Tough times face the Indian textile and garment sector as foreign exchange losses, high input costs and a slowdown in orders from the US and Europe were this week exacerbated by what firms see as a lack of support from the government in its interim budget. Speaking to just-style, Darshan Lal Sharma, managing director of Vardhman Yarns & Threads and a member of the Confederation of Indian Industry's (CII) national committee on textiles, calls for targeted support for Indian textile and clothing firms.

The Indian textile and clothing industry is striving to make inroads into China's annual garment export haul of US$115bn

"This is not difficult to achieve because of cost factors and various other reasons," says Darshan Lal Sharma, managing director of Vardhman Yarns & Threads, president and executive directorof parent company Vardhman Textiles Ltd, and one of the directors of the Vardhman group of companies. He is also a member of the Confederation of Indian Industry's (CII) national committee on textiles.

Speaking exclusively to just-style at the firm's corporate office in the north Indian knitwear-textile town of Ludhiana, Sharma points to Japan's heavy dependence - 75% to 80% - on garment imports from China.

This, he says is due to geographical closeness and existing Japanese joint ventures, but could change. "For geopolitical reasons Japan wants to diversify its sourcing, and India is a very strong contender."

There certainly is room for improvement. Last year India's share of Japanese imports was only US$151m in comparison with China's US$20bn.

One reason for Sharma's optimism is the tactical advantage enjoyed by the smaller size of Indian factories.

"In the last few months many quick-change [international] orders for small quantities have come to India," he says.

"While Chinese factories are very large - up to ten times the size of their Indian counterparts - they do not have the capability to change very fast."

This has enabled Indian garment exporters to retool quickly when volumes are going down, says Sharma.

Depressing mood
Despite this, the US$22bn generated by Indian textile exports in 2007-08 is expected to fall 10% in the current financial year.

In Sharma's hometown Ludhiana, "the mood is depressing, whether it is garmenting or material industry like spinning or dying," he says.

Vardhman too is affected and has been adapting to the situation.

"One can't get the same margins as before, therefore we are trying to control our costs, but we are more focused on managing our market share through better quality and service."

This, he says, is important to keep the capacity operating and avoid problems of layoffs and retrenchment, which is an almost impossible task due to the country's rigid and investor-unfriendly labour laws.

"In the past 43 years since our company was set-up, we have never retrenched or even laid-off labour in any of our 18 factories across the country," says Sharma.

Being also a chairman of CII's core group on labour law reforms, Sharma adds that management of labour is the most important factor in the Indian garment industry.

At its Ludhiana unit, which employs 2,000 people, Vardhman provides around 500 flats located near the factory for male workers who have to work in nightshifts.

The female factory employees, who are forbidden by the Indian law to work after 10pm, commute in company buses.

The company pays the government specified minimum monthly wage of INR3,200 (US$66) plus 16% extra social security costs to untrained new workers.

As and when more skills are acquired, wages rise. And although this pay differs from Indian state to state, most of the company's 22,000 workers have also been receiving a 20% bonus.

According to Sharma, similarly healthy labour policies must be followed in at least the top 100 of the roughly 5,000 companies in the Indian textile industry. Otherwise, he says, they would not be successful.

Yarns and fabric specialist
With annual sales of US$656m, the Vardhman group exports about US$130m worth of yarns and fabrics but currently has no plan to enter the ready-made garment business.

[To be a garment manufacturer] a company would require a much higher capability to manage labour," said Sharma.

And with the need to take on more labour, costs are a factor. Although Vardhman is based in Punjab, and draws on workers from cheap manpower states such as Uttar Pradesh, Bihar, in comparison to Bangladesh, Indian labour costs are still very high, sometimes even double.

According to Sharma, "everybody, at least in Ludhiana, is facing the pressure of competition from Bangladesh which is very strong in knit garments and also enjoys duty-free exports to the EU because of its LDC (Least Developed Country) status."

Furthermore, the situation in India has been worsened by the government's decision in September last year to increase the minimum support price for home-grown cotton by 40%, in contrast to falling international prices.

"This seems to be influenced by the political considerations," opines Sharma, "and has taken away our advantage of home-grown cotton."

To compensate the garment industry, the central government has announced a stimulus package, but Sharma calls it inadequate.

The industry has been demanding tax breaks for exporters and help with financing costs, for instance when borrowing to cover cash flow difficulties when waiting for export payments.

"This is very important to compete internationally as we pay more than 12% interest rate, while in China it is only about 5% per annum," Sharma says.

By Raghavendra Verma.