According to experts, the Indian textile manufacturers have the choice of strategies. They can continue to be volume suppliers to the large domestic market with a low-level demand on quality, creativity and flexibility.

For success in global markets, however, the Indian firm needs to decide in which part of the value chain should they compete. Most of Asia’s successful textile industries have followed a development strategy centred around the apparel industry where their competitive advantages are bigger. Unfortunately for the textile industry, the Indian garment industry has yet to become globally competitive and make a significant presence in world trade.

Regarding the settlement of duty anomalies, one way would be to introduce a system of value-added-taxation (VAT), in which each link of the value chain is taxed progressively. This will increase tax revenues without imposing disproportionate burden on any one activity. Ultimately, however, the industry needs a booster dose of new technology, industrial restructuring and a complete policy reversal to help it tap the potential of the free-trade regime. Apart from de-reservation of garments and knitting and a workable VRS (Voluntary Retirement Scheme), the government will have to remove certain regulatory lacunae like the relocation policy for mills in Mumbai.

The Government of India’s only concrete policy response has been the setting up of a Technology Upgradation Fund (TUF) in April 1999, under which grants are given to looms and mills for modernisation. The scheme is not yet a success because rampant excess capacity has deterred any fresh investments in the industry, and mills aren’t getting any money from banks and financial institutions. The industry badly requires a new textile policy conducive to operating in the free-trade milieu.