Characteristics of Indian garment sector 1 Changes in export composition

Garment exports as a share of manufactured exports from India rose from 0.3 percent in 1960/61 to 17 percent in 1992/93 (Chatterji and Mohan 1993; Exim Bank of India

1995, 5).² Chatterji and Mohan distinguish two phases of this growth based on composition of garments exported, their destination and demand vagaries. The first one, during the late 1960s and early 1970s, was led by a tremendous surge in demand for handloom garments due to fashion requirements in the US and Europe.

The second phase, according to Chatterji and Mohan (1993), begins from 1983/84 and has been marked by a relatively more steady growth. From around Rs. 640 crores in 1983/

84, it has increased to around Rs. 22,915 crores in 1999 (Exim Bank of India 1995, AEPC, various years). However, this relatively stable growth has been accompanied by changes in the relative shares of segments within the sector (Tables A1.1 and A1.2 in Annex). Of special significance has been the rise of the knitwear segment. From 16.9 percent in 1983, it has almost doubled to 33 percent by 1999. That the cotton knitwear segment has led this growth is quite clear, as it alone constitutes 90 percent of this sector.

However, the share of handloom garments has fallen steadily from 6.9 percent to 0.3 percent while that of mill made garments continues to be high at around 70 percent (Chatterji and Mohan 1993, M-104). This remains so, despite a slow but steady decline in the share of mill made garments. The decline in both these product categories has been compensated by a steady increase in the share of knitwear products. Between 1985 and 2000, knitwear exports have grown at a compound growth rate of 9.63 percent while that of woven wear has grown only at 4.93 percent (Panthaki 2001, 86).

With regard to the fabric base, cotton garments continue to dominate the export basket.

Cotton based garments accounted for nearly 71 percent of value of garment exports from India in 1999 (AEPC 2000). Synthetic and woollen garments constituted 26.2 percent and 3.39 percent respectively in 1999 (ibid) as compared to 9.1 percent and 6.6 percent in 1983 respectively (Chatterji and Mohan 1993, M105). In fact, the share of cotton garments in quantity terms is even higher at 81 percent, indicating a lower unit value of cotton garments as compared to that of synthetic and woollen wear, especially synthetic garments. Comparing the composition of Indian exports with that of South Korea and Hong Kong, Chatterji and Mohan (1993, M105) find that there is a “predominance of woven clothing”. Further, they also note a high concentration of items exported. The Exim Bank study (1995, 12) notes that five products, viz., women’s blouses, dresses, skirts, men’s shirts and knitted undergarments constitute 61 percent of total Indian garment exports in 1991. Since almost all the garments are cotton based, they argue that Indian products compete for only 15 percent of the global market for clothing. On the other hand, Ramaswami and Gereffi argue that a pattern of specialisation is not confined to India and find a similar product concentration in the composition of exports from competing economies like China and Indonesia. In fact, in all these three economies, the top two products account for more than 50 percent of their total garment exports. Further, across all the product categories exported, India’s market segments

2 “During the last decade, (i.e. 1983-93) garment exports have expanded at the rate of 19.1 % per annum in US $ terms, which is more than double the rate of growth for exports as a whole (8.2%).” (Exim Bank of India, 1995, 5).

“mainly fall in cotton, semi-fashion, middle price segment with main product category being T-shirts, men’s shirts, ladies’ blouses, ladies’ dresses and skirts” (Tait 2001, 44).

2.2 Destination characteristics

The change in the composition of garments exported also partly reflects changes in the destination of Indian exports. In the initial phases of Indian apparel exports, USSR and Eastern Europe were the biggest importers. Right from the 1960s through the mid-1970s, they accounted for roughly over 50 percent of the market for Indian apparel exports (Chatterji and Mohan 1993, M 99). Since the late 1970s and the beginning of the 1980s, there has been a gradual shift to US and European markets along with the decline of the former East European and USSR markets. By 1999, a major share of Indian garment exports catered to the US and European markets, 29.54 and 33.63 percent respectively (calculated from AEPC 2000).

Indian exports to these countries have been subject to quantitative restrictions. Along with currency depreciation, this has in fact governed the relative share of garment imports by these regions from India. While during the early 1980s, the share of the EEC market was around 50 percent, it declined in proportion to increase in the share of US market, only to again increase and stabilise at 43-44 percent during the late 1980s and early 1990s (Chatterji and Mohan 1993, M 102; Exim Bank of India 1995, 35). Since quotas given in most countries have been fulfilled, analysts expect that the removal of MFA restrictions would enhance the ability of Indian exports to penetrate these markets. Moreover, there has been a slight diversification into non-quota markets in recent years with quota markets’ share declining from 82 percent in 1987 to 74 percent in 1993 (Exim Bank of India 1995, 7) and to 68 percent in 1999 (Handbook of Export Statistics, AEPC 1999). These new markets are UAE, Switzerland, Japan, Russia, Saudi Arabia and Australia. Table 3.1 gives the growth in restrained and non-restrained markets since 1980.

Table 3.1: Growth rate of exports of Indian apparel, 1980-2000

(compounded rate of growth) Period Restrained markets Non-restrained markets

1980-84 1.25 32.8

1985-89 11.5 11.9

1989-94 7.5 22.8

1995-2000 4.8 7.8

Entire Period 8.83 17.9

Source: Panthaki (2001, 85).

As can be seen in the above table, exports to non-restrained countries have grown at a much higher rate than that for quota countries, indicating a degree of competitiveness of Indian apparel. However, 51 percent of the garments exported continue to be governed by quota restrictions (Handbook of Export Statistics, AEPC 1999).

2.3 Relative performance

Indian garment exports do not compare well with many other peripheral economies.

The growth in India’s share has been relatively slow, having moved from 1.5 percent in the 1970s to around 2.4 percent in 1992 (Exim Bank of India 1995, 7) and then to 2.6 percent by 1994 (Ramaswamy and Gereffi 1998).³ Even the latest figures for India’s exports place it at only around 2 percent (Tiruppur Exporters Association 2000). Though the growth of its exports has moved in tandem with world garment trade, its performance does not compare too well with that of other peripheral economies.

Economies like Thailand, Indonesia, Bangladesh, Mauritius, Pakistan and Sri Lanka have achieved higher growth rates during this period as compared to that of India (Exim Bank of India 1995, 8; Ramaswamy and Gereffi 1998, 124). China, for instance, has more than tripled its share from 4 percent in 1980 to 15.2 percent in 1995 (Ramaswamy and Gereffi 1998, 124).

Bangladesh has increased its share to 0.9 percent from near nil exports in the early 1980s. As a result, India’s share in ‘developing’ countries’ exports has not improved beyond the 4 percent mark achieved in 1974 (Chatterji and Mohan 1993, M 96). To add, India’s rank among

‘developing and NIE’ country exporters has fallen from 5 in 1980 to 8 in 1992 (Exim Bank of India 1995, 8). This relative stagnation assumes further significance in the context of India’s advantages in terms of cheap cotton production and availability of large pools of labour. In fact, substantial quantities of cotton fabric and yarn are exported from India to some of these economies from where they are made up into garments and exported.

2.4 Government policies and production structure

The strategy of import substitution based industrialisation, with emphasis on growth of heavy industry has exerted a strong influence on prospects of the garment industry. Since heavy industries are capital intensive, and given the huge labour surpluses in India, the state assigned a few light goods industries, including the garment sector, the role of a labour absorber. Further, since there already existed a strong traditional artisanal garment sector, it was felt that it needs protection from the more ‘efficient’, modern capital. Consequently, sectors like the garments were reserved for firms that fall under the ‘small scale’ sector.

Firms with a capital investment limit of less than Rs. three crore⁴ are categorised as ‘small’

and any firm with greater investment need to commit to export more than 75 percent of its output. Since no time frame is provided for this requirement, it is said that big firms do not will to risk entry into this sector (Chatterji and Mohan 1993, M117). Further, the small firms too would be unable to upgrade their technology, as this would invite a movement beyond the capital ceiling fixed for the small-scale sector.⁵ As a result, the Indian garment sector is found to consist of smaller firms as compared to other exporting peripheral nations,

3 ASSOCHAM Parliamentary Digest puts India’s share in textile exports for 1997 at 2.5 per cent (1999, 216)

4 It has been revised to Rs. three crores only since 1998, and the limit was Rs. one crore during the 1990s.

5 “In the case of export of cotton garments to the US in 1989, the average unit value realisation for Indian products was $ 3.50 as against a figure of $ 4.61 for Hong Kong, $4.73 for Taiwan and $5.1 for Korea.” (Chatterji and Mohan 1993, M115).

thereby placing limits on the sector’s ability to compete on the basis of productivity (M 116). Moreover, given the importance of market information in this industry, traders exert a dominant influence in the export market. Out of 10,000 exporters registered with AEPC, only 250 are manufacturer exporters (M114). As a result, incentives to improve production techniques have not been forthcoming.

It is therefore said that Indian exports depend more on fashion changes than on any inherent competitive strength based on quality or productivity (Chatterji and Mohan 1993).

Despite these limitations, Ramaswamy and Gereffi (1998) find that India has improved its market share in 9 out of its 17 main product categories (129) and further that, there has been an increase in the unit values realised. This appears to have been possible due to the advantages derived from such a decentralised and networked production structure, which enable firms to compete in low-volume segments with greater fashion content as compared to say, China or Bangladesh where the minimum efficient scale of operation is much higher.⁶ In fact, Kathuria and Martin (2000), quoting Khanna (1990), cite that all successful exporting firms subcontract much less than India. While Indian firms subcontract 74 percent of their output, countries do not subcontract more than 36 percent of their output in all other cases.

Further, they also contend that investment of Indian firms in processing techniques is very low when compared to other exporting countries (Table 3.2).

Thus, while government policies have constrained garment producers from competing on the basis of scale economies and improved labour productivity, they have fostered a structure, albeit accidentally, that facilitates production for a more flexible product market.

However, with the removal of reservation for the small-scale sector, possibilities of entry into large-scale production and benefiting from the scale of economy, have been facilitated. Further, with a good domestic production base in cotton fibre and lack of import restrictions to upgrade process techniques, Indian garment producers may venture to compete in the mass market as well. Nevertheless, given the strong competition in this segment and absence of a first-mover advantage, it may still be in the ‘flexible’ market segment that Indian producers retain their advantage in the post-MFA regime. Simultaneously, it also opens up possibilities for the latter segment to upgrade its quality by taking advantage of availability of new processes.

Table 3.2: Machines installed by apparel export firms (nos.)

Pre-cutting Cutting Sewing Special Processing

S. Korea 2.9 12.3 134.3 77.5 31

Taiwan 2.6 7.5 185.1 49.5 12.8

Hong Kong 2.3 13.2 455.4 112.7 27.9

Thailand 2 12.8 460.8 72.4 21.9

India 0 2.3 103.7 8.6 4.6

Source: Kathuria and Martin (2000, 10).

6 “While China is gearing itself to meet the needs of the ‘volume’ markets for standard items, India is concentrating on “niche”

markets for speciality products.” (Sen Gupta, http://www.carleton.ca/ctpl/library/booklibrary/01-01-023-11.htm, 250).

2.5 Labour employed

Given the fact that considerable section of Indian garment industry is confined to the

‘unorganized’ or ‘informal’ sector, working conditions for the workers are hardly under the legal purview. For instance, Gupta ( http://www.carleton.ca/ctpl/library/booklibrary/01-01-023-11.htm) reports that only 25 percent of the total value of garment output is accounted for by the firms registered under the Factories Act. Hence, secondary data at the macro-level too are hard to come by in this regard. Time and again, as in many other countries, we observe that labour in the garment industry is subject to harsh working conditions and low wages (Singh 1990; Kalpagam 1981, 1993; Alam 1994). Further, given the predominance of ‘informal’ sector activity, legislation with regard to labour markets are less likely to be enforced as compared to other economies.

Tait (2001) provides the distribution of the workforce in the Indian garment industry as follows (Table 3.3). Above all, the table clearly brings out the heterogeneity of the sector, and the share of the workforce employed in the export sector is still unclear. Employment in the ready-made garments industry is around three million, which is only eight percent of the total workforce in this sector, seen as a segment of the apparel commodity chain. The Annual Survey of Industries provides data on employment, output and capital used in the factory sector of all the manufacturing industries.

Table 3.3: Employment within the textile and apparel industry in India

No Sector Employment (in million)

1 Handicrafts 7.1 (18.64)

2 Sericulture (Silk Industry) 6 (16)

3 Readymade garments 3 (7.87)

4 Woollen sector 1.2 (3.15)

5 Handloom 12.4 (32.5)

6 Decentralised powerloom 6.8 (17.85)

7 Man-made fibre/filament yarn 0.06 (0.16)

8 Cotton/man-made fibre/Yarn Textile/Mill Sector 1.14 (2.99)

9 Jute 0.4 (1.05)

Total 38.1 (100)

Note: Figures in parenthesis in Column 3 are the percent shares of employment in the sector.

Source: Tait (2001, 44).

Though confined to only a small proportion of the garment sector, we provide the employment figures as they are the only reliable macro-data source available for the Indian economy (Table 3.4). The table indicates the high dominance of women workers in the woven garment industry, while they are relatively less in the knitwear sector. However, as stated earlier, the data are hardly representative of labour employed in the numerous subcontracting and household enterprises that populate the ‘informal’ sector. Given the unreliability of these figures, rather than seek to understand the conditions of labour at the macro-level, or understand

the labour market conditions in all centres of the Indian garment industry, the analysis is confined to that existing in Tiruppur, one of the biggest centres of apparel exports and representative of regions undertaking garment exports in India. Prior to that, in the next section, with a view to capture the structural dynamic of the global apparel industry and the possible impact of it on specific regions, some of its key characteristics are delineated.

Table 3.4: Sex-wise distribution of workforce in the organized Indian garment sector (1997/98)

Industry No. of No. of No. of Share of female

Code factories male workers female workers workers (in %)

260 1380 24708 7612 23.5

265 2983 7637 148910 95.2

Note: ‘260’- Knitting mills; ‘265’ -ready made garments sector other than knitting mills where fabrics are cut and sewn into garments.

Source: Annual Survey of Industries, 1997-98.