Government policies and the future impact


I have been appointed by Euro Vistaa (India) Ltd. as a consultant to look at the way the MERCOSUR treaty has helped it expand into the South American market. I will also be looking at the effects of the various government policies have had on its business, how the policies have helped the Indian textile industry as a whole to expand and globalize and to understand the government incentives offered.

The last few years have witnessed easiness with the industrialisation strategy hitherto followed amongst Indian planners and policy makers. The main objective of the new strategy of liberalisation of the economy is modernisation. Government policies in the textile sector has focussed on fresh investments and import restrictions on capital goods has condemned the textile industry to obsolete technology. Such policies and high levels of protection have ensured that there is no rapid change in technology and made the products high cost and uncompetitive in the international market (Khanna, 1989)

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In India the textile industry is very significant as it accounts for 4% of its Gross Domestic Product and over 13% of its total earnings from exports and employees 35 million people. It also generates the maximum foreign exchange earning for the country. "India's textile exports have shot up from US$ 19.14 billion in 2006-07 to US$ 22.13 billion in 2007-08, registering a growth of over 15 per cent." The textile industry has been receiving increasing amounts of Foreign Direct investment. During the period August 1991- December 2008 the industry received $850 million in investment (

The intended study will firstly look at how the New Industrial Policy, 1991 (may be referred to NIP, 91 from here on) enacted by the Government of India was the first step into a new liberalised regime which gave an impetus to globalise and compete on the global scale. It provided various articles which helped the Indian textile and other industries expand and attract foreign direct investment (FDI) along with, other various resolutions. The second significant step was the effect various treaties have had on the exports of textiles.

India's increased presence in policy discussions with Latin America is one of the reasons for its fast economic growth. Similarly, antidumping and safeguard rules are quite lax and these instruments have been often used by both developed and developing countries such as India (Facchini et al,2007)

One such treaty when it comes into effect is the Preferential Trade Agreement (PTA) between India and the Mercosur countries. South America is a largely untapped and profitable market for Indian exporters. Hence, this treaty will be of great importance and the views of Exporters and agents from both parties will be looked at to see how the benefits and disadvantages of the treaty once it comes under effect. This will help Euro Vistaa to look at the South American market as a potentially large customer base to market its products more effectively to. Also, seeing the changes in government policies which have helped it expand and grow into a market leader. With the current economic recession viewpoints of Indian Textile industry leaders will be noted as to their views on the benefits the government can provide to help the exporters.

2) Problem Definition:

The effect of Government policies and the future impact of the Mercosur treaty on the Indian Textile export industry with a focus on Euro Vistaa (India) Ltd.

3) Literature Review:

3.1 ) Indian Textile Industry

Beginning of 1st January 1995, in a period of 10 years all textiles and clothing products which were subjected to MFA-quota are scheduled to be integrated into WTO (Varma, 2002). The dismantling of the quota regime represents both an opportunity as well as a threat. An opportunity because markets will no longer be restricted; a threat because markets will no longer be guaranteed by quotas, and even the domestic market will be open to competition" (Kathuria et al, 2001). From 1st January 2005, therefore, all textile and clothing products would be traded internationally without quota-restrictions (Spinanger, 1999). And this impending reality brings the issue of competitiveness to the fore for all firms in the textile and clothing sectors, including those in India. It is imperative to understand the true competitiveness of Indian textile and clothing firms in order to make an assessment of what lies ahead in 2005 and beyond. Therefore, the growth and vitality of the Indian textile industry forms an integral part of the Indian economy (Varma, 2002).

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Mehta (1995) in his study discusses how "textile sector of Asia is certainly one of the sectors which will be adversely affected (due to NAFTA)". As NAFTA has an effect on the textile sector of Asia it will also be interesting to see the effect of other international treaties also. Mercosur is an important treaty to understand as it consists of a large market which is South America. As Varma (2002) points out that the Asian sector will get affected as NAFTA provides Mexican products which are substitutes for exported products from the developing Asian countries.

In his study Singhal (2000) states that due to the government policies and the lack of co-ordination between the firms and the relevant government bodies the supply chain is highly fragmented.

The duty structure has disproportionate duty incidence on different segments of the Indian Textile and clothing sectors and hence it has created "distorted market structures, unhealthy competition among the segments themselves, and created a diverse variety of vested interests who are now opposing any reform in the sector"(Varma, 2002).

3.2) MERCOSUR: (

Mercosur, the "Common Market of the South," is the largest trading bloc in South America. The member countries of Mercosur are Brazil, Argentina, Uruguay and Paraguay with Chile, Bolivia, Colombia, Ecuador, and Peru being the associate members. "Mercosur was formed in 1991 with the objective of facilitating the free movement of goods, services, capital and people among the four member countries. Mercosur has become a successful market of about 200 million people, representing about 1 trillion dollars of GDP and 190 billion dollars of trade. It is the fourth largest integrated market after the European Union (EU), North American Free Trade Agreement (NAFTA) and ASEAN".

On the 17th of June 2003 a framework agreement was signed between India and the Mercosur. The aims of agreement were to "create conditions and mechanisms for negotiations. This agreement consisted of two stages; in stage one mutually decided tariff preferences were mentioned and in stage two, there were provisions to form a free trade area between India and Mercosur but which abided by the rules and regulations of the World Trade Organisation.

The main Preferential Trade Agreement (PTA) was signed on the 25th of January 2005. This agreement was an effort from both parties "to expand and strengthen the existing relations between Mercosur and India to promote the expansion of trade by granting reciprocal fixed tariff preferences with the ultimate objective of creating a free trade area between the parties".

3.3) Euro Vistaa ( India) Ltd.

Euro Vistaa (India) Ltd is a public limited company based in Mumbai, India. It was established in 1987. It is a well known brand and accomplished export house. Its core business is textile related. It deals with all kinds of textiles and related products. It currently handles approximately 20000 tonnes and with an export turnover of USD 20 million. The current client base is at almost 40 countries worldwide. Due to its strong reputation its major business is due to repeated orders from regular customers. This has ensured that over the years Euro Vistaa (India) Ltd. has won many awards from the Government of India for its exceptional growth and export turnover. It has also recently diversified into various activities such as setting up of windmills and also launched a commercial farming project. (

4) Research design:

In this research, Primary and secondary data collection methods will be used as a research design which will be the back bone of this report ( A good design consists of factors which work together in harmony, support efficiency and successful implementation. According to Hammersley and Atkinson (1995) in a qualitative research the "research design should be a reflexive process operating through every stage of a project" (Maxwell, 2005).

Below is the diagram depicting the methods to be used.

5) Methodology:

5.1) Secondary Data:

Every research consists of the use of data which has been published (Stewart et al, 1993). Secondary data can be obtained either internally or externally (Malhotra et al, 2006). External data which will be found and considered will be various government statistics related to information and literature related to exports (important to see the export performance during the periods before and after the treaty and the government policies), the copy of treaties (to understand the various provisions set out), the relevant literature set out in The New Industrial Policy, 1991 (India) to understand the reforms set out by the Government of India (important as Euro Vistaa is an Indian firm and has to abide by the rules and regulations set out by the Indian government). Internal Data will also be collected as it is an integral part of the research and cannot be overlooked. Internal data obtained will be used to analyze the growth and the effects of the N.I.P., 91 and the treaties on the growth and performance of Euro Vistaa (India) Ltd.

5.2) Primary Data:

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Malhotra (2006), states that there are two types of primary data collection methods viz, quantitative and qualitative methods. . A quantitative research is where the research problem and opportunities are precise and the decision maker and researcher have agreed on the precise information (Hair et al, 2003). For this research Qualitative method of primary research will be undertaken as the information required is specific to Euro Vistaa (India) Ltd. and extensive data related to the topic and Euro Vistaa is not available.

"Qualitative data provides insight and understanding of the problem setting. It can provide insight before or after the fact. It also explores the problem with few preconceived notions about the outcome of that exploration" (Malhotra, P, 2006).

Exploratory method will be used by conducting interviews as there limited amount of knowledge is available on the topic and a clear and precise statement of the problem will be obtained (Naoum, S., 2007).

In-Depth interviews will be undertaken as they allow maximum flexibilty and covering new topics as they arise (Malhotra, P., 2006). The interviewees will consist of the top management of Euro Vistaa (India) Ltd., leaders from the Indian export industry and also the agents and buyers from countries covered under MERCOSUR.

The interviews given by the personnel from India will give us the Indian point of view and the agents and buyers will help provide us with answers and their outlook. This way both perspectives can be obtained to provide significant results to Euro Vistaa (India) Ltd.

Qualitative data expresses the views of the respondents in words rather than numbers & hence, there are multiple strategies for the collection and analysis (Dey, 1993).The data obtained will be thoroughly analysed by combing all the interviews on similar subject and then reading and re-reading it to decipher the meanings. As this approach may prove to be confusing and not enough information will be obtained after, Categorisation will be used to group the data into the meaningful categories relating to what the research to be carried out is (Saunders et al., 2000).

6) Problems and Limitations:

As informed by the Senior Marketing Head of Euro Vistaa (India) there are various problems facing the industry and exporters in general. The hypotheses will be based on the problems faced by the industry. They are:

The supply of raw materials in India is monopolized by 2-3 companies which results in higher prices.

Frequent fluctuation in sea freight prices as there are no direct links to many destinations such as South America and North Africa.

Downward revision of export incentives by the Government of India.

Tough competition from other Asian countries such as Pakistan, Indonesia, Thailand, Vietnam and in particular China.

Government policies regarding exports are frequently changed.

The processes to obtain the refund of government export incentives is a lengthy and expensive procedure.

Bureaucracy at every stage results in higher costs and delays of export cargo.

Anti dumping duties have been imposed on Indian products on many countries.

Preferential duty is given by countries on goods of specific origin (excluding India) which therefore makes Indian products uncompetitive.

Limitations faced by the researcher:

Lack of time.

Lack of secondary data relating to few factors.

Language barrier as communication with personnel from South America will not be in English.

7) Time Scale:



July 13, 2009

Submission of Research Proposal

July 14 - July 25 , 2009

Collecting Literature.

July 26 - August 3 , 2009

Collection of Primary Data. (Interviews)

August 3 - August 14 , 2009

Writing the Dissertation

August 15 - August 18, 2009

Editing the Research and Revising the Document

August 19 , 2009

Sending the draft to the Tutor.

August 19 - August 24 , 2009

Working on the Tutors Comments and feedback.

September 7 , 2009

Submit the Dissertation.

8) References :

Kathuria, S., Martin, W. and Bharadwaj, A. (2001), Export Quotas and Policy

Constraints in the Indian Textile and Garment Industries, World Bank.

Singhal, A. (2000), "Keynote Address" at the Seminar on "Winning Ways for the

Future Apparel Business", in Shanbhag, V., A. K. G. Nair (2000), Winning Ways

for the Future Apparel Business, Global Business Press, Delhi

Varma, S. (2002), Export competitiveness of Indian textile and garment industry,

Indian Council for Research on International Economic Relations.

Mehta, R. (1995), 'Textile and Apparel Trade: Impact of New Regionalism', paper

presented at RIS/ESCAP/ENDP National Seminar on Promotion of Intraregional

Trade in the Asia-Pacific region, New Delhi, May.

Spinanger, D. (1999), Faking Liberalisation and Finagling Protectionism, The ATC

at its Best, Background Paper prepared for WTO 2000 Negotiations, ERF/ IAI/

World Bank Workshop, Cairo, July.

Khanna, S. (1989), 'Technical Change and Competitiveness in Indian Textile Industry', Economic and Political Weekly, Vol. 24, No. 34 (Aug. 26, 1989), pp. M103-M111.

Dey, I. (1993) Qualitative Data Analysis, London, Routledge.

Saunders, M., Lewis, P. and Thornhill, A. (2000). Research Method for Business Students. 2nd ed. Essex: Pearson Education Limited. pp. 380-400.

Schensul, S.L., Schensul, J.J and LeCompte, M.D. (1999). Essential Ethnographic Methods: Observations, Interviews, and Questionnaires. Illustrated. Rowman Altamira, 1999.

Naoum, S, G, (2007). Dissertation research and writing for construction students. 2, illustrated. Butterworth-Heinemann, 2007.

Maxwell, A, J, (2004). Qualitative research design: an interactive approach. 2, illustrated. Sage.

Confederation of Indian Industries, Government of India (2009). Textiles. Available: Last accessed 4 July 20009.

Euro Vistaa Trading Co Ltd. (2008). Profile. Available: Last accessed 1 July 2009.

Department of Commerce, Government of India (2007). India Mercosur PTA. Available: Last accessed 4 July 2009.

Department of Commerce, Government of India (2007). India's Offer List to Mercosur. Available: Last accessed 4 July 2009

Malhotra, Naresh K, Peterson, Mark (2006). Basic Marketing Reseach. 2nd ed. New Jersey: Pearson Prentice Hall

Hair, Joseph F, Bush, Robert P, Ortinau, David J (2003). Marketing Reseach. New York: McGraw-Hill Irwin.

Stewart D.W, Kamins, A, K, (1993). Secondary research: information sources and methods. Illustrated. SAGE.

William M.K. Trochim (2006). Introduction to Design. Available: Last accessed 1 July 2009.

Hammersley, M., Atkinson, P, (2007). Ethnography: Principles in practice. 3rd ed. Taylor & Francis.