Financial Daily from THE HINDU group of publications
Wednesday, Jan 29, 2003
Industry & Economy
Cost-cutting vital for textile sector survival: Study
NEW DELHI, Jan 28
WITH the imminent phase-out of quota regime in world textile trade by 2004, Indian textile industry should reposition itself to compete with Asian textile giants such as China, Indonesia and minnows such as Sri Lanka, Pakistan and Bangladesh by focusing its attention on cost reduction as the prime objective to survive and thrive.
This is the broad conclusion of a report carried out by the Zurich (Switzerland)-based renowned professional consultancy firm Gherzi Textile Organisation, jointly sponsored by the Cotton Textile Export Promotion Council (Texprocil) with the active assistance by the Ministry of Textiles and Ministry of Commerce under the Market Access Initiative (MAI), announced in the Exim Policy.
The Gherzi study is understood to have zeroed in on cost factors as the key to success and while identifying the key cost drivers and their effect on cost, the study has found that the cost of raw material, energy, dyes and chemicals and wages constitute the most critical in the cotton textile value chain to stay competitive, besides technology used for production.
These alone constitute more than 85 per cent of the manufacturing costs. The study has reportedly cautioned India that it might end up in losing its extant market share in the near future, if it failed to pay attention to cost reduction as the overarching objective.
While China remains the undisputed leader with cost advantages in well-nigh all the factors of production, India is fast- losing its traditional advantages of home grown cotton and low cost labour, according to the study. Besides, India's energy costs remain prohibitively higher. It is reported to have concurred with the general belief that India has the potential to become cost competitive against China, it said that for this to supervene, several initiatives need to be put in place to tackle the problems of escalating cost both by the industry as well as the Government.
Stating that if India desires to become a leader in global cotton textiles trade, it needs to address the issue of gradually rising raw material (raw cotton) cost and simultaneously slash the power cost drastically.
The study suggested a menu for radical cost reduction in its cost parameters to regain its competitive edge on the ensuing lines which include, among others, reduction of cotton cost by 10 per cent and increase clean cotton realisation by two per cent, reduction of power cost by three US cent per kWh and increase labour productivity by 10 per cent. Besides, impetus should be given to steam generation by using coal and reduction of dyes and chemical cost by 10 per cent. The combined consequences of these reductions would enable the country to reduce its cost by at least 15 per cent in spinning, weaving and processing.
The study encompasses the three segments of the cotton textile industry viz., yarn, fabrics and made-ups and therefore the cost of production cover all parameters pertaining to spinning, weaving and processing. It has also drawn parallels between India and the competing countries in terms of technology levels in various stages of production, infrastructure, incidence of taxes and levies, incentives offered by the respective governments, Exim Policy, transaction cost and cost of export financing.
Official sources told Business Line here that considering the importance of the findings of the study and its long-haul effect on the competitiveness of domestic textile industry, the Union Textile Minister, Mr Kashiram Rana, would release the major recommendations of the study report on January 30 here.
The sources said that as producing products at a lower cost is the key to maintain competitive edge in the global market, especially after 2004 when the multi-fibre arrangement would be dismantled and world trade in textiles and clothing would be free from quotas and restraints, invaluable trade intelligence like competitors' production cost and how they are surmounting their costs would facilitate Indian producers to evolve an efficient low-cost production base.
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