India: Speed Up The Sewing Machines

As global import quotas expire, India's textile makers are ramping up furiously

India's textile industry was once the world's largest, and for two centuries fabrics from Bombay and elsewhere found their way to nearly all corners of the earth. After independence, though, the industry was strangled in a web of socialist regulation, and by the 1980s, once booming Bombay had become a graveyard of derelict mills.

Now, the sector is finally coming back. Deregulation by the government has inspired the opening of new garment and textile mills and helped the industry get on its feet. Leading manufacturers such as Welspun India, Alok Industries, and Gokaldas Exports Ltd. are ramping up to prepare for the elimination of textile import quotas worldwide on Dec. 31, in accordance with World Trade Organization rules. In the past two years, the industry has invested some $700 million in new mills and equipment, and companies plan to spend an additional $2.5 billion by the end of 2005 to expand capacity and boost marketing to foreign retailers. In the pro-cess, the manufacturers are helping make India a true rival to China. "Everybody has been preparing for WTO," says Salman Noorani, managing director of shirtmaker Zodiac Clothing Co., which has a full-time exec focusing solely on WTO issues.

Despite the size of China's trade -- the country last year exported $54 billion in textiles and garments, compared with India's $13.4 billion -- India already has some significant advantages. For starters, it's the world's largest maker of yarn, with a 25% share of the global market and a leading producer of cotton fiber. And with an abundant supply of skilled labor, India is a more competitive producer of terrycloth and denim than China is. So it has plenty of raw material to feed its factories -- and some left over to sell to China if supplies there run low, as may soon happen, according to McKinsey & Co.

India also has the upper hand in a niche at the high end of the market: supplying smaller lots of garments and home furnishings such as bedsheets, towels, and rugs with customized weaves, colors, and embroidery. Retailers also are turning to India because they are reluctant to rely entirely on China. "India is a good second line of defense, a viable alternative to China," says Rajeev Tyagi, vice-president of Li & Fung [India], an arm of the giant Hong Kong trading company.

JEAN THERAPY. The moguls of India's rag trade have been flashing on retailers' radar screens for years, of course. Wal-Mart (WMT ), Gap (GPS ), and Federated Department Stores (FD ) have long had small offices in India, as has Li & Fung. In recent years their scale has increased dramatically. Last year, multinationals bought some $1 billion worth of garments from India, up from virtually nothing five years ago, according to the Apparel Export Promotion Council of India.

The renewed interest has Indian companies investing like mad. In Ahmedabad, Arvind Mills Ltd., the world's third-largest denim maker, started producing jeans and T-shirts two years ago; they now make up 5% of its $450 million in annual revenue. The company is investing $30 million in 10 new factories to help boost its sales of clothing to 40% of revenues. Himatsingka Seide Ltd., which exports premium silk, is planning to expand into bed linens. Welspun is doubling its current capacity of 100,000 towels a day and investing $110 million in a new bedsheet factory. "This is a once-in-a-half-century opportunity that we are gearing up for," says Rajesh Mandawewala, executive director of Welspun, which sells to Wal-Mart and Target.

In the meantime, there's a lot the Indian government could do to give the industry a boost. A national road-building project is under way, but India's highways and ports are still decrepit when compared with China's. Improving them would help make land transport and shipping easier. And the industry needs more foreign investment, says Premal Udani, senior vice-chairman of the apparel council. Many manufacturers still feel the government could do more, especially with labor laws: Layoffs are illegal at factories that employ more than 100 workers, and labor unions can organize strikes with ease. With a little help from New Delhi, "we can be as competitive, if not more competitive, than China," says Welspun's Mandawewala. That would mark a real return to the glory days of a century ago.

By Manjeet Kripalani in Vapi, Bombay

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