What is happening Around the World?

A month can make such a difference! Oscar night is finally over and the India centric Slumdog Millionaire has won 8 Oscars, which is a feat that has put really India in the center of Hollywood and in fact the world. When the author wrote the February column, Slumdog Millionaire had 10 nominations and in this intervening month this India centric film was talk of the world which eventually culminated in the best film award. From the entertainment industry point of view and general perception that surrounds such a fabulous achievement, things look greener for India. However most of the times reality trumps perception and imagination. From manufacturing point of view, for India to walk and run, a third leg is needed. As the saying goes, it is good to start with a bitter pill and end with a sweeter one. However in the case of international trade and manufacturing, the reality is such the Oscar nights are a distance future. Although this might sound pessimistic, it is good to infuse reality than glitz and imagination in to the minds of Indian entrepreneurs and policy makers. Apart from the media glitz and the feel good story of Oscars, President Obama's $787 billion stimulus package and his forthcoming State of the Union address to the joint session of the congress is getting its due share attention from the global press. Why is this so? Because, United States still has so much influence on international trade and economy. The American Recovery and Reinvestment Act-2009 has 787 billion US dollars of stimulus money to boost the economy within 18 months. A majority of it is for spending towards rebuilding bridges, schools, and providing broadband connectivity across the United States. This should have been music to the ears of international trading partners with United States like India and China if all things were normal. However this is not the case. This stimulus package has "Buy American Protectionist" language albeit in a toned down fashion." Before the American Recovery and Reinvestment Act was signed into, law the Democratic congress insisted on protecting the United States jobs and manufacturing industry by including restrictions on the use of goods and services towards recovery. However due to international pressures, the United States government relaxed stricter regulations on the "Buy American" provisions. In the final law, those nations that have trade treaties such as NAFTA and other preferential trade treaties will have access to bid on the projects that are supported by the stimulus package. So countries such as Canada, Mexico and those in European Union are the gainers. However, BRIC nations such as Brazil Russia, India and China are excluded from participating in the trade and development activities that are supported by the stimulus bill. Although people may have difference of opinion on protectionist policies and its impact on international trade, the reality is India has fallen on the wrong side of the equation and is a loser. This scenario will be a blow for the export driven industries in India such as IT and textiles. More importantly, an amendment in the final law insists that the uniforms and other cloth materials which will be used by the United States' Transportation Security Agency should be made in America and use products that are American. These trade policies restrict the opportunities for India and other BRIC nations to export and participate in the recovery related trade in the US. This situation is not only pertaining to the United States of America. The prolonged recession in United Kingdom and France is forcing these governments to take steps to protect jobs of their citizens by bringing in more regulations. United Kingdom recently witnessed labor strike due to the employment of non-UK citizens in an oil refinery in Lincolnshire. The UK government has to come-up with some sought of undertaking to convince the striking laborers to ensure their job safety, which shows the seriousness of the situation that is embracing the world right now. What have these scenarios got to do with the Indian textile industry? Post MFA era, the Indian textile industry thrived due to its export which saw a reverse trajectory in 2007 and 2008. Even a small variation in the dollar-rupee exchange rate can create a havoc in the textile industry. Such a situation was witnessed in 2007 when the world was not in a recession. But since December 2007, United States is in official recession which is leading to lower consumer spending and closing of retail stores across the United States. JCPenney just announced that its 2008 4th Quarter sales is nearly 10% lower than the one in the previous year. This situation is not a welcoming one for Indian textile export sector. So it is imperative for the Indian textile industry which is labor and infrastructure intensive to look beyond the current and conventional opportunities. Economists predict that the economy may start recovering only during the spring of 2011, i.e., two years from now. So this period which will be a stressful one for the Indian textile industry will provide new and untapped opportunities. One such opportunity is in the diversification of the Indian textile industry to cater to its domestic base in short term and explore export opportunities in the near long term. This strategy will be particularly timely now as it helps the Indian textile industry to plan ahead and start growing until the global economy starts recovering as early as 2011.