Cotton and Garment Sector. The Effect of Anti-Competitive Market Distortions (ACMDs) on the A CASE STUDY OF INDIA MAY 2016

Transcription

1 ECONOMICS A CASE STUDY OF INDIA MAY 2016 The Effect of Anti-Competitive Market Distortions (ACMDs) on the Cotton and Garment Sector by Shanker A. Singham, U. Srinivasa Rangan, Robert Bradley, A. Molly Kiniry 2

2 ABOUT THE LEGATUM INSTITUTE The Legatum Institute is an international think tank and educational charity focused on promoting prosperity. We do this by researching our core themes of revitalising capitalism and democracy. The Legatum Prosperity Index TM, our signature publication, ranks 142 countries in terms of wealth and wellbeing. Through research programmes including The Culture of Prosperity, Transitions Forum, and the Economics of Prosperity, the Institute seeks to understand what drives and restrains national success and individual flourishing. The Institute co-publishes with Foreign Policy magazine, Democracy Lab, whose on-the-ground journalists report on political transitions around the world. The Legatum Institute is based in London and is an independent charity within the Legatum Group, a private investment group with a 30-year heritage of global investment in businesses and programmes that promote sustainable human development. ECONOMICS OF PROSPERITY The Legatum Institute s core programme area is dedicated to exploring the drivers of national prosperity. In 2016, the Economics of Prosperity programme will look at how policy-makers can develop legal, economic and governance environments that deliver increased economic activity, generate jobs and lift their people out of poverty. In addition to producing papers, panels and seminars in the following areas, the programme will develop country studies that identify the constraints to economic growth and wealth creation. The Legatum Institute would like to thank the Legatum Foundation for their sponsorship and for making this report possible. Learn more about the Legatum Foundation at The Legatum Institute is the working name of the Legatum Institute Foundation, a registered charity (number ), and a company limited by guarantee and incorporated in England and Wales (company number )

3 CONTENTS Executive Summary 2 1. Introduction 3 2. Background 4 3. Anti-Competitive Market Distortions (ACMDs) Conclusion and Policy Recommendations 26 References 27 About the Authors 29 1

4 EXECUTIVE SUMMARY In a previous paper we discussed the impact of anti-competitive market distortions (ACMDs) on the Indian economy. 1 ACMDs are policies that favour one group or individual over others. They come in many forms, including legal, political, and regulatory constraints. Using our own Productivity Simulator, we found that the impact of ACMDs on the Indian economy is huge. 2 As a means of comparison, we assessed the potential gains to the economy using three scenarios. Level 1 applies the most basic improvements in doing business. Level 2 addresses freedom to own foreigncurrency bank accounts, international capital controls, resolving insolvency recovery rate (cents on the dollar), intellectual property protection, favouritism in decisions of government officials, and transparency of government policymaking, as well as improving all of the doing-business indicators from Level 1. Finally, Level 3 is the fully realized concept with a pro-competitive regulatory framework to encourage large-scale infrastructure investment. We found that, if the Indian government were to completely remove these constraints, its productivity rate would rise by 1,875% (compared to 0.5% in Level 1 and 148% in Level 2). Its GDP per capita would increase by US $9,835 (compared to $1 in Level 1 and $554 in Level 2). It would create 242 million new jobs and lead to no Indian people living in poverty. It would create 242 million new jobs and end absolute poverty in India. A less dramatic reduction of constraints in the L2 scenario would lead to the creation of 2 million new jobs, but leave 685 million people in absolute poverty. The L1 scenario, which requires the least amount of regulatory change, would only create 1.6 million new jobs and would leave 770 million people in poverty. Following on from this, we have released two reports looking at the impact of ACMDs on two specific sectors: the current report looks at the cotton and garment sector; the other assesses the civil aviation sector. 3 The cotton textile garment value chain represents the largest single contributor to the Indian economy. ACMDs impact each link in the value chain separately, impact the way the links interact, and impact the efficiency of the chain as a whole. There are some reforms being proposed that would benefit this key industry, but they are accompanied by some burdensome new regulatory ideas which would counteract and perhaps reverse any gains from the positive steps. We compare India s cotton textile garment value chain to that of Pakistan and see that Pakistan s is less distorted than India s, leading to a higher level of productivity and efficiency. In our assessment, these differences in efficiency stem from differences in the regulatory burdens in each country. 2

5 1. INTRODUCTION The cotton textile garment value chain is critical to the Indian economy. Each link in the chain plays a significant role individually and the combined impact of these industries cannot be overstated. Cotton is an important input in the textile sector and textiles are an important input in the garment sector. The majority of all textiles and garments produced in India are made with cotton, and about 75% of garment exports are made with cotton. 4 The textile and garment industry makes up 14% of total industrial production, 13% of export earnings, and 4% of GDP. 5 The textile and garment industry directly employs 35 million people and indirectly employs an additional 55 million. 6 Still, there is a great deal of room for improvement along the entire value chain. The domestic cotton, textile, and garment industries have each been protected by government policies to different degrees at different times. The relative importance of each to the economy overall has fluctuated and so has the favouritism shown to each by the Indian government. For at least the last three decades the overall goal of policy has been primarily to protect and promote domestic garment production. However, domestic cotton and textile production share some privileges which stem from their prominent place in the Indian economy. As such, ACMDs exist to protect the garment industry, but ACMDs also exist to protect the cotton and textile industries from policies favouring the garment industry. Below: The cotton textile garment value chain There are reforms being proposed that would benefit these key industries, but they are accompanied by burdensome new regulatory ideas which would counteract and perhaps reverse any gains from the positive steps. We compare India s cotton textile garment value chain to that of Pakistan and see that Pakistan s is less distorted than India s, leading to a higher level of productivity and efficiency. In our assessment, these differences in efficiency stem from differences in the regulatory burdens in each country. Cotton Growing Ginning Cotton Lint Spinning Weaving Knitting Fabric Processing /finishing Made-ups Garment Production (Tailors/Garment Factories) Garment Importers Wholesalers Retailers Wholesalers Retailers Consumers Consumers 3

6 2. BACKGROUND 2.1 COTTON Cotton has long held a prominent position in the Indian economy. There are about 5.8 million cotton farmers in India working about 12 million hectares of land. The land in India dedicated to cotton production accounts for about one third of the total cotton-producing land globally. 7 Figure 1 shows India standing alone in terms of area dedicated to growing cotton. Also, as can be seen in Figure 2, India is the secondlargest cotton producer in the world and produces more than twice as much cotton as the United States, which holds the third spot. Despite the stature of cotton in India, the industry is far from efficient. India ranks 31st in cotton yields, producing 23% of the amount of cotton per hectare of Australia (ranked first in yields) and 35% of the amount per hectare of China (ranked sixth in yields). 8 Figure 3 shows India s mediocre position globally in terms of yields. The lacklustre production per hectare is due to the small-scale, outdated system of production employed by Indian farmers. The average farm is just 1.5 hectares, harvested by hand, and rain-fed. 9 In contrast, the average Australian cotton farm is 656 hectares. 10 Figure 1: Cotton Area Harvested by Country in 1,000 hectares (ha) year of estimate Source: IndexMundi. agriculture/?commodit y=cotton&graph=areaharvested&display=map. 4

7 Figure 2: World s Ten Leading Cotton-Producing Countries, 2013/14 (in 1,000 metric tonnes) Source: Statista US Department of Agriculture statistics/263055/cottonproduction-worldwide-bytop-countries. China India United States Pakistan Brazil Uzbekistan Australia Turkey Turkmenistan ,633 2,068 2,811 6,641 6,967 Greece ,000 2,000 3,000 4,000 5,000 6,000 7,000 Production (1000 metric tonnes) Figure 3: Cotton Yield by Country in kilograms per hectare (kg/ha) year of estimate. Source: IndexMundi. lture/?commodity=cotton&g raph=yield&display=map. 5

8 India s commitment to cotton has become stronger since the introduction of genetically modified seed varieties in So-called Bt cotton is infused with genes that give the cotton insecticidal properties. 11 As can be seen in Figure 4, Bt cotton has led to an explosion in cotton yields for Indian farmers. Yields jumped almost 33% in 2003 and then another 19% in The sharp increase in yields led to a greater amount of land being dedicated to cotton-farming. The total land area dedicated to cotton increased by 15% in 2004 alone and has increased by 66% since the introduction of Bt cotton. Figure 5 shows the impressive rise in cotton-producing land after what had been more than four decades of non-growth. The combination of greater yields and more land dedicated to cotton has led the total production of cotton by Indian farms to more than double since the introduction of Bt cotton. This massive growth comes after a long history of slow growth in production, as shown in Figure 6. In the 1950s, India s industrial policy goals included self-reliance. 13 The cotton textile garment supply chain has been fairly successful in achieving this goal. In order to promote self-sufficiency, however, cotton output was long reserved for domestic textile production, with only surplus cotton allowed for export. While the policies aimed at keeping cotton domestic have been relaxed somewhat, the preference for protecting the domestic textile and garment industries remains. As such, cotton prices have generally been kept low and exports traditionally discouraged. Figure 7 shows the low level of Indian cotton exports before the significant yields of biotech cotton and the complete removal of the Multi-Fibre Arrangement (MFA) in 2005 provided enough product and the appropriate outlet for export to become a reality. 14 Figure 4: Indian Cotton Yield by Year Source: IndexMundi. lture/?country=in&commodi ty=cotton&graph=yield. Kg per hectare Year 6

9 7 TRANSITIONS FORUM Figure 6: India Cotton Area Harvested by Year Source: IndexMundi. iculture/?country=in&com modity=cotton&graph=ar ea-harvested. Figure 5: Indian Cotton Production by Year Source: IndexMundi. com/agriculture/?country=in &commodity=cotton&grap h=area-harvested 40,000 32,000 24,000 16,000 8, lb Bales Year 13,000 10,400 7,800 5,200 2, hectares Year

10 Figure 7: Indian Cotton Exports by Year Source: IndexMundi. lture/?country=in&commodi ty=cotton&graph=exports lb Bales 12,000 9,600 7,200 4,800 2, Year Figure 8: India Cotton Imports by Year Source: IndexMundi. lture/?country=in&commodi ty=cotton&graph=imports lb Bales 3,000 2,400 1,800 1, Year 8

11 The preferential treatment given to textiles and garments has led to a different role for cotton imports. From its inception more than 50 years ago, India s goal of becoming self-sufficient began to push the amount of imported cotton lower. Import-substitution policies through the late 1970s and mid-1980s led to a near-absence of imported cotton in the market. 15 The 1990s saw some fluctuation and then a late jump in imported cotton in response to domestic textile demand for cotton after the launch of the Technology Upgradation Fund Scheme (TUFS), which encouraged capacity expansion and technology upgrades in the textile sector by offering a 5% investment reimbursement. 16 However, since the introduction of Bt cotton in 2003 and the end of the MFA, cotton imports have been relatively steady. Figure 8 shows this pattern. Recently, India s cotton industry has grown quite rapidly in terms of land area, total output, and yield. Its position globally, however, leaves something to be desired. In the next phase of the Indian cotton industry the focus needs to be on efficiency, and regulations should reflect this focus. Because the textile and garment industry are so intimately tied to the cotton industry, the Indian government needs to dedicate its policy to streamlining the entire value chain if it wishes to compete globally in these sectors. 2.2 TEXTILES AND GARMENTS India began as primarily an exporter of textiles because of the large size of the industry domestically and the fact that it had begun making textiles relatively early. Since the 1970s, however, India has shifted to exporting a relatively greater amount of clothing than textiles. 17 Policy has assisted in this transition. The Indian government s focus on being self-sufficient led to a push for developing clothing production, as cotton and textiles were already strong sectors. These policies, however, eventually led India to become less competitive globally and have had long-lasting effects on the efficiency of the value chain as a whole. India ranks ninth in clothing exports and third in textile exports. China and the EU take the top two spots in each category. 18 About two-thirds of Indian clothing exports fall into one of five categories: women s blouses, dresses, skirts, men s shirts, and knitted undergarments. 19 The garment industry lacks diversity in output, and despite efforts to promote it, the textile industry still has a greater presence globally. Like the cotton industry, both textiles and garments compete directly with China in the global market. The textile and clothing industry in India was once tightly regulated. The 1950s saw restrictions on the expansion of capacity and the installation of automatic looms at composite mills, beginning the decline of composite mills in favour of smaller operations and handlooms. 20 Handlooms have a long history in India and have been a key provider of jobs in rural areas. For this reason, the government had made it its goal to protect this sector, which meant ensuring handlooms would only compete with other small-scale firms, regardless of their production method. 21 The Cotton Textiles Control Order 1948, which set the initial trajectory of the industry, had four particularly distortionary aspects: Different textile items faced discriminatory excise duties. 2. Handlooms were given exclusive right to manufacture certain products. 3. Mills had to be licensed. 4. Handlooms were given special access to financing. 9

12 These policies led the industry to stay small-scale and put it in a weak position globally. Eventually some of these provisions were rolled into a Small-Scale Industry Promotion policy. 23 Liberalisation of the industry began with the Textile Policy of 1985, which eased some export restrictions and removed some of the preferences given to cotton fibres. 24 In 1993 the textile industry was finally delicensed, removing a significant barrier to entry into the market. 25 Also around this time, import duty on capital goods was reduced to 25%, which reduced the start-up costs for potential entrants and so removed another barrier to entry. 26 Reinvestment was also encouraged by reducing this duty because it made it less expensive to scale up. The import duties on textile fibres, yarns, raw materials, and other inputs were brought down as well. This reduced operating costs for manufacturers even further, but it also exposed the cotton sector to greater international competition. The New Textile Policy (2000) shifted the focus of the entire value chain to export of value-added goods. The policy mainly focused on encouraging garment exports by establishing apparel parks, clustering the operations of the intermediate portion of the value chain (particularly handloom, power loom, sericulture, handicrafts, and wool), encouraging jute manufacturing, and reforming the tax structure through the value chain. The tax structure was changed to increase compliance, encourage investment, and reduce the burden placed on fabrics, garments, and polyester yarn. Tariffs on textile and garment inputs were also further reduced. 27 Internationally, India had been part of the Multi-Fibre Arrangement (MFA) since Developed countries imposed quotas on yarn, textiles, and clothing from developing countries. Of course, developed countries used this arrangement to their advantage and severely limited access to developed markets by developing countries. The MFA also provided some protection for domestic producers in developing countries from international competition. The MFA was phased out from 1995 to 2005 and replaced with the Agreement on Textile and Clothing (ATC). The removal of the MFA resulted in higher prices for cotton, increased imports of cotton to meet expanding total textile production, and a decline in man-made fibre exports as India gained access to international markets. 28 India has been liberalising slowly for 30 years in many sectors. The pattern of gradual change in the textile and garment sectors is, therefore, a familiar one. Moving forward, India will need to continue to loosen the reins and let the value chain operate as efficiently as possible if it wants a healthy domestic market, to compete globally, and to give the greatest gains to Indian consumers. Next, we will discuss the policies that prohibit India from reaching its full potential in the cotton textile garment value chain. 10

13 3. ANTI-COMPETITIVE MARKET DISTORTIONS (ACMDS) While India has moved away from the rigorous controls it imposed over these sectors in the late 1940s, it still maintains too tight a grip on each segment of the value chain. With each segment left less flexible than it could be, the chain as a whole is even more restricted than any individual link. In order to generate the most efficient outcome in the chain, each link must be allowed to be as flexible as possible. This means removing protections for particular stages of the chain and particular players in each stage. Anti-competitive market distortions (ACMDs) are policies that provide a competitive advantage to certain players at the expense of others. They have been shown to reduce consumer welfare, profits, and total welfare in the long run. 29 The following ACMDs remain in the cotton textile garment value chain. We will analyse distortions brought about through specific regulations in each sector as follows: in cotton, we will examine minimum support price controls, as well as input price controls and subsidies; in the textiles and garments industry, we will examine small-scale reservation policies and import duties; and for both sectors, we will examine labour and tax laws. 3.1 COTTON Relative to the rest of the garment value chain, the cotton-growing sector is lightly regulated. 30 The regulations in this sector are more straightforward than the policies further down the value chain. However, because cotton has long been one of the most important industries in India, distortions meant to bolster the industry have long been a tradition Minimum Support Price (MSP) To protect cotton producers from very low prices, the Indian government has a minimum support price (MSP) in place. The MSP is the price at which the Indian government will purchase cotton from farmers. If the market price falls below the MSP, farmers are guaranteed to receive this price, which guarantees a certain amount of revenue. However, the MSP inflates the price of cotton in certain scenarios and encourages farmers not to respond to market forces. Falling demand or rising supply reduces the market price, and this should prompt farmers to reduce their output. However, the MSP prevents farmers from receiving the appropriate signals if the market price falls below the MSP. Farmers do not reduce their output correctly and the price of cotton is kept artificially low as a result of the excess supply. Low prices reduce farmers incentives to reinvest. If the price of cotton is always depressed, the returns to farmers will also be depressed. This leaves fewer dollars to put back into the operation, which leaves cotton farming technologically stagnant. In order for India to compete with China in the textile and garment sectors, India needs to produce cotton efficiently, and this requires constant upgrade of the cotton-growing physical capital. 11

14 3.1.2 Input Price Controls and Subsidies A further protection for cotton farmers is price controls and subsidies for inputs. Bt cotton, a genetically modified cotton which produces insecticidal toxins as it grows, has become very popular among Indian cotton farmers since it was introduced in India in This type of cotton reduces the cost of pesticides for farmers and helps protect crops. For example, Bt cotton saved farmers roughly $82 million on pesticides in 2006, 31 and it enhanced farm income by about $14.6 billion between 2002 and In order to encourage farmers to grow Bt cotton, the government mandated a price ceiling on Bt cotton seeds in The ceiling cut the price from INR 1,600 per packet of seed to INR 750 per packet. 33 This price control has the short-term benefit of reducing costs for cotton farmers. However, in the long run it discourages seed producers from producing for the Indian market and discourages innovation. When a firm contemplating investing in researching and developing a new type of seed sees that the Indian government will slash the price of that seed, it will take the loss of revenue per packet of seed sold into consideration before deciding to go ahead with the R&D. If demand for the seed increases by enough to overcome the loss per packet, then the firm may be better off after the ceiling is imposed. However, before the ceiling is imposed, firms have the option of selling at the lower ceiling price. The fact that they do not sell at the lower price means that the ceiling is unlikely to generate greater returns to the seed producers. 3.2 TEXTILES AND GARMENTS Legacy of Small-Scale Reservation The long-standing small-scale reservation policy which covered the textile and garment industries left India with many small-sized factories. Though the policy was revoked with the National Textile Policy of 2000, the impact of that policy still remains. 34 While textiles and garments account for a significant portion of exports for India, the size of these exports relative to the rest of the world is relatively small. Other Asian players such as China, South Korea, Singapore, and Hong Kong hold a larger portion of the world market. 35 Each of these countries also utilises larger-scale production processes. Textile firms in China, for example, are on average five times larger than Indian textile firms. 36 For India to advance its place in the manufacture of garments and textiles, its producers need to take advantage of economies of scale. However, to do so requires large amounts of capital. Regulations that increase costs for these producers need to be eliminated. Doing so will increase the returns available to them in scaling up their production and remove this barrier to growth Import Duties Import duties on capital goods also create a barrier to scaling up for textile and garment manufacturers. The current import duty on capital goods stands at 25%, though capital goods can be imported dutyfree at a certain threshold. In general, though, increasing the cost of capital goods increases operating costs for a firm. This reduces the margin available for firms, which makes investing in infrastructure, improved technology, and greater production capacity more difficult. Increasing costs also translate into higher prices for the goods being produced. Eventually these costs trickle down to consumers and reduce consumer welfare. 12

15 Import duties are meant to protect domestic producers. Cotton farmers, in particular, are supposed to be protected by import duties on cotton and other materials. While this may be the effect in the short run, the fact that textile and garment producers have to pay relatively higher prices for domestic cotton means that their costs are relatively higher, which in turn reduces the amount they can produce in total. In the long run, demand will be relatively lower for cotton farmers. To combat this, the Indian government subsidises the purchase of Indian cotton by domestic producers. This makes cotton relatively less expensive, but it also encourages more cotton to be produced. This, in turn, reduces the price received for cotton because the supply is relatively higher. This is where the MSP for cotton comes into play, again supposedly to protect farmers. 3.3 COMMON CONSTRAINTS Some policies affect each part of the cotton textile garment value chain. Labour laws and tax rules are the primary distortions shared by all parts of the value chain. Each stage of the chain is impacted by these restrictive regulations, which compounds the anti-competitive effect that exists at each stage individually Labour Laws Current labour laws in India prevent firms from competing with one another as intensely as they would without the regulations. Firms are not allowed to deploy their employees as they see fit and are prevented from freely hiring and firing. Both of these restrictions reduce the number of people employed in any sector because hiring a person is made more costly. Current labour laws in India do not allow women to work at night. 37 This restriction makes it more costly to hire women because men can be asked to work a wider range of hours. Even if a woman is a more efficient worker than any potential male hire, the firm may not hire her because a situation may arise where employees are required to work overnight (peak season, sudden large orders, etc.). The fact that it is not possible for a woman to work at any hour if needed means the firm is sometimes prevented from hiring the most productive worker and efficiency therefore suffers. Labour laws do not allow fixed-term contracts for workers. Work throughout the value chain is seasonal, so the fact that seasonal contracts cannot be signed is a clear burden to firms. Export business and cotton yields are far from certain, so firms need to be able to adjust their workforce and to be allowed to protect themselves contractually. If firms are forced to sign contracts that are non-optimal given their expectations, they will be worse off. Also, firms will hesitate to hire people if they cannot hire under the terms that are most desirable to them. Furthermore, labour laws do not permit workers to work more than 50 hours of overtime in a quarter, and total hours worked in a week are not allowed to exceed 60 hours. Again, as conditions change, businesses need to be able to adjust their labour input accordingly. If a firm is not allowed to decide how to use the people it hires, these people will add less value to the firm. This means that each dollar spent on payroll generates fewer dollars in revenue in return. This is particularly true in the labour-intensive industries that make up the cotton textile garment value chain. If each worker is a certain percentage less productive because of the regulations, the fact that there are many workers means the firm loses a larger dollar value in revenue because of the regulations. 13

16 India is generally seen as a place with abundant cheap labour. However, it is not the only country that fits this bill. Foreign firms producing labour-intensive products looking to set up shop somewhere and foreign firms looking to outsource labour-intensive goods will weigh up the cost and efficiency of workers in each country and go where labour is relatively most efficient (other things being equal). Policies that reduce the efficiency of Indian workers reduce the comparative advantage of India in the global marketplace Taxes The fact that taxes are structured differently through the value chain creates distortions. Since 1948, discriminatory excise duties have been levied on different types of textile items. 38 The National Textile Policy of 2000 did bring down the rates on polyester yarns as well as fabrics and garments, reducing the differential between material types and stages, but a differential still remains. The fact that rates are different between polyester and cotton encourages more cotton production relative to the amount of production that would exist if the two faced the same rate. Also, because cotton is not taxed at as a high a rate as polyester, it is relatively less expensive than it would be if tax rates were equal. This means that producers downstream will choose cotton more frequently than they would otherwise have done. Higher demand also encourages more cotton production. The combination of more production and greater demand may increase or decrease the price of cotton relative to what it would otherwise be. Different tax rates at different stages of production will filter through the value chain. For example, if raw cotton is not taxed in any way but cotton fabric is heavily taxed, the demand for raw cotton will decrease because textile manufacturers will have less money to purchase cotton. Other things being equal, decreased demand will reduce the price for cotton, so the heavy tax on cotton fabric actually harms the cotton farmers. Similarly, if raw cotton is heavily taxed, then cotton fabric producers will have higher material costs, and this will then increase the price of cotton fabric charged to garment producers. Eventually the different taxes at different levels filter through the supply chain. Policies intended to help one stage in the chain will eventually come back to harm that stage. 3.4 VISION, STRATEGY, AND ACTION PLAN FOR THE INDIAN TEXTILE SECTOR The Ministry of Textiles released its Vision, Strategy, and Action Plan for Indian Textile and Apparel Sector in July of This plan provides recommendations for the Government of India and appropriate ministries on how to improve India s textile and garment value chain both domestically and internationally. The goals of the plan are to grow exports by at least 15% annually and the domestic market by at least 12% annually over the next decade. In addition to the ambitious growth numbers, the plan also sets forth the goal of becoming a net exporter of finished products. This would bring the value chain in line with the prime minister s Make in India initiative. It would also mean focusing on the value-added end of the value chain and paying less attention to raw cotton production. To accomplish these goals, a ten-part strategy has been recommended: 1. Achieve scale across the value chain. 2. Attract investment into the sector. 14

17 3. Improve skill, quality, and productivity. 4. Reform labour laws. 5. Structural shift to increasing value added in India. 6. Diversify export products and markets. 7. Promote innovation and R&D. 8. New approach to handlooms and handicrafts. 9. Partnership with state governments. 10. Re-engineer existing schemes and policies. Some of the actions recommended would in fact solve some of the ACMDs in the value chain we have discussed, though other ACMDs are left untouched. Other recommended actions would actually create new ACMDs in the value chain. In the following three sections we outline and discuss the ACMDs that are addressed, those that are not addressed, and those that would be created by the plan ACMDs Which the Vision, Strategy, and Action Plan Addresses Moving forward, it would benefit the value chain and the Indian economy a great deal to take up some of the initiatives proposed in the Vision, Strategy, and Action Plan. The ACMDs addressed by the plan are enumerated in Box 1. Box 1: ACMDs Addressed by the Plan Burdensome labour regulations. Tax complexity and inequity. Special Economic Zone (SEZ) restrictions. Uncertain and protectionary trade regulations. Inconsistent and non-competitively determined exchange rate. The suggested reforms to labour regulations include allowing women to work at night, allowing fixedterm employment, removing overtime caps, eliminating the required approval needed for layoffs, and allowing export businesses to use contract labour without restriction. These suggested reforms are laudable and would actually benefit every sector of the Indian economy in addition to benefiting the cotton textile garment value chain. India has a global advantage of low labour costs, so increasing the flexibility with which workers can be deployed would only further solidify this position. India competes directly with China along the entire cotton textile garment value chain, so anything that increases efficiency in every link in the chain will be incredibly beneficial for India vis-à-vis its competition with China and other low-wage countries. 15

18 The Plan also calls for levying a goods and services tax (GST) across the value chain and simplifying the current tax laws to reduce the burden of compliance. Simplifying the tax system throughout the value chain and removing distortions between links in the chain are also commendable goals. A complicated tax system creates a cost for firms which have to navigate their way through it. Also, creating an equal GST from the beginning of the chain to the end will remove some of the preferential treatment given to particular parts of the value chain and particular players within it. The Ministry must be careful not to levy too high a tax in order to maintain a competitive position globally and to avoid creating new entry barriers. It is proposed that Special Economic Zones (SEZs) be given more control over how they handle their output. This will benefit the Indian economy as a whole as well. SEZs are an important part of the export economy of developing countries. The tax and operational incentives provided give firms operating in these zones an advantage in international markets, and these firms in turn provide jobs and a market for Indian goods (particularly for inputs in the production process). Regulations that prevent firms in SEZs from selling some of their excess product domestically or disposing of excess product in other ways generate a cost for these firms. Without the option to move excess product in these ways, firms have to incur the cost of keeping large inventories, dumping product, or reducing production to avoid surplus production. In any case, such firms will be less competitive, reducing their employment and input needs. A liberal and predictable trade regime is recommended. This is extremely important in each link of the value chain. Production at each stage needs to be able to flow freely to where demand is greatest and preventing this free flow of goods reduces the incentive to behave competitively. Also, if the Indian government wants the textile and garment sectors to grow as much as they propose, then these sectors need to be able to access inputs in international markets. Forcing producers to buy Indian-grown cotton, for example, increases costs for these producers in the long run and makes them less competitive internationally. On several occasions (most recently in 2012) a cotton export ban has been enacted to accomplish exactly this goal. 40 Similarly, reserving a certain amount of cotton for Indian textile and garment producers restricts the price cotton farmers can receive for their output and thereby harms them. With the benefits of trade of course comes increase in competition from abroad, which may harm one link in the value chain more than that link benefits from access to larger markets, but the overall gain in efficiency through the chain will generate gains in the long run. The desire to protect any stage of the chain creates distortions within the chain and is harmful in the long run. Fostering uncertainty about the direction of policy also creates inefficiencies as producers have to be prepared for change. This discourages countries from importing from India and increases costs for foreign and domestic producers. The Vision, Strategy, and Action Plan calls for a consistent and pro-competitive exchange rate policy. One key component of the Plan that is repeated for each part of the value chain is the need to increase scale of production. 41 Each industry is characterised by economies of scale over a seemingly limitless range of production. (In the case of cotton, we have only to consider Australia s incredibly high yields from its very large farms.) Policies in the past have prevented firms from scaling either by forbidding it outright or by making it prohibitively costly. In order for the type of scaling called for here to occur, a great deal of investment is needed. A large portion of this will have to come from abroad. Past experience with changing exchange rate regimes in India warrants calling for exchange rate policy reform when discussing the future of these heavily exported sectors. 16

19 3.4.2 ACMDs Which the Vision, Strategy, and Action Plan Fails to Address The Vision, Strategy, and Action Plan fails to address two pivotal ACMDs (noted in Box 2). Box 2: ACMDs Not Addressed by the Plan Minimum support price (MSP) for cotton. Preferential treatment for handloom and handicraft sector. The fact that the minimum support price (MSP) for cotton is not eliminated in the new plan is an issue. Instead of correcting this distortion, it is recommended that the MSP be expanded to more accurately represent the variety of cotton grown in India. This does not change the adverse incentives created by an MSP. Market prices still have a floor, which encourages greater production than would otherwise occur when prices drop to very low levels. In 2014 cotton production in India was high; in 2015 unseasonal rain and hail destroyed many crops. 42 Prices plummeted in 2014 in response to high levels of production. However, the MSP prevented prices from falling too far, which allowed many farmers to stay in the market or to maintain relatively large crops. These farmers still lost money, but not enough to convince them to change their behaviour. Then, in 2015, with damaged crops farmers suffered even greater losses as a result of reduced quantities and low prices from the surplus of These pricing distortions led 2,900 cotton farmers to take their own lives between 2013 and Subsidised inputs, access to finance, and general preference given to the handloom and handicraft industry are ACMDs that also remain. The industry is small-scale by nature, and promoting it in these ways generates cost reductions which mean that its products find a place in the market alongside products made at larger facilities. Therefore, part of the market which could be taken by small or medium-sized operations, were they to scale up, is already reserved for these very small-scale outputs, and this discourages scaling operations. Also, firms considering scaling up have to consider the long history of protection granted to the handloom and handicraft sector. If a large firm started taking significant market share from these very small firms, it would be no surprise if the government were to step in and provide new protections for the industry. This is another disincentive for scaling up ACMDs Created by the Vision, Strategy, and Action Plan The Vision, Strategy, and Action Plan creates a number of new ACMDs (these are listed in Box 3). Box 3: ACMDs Created by the Plan Universal healthcare for garment and textile factory workers. Requirement for garment and textile manufacturers to provide housing for workers. Foreign direct investment (FDI) in retail must be approved. Tax exemption for garment sector only. 17

20 The preferential treatment of workers proposed in the Plan creates a significant problem. Providing housing and universal healthcare for employees will increase the cost of labour significantly. India has long benefited from its low labour costs and increasing these costs will not allow India to compete with China globally. Also, if these measures are adopted, it creates a disincentive for upscaling and entry. Firms considering scaling up will face the added healthcare costs associated with each new hire and the added housing expenses they will be required to incur. Potential entrants will also have to consider the cost of providing healthcare and housing. Other things being equal, these additional costs will reduce profit margins, which will reduce the likelihood of entry. If there are fewer entrants and potential entry is less likely, incumbent firms will have to compete less fiercely. This reduces consumer welfare and the incentive to innovate. In the long run, the entire value chain will suffer. The proposal that foreign direct investment (FDI) in Indian retail must be approved is a misguided preference for domestic investment. When starting a retail store or chain, there is a need for a considerable amount of investment. Requiring approval for foreign investment limits the amount of capital an entrepreneur can access. This fact will be taken into consideration during the planning phase, and limited access to capital may in fact prevent a venture from getting off the ground. FDI should be allowed to move freely into the sector, especially if the government s lofty production goals are to be met. There needs to be sufficient demand domestically to support the type of production suggested and limiting the number of retailers will reduce the likelihood of accomplishing these goals. The proposed exemption from the GST for apparel gives preferential treatment to apparel manufacturers. Someone choosing to enter the value chain may be more inclined to enter at the apparel level instead of the textile level, for example, because of the preferential tax treatment. Also, tax exemptions reduce costs for domestic apparel producers relative to international manufacturers, giving domestic producers an advantage. Other countries may respond to the exemption by providing an exemption for their own manufacturers. This will encourage greater production globally and reduce the price of apparel. Thus domestic producers may not benefit from the exemption Outlook The Ministry of Textiles has set high output goals. To achieve these goals, the Ministry will have to ensure that current distortions are eliminated and new ones are not created. The positive steps they are taking towards a pro-competitive environment will count for nothing if they create new barriers to entry, increase operating costs, and provide advantages to some and not to others. The Ministry s goals are more likely to be achieved if the following reforms are in place: (1) reform labour laws; (2) simplify the tax system; (3) utilise SEZs; (4) maintain a liberal trade regime; and (5) maintain a competitive exchange rate. Additionally, the MSP for cotton needs to abolished, preferential treatment needs to be minimised, and import duties on inputs need to be eliminated. The newly suggested actions of universal housing and healthcare for workers, approval for FDI in retail, and tax exemption for the garment sector alone should not be implemented. Finally, a competitive environment must be maintained within and between links in the chain. Uncertainty can dismantle markets. If these suggestions become the new strategy and action plan, we believe that India will have the best chance of seeing its vision of the textile sector become reality. The efforts of the Modi government to provide subsidies directly as cash into newly created bank accounts may help implementation of these reforms 18

21 since the government may be able to provide direct subsidies to workers in this sector in lieu of requiring factory owners to provide healthcare, housing, and the like. 43 This more efficient approach is made feasible by the prime minister s financial inclusion initiatives. 3.5 PAIRWISE COMPARISON OF INDIA AND PAKISTAN The histories of India and Pakistan could not be more interwoven. Since their partition in 1947 the two countries have remained closely connected and these connections reveal themselves in many ways. The role of cotton, textiles, and garments in their respective economies is one such tie. Both countries rely heavily on these industries and on the value chain they create. However, the way national policy has dealt with these industries differs significantly. The following section is a pairwise comparison between the cotton textile garment value chains in India and Pakistan. The methodology used involves identifying the ACMDs impacting the value chain in each country; determining the extent to which India and Pakistan resemble one another with regard to each ACMD; and examining the similarities and differences in each country s value chain that can be attributed to these ACMDs. We begin with a short introduction to the Pakistani value chain Background The cotton textile garment value chain is the largest industry in Pakistan in terms of employment, exports, and contribution to industrial output. The value chain employs about 10 million people, which is about 40% of the industrial labour force in the country. The sector accounts for about 8% of GDP and an average of 54% of exports. 44 Globally, Pakistan currently ranks fourth in cotton production and third in cotton consumption. 45, 46 The importance of the value chain to Pakistan is unquestionable. Traditionally, Pakistan has been very strong in the cotton and textile sectors. The Ministry of Textile Industry s primary goal is to grow the value-added portion of the supply chain, particularly garments. The Ministry believes that the best way to accomplish this is to shift towards synthetic fibres and away from cotton. This is in response to growing demand internationally for garments made with synthetic fibres as opposed to cotton. 47 India is also looking to grow its garment sector. However, India has not made a strong commitment to synthetic fibres. Instead, it aims to grow this end of the value chain by producing all types of garments ACMDs We will now examine whether the ACMDs we have identified in the Indian value chain also exist in Pakistan. Burdensome labour regulations Labour regulations in Pakistan only allow termination without notice in cases of misconduct, restrict the hours that can be worked in factories, restrict the hours women can work, and prohibit fixed-term 48, 49, 50, 51 contracts. These regulations are virtually identical to the labour ACMDs in India. 19

22 Taxes Tax rates are being reduced for exporting textile producers. 52 This is similar to the preferential treatment in India provided to the value-added end of the value chain. SEZ restrictions Pakistan passed legislation regarding SEZs in This seeks to attract investment, particularly in the high-tech sector. However, SEZs are limited to selling used inputs in the domestic market and are not allowed to sell final products domestically. 54 Again, Pakistan and India are similar in this area. Uncertain and protectionary trade regulations Pakistan has committed itself to open trade. It does not restrict imports or exports along the value chain. This is in contrast to India, which has long been committed to protecting domestic textile and garment producers and has placed bans on exports of cotton on more than one occasion. Pakistan and India differ in their approach to imports and exports. Because India is such a large country, the demands of its own textile and garment manufacturers probably has influence over the policies towards the import and export of cotton. Cotton export bans ensure that all Indian cotton is available to manufacturers. Pakistan s approach has been to remain open to trade, which has given its productive cotton farmers access to markets beyond its borders. Inconsistent and non-competitively determined exchange rate Pakistan has maintained a free-floating exchange rate regime since The consistency of Pakistan s exchange rate policy and its constant market determination stand in contrast to India s fluctuating policies. Minimum support price (MSP) for cotton Pakistan also implemented a minimum support price (MSP) for cotton. As in India, the MSP in Pakistan encourages overproduction of cotton and mutes the impact of low prices on cotton farmers decisions. However, before announcing it would purchase one million bales of cotton in October 2014, the Trading Corporation of Pakistan had not purchased any cotton since 2005/6, and the one million bale purchase 55, 56 would only benefit about 5% to 6% of cotton farmers. Preferential treatment for handloom and handicraft sector There is no evidence that Pakistan gives preferential treatment to this link of the value chain. Textile Policy Pakistani policies towards imports and exports in the cotton textile garment value chain have been relatively liberal for some time. The Ministry of Textile Industry s Textile Policy contains several measures to reduce the regulatory burden on the industry even further. The following measures were adopted in February 2015: 20

23 Draw-back for local taxes and levies would be given to exporters of textile products on FOB values of their enhanced exports on an incremental basis if increased beyond 10% over the previous year s exports at the following rates: garments 4%; made-ups 2%; processed fabric 1%. Mark-up rate for Export Refinance Scheme of State Bank of Pakistan is being reduced from 9.4% to 7.5%. Textiles industry units in the value-added sector would be provided Long Term Financing Facility (LTFF) for upgrade of technology from State Bank of Pakistan at the rate of 9% for 3 10 years duration. Textiles sector enjoyed duty-free import of machinery under Textiles Policy This facility (SRO 809) has been extended for another two years. Each of these policies allows capital to move more freely into the value chain. The draw-backs for local taxes and levies also incentivise exports of products with greater value added, which is the main goal of the Ministry at this time. In addition to these new measures, the following have been in place since 2009: Ready-made garments and knitwear exports granted R&D support at 6%. R&D support is also available for exports of: dyed/printed fabrics and white home textile at 3%; dyed/printed home textiles at 5%. Import duty on textile machinery and parts at 5%. Import duty on ginning presses at 5%. Turnover tax at 1% on retailers of specified textile fabrics and articles of apparel including readymade garments or fashion wear. Sale tax levied on retailers at 2%. Each of these provisions was introduced in 2009 and improved the regulatory environment for producers along the value chain. Compared to India, the regulatory environment for trade within the value chain in Pakistan is more liberal. For example, India has import duties of up to 25% on imported machinery and parts. The 5% rate in Pakistan is far less burdensome, and much more encouraging for scaling and innovation. India is also proposing a ban on the import of second-hand machinery, which would further discourage scaling and innovation. However, India and Pakistan are nearly identical in terms of other ACMDs. 21

24 3.5.3 Market Conditions Pakistan s focus on increasing high value-added exports is not new. It has been a priority since the creation of the Ministry of Textile Industry in The dominance of cotton in the industry and the country as a whole is not new either. Despite having only about a quarter of the total land area of India, the two countries produced fairly similar amounts of cotton between 1960 and 2005, as can be seen in Figure 9. After the end of the Multi-Fibre Arrangement (MFA) in 2005, cotton production in India exploded, while in Pakistan it remained relatively stable. Factors from outside the industry have played a significant role in the difference in production between these two countries over the last ten years. We will discuss those factors below. However, another significant factor in the differences in production since 2005 has been the sharp increase in the area dedicated to growing cotton in India compared to Pakistan, as seen in Figure 10. There has always been a large difference in the land area harvested, but the jump since 2005 in India has allowed it to overcome its historic problems with poor yield, as seen in Figure 11. Cotton yields improved for India around 2003 and the area of land devoted to cotton farming increased in 2005, thus explaining why India s production skyrocketed. However, Pakistan still outperforms India in terms of yield. Figure 9: Cotton Production in India and Pakistan Source: IndexMundi. 1, lb Bales 35,000 30,000 25,000 20,000 15,000 India 10,000 Pakistan 5, Year 22

25 Figure 10: Cotton Area Harvested in India and Pakistan Source: IndexMundi. 1,000 hectares 14,000 12,000 10,000 8,000 6,000 India 4,000 Pakistan 2,000 0 Figure 11: Cotton Production per 1,000 ha Harvested Source: IndexMundi Year 1, lb Bales Pakistan India Year 23

26 It is clear that both countries produce a significant amount of cotton. The fact that Pakistan produces its cotton more efficiently can at least partially be attributed to a more open regulatory environment. Pakistani cotton farmers have had far greater exposure to international markets because of the more open environment, as can be seen in Figure 12. Pakistani cotton has had to compete with other global producers of cotton because of the open trading environment. This was so despite the fact that Pakistan was also subject to the MFA. Pakistan s export volumes plunged as the Uruguay round of GATT (which set the wheels in motion to abolish the MFA) commenced. This suggests that protected textile and garment manufacturers in developed countries imported a great deal of cotton from Pakistan until their protected position globally became uncertain. At this point, Pakistan was able to sell much of the cotton it produced to domestic consumers, who now had access to much larger markets globally. From about 1984 to 1994 Pakistan was granted greater access to the EU under the MFA than India. 57 The resulting high export volumes disappeared around This is also when the Uruguay round of GATT ended. Perhaps the EU saw the end of the MFA in the distance and decided to no longer provide the same preference to Pakistan. This shift can be seen in Figure 13. There is a large jump in domestic consumption around the same time that exports fall. So, since this point it is clear that production of cotton textiles and garments have risen. Now, Pakistan wishes to better exploit the international market by shifting from cotton and focusing on synthetic fibres. India, on the other hand, has not yet decided to make this shift. The difference may be due to the fact that Indian cotton production and cotton textile production are not as efficient as they are in Pakistan. Pakistan has such a solid foothold in the cotton textile industry that it can afford to add synthetic fibre production to its goals. India, on the other hand, is competing on such a large scale with China and has so much land dedicated to cotton that, if it shifts focus, it may lose its position next to China. Other countries, like Pakistan, are easily able to outperform India in terms of efficiency Assessment of Pairwise Comparison Both India and Pakistan are major players in the international cotton industry. India relies on volume and government intervention to maintain its position, while Pakistan relies on efficiency and open trade to keep its position. Pakistan has recently loosened the reins on the value chain even more, while India has slightly loosened them in some areas while tightening them in others. Pakistan s decision to encourage synthetic fibre production may or may not be successful. The greatest barrier to success for Pakistan right now comes from outside the value chain, as mentioned above. The political and civil turmoil in the country has made it an unlikely place for foreign investors. This has led to a lack of available finance in the garment industry, contributing to the dominant position of textiles over garments as textiles have been so prominent for so long. For a new sector to forge ahead, there is a need for a significant inflow of capital. India also has the same desire to increase the role of garments in the value chain. It also has the same issue of having a dominant cotton sector, a dominant textile sector, and a less than dominant garment sector. India s issue has been the ACMDs we have outlined in this study, while Pakistan has suffered from extreme political insecurity and uncertainty. In each case, the least value-added products have been able to flourish because of natural endowments, but Pakistan has been able to become much more efficient because of relaxed domestic policies. India has survived on sheer volume. 24

27 Figure 12: Cotton Exports per 1,000 ha Harvested Source: IndexMundi. 1, lb Bales India Pakistan Year Figure 13: Domestic Cotton Consumption per 1,000 ha Harvested Source: IndexMundi. 1, lb Bales Pakistan India Year 25

28 4. CONCLUSION AND POLICY RECOMMENDATIONS The cotton textile garment industry is central to the Indian economy. However, ACMDs limit the efficiency of both the cotton and garment textile sectors. The government s response Vision, Strategy, and Action Plan for Textile and Apparel Sector may solve some ACMDs, for example burdensome labour regulations, but it leaves others in place, for example a minimum support price for cotton, and would create more, such as a tax exemption for the garment sector only. A comparison with Pakistan shows that more liberal policies are possible and desirable. While India has survived on sheer volume, Pakistan has increased in efficiency because of relaxed domestic policies. The cotton textile garment value chain could be a substantial wealth generator for India if ACMDs were removed or at least substantially reduced. 26

29 REFERENCES 1. Shanker A. Singham, U. Srinivasa Rangan, Robert Bradley, and A. Molly Kiniry, Anti-Competitive Market Distortions and their Impact: A Case Study of India, Legatum Institute, See Singham et al., op. cit., Appendix B. 3. Shanker A. Singham, U. Srinivasa Rangan, Robert Bradley, and A. Molly Kiniry, The Effect of Anti-Competitive Market Distortions (ACMDs) on the Aviation Sector in India, Legatum Institute, Mausumi Kar, The Indian Textiles and Clothing Industry: An Economic Analysis, New York: Springer makeinindia.com/sector/textiles-garments. 6. Mausumi Kar, The Indian Textiles and Clothing Industry: An Economic Analysis, New York: Springer India: Cotton and Products Annual 2015, GAIN Report, Foreign Agricultural Service, USDA, 30 March, gain.fas.usda.gov/recent%20gain%20publications/ Cotton%20and%20Products%20Annual_New%20Delhi_ India_ pdf. 8. IndexMundi. y=cotton&graph=yield. 9. India: Cotton and Products Annual 2015, GAIN Report, Foreign Agricultural Service, USDA, 30 March, gain.fas.usda.gov/recent%20gain%20publications/ Cotton%20and%20Products%20Annual_New%20Delhi_ India_ pdf 10. Australian Cotton Industry Overview, Fact Sheet, Cotton Australia. cottonaustralia.com.au/cotton-library/factsheets/cotton-fact-file-the-australian-cotton-industry. 11. Scott D. Stewart, Bt Cotton, University of Tennessee Extension (2007). insects/pubs/w129-btcotton.pdf 12. IndexMundi. &commodity=cotton&graph=yield. 13. Industrial Policy Resolution (30th April, 1956), Industrial Policy Highlights, Office of the Economic Advisor, Ministry of Commerce and Industry. eaindustry.nic.in/handbk/chap001.pdf. 14. David B. Collins, The Cotton/Textile Scenario in India Post- MFA, presentation slides presented at the Farm Foundations The End of the Multifiber Arrangement: Impacts on Developed and Developing Countries conference 31 January, A. Panagariya, India s Trade Reform: Progress, Impact and Future Strategy, EconWPA, International Trade , Resolution on TUFS on Techno-Operational Parameters, Ministry of Textiles, files/anx-a%20modified%20tufs%20scheme% pdf 17. Mausumi Kar, The Indian Textiles and Clothing Industry: An Economic Analysis, New York: Springer, Note on Indian Textile and Clothing Exports, International Trade Division, Ministry of Textiles, in/sites/default/files/note_on_indian_textile_and_clothing_ exports_intl_trade_section.pdf 19. Mausumi Kar, The Indian Textiles and Clothing Industry: An Economic Analysis, New York: Springer, Composite mills are vertically integrated operations that perform operations such as spinning, weaving, dyeing, printing, and finishing. 21. Kalyan Chakraborty, Darren Hudson, Don Ethridge, Sukant Misra, and Gyana Kar, An Overview of the Cotton and Textile Industries in India, Cotton Economics Research Institute, CER Series No , Mausumi Kar, The Indian Textiles and Clothing Industry: An Economic Analysis, New York: Springer, Ibid. 24. Kalyan Chakraborty, Darren Hudson, Don Ethridge, Sukant Misra, and Gyana Kar, An Overview of the Cotton and Textile Industries in India, Cotton Economics Research Institute, CER Series No , Mausumi Kar, The Indian Textiles and Clothing Industry: An Economic Analysis, New York: Springer, Ibid. 27. Ibid. 28. Jagadanand Chaudhary, Samarendu Mohanty, Sukant Misra, and Suwen Pan, The Effects of MFA Quota Elimination on Indian Fibre Markets, Applied Economics, 40:9, , DOI: / , Shanker A. Singham, U. Srinvasa Rangan, and Robert Bradley, The Effect of Anticompetitive Market Distortions (ACMDs) on Global Markets, Revue Concurrences, No , Art. No , Oct Mausumi Kar, The Indian Textiles and Clothing Industry: An Economic Analysis, New York: Springer, Bhagirath Choudhary and Kadambini Gaur, Bt Cotton in India: A Country Profile, ISAAA Series of Biotech Crop Profiles, ISAAA: Ithaca, NY,

30 32. Hugh Dang, Brad Gilmour, and Nawal Kishor, India s Agri-biotech Policies, Regulations, and Decision-making, AgBioForum, 18 (1), 87 97, C. E. Pray and L. Nagarajan, Price Controls and Biotechnology Innovation: Are State Government Policies Reducing Research and Innovation by the Ag Biotech Industry in India?, AgBioForum, 13 (4), , National Textile Policy, 2000, Ministry of Textiles. texmin.nic.in/sites/default/files/policy_2000.pdf 35. Mausumi Kar, The Indian Textiles and Clothing Industry: An Economic Analysis, New York: Springer, Xiaoyang Tang, Comparing Technological Innovation of Textile Industries in India and China, India China Institute, Vision, Strategy, and Action Plan for Textile and Apparel Sector, Ministry of Textiles (2015). default/files/vision%20strategy%20action%20plan%20 for%20indian%20textile%20sector-july15.pdf 38. Mausumi Kar, The Indian Textiles and Clothing Industry: An Economic Analysis, New York: Springer, Xiaoyang Tang, Comparing Technological Innovation of Textile Industries in India and China, India China Institute, Leslie Josephs and Debiprasad Nayak, India Bans Cotton Exports, Wall Street Journal, 6 March, Economies of scale in textiles and garments are found in the US; see Anusua Datta and Susan Christoffersen, Production Costs, Scale Economies, and Technical Change in U.S. Textile and Apparel Industries, Atlantic Economic Journal, Vol. 33, No. 2, 2005, Sugam Pokharel, Why India s Cotton Farmers Are Killing Themselves, cnn.com, 20 April, com/2015/04/19/asia/india-cotton-farmers-suicide. 43. Rajesh Kumar Singh, Modi to Launch Plan for Every Indian Household to Have Bank Account, Reuters, 27 August, in.reuters.com/article/2014/08/27/india-modi-banksidinkbn0gr1oq Textile Policy , Ministry of Textile Industry, Government of Pakistan, Feb Cotton Production by Country in lb Bales, IndexMundi. y=cotton&graph=production. 46. Cotton Domestic Consumption by Country in lb Bales, IndexMundi. mmodity=cotton&graph=domestic-consumption. 47. Economies of scale in textiles and garments are found in the US; see Anusua Datta and Susan Christoffersen, Production Costs, Scale Economies, and Technical Change in U.S. Textile and Apparel Industries, Atlantic Economic Journal, Vol. 33, No. 2, 2005, Though workers can be terminated for other reasons if they are given one month s notice or one month s pay. 49. Iftikhar Ahmad, Labour and Employment Law: A Profile on Pakistan, ILO Memo, M. J. Iqbal, ILO Conventions and Gender Dimensions of Labour Laws in Pakistan, South Asian Studies, 30 (1), June Employment Security, Paycheck.pk. main/labour-laws/employment-security. 52. Textile Policy , Ministry of Textile Industry, Government of Pakistan, Feb Special Economic Zone Act of 2012, Board of Investment, Government of Pakistan. 54. A. A. Memon, Export Processing Zones/Free Trade Zones: Pakistan Perspective, Export Processing Zones Authority, Pakistan. 55. Low World Cotton Prices Incite Government Intervention, Comité consultatif International du coton, 17 Nov, Cotton-Prices-Incite-Government-In?lang=fr-FR. 56. Salman Siddiqui, Textile Industry Rejects Cotton Support Price, TheNews.com, 5 Oct, Todays-News Textile-industry-rejects-cottonsupport-price. 57. Milan Sharma, Textile Industry of India and Pakistan, New Delhi: S. B. Nangia, A. P. H. Publishing Corporation (2006). 28

31 ABOUT THE AUTHORS Shanker Singham Shanker Singham is Director of Economic Policy and Prosperity Studies at the Legatum Institute. He is also a trade and competition lawyer as well as an author and adviser to governments and companies. He holds an M.A. in chemistry from Balliol College, Oxford University and postgraduate legal degrees in both the UK and US. He has lectured, written and spoken extensively, including more than one hundred articles and book chapters and the leading textbook on trade and competition policy. He is a frequent contributor on trade issues to major news outlets. Singham has begun work on identifying and quantifying anti-competitive market distortions and how to create the preconditions necessary for wealth creation, competitiveness, and productivity. He is currently the CEO and Chair of the Competere Group, the Enterprise City development company incubated at Babson College. He is based in London. Srinivasa Rangan Dr Srinivasa Rangan is the Luksic Chair Professor in Strategy and Global Studies at Babson College. His research deals with the globalisation of emerging market firms, evolution of industries and firm-level strategies, and entrepreneurial ecosystems. After working in industrial and international finance in India and England, Dr Rangan taught at IMD and Tulane University. He has taught in executive education programs at Babson, Amos Tuck School, Rotman School, Helsinki School of Economics, Stockholm School of Economics, Indian School of Business, and the Indian Institute of Management. With Dr Michael Porter, he has advised the Indian government on pro-competitive economic development policies. Dr Rangan is the co-author of three books and the co-editor of a fourth. Dr Rangan holds degrees from the University of Madurai, India (B.S., M.S.), the London School of Economics and Political Science (M.S.), IMD, Lausanne (M.B.A.), and Harvard University (D.B.A.). Molly Kiniry Molly Kiniry is a Managing Associate at the Competere Group. She has previously worked with Babson Global, the International Roundtable on Trade and Competition, and the House Committee on Foreign Affairs. Kiniry graduated with honours from the University of Richmond with a Bachelor of Arts in Politics, Philosophy, Economics and Law (PPEL) and French. She has published and presented papers in both English and French, specialising as an undergraduate in Sub-Saharan economic development. Robert Bradley Robert Bradley is a Research Associate and an Applied Economics PhD candidate at Northeastern University specialising in the field of industrial organisation. He received a Bachelor of Science in Economics from Bridgewater State University. His research generally focuses on quantifying the effects of public policy on economic activity. The views expressed in this paper are those of the authors and not necessarily those of the Legatum Institute. 29

32 MAY 2016