabric production was in the hands of the small-scale powerloom sector. This sector is thought to be unable to compete with the flawless fabric from state-of-the-art plants in China and other countries.

As the production of garments and knitwear has only recently been 'de-reserved,' most Indian clothing for export is still manufactured in small units. Gokaldas Images, India's largest apparel exporter, operates through some 40 factories, while the Chinese top garment firm Luen Thai Holding, four times larger, has only two factories.

Textile Minister Vaghela

Lots of weaknesses
India's textile and clothing supply chain is badly balanced and suffers from bottlenecks.

The supply of cotton may be well developed and internationally competitive, but the same can't be said for the manmade fibre chain - though the government's budget for 2006-2007 proposes to reduce the excise duty on polyester from 16% to 8%, thus making polyester-based yarns more price-competitive with cotton yarns.

India's spinning sector is quite modern (about 25m spindles out of 37m are considered capable of producing quality yarn); the weaving sector is not. The processing sector needs urgent and substantial investment to keep up with international requirements.

Despite talk of 'high value added products,' the bulk of India's textile output is still low value added products. According to the KSA Technopak study 'Implications of the Phase-Out of MFA on Exports of Garments and Textiles,' the Unit Value Realisation (UVR) of Indian mill fabrics is less than 60% of the world average; while the UVR of Indian powerloom fabrics is around 30% of the world average.

Dr Shyam Agrawal, resident-director of the ITPO (India Trade Promotion Organisation) in Frankfurt, regrets that Indian garment exporters tend to ignore the fact that EU countries, just like the USA and Japan, also have a winter as well as a summer season.

In his opinion, Indian exports are too focused on ethnic designs. Amazingly, India still exports far fewer woven trousers, T-shirts and knitted underwear to the rich USA-EU-Japan triangle than small Bangladesh. India is also relatively weak in hosiery and sweater exports.

It's still too early to judge whether the Indian 2005 investment boom in yarn and fabric production capacities (which continues in 2006) was based on sound premises or on 'post-2005' hype.

But many investors feel constrained by the inability of domestic textile machinery constructors to shorten delivery times, despite low capacity utilisation (55% in 2004-05).

Textiles Commissioner JN Singh

Garment retail sector still restrained
India has 1.1bn inhabitants and in recent years the economy has grown at a pace of nearly 8%.

So it is no wonder that in spite of restrictions, a number of global brands are already operating in the Indian market in co-operation with Indian importers, licensees or franchisees, including Benetton, Marks & Spencer, Mothercare, Esprit, Hugo Boss, Lacoste, Levi's, Arrow, New Man, Adidas, Nike, Bulgari, and Zegna.

Recently, Chanel spent several hundred thousands dollars on festivities to celebrate its entry into India, and Christian Dior, Giorgio Armani, Gucci and other famous brands are also preparing to take a step into this market.

This is no accident: at the end of January 2006, the Indian government decided on a partial lifting of its ban on foreign retailers setting up shop. Foreign companies can now directly invest in retail stores, though with two restrictions: their maximum stake in the investment is limited to 51% and they can only offer one brand.

Different consultants have different views on the possible impact of the new law. Mike Flanagan (Clothesource Sourcing Intelligence, UK), warns that the potential of India's domestic apparel market is going to take a great deal of time to materialise.

He argues that India is going to keep its protectionist measures, including high import duties, against foreign clothing imports for a very long time. He doesn't expect companies like Tesco, Wal-Mart and C&A to dash off to India.

The Indian consultant Simran Singh (Simran Singh & Associates, Retail and Brand Advisory), however, believes that the apparel retail sector will soon be subject to further de-restriction. She guesses that within five years, restrictions on foreign retailers could have disappeared.

Like Flanagan, she expects that for the moment most foreign retailers will wait and see. But according to the Indian consultant Devangshu Dutta (Third Eyesight), a lot of foreign retailers are already eagerly preparing their entry into the Indian apparel retail market.

By Jozef De Coster.