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Mausumi Kar

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The Indian Textile and Clothing IndustryAn Economic Analysis

Mausumi KarDepartment of EconomicsWomen’s Christian College University of Calcutta Kolkata India

ISSN 2191-5504 ISSN 2191-5512 (electronic)SpringerBriefs in EconomicsISBN 978-81-322-2369-6 ISBN 978-81-322-2370-2 (eBook)DOI 10.1007/978-81-322-2370-2

Library of Congress Control Number: 2015936377

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Preface

This monograph revisits the Textile and Clothing Industry in India and its rela-tionship with international trade from a new global perspective. Global investment and collaboration opportunities, technological changes, and diminishing barriers to trade worldwide have transformed the structure of production and international competition in the textile and apparel industries. Along with the liberalization of trade policies and the subsequent removal of quantitative restrictions on the tex-tile products, the domestic market in India has presently been exposed to several international brands, which eventually led to the recent spurt in foreign collabora-tions for this important industrial sector in the country. The study ornately exam-ines the nature and impact of such external changes on the industry-structure and its labor-related issues. The key feature of this book is that it presents a snapshot of all the domestic and international policies related to this sector from the earli-est relevant period till date and analyzes issues in trade and industrial organiza-tion. This is missing in most of the related studies on textile and clothing sector. It should help the reader not only to gather a comprehensive knowledge of the policy changes affecting this sector, but also the implications it carries for the economy at large. Besides, we also offer suitable empirical analyses on how concentration of firms and regional disparity are associated with the rather pervasive presence of this industry in India. The changes in factor income for those involved with the T&C sector will also be of interest to researchers following up on the growth tra-jectory of this industry. Additionally, this book deals with another striking feature, namely the role of preferential trading bloc or Regional Trading Arrangements (RTA) in analyzing the trade pattern of this sector and potential trade-diverting effects. Furthermore, a review of this industry shows that the issues in mergers and acquisitions, popularly called M&A, might offer varying implications for those willing to investigate the cross-border industrial changes associated largely with capital movements and technological spill over. The analyses carried out in this study may also prove beneficial for understanding the patterns in other industries where policy shocks have been of vital importance.

Prefacevi

In completing this research, I received support from many people. First, I sincerely thank Saibal Kar for his cooperation and inspiration without which it would not have been possible for me to complete this study. It is my pleasure and privilege to offer thanks and gratitude to all my family members, colleagues and friends who always encouraged me and stayed by my side whenever I needed them. The responsibility for any remaining error lies entirely with me.

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Contents

1 An Introductory Note About the Textile and Clothing Industry of India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2 International and Domestic Policies Associated with the Textile and Apparel Industry and Trade: An Overview . . . . . . . . . . . . . . . . . . . 72.1 Past Trends of India’s Textile and Apparel Trade . . . . . . . . . . . . . . . . 92.2 India’s Domestic Textile Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2.2.1 Textile Policy, 1948 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.2.2 Textile Policy, 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122.2.3 Textiles (Development and Regulation) Order, 1993 . . . . . . . 122.2.4 The Export Entitlement Distribution Policy (Quota Policy) . . . 132.2.5 New Textile Policy, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142.2.6 New National Textile Policy, 2013 . . . . . . . . . . . . . . . . . . . . . 15

2.3 International Rules for Textile and Apparel Trade . . . . . . . . . . . . . . . 152.3.1 The Short-Term Arrangement (STA)—1961 . . . . . . . . . . . . . 162.3.2 The Long-Term Arrangement (LTA)—1962 . . . . . . . . . . . . . 162.3.3 Multi-Fibre Arrangement (MFA)—1974 . . . . . . . . . . . . . . . . 17

2.4 Consequences of MFA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212.5 GATT Integration of Textile Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . 232.6 Agreement on Textiles and Clothing (ATC) . . . . . . . . . . . . . . . . . . . . 24

2.6.1 Product Coverage of ATC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242.6.2 Monitoring and Implementing ATC . . . . . . . . . . . . . . . . . . . . 252.6.3 Transitional Phase-Out of MFA Quotas . . . . . . . . . . . . . . . . . 252.6.4 Additional Safeguards Outside ATC . . . . . . . . . . . . . . . . . . . 27

2.7 China’s WTO Accession and Its Follow-Ups . . . . . . . . . . . . . . . . . . . 272.8 Implications for Developing Countries . . . . . . . . . . . . . . . . . . . . . . . 282.9 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

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3 Impact of Liberalization on Indian Firms—Some Issues . . . . . . . . . . . 353.1 Role of Sales Promotion Activities: A Theoretical Proposition

and Empirical Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373.1.1 Increasing Cost Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383.1.2 Constant Cost Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423.1.3 Empirical Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

3.2 Issues Related to Labor Income and Employment . . . . . . . . . . . . . . . 473.2.1 The Firm-Level Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483.2.2 The State-Level Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

4 The Role of Foreign Collaborations in the Textile and Clothing Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 694.1 Foreign Direct Investment Policy in Textiles . . . . . . . . . . . . . . . . . . . 704.2 Cross-Border Mergers and Acquisitions in Textile . . . . . . . . . . . . . . 744.3 Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

5 India’s Trade Scenario in the New World Order . . . . . . . . . . . . . . . . . . 835.1 Formation of SAFTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845.2 India’s Trade Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

6 A Concluding Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 956.1 Scope of Further Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Further Readings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

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About the Author

Dr. Mausumi Kar is the Head of the Department of Economics, Women’s Christian College, Kolkata, India. She works in the field of international trade and her research interest is focused on trade and various other aspects of the textile and clothing industry of India. She has published in peer-reviewed journals on topics in public economics, international trade. Dr. Kar has presented in some well-regarded international conferences like that of UNU-WIDER and possesses a handful of good academic publications with the reputed international publishers.

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About the Book

This book examines the textile and clothing Industry of India and its trade scenario from a global perspective. New developments in international policies related to trade and investment and falling barriers to trade worldwide as well as within individual regional communities have transformed the structure of produc-tion and global competition in the textile and apparel industries across the world. Furthermore, with the incorporation of textile trade in the GATT framework fol-lowing the removal of quantitative restrictions, and the subsequent liberalization of investment opportunities, the Indian market is now home to several international brands, which has led to the present upsurge of FDI in this very important sector of the Indian economy. The book ornately inspects the nature and impact of such external changes on the industry’s structure and labor-related issues. The key fea-ture of this book is that it presents a snapshot of all the domestic and international policies related to this sector, from the earliest relevant period to the present, and analyses the topical issues in significant detail. The book also offers some empiri-cal analyses to show the impact of external changes on the concentration of firms in this industry and the regional inequalities that have emerged from regional vari-ations in firms’ employment, labor-income, and profit levels. Further, it addresses another striking feature, namely the role of preferential trading blocs or Regional Trading Arrangements (RTA) in creating trade-diverting effects related to this sec-tor apart from the implications of foreign collaborations and cross-border merg-ers and acquisitions. Many economists fear that the benefits of these RTAs for the partner countries are much greater than those for India, with net gains of incre-mental exports from India being small or even negative. This book discusses these critical issues in the context of India’s textile and apparel trade.