7 Feb 2024 : Daily Answer Writing

Q1) What are the locational factors for textile industry? Why have countries like Vietnam and Bangladesh emerged as significant competitors to India in the textile exports? (250 words/ 15 Marks)

ANSWER

The textile industry involves the production of yarns, fabrics, and garments. The textile industry is the second-largest employment generator in India after the agriculture industry.

The locational factors for the textile industry are as follows:

  1. Availability of Raw Materials: Local production of raw material is an advantage as it ensures reliable supply for the textile industry.

E.g., traditional textile production centres in cottongrowing regions such as Ahmedabad, Solapur, Kolhapur etc.

  1. Access to Markets:
  2. Textile industry is market-oriented. Its optimum location is near high-demand areas which minimizes transportation cost.

E.g., trade centres like Mumbai and Ahmedabad.

  1. Proximity to shipping routes gives access to export markets and imported capital goods, which help in establishing textile industry in port cities.
  2. Labor Cost: The textile industry is labour-intensive. Thus, labor cost is a significant factor in determining the competitiveness of the industry.
  3. Infrastructure: Efficient transportation reduces logistics cost. Cheap and continuous supply of electricity ensures sustained large-scale production maximizing the economies of scale.
  4. Government policies such as import tariffs, tax incentives, subsidies, etc. can impact the competitiveness of a country’s textile industry.

E.g., ease of importing raw material (low tariffs) improves access to raw material.

 

Countries like Vietnam and Bangladesh have emerged as significant competitors to India in the textile exports due to the following reasons:

  1. Demographic advantage: Vietnam and Bangladesh have a young demography and large workforce. As per World Bank, the labor force participation rate (LFPR) in Vietnam is 77.8% while in Bangladesh, it is 59.8%. In contrast, India’s LFPR is 49.8%.
  2. Lower Labour cost: The minimum wage is lower in Bangladesh ($95) than in India ($131). While wage-rate in Vietnam is higher, effective labour cost is competitive due to lower compliance burden.
  3. Development Status: LDC status of Bangladesh gives it duty-free access to developed countries’ markets. Similarly, the system of generalised system of preferences (GSP) gave privileged terms of trade for countries like Vietnam (till January 2023), while such benefits ceased for India in 2019.
  4. Trade Agreements: Vietnam is part of ASEAN and RCEP. It has FTAs with several countries. Slow progress on FTAs has undermined the export potential of the Indian textile industry.
  5. Strategic Location: Vietnam’s location is advantageous for exports as it overlooks global sea routes. Its proximity to China is beneficial in attracting industries that want to shift out of China due to rising labour costs and other reasons.

Textile industry is crucial to the economy of developing countries grappling with challenges of job creation.

Policy support such as production-linked incentive scheme, FTAs, and infrastructure support is needed to improve the competitiveness of the Indian textile industry.

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