Dr. Mohammed Seraj ANSARI
Chairman

Friends, it is a matter of great privilege for me, as I stand before you today at the 1st General Meeting of our Ithepo. I consider myself singularly fortunate that the honour of presiding over the Golden Meet of our Ithepo should be bestowed on me.

I feel extremely humbled, as I look back at the galaxy of stalwarts in the textiles, handicrafts exports industry and trade like Mr. Mohd. Zahid Ansari, Mr. Mohd. Danish Ansari, Mr.Mohd. Tariq, Mr. Mohd. Meraj, who had worked with great dedication and mission in the formative years of the Aimaws and enabled it to become an outstanding example of society and exports industry.

Needless to add, it is a proud moment for all of us that Ithepo is the first Export Promotion Organization in India is going to take responsibility to promote exports possibilities throughout the world for textiles, handicrafts and handlooms exports products from the country, which they are struggling hard to get market in the world and reasonable price of the cost of products and labour of the weavers, labours, suppliers, manufactures or related to the industry.

Economic Scenario (India):

The Indian Economy has performed reasonably well in the fiscal year 2003-2004. Real Gross Domestic Product (GDP) is estimated to have grown by 8.2% during the year. The higher GDP growth was possible on account of revival of growth in Agricultural Production estimated at 9.1% during the year compared to (-) 5.2% in the previous year.

Apart from the Agriculture sector, the Industry and Service sectors have also maintained a steady growth at 6.5% and 8.4% in the year 2003-2004, compared to 6.4% and 7.1% in the previous year, respectively.

A strong Balance of Payment (BOP) position has also led to a steady accumulation of foreign exchange with the reserves currently estimated at around US $ 120 billion.

The robust growth in the Indian economy during the fiscal year 2003-2004 has largely been possible due to a favourable world economic environment during the early part of the year. However, as we take mid year stock of the current fiscal 2004-2005, the world economic scene does not appear to be as benign as last year.

Rising prices of Crude Oil, widening fiscal deficit in the US, slow down in the Chinese economy, and the spectre of rising inflation are threatening to undermine the process of recovery in the world economy.

Exports of Textiles Abroad:

According to the data compiled by DGCIS, Kolkatta, total exports for the year 2003-04 (provisional) are estimated at Rs.15,276 crores as compared to Rs.14,666 crores in the year 2002-03, thereby registering an increase of 4.16%.

Detailed commodity-wise data is available, however for the period April-December 2003. Total exports of cotton textiles during the period April/December 2003 in rupee terms reached Rs.13180 crores and US $ 2851 Mn., marking an increase of 2.62% and 7.53% respectively over the previous year in the same period.

A significant feature of the emerging export profile is the increase in the share of made ups in the overall basket of cotton textile exports from 28% in 1999-2000 to 35% in the year 2002-2003. The same has received a further push as the share of made ups during April-December 2003 in overall exports of cotton textiles has reached around 45%. While the shift in the export base from raw material to value added products like made ups is a positive development, the overall growth in terms of gains in market share will be driven by the efficiency and speed with which the sector overcomes the challenges of tomorrow.

Paradigm Shift:

The emerging world trading order in the textile and clothing sector beyond the year 2004 points to a Paradigm Shift in production systems and trading patterns. The prevalence of the quota system has led to fragmentation of the production process across different countries depending upon the availability of quotas. The abolition of quotas would lead to an integration of the Supply Section towards greater consolidation, resulting in cost effective production of goods.

As a recent study prepared by the WTO Secretariat indicates, vertical specialization, time to market and tariffs will be key determinants in deciding the general direction of world trade beyond quotas.

The study emphasizes the fact that dismantling of MFA Quotas from the year 2005 will not per se result in any automatic growth in exports for developing countries like India. They are in fact bound to bring with them fresh turbulence in the form of not only pressure on prices, but also servicing the changing demands of the consumer in terms of Quality, Reliability, Speed of Delivery, Legal Compliances, Logistics Management and After Sales Service.

Growing Protectionism:

As the date for the final integration of textile trade into GATT'94 approaches, the manufacturers in the developed countries are raising the fears of being swept away by the tides of free trade.

In an unprecedented move, leading textile/clothing Associations in EC/USA in collaboration with beneficiaries under preferential tariff arrangements and Customs Unions have called for an extension of quotas beyond the year 2004. Known as the "Istanbul declaration", these Associations have somewhat succeeded in raising the fears in the least developing countries. The objective appears to be clearly to work towards perpetuating the discriminatory quota regime and continue with the protectionist measures.

The power of Preferential Trading Arrangements (PTAs) in diverting trade has been well established by NAFTA in the case of USA. The European Commission on the other hand has been pursuing a policy of Enlargement of the Union, establishing a Customs Union and a Neighbourhood Policy aimed at forming a Euro-Mediterranean trading bloc.

Apart from this, the EU has also amended the antidumping provisions to make them more stringent and redefined the standards for GSP benefits with a view to excluding prominent beneficiaries like India.

The US on the other hand is proposing rules of origin so as to promote regionalism, fine tune discriminatory arrangements on the basis of non-trade parameters like environmental safeguards, labour standards and greater compliance requirements.

The Paradigm Shift in trading pattern coupled with fresh moves to ensure greater protectionism pose immense challenges to the Indian textile industry. India will need to leverage all its strengths to stay ahead of the supplying countries in the emerging competitive regime.

All available studies whether by the World Bank, IMF, WTO, Mckinsey & Co, European Commission, International Trade Commission, USA, point towards India having the strengths to gain from the removal of quotas. These studies base their optimism mainly on India's distinct advantages in terms of a highly developed and flexible production system, competitive labour costs, availability of skilled manpower, and strong capabilities in certain lines of production requiring designs and styling.

Favourable Policy Environment:

It is heartening to note that the Government has recognized the potential of the textile/clothing industry in not only strengthening the manufacturing sector but also in providing employment opportunities to a vast array of semi-skilled and skilled workers.

Towards this end, the recent decision announced in the Union Budget to provide two routes for taxation in the cotton textiles sector viz. Cenvat route and Exemption route is a land mark event in the annals of the Indian textile industry.

With a single masterstroke, the anomalies in taxation haunting the cotton textile sector for decades have been removed, thereby creating a level playing field amongst all the stakeholders in the textile value chain.

This step augurs well for the industry and sets out the roadmap for future development. Its impact is already being felt in the capital markets in the form of a rise in the prices of textile scrips. New investments are coming in and many are in the pipeline. Existing players are expanding their present levels of investments. Many are seeing the homecoming of "migrant production systems" shifted to offshore countries on account of quota and investment considerations. Heartening reports of new forms of linkages being forged between the Power loom sector and Organised Mill sector to leverage the advantages in their respective production systems are becoming available. All this has been possible due to the imaginative policy of taxation implemented in the cotton textile sector by the Government.

With the man made fibre textiles sector accounting for a large share of world trade, the Hon'ble Minister of Finance should consider rationalizing the taxation structure for this sector also so that India can truly synergise its strengths across the multi fibre range of textile products and emerge as a leading force in world trade.

The New Foreign Trade Policy announced by the Hon'ble Commerce Minister recently has for the first time taken an integrated view of the overall development of India's foreign trade. The measures aimed at procedural simplification, incentives for technology upgradation, and rewarding of incremental exports will go a long way in furthering economic growth in the country. The continuation of the DEPB Scheme until its replacement by a new Scheme rebating all levies and taxes has brought much relief to the exporting community and shows a pragmatic approach of the Government in dealing with commercial matters.

Continuing Bottlenecks:

While path-breaking efforts have been made with regard to the taxation policy for cotton textiles, some of the bottlenecks continue to hamper export growth.

The expected quantum leap in exports would also depend on infrastructure support, lowering of transaction costs, reforms in labour laws, amongst others.

The recent chaos in the JNPT, Mumbai shows the extent to which the infrastructure facilities are lacking in their ability to efficiently deliver goods, overseas. Cargo remained piled up and unattended for more than three months. Drastic steps need to be taken to ensure that such disruptions do not take place. With the expected removal of quotas from the end of 2004, exports of textiles and clothing are bound to increase substantially. If our Ports are not equipped to handle the expected rise in exports, we would only end up contributing to diversion of trade, away from India.

Similarly, transaction costs, which are estimated to be around 6%-8% of manufacturing costs, need to be brought down.

Lastly, reforms in the labour market in terms of greater flexibility of operation would give a fillip to the setting up of mega production plants matching in size and scale with similar units in countries like China, Brazil, for manufacture of value added clothing products. Individual buyers are already imposing stringent compliance norms on the industry as a safeguard against unfair labour practice. With the markets already imposing self-regulation, there is a case for easing state regulations.

The industry and trade have been raising these issues for a number of years with the primary motive of encouraging fresh investments, but no satisfactory solution has been forthcoming. These issues need to be addressed on a priority basis and in a time bound manner failing which India may lose valuable markets on account of our inability to leverage our advantages.

Strategy for future growth:

While the issues relating to simplification of procedures, improving infrastructure and creating an enabling environment for accelerated investments are expected to be resolved in due course of time, the Industry should also embark on a strategy aimed at maximizing returns from creation of niche products, internationalizing their production systems, developing integrated supply chains, investing in cluster based production centers and forging a partnership in the South Asia Region so as to make it a vibrant hub for world production and distribution.

The industry has the requisite resources, and the confidence and I am sure, concerted efforts on the part of all concerned should enable us to move in the above direction.

Need for a Dynamic Implementation Strategy-Ithepo:

Friends, most of the issues raised by me today have been well documented and also known to all concerned in the Government and Industry. A number of studies have been conducted both by the Ithepo, Government and other Associations/Federations regarding the direction in which the industry must proceed in order to realize its full potential. Capabilities and cost comparisons have also been benchmarked for India vis-à-vis, its competitors at different stages of production in the entire textile value chain.

The time has now come to act on the available information and focus on a dynamic implementation strategy so that India can benefit from the emerging free trade regime in the textiles, handicrafts and handlooms exports and clothing sector and gain its rightful place under the sun.

Acknowledgements:

Before I conclude, let me take this opportunity to place on record my sincere thanks on behalf of the Ithepo and members of the Committee of Administration society for their unstinted support and guidance through various policy initiatives to make the sector vibrant.

I would also like to express our deep sense of gratitude to Shri Mohd. Ismail for his deep interest and commitment in promoting textiles, handicrafts and handlooms exports.

Further I wish to convey our gratitude and thanks to Shri Shabbir Choudhary, Imtiyaz for their constant support and positive approach in solving problems of the textiles, handicrafts and handlooms exports sector.

Finally, I thank Shri Mohd. Intiyaz Ansari, Secretary and his team of officer-bearers for carrying out their responsibilities and duties with the utmost sense of dedication and commitment.

Thank you.