Textile inflation Good or Bad
Clothing (kapda) is next only to food (roti) in importance when it comes to meeting the basic consumption requirement of humans. Therefore, inflation in textiles matters just as much as food inflation, especially for the poor.
At the same time, it is necessary to understand the nature of inflation in textiles.
In recent times, the contribution of the ‘textiles’ sub-group to core inflation has reportedly gone up to 26.4 per cent in January and 22.15 per cent in February 2014, which is much more than its 13.32 per cent weight in the core wholesale price index. Also, it has been reported that inflation in the current year for textiles has been higher than its average for the last 10 years.
But to gain a proper perspective that will enable wise policy action, it is important to examine the components of textile inflation and also analyse consumption patterns within textiles.
Just as we have ‘good’ cholesterol and ‘bad’ cholesterol — we need to increase the former and reduce or keep the latter under control — even textile inflation has a good and a bad part.
Any inflation that impacts the common man is like bad cholesterol that needs to be reduced.
But any inflation that helps increase the incomes of the ordinary farmer or handloom weaver without really impacting the poor consumer should be treated like good cholesterol. It is good inflation.
Synthetics vs handlooms
Just as in the developed world, in India, too, the poor man is increasingly consuming synthetics and man-made textiles that are cheaper. Be it saris, dress material, trouser material or even dhotis, they are all being made from pure polyester material or poly viscose blends. Given the impact on poor consumers in our country, it is obvious that we need to keep the inflation numbers of synthetic and manmade textiles under close watch.
But on the other hand, inflation in handloom textiles is good in many ways, as it rewards the cotton farmer and the handloom weaver. It only means the rich in India who are the main consumers of subsidised handloom fabric are finally willing to pay the weaver a bit more than a mere worker, recognising the artisan in him.
Given the large number of textile mills and producers, besides the virtual absence of entry barriers and the extraordinary ease with which capacity addition can
happen, the industry here has been operating at very low net profit rates over long periods of time. The existence of over 30 per cent surplus capacity across the value chain in the textile industry forces it to be always internationally competitive. Under the circumstances, inflation in textiles can happen only as a consequence of inflation in raw material or power costs.
But in the cotton textiles sector, increase in the main raw material cost only helps the farmer. Since cotton textiles is mainly consumed by the affluent, apart from being substantially exported, inflation in its case is good; the grower ends up receiving more than the Government’s minimum support price for kapas (raw cotton).
Better value
However, this is not so with man-made and synthetic textiles, which are largely consumed by the poor and lower middle-class. Inflation here badly hurts the aam aadmi. Even the raw materials in this case are produced by large monopoly producers that are hugely profitable companies.
Moreover, these companies have got themselves effectively decoupled from international prices through uncalled-for anti-dumping duties in addition to regular tariff protection (see table).
It is clear that the bad part of textile inflation has mainly to do with the large wedge between domestic and global synthetic fibre prices. That is being primarily helped by the Government extending anti-dumping duty protection to large, hugely profitable monopoly producers in India. The solution to reducing textile prices for the poor, therefore, rests with the Government.
If it acts and removes the above uncalled-for protection, bad textile inflation for the poor will immediately register a drop.
It is equally important that we allow the poorer members of the textile value chain to get better prices for their produce — be it the farmer or the handloom weaver.
(The writer is Chairman, Loyal Textiles)
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