New Delhi, June 7 (KNN) From a developing country’s point of view, technology upgrading depends on the extent of assimilation of  foreign  technologies,  the  availability  of  skilled  labour,  and  government  policies  that  encourage  investments in skills and technology, highlights a study conducted by Asian Development Bank (ADB).

Export  promotion  strategies  of  the  government  tend  to  overlook  this  aspect,  and  a  more  nuanced approach to global value chain activity may help the industry more, the working paper series of ADB South Asia on Upgrading in the Indian Garment Industry added.

The  Indian  textile  industry  is one of the most important industries of India as it accounts  for  about  14%  of  the  country’s  total  industrial  production,  4%  of  GDP,  and  13%  of  total  export  earnings.

It  is  the  second  most  essential  sector  in  terms  of  employment,  after   agriculture.   It   provides   direct   employment   to   about   45   million   and   indirect   employment   to 60 million people (Technopak 2012).

India is amongst the top 15 exporters of textiles and clothing in the world. In  2013,  India’s  textile  and  apparel  exports amounted  to  $40.2  billion  (57%  textiles  and  43% apparel). 

Focussing on the apparel industry, it has been noted that several chains in the garment industry in India are at work. There are firms that have been catering to global value chains, as well as selling to the domestic market.  Firms  in  the  Mumbai  cluster  have been  selling  half  of  their  output  to  the  domestic  market and half to the global market.

As per the study, the  global value  chain has been mentioned as  of  two  types:  supplying  to  the  European  Union  (EU)  and  the  United  States  (US),  and  supplying  to  the  Middle  East  market  (or countries in South America). Most of the medium-sized and large firms in Delhi-NCR cater to the global value chains that are being sold in the EU and the US, while firms in Tirupur cater to both EU-US and Middle East. Other  newer  markets  that  were  being  explored  by  the Indian  firms  include  Japan,  the  Republic  of  Korea,  Singapore,  Latin  America,  South  America,  and  East, highlights the study.

Various differences in organising global trade chain were given in the study but the differences in domestic value chain were more interesting. The domestic value chain in India is organized in a different manner from the global value chains, and has two segments, first catering to lower and middle income market in the country; the other is pertaining to export market quite similar to the global trade chains, as per the paper.

The recent emergence of Regional Value Chain was also highlighted to show increasing integration of economies as a single world market. Some firms were reported to have production linkages with Bangladesh and the products being sold to Bangladesh include traditional clothing (sherwani, jodhpuri,etc.) as well as ladies’ T-shirts.  Some of the advantages cited in the case of the regional value chain included lower labor costs;  lower costs for sourcing inputs; lower energy costs; ease of availability of labor.  

A Survey of 97 firms(There are 34 firms in the sample from Tirupur, 37 from Mumbai, 1 from Surat, and the balance 25 from the  Delhi  NCR) was also carried out to point out  several observations with respect to product, process and functional upgrading.  Product   upgrading that involves  steps  taken  to  upgrade product  quality,  introduction  of  new  fabrics  and  raw materials, and reduction in reworking rates was   the   least   commonly   reported   type,   followed   by   functional   and   process.

Product  upgrading  was highest  within  the  domestic  category,  in  Delhi  NCR,  and  in  the large firms. Functional  upgrading,  involving upgradation through design, marketing, and branding was highest  in  exporters,  firms  in  Delhi  NCR,  and  the  largest  firms but still 5 firms out of these 97 firms(approximately 5%) did not undertake any such functional upgrading.

Process  upgrading  taking place through   the   use   of   new   production   machinery,   worker   training,   reduction  in  delivery  time,  total  quality  programs,  introduction  of  new  organizational  approaches,  improvements  in  the  production  process,  and  increased  use  of  computer  programs  for  business  purposes was highest  among  firms  that  both  export and  sell  domestically,  in  Tirupur,  and  among  the  medium-sized  firms.

The paper also highlighted the differences within the clusters with respect to upgradation. Out of the 34 firms in the sample from Tirupur, 37 from Mumbai, 1 from Surat, and the balance 25 from the Delhi NCR the highest average score was recorded by firms in the Mumbai cluster, followed by Delhi and Tirupur.

The highest score for the Mumbai cluster reflected improvements in the production process, while the lowest was in marketing and branding. The highest score for the Delhi cluster was in reduction in delivery time, which was not surprising given that all the firms in the Delhi cluster were exporters. The lowest score was in steps taken to increase product quality. In Tirupur, the highest score was in increased use of computer for business purposes, while the lowest was in reduction in reworking rates and branding.

This skewed pattern of development reflected that certainly some challenges and problems are being faced by the industry.  The majority of the firms reported lack of skilled labour, access to technology, and finance as the major obstacles to upgrading. Some firms observed  that  the  duty  drawback  system  needs  to  be more  streamlined  to  reduce  delays  in  receiving  payments.  Lack  of  logistics  systems  and  inadequate infrastructure  were  cited  as  major  reasons  for  delays in exporting.

Although little or no upgrading is most common in domestic firms, firms in Delhi NCR, and large firms but this could be because all the firms in Delhi NCR sample are exporters and the market to which the firm supplies is important, too, since a low level of upgrading was reported in firms with quasi-hierarchical structures

 From a developing country’s point of view, technology upgrading depends on the extent of assimilation of  foreign  technologies,  the  availability  of  skilled  labour,  and  government  policies  that  encourage  investments in skills and technology. Export  promotion  strategies  of  the  government  tend  to  overlook  this  aspect,  and  a  more  nuanced approach to global value chain activity may help the industry more.  (KNN/TL)

To view the full study, please click the link below:

http://fisme.org.in/document/sawp-043.pdf