The Indian Textile and Clothing Industry: An Economic Analysis by Mausumi Kar

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The Indian Textile and Clothing Industry: An Economic Analysis
by Mausumi Kar
The Indian Textile and Clothing Industry: An Economic Analysis

Contents
1 An Introductory Note About the Textile and Clothing
Industry of India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2 International and Domestic Policies Associated with the Textile
and Apparel Industry and Trade: An Overview. . . . . . . . . . . . . . . . . . . 7
2.1 Past Trends of India’s Textile and Apparel Trade. . . . . . . . . . . . . . . . 9
2.2 India’s Domestic Textile Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2.1 Textile Policy, 1948 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2.2 Textile Policy, 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2.3 Textiles (Development and Regulation) Order, 1993. . . . . . . 12
2.2.4 The Export Entitlement Distribution Policy (Quota Policy). . . 13
2.2.5 New Textile Policy, 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.2.6 New National Textile Policy, 2013. . . . . . . . . . . . . . . . . . . . . 15
2.3 International Rules for Textile and Apparel Trade. . . . . . . . . . . . . . . 15
2.3.1 The Short-Term Arrangement (STA)—1961. . . . . . . . . . . . . 16
2.3.2 The Long-Term Arrangement (LTA)—1962. . . . . . . . . . . . . 16
2.3.3 Multi-Fibre Arrangement (MFA)—1974. . . . . . . . . . . . . . . . 17
2.4 Consequences of MFA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.5 GATT Integration of Textile Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.6 Agreement on Textiles and Clothing (ATC). . . . . . . . . . . . . . . . . . . . 24
2.6.1 Product Coverage of ATC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.6.2 Monitoring and Implementing ATC. . . . . . . . . . . . . . . . . . . . 25
2.6.3 Transitional Phase-Out of MFA Quotas. . . . . . . . . . . . . . . . . 25
2.6.4 Additional Safeguards Outside ATC . . . . . . . . . . . . . . . . . . . 27
2.7 China’s WTO Accession and Its Follow-Ups. . . . . . . . . . . . . . . . . . . 27
2.8 Implications for Developing Countries . . . . . . . . . . . . . . . . . . . . . . . 28
2.9 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3 Impact of Liberalization on Indian Firms—Some Issues. . . . . . . . . . . 35
3.1 Role of Sales Promotion Activities: A Theoretical Proposition
and Empirical Support. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.1.1 Increasing Cost Industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.1.2 Constant Cost Industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.1.3 Empirical Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.2 Issues Related to Labor Income and Employment. . . . . . . . . . . . . . . 47
3.2.1 The Firm-Level Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.2.2 The State-Level Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
4 The Role of Foreign Collaborations in the Textile
and Clothing Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
4.1 Foreign Direct Investment Policy in Textiles. . . . . . . . . . . . . . . . . . . 70
4.2 Cross-Border Mergers and Acquisitions in Textile . . . . . . . . . . . . . . 74
4.3 Case Studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
5 India’s Trade Scenario in the New World Order. . . . . . . . . . . . . . . . . . 83
5.1 Formation of SAFTA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
5.2 India’s Trade Scenario. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
6 A Concluding Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
6.1 Scope of Further Research. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Further Readings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Preface
This monograph revisits the Textile and Clothing Industry in India and its relationship with international trade from a new global perspective. Global investment and collaboration opportunities, technological changes, and diminishing barriers to trade worldwide have transformed the structure of production and international competition in the textile and apparel industries. Along with the liberalization of trade policies and the subsequent removal of quantitative restrictions on the textile products, the domestic market in India has presently been exposed to several international brands, which eventually led to the recent spurt in foreign collaborations for this important industrial sector in the country. The study ornately examines the nature and impact of such external changes on the industry-structure and its labor-related issues. The key feature of this book is that it presents a snapshot of all the domestic and international policies related to this sector from the earliest relevant period till date and analyzes issues in trade and industrial organization. This is missing in most of the related studies on textile and clothing sector. It should help the reader not only to gather a comprehensive knowledge of the policy changes affecting this sector, but also the implications it carries for the economy at large. Besides, we also offer suitable empirical analyses on how concentration of firms and regional disparity are associated with the rather pervasive presence of this industry in India. The changes in factor income for those involved with the T&C sector will also be of interest to researchers following up on the growth trajectory of this industry. Additionally, this book deals with another striking feature, namely the role of preferential trading bloc or Regional Trading Arrangements (RTA) in analyzing the trade pattern of this sector and potential trade-diverting effects. Furthermore, a review of this industry shows that the issues in mergers and acquisitions, popularly called M&A, might offer varying implications for those willing to investigate the cross-border industrial changes associated largely with capital movements and technological spill over. The analyses carried out in this study may also prove beneficial for understanding the patterns in other industries where policy shocks have been of vital importance.

In completing this research, I received support from many people. First, I sincerely thank Saibal Kar for his cooperation and inspiration without which it would not have been possible for me to complete this study. It is my pleasure and privilege to offer thanks and gratitude to all my family members, colleagues and friends who always encouraged me and stayed by my side whenever I needed them. The responsibility for any remaining error lies entirely with me.


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