India missed post-MFA boom, will it miss China one?
When the Multi Fibre Arrangement (MFA)—export quotas governed global trade in textiles and garments—expired in 2005, most thought India would be a very big beneficiary. India did benefit and textiles exports rose from $12 billion in FY04 to $30 billion in FY14, but other countries benefitted much more. Much the same hope is held out now, with both Chinese wages and currency resulting in costs rising. A World Bank report, From Stitches to Riches?, projects a 10% hike in Chinese export prices leading to a 15% hike in India’s exports to the US and 19% in those to the EU—that, in turn, is to lead to 1.2 million more jobs being created. Whether that happens is to be seen, but the report talks of how, in the post-MFA period of 2005-12, India’s apparel exports rose just 3.7% a year versus 18% for Vietnam, 15.7% for Bangladesh and a healthy 6.9% for China which already had a very large export base by 2005.
As the report points out, India has several things holding back a big export surge, ranging from higher wages (hourly wages in India were $1.06 in 2012 vs $0.51 in Bangladesh) to lower productivity (India is ranked #6 in a buyer perception survey versus 3 for Vietnam), longer lead times in deliveries (India is ranked #6 versus 2 for Vietnam), poor presence in synthetic fibres compounded by high import tariffs on them. A BCG analysis (goo.gl/ihDX3i) confirms this by showing that Bangladesh wins on lower wages—both countries have similar productivity in terms of making apparel, though India’s restricted overtime rules make it worse—while Vietnam wins due to a 30% higher productivity and better lead times. Which is why, between 2010 and 2015, while India’s apparel exports to the US rose from $3.1 billion to $3.7 billion, those from Bangladesh rose from $3.9 billion to $5.4 billion and from Vietnam from $5.9 billion to $10.6 billion. India’s export thrust will be restricted if it is not able to deal with such issues—India’s market share in the spinning sector is higher since most firms in that space tend to be large and have less quality issues as compared to apparel where the number of players is large and the firms are very small; the fact that around two-thirds of fabric produced is on powerlooms where the quality is not uniform only compounds the problem. In other words, don’t hold your breath waiting for India’s apparel exports to take off.