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Shanthi Venkataraman
Anna Peter

Retailing in India is going to converge with retailing of the rest of the world. The ability of the consumer to spend his disposable income is growing. He is more conscious of international fashion. International tastes have converged because of cross-border media, foreign travel. All this is going to make ours the fastest growing market .

AFTER much talk of the opportunities ahead for the Indian textile and clothing industry post 2005, the quota-free regime has finally arrived. What has been the initial outcome of the phasing out of quotas? Is the textile industry set for a rosy future? These are questions best answered by Mr Anees Noorani, Vice-Chairman and Managing Director of Zodiac Clothing. In an interview with Business Line, he speaks for the entire industry when he says that we should no longer "export our taxes and inefficiencies". Mr Noorani is convinced that the textile industry has a tremendous opportunity and can quite easily quadruple exports, so long as the right conditions are created.

Excerpts from the interview:

How are things looking for the garment industry after the quotas have been removed?

There is no pot of gold from the of January 1, 2005. It is going to evolve over three-four years. Up to December 2008, China has a safeguard provision from both the European Union and the US. So what happens in this three-four years — the amount of market share we are able to capture — is very vital.

Meanwhile, we have had a very major blow. The duty drawback given to our industry was changed from the 9.5-10 per cent on ad valorem basis to a weight basis. This effectively reduced it (the drawback) by 50-80 per cent — this in a situation where the taxes on our inputs have not diminished. But the Government has now appointed a high-power committee to interact with the industry. One hopes the situation will be corrected.

But doesn't India have to phase out export incentives?

There are no export incentives and we don't want any. We have asked the government to reimburse the taxes that we pay. There are other steps that we have suggested. An important one is that we negotiate agreements with our major trading partners — the EU and the US. It is all very well to sign an FTA with Singapore or Thailand when you should really be signing it with Europe and America. And then see what the industry can deliver.

There is also the expectation that China, as it becomes more WTO-compliant, would have to reduce its subsidies... .

There is this 13 per cent subsidy, which it is giving and will have to go. They would have to comply, , which would add to their costs. Third, there would be social accountability, which would also raise costs. Most important, their currency is artificially pegged to the dollar. That's an indirect subsidy, which is not WTO compliant and (the removal of which) would raise their cost.

The other major problem that China faces is demography, because of the single-child policy. The number of male children is high. It is an ageing population and one that is large, but at the same time, not growing any more.Therefore, this ageing and smaller population, would like to move up the value chain. It is predicted that by 2011, China would have very few people who would want to work in industries like ours. They would want to work in more remunerative industries.

Geopolitics apart, if the WTO agreements are implemented, I think we can get more (market share) than the WTO predicts (15 per cent).

Is the US the more lucrative market, in terms of demand?

I think both (the US and the EU) markets are extremely interesting. What we have to offer, which besides China nobody else can, is a large market — our internal market. We must get into a "zero for zero" situation. We must allow them to bring in their products at zero duty and, reciprocally, we should get zero duty access to those markets. The third thing we have asked for is WTO-compatible tax benefit — so that we would have the wherewithal to make the large investments necessary for scaling up.

Has there been any expansion in volumes, post-quotas?

There has been an expansion in volumes; wherever there is dramatic expansion, it has been at the cost of margin. There are three kinds of people (garment exporters): One, the people who are not going to be able to make it. We have 20,000 exporters in the country. That number is going to diminish very radically. The second category is where exporters are taking large additional business and sacrificing margins. And the third category is the ones who are taking very small jumps (in revenue) without compromising margins.

Is the pricing pressure more for those who cater to international retailers or do those who operate in the premium segment face it as well?

There is a commodity end to our business. That commodity end is not necessarily restricted to large, international retailers such as Wal-Mart and JC Penney. It is also with brands such as Nike and Adidas, which are not cheap.

They (Nike and Adidas) were locked into countries outside China, because of the quota. They now have the option to come to China. Whereas others like Wal-Mart and JC Penney now want to reduce their exposures to China. So the whole scenario is evolving. And, therefore, there is business not only from the likes of retailers, but brands as well, but with pressure on margins. People are able to see a 30-40 per cent growth (in revenues) with a constant or marginally better bottomline.

You recently acquired a shirt manufacturing facility in Dubai. What was the strategy behind the move?

This factory, which we have taken over, belonged to our family. We offered them the comfort of working with someone they know, but in a country in which they had little or no exposure. Second, in Dubai you do not have any local labour. So you have to employ expatriate labour. So you can leverage your skills, your know how and systems with the cheapest labour in the world. And, finally, the most interesting part was that the freight out of Dubai to both Europe and America is very low. When we import raw material into India, with all the organisation and infrastructure that we have, it takes us 10-15 days from the time the container is offloaded until the time it gets to our factory. Whereas in Dubai, when a container lands this morning you would be unlucky if it is not in your factory by afternoon.

What has also happened since is that Dubai is on a fast-track for an FTA with the US. Should that happen, which it seems to me will probably be very soon, it is a major advantage, because the duty on our product is 21 per cent.

You are also looking at getting into suits and trousers. Are you looking at for the domestic or export market?

Well, the capacity that we are creating is too large for this market. It is in keeping with our strategy that we sell the bulk of our production internationally.

A lot of exporters are now looking increasingly at the domestic market, at a time when export markets are opening up. Why?

Well, there are three aspects. One, it is a way of hedging their risk. Second, the Indian market is going to be one of the fastest growing in the world. The third thing that we now have is organised retail. We had this fragmented, independent retailer, which was ridden with malpractice. Now there are two changes. The recent growth in organised retail. With the proliferation of malls, people can have their retail outlets without having to buy real-estate. Retailing in India is going to converge with that of the rest of the world. Reaching the end consumer is going to be easier. The ability of the consumer to spend his disposable income is growing. He is more conscious of international fashion. International tastes have converged because of cross-border media, foreign travel. All this is going to make our market, the fastest growing market.

So is Zodiac looking at increasing its domestic thrust?

Yes, in a measured way. We would like to increase our thrust with our own retailing, which has become possible because of the malls. We have a new concept store, which we will unveil by the end of next week. We are going aggressively after the large organised retailers with whom we have a strong relationship. We are shareholders in one of them — Shoppers' Stop.

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