• PAGE ONE
• INDEX
• HOME

New Textile Policy -- Blow to the employment objective

Ruddar Datt

ON NOVEMBER 2, the Government announced the New Textile Policy (NTP), outlining measures to make India a global player in textiles and readymade garments by raising exports from $11 billion to $50 billion by 2010. Of this, the share of readymade garments will be half. The Government has decided to dereserve the garment industry from the SSI category to make the former internationally more competitive. Till now, the garment sector was under SSI reservation, with an investment ceiling of Rs 3 crore, and t he maximum foreign direct investment limit of 24 per cent.

There are two more modifications. First, the FDI limit of 24 per cent has been removed, and foreign companies will be able to make 100 per cent investments through the Foreign Investment Promotion Board (FIPB) route. Second, the 50 per cent export obliga tion on firms with foreign equity has been done away with.

The Government did not agree to the Satyam Committee recommendations of abolishing the Handlooms Reservation Act and remove the hank yarn obligation because of social reasons, including the need to protect handloom weavers.

The Government intends to implement, in a time-bound manner, the Technology Upgradation Fund Scheme covering all manufacturing sectors of the industry. According to the Textiles Minister, Mr Kashiram Rana, response to this scheme is improving, and propos als worth Rs 11,000 crore were received.

The policy's main aim is to increase cotton productivity by at least 50 per cent by upgrading quality to global standards through the effective use of the Technology Mission on Cotton. Similarly, the NTP proposes to launch a technology mission on jute to enhance productivity and diversification.

The policy package mentions that efforts should be made to assist the private sector set up specialised financial systems to fund the diverse needs of the textile industry, besides setting up a venture capital fund for technology-based entrepreneurs. For the spinning sector, the National Textile Policy would continue to modernise, liberalise and encourage export of cotton yarn and review the hank yarn obligation, while allocating adequate quantity of yarn to handloom weavers. Since weaving technology st ill remains backward, it will have to be rapidly modernised.

On the question of privatisation of sick units of the National Textile Corporation, the Minister said the Government would undertake a unit-wise review before taking any decision. However, the policy concedes that employment protection in a terminally si ck industrial unit is neither conducive to efficient allocation of resources nor incremental employment generation. The Minister, therefore, emphasised that a pragmatic and rational exit policy be worked out, with adequate protection to workers' interest s.

It is unfortunate that the NDA Government decided to dereserve the garments sector from the SSI list to raise the exports of readymade garments from $4.44 billion in 1998-99 to $25 billion in 2010. This decision is in keeping with the Government's earlie r decision to dereserve 14 of the 68 items that accounted for 80 per cent of the total output of the small sector.

The decision was made on the ground that the large sector would reflect modernisation and dynamism, which the small sector has not been able to achieve. It is also being made out that the small sector is unable to face world competition and that the larg e sector, supported by foreign companies, will be able to. It would be worthwhile examining this argument.

According to the RBI, exports of readymade garments in the 11 years from 1987-88 to 1998-99 rose from $1,430 million to $4,444 million -- more than threefold. The annual average growth rate readymade exports during this period was 10.9 per cent, ag ainst the overall export growth rate of 9.7 per cent.

Exports of readymades to the developed countries are improving. Against exports of $427 million to the US, in 1987-88, they touched $1,503 million -- again, more than threefold-- in 1998-99. There have been similar increases in despatches to the UK, Germany, France, Canada, Italy, Japan and the Netherlands. There was a decline in exports to the Commonwealth of Independent States (CIS) because of the unstable conditions.

India was also able to capture markets in developing countries, especially the UAE. The rising trend of readymade garment exports, even to the most developed countries, proves beyond doubt the competitive ability of the small sector. Had this sector been given adequate facilities through promotional measures, its record would have improved considerably.

Second, the policy is logically inconsistent. On the one hand, it woos foreign investors by abolishing the FDI cap of 24 per cent allowed to 100 per cent foreign companies; on the other, it removes the export obligation of 50 per cent of their total prod uction. The most intriguing part is that the FDI cap is being scrapped so that foreign companies can modernise and upgrade technology to international levels.

The removal of the 50 per cent export obligation only underlines that the companies will capture the Indian market rather than promote exports. The withdrawal of export obligation is, to say the least, utterly illogical. Rather, the 100 per cent foreign companies should be obliged to export 75 per cent of the their production.

Claude Alvares, writing in Indian Express, on January 29, 1984, in an article entitled ``Gandhi's Second Assassination,'' said: ``How long can we continue to assume the illusion that when the British destroyed local industries, that was wicked but when w e do so, it is desirable.'' This aptly applies to the present situation. Earlier, the foreigners forced us to export raw materials and then captured the Indian market by importing finished goods into India. Now, we are inviting multinationals to come and produce in India in fully-owned foreign companies and export their profits after capturing the Indian market. What a change!

Third, the policy is totally unrealistic when it envisages that garment exports will reach $25 billion in 2010, from $4.44 billion in 1998-99 -- signifying an average growth rate of 17 per cent per annum. Similarly, reaching an export target of $50 billion in all textile exports by 2010, against the $11 billion in 2000-01, appears over-ambitious.

Fourth, the policy only pays lip-sympathy to protecting the interests of workers in sick mills as well as in the small sector who will be displaced as a consequence of the dereservation and privatisation of NTC mills. The history of privatisation and der eservation does not provide any empirical evidence in this regard. Such phrases are mere statements to fend off protests from workers. The displacement of handloom workers by powerlooms and their pitiable state is testimony to the policy's hypocrisy.

Last, under the reservation policy, garment exports rose from $1.43 billion in 1987-88 to $4.44 billion in 1998-99. Even in terms of the percentage of total exports, the share of garment exports increased from 11.8 per cent to 13.2 per cent over this per iod. It would have been far better had the Government reconciled the production and export objectives with the employment objective.

But its excessive preoccupation with the export objective only underlines the stark reality that it has relegated the employment objective to the backseat. In this connection, the policy to continuously displace the labour-intensive small sector with th e capital-intensive large sector -- both Indian and foreign -- only highlights its failure on the employment front. It has failed to create sufficient employment to absorb the growing labour force. The Prime Minister, Mr Atal Bihar i Vajpayee's promise of creating 10 million jobs every year is a non-starter.

By dereservation, the Government has struck another blow to the employment objective. It seems to have succumbed to pressures of industrial lobbies -- Indian and foreign -- to the detriment of the small-scale sector. Evidence of employment growth in the post-reform period only highlights the harsh reality that organised sector employment is shrinking and workers are being pushed from secure to insecure employment in the unorganised sector.

What happens to the objective of growth with equity is not the concern of the Government, it seems, though exports occupy a top position in its agenda. The NDA Government seems to be going against its own manifesto presented to the nation just over a yea r ago.

(The author is President, Indian Economic Association, New Delhi.)