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WHAT is the Iraq thing about? Democracy? Oil? Or dollar supremacy? The argument goes something like this.

The most serious threat to the American economy does not come from oil prices. It comes from the huge current account deficit !hich is currently in the region of "# of the gross domestic product $%D&'. It means that America spends about (")) billion more than it earns from the rest of the !orld. *ost other countries ha+e seen their economies !recked by such I huge current account gaps. ,emember Thailand in -../ Argentina in 0))0 or India in -..-. 1oreign in+estors rushed for the e2its taking their dollars !ith them. America is immune to this threat because the dollar is the most popular currency for global trade transactions. 3o !hile other countries ha+e to gi+e up their foreign e2change and gold reser+es in order to buy from other countries America merely has to print more dollars. It is a unique ad+antage that !as slammed !ay back in the -.4)s by 1rench president 5harles de %aulle !ho said that the reser+e currency role of the dollar is an 6e2orbitant pri+ilege6 for the American economy. The dollar has continued to !obble in recent months. It is no longer playing its role as the geopolitical safe ha+en. The euro seems to become more popular by the day. 7er+ous Asians and angry Arabs can change the balance of po!er in the financial system. The euro could seriously threaten the dollar as the !orld8s preferred currency. 79W3&A&9, headlines in these past four !eeks ha+e been dominated by scary tales of guns and germs. :ut ha+e !e been paying too much attention to the gas masks in the desert and too little to the health masks in airports around the !orld? It is possible that the ne! respiratory illness spreading panic across Asia !ill do more damage to the !orld economy than %ulf War II. A:7 Amro has already cut its forecast for Hong ;ong8s gro!th from <# to =."# assuming that the epidemic is brought under control by the end of this month. The go+ernment of Tai!an says that the 3A,3 scare !ill mean losses of a !hopping (0<< million for its tourism industry alone. 3alomon 3mith :arney has brought do!n its gro!th forecast for 5hina from /.4# to /.=#. And :7& &aribas says the 3A,3 +irus could knock a full percentage point off 5hina8s gro!th rate.

Data from -.4" to -..) sho!s that after taking into account other factors such as initial po+erty economic policy tropical location and life e2pectancy countries !ith se+ere malaria gre! -.=# lo!er a year. A -)# cut > . die incidence of malaria translated into ).=# higher gro!th per year. It is the trade routes that still carry the biggest risks. 7ot surprisingly the !orst health scares ha+e been seen in big trading hubs like Hong ;ong and 3ingapore. The +irus can spread +ery quickly from here thanks to the millions of global nomads !ho mo+e around in ?ethliner cara+ans. This is the soft underbelly of globali@ation. Aou snee@e and the rest of the !orld has to !orry. It could be a foreign e2change crisis. Or it could be a killer +irus. Hong ;ong8s shopping malls are !earing a deserted look. Ha!aii8s economy has been hurt by a lack of 5hinese tourists. Airlines ha+e already grounded large parts of their fleets. 3ingapore8s go+ernment has stopped the night shift at a large semiconductor plant because it suspects !orkers there ha+e been infected. And e+en :angalore8s technology companies say that ne! client +isits ha+e dried up in recent months. At a time !hen the ne! WTO regime could threaten the e2istence of the garment industry !hy !as the go+ernment coming do!n hea+ily on them they asked. Baitley parried the questions !ell C emphatically ruling out any ta2 sops. A mere )."# of these companies ha+e turno+ers of more than ,s. -)) crore $(0- million' e+ery year. The bulk of them e2ports garments !orth ,s 0) crore $(<.0 million' or less. The le+el of automation in apparelDmaking is relati+ely lo! in India. World :ank study in -..E said the a+erage in+estment per machine in a typical Indian garment factory !as ?ust (0") compared to (- ")) in 5hina and (- 04) in Thailand. 7aturally producti+ity is lo!er among Indian garment manufacturers. 1or e2ample a Hong ;ong manufacturer makes 0).4 blouses per day per machine !hile the Indian a+erage is -).0. A *c;insey and 5ompany study noted using the number of shirts produced per day as a measure that producti+ity in India is -4# of that in the F3. As the le+el of competition intensifies Indian garments manufacturers !ill face t!o kinds of challenges. One as buyers consolidate and hence place bigger orders !ith fe!er suppliers e2porters must ha+e the scale to compete on costs and quality. That !ill require si@eable capital e2penditure !hich the smaller companies !ill be hard put to

make. T!o manufacturing units !ill also need the fle2ibility and the ability to deli+er orders on time. 1or that the supporting infrastructure required from fabric sourcing and dyeing facilities to ports and customs ha+e to be perfectly synchroni@ed. 9+en as the changes in the !orld market play out a si@eable ma?ority of the garment industry has still not !oken up to the challenge. To sur+i+e most of the still e2pect generous handouts from the go+ernment instead of securing their o!n future. A large ma?ority of Indian garment manufacturers ha+e competed on price. :ut no! +alue additions are critical. And most of them simply do not ha+e the technology or the management skills to sur+i+e.

THE BAD NEWS


The industry !as almost killed off by bad go+ernment policies like that for po!erlooms $abo+e'. 5ommerce minister Baitley $bottom right' is no! lifting some of the burdensG H Indian garment companies are small and fragmented and cannot in+est big capital to capture the ne! demand. The te2tile secretary says a shakeout is imminent and after that only = ))) of the 0) ))) companies e2isting no! !ill sur+i+e. The rest !ill either close or merge. H Infrastructure is +ery poor and hampers an efficient e2port operation. It takes se+en days for a shipment from Delhi to lea+e the *umbai port as against 0< hours in 5hina and Thailand. &o!er cuts are rampant in :angalore and Tirupur. H Time is running out. In the last three years. :angladesh Iietnam and some African countries ha+e reformed their industry and are today more cost competiti+e than India. 5hina too could gobble up the entire demand if India does .not !ake up in time. 7o! broadly there are four important stages before arguments made. ,a! cotton is spun into yarn. Aarn is !o+en in fabric. The fabric is then processed $dyed etc.'. 1inally the fabric is con+ened into a garment or a madeDup like a to!el. India e2cept for the first stage of spinning the other three a fragmented and underDde+eloped. %arment manufacturing too remained fragmented b cause it !as reser+ed for the smallD scale sector. *anufacture units could not e2ceed more than ,s - crore in+estment. plant and machinery. This shortDsighted policy ensured that the big organised sector did not

in+est in garment manufacture. In 5hina most of the companies are integrated players producing e+erything from yarn to garments. T!o years ago the go+ernment corrected the anomaly b thro!ing open garment manufacturing to anybody !ho could in+est. In fact it !ent one step further. It has no! allo!ed -))8 foreign direct in+estment !ithout any e2port obligations t spur ne! in+estment in the sector. 5learly time is running out. 3o unless both the industry and the go+ernment !ork together to de+elop and e2ecuti+e a common blueprint may !ell be a case of yet another missed opportunity. 1or one the global sourcing opportunity before India didn8t e+en figure once in the industry8s parleys !ith Baidey. Instead they had a litany of complaintsG unlike soft!are companies !hy did garment e2porters ha+e to pay ta2es on their e2port profits? Then again the last Fnion :udgeG had forced e2porters to pay e2cise duty in ad+ance and claim a refund after the goods ha+e been shipped. That meant funds !ould be locked up !ith the ta2 agencies as refund of ta2es !as a longD!inded6. Today a similar story of rise and fall could !ell be playing gout across IndiaJs ma?or high streets !hich ha+e dominated the retail sector for se+eral decades. 5onnaught &lace 3outh e2tension and ;arol :agh in Delhi and &ark 3treet in ;oldata. With each of their annual turno+er any!here bet!een ,s. ")) crore and ,s. 0")) crore these bustling high streets determine the fortunes of se+eral Indian enterprise. Take ?ust one apparel brand. Arro!. 3e+enty per cent of Arro!Js sale come from ?ust -" high streets in India. To! years ago !hen Ansal &la@a DehiJs is first mall came up 0 km a!ay from 3outh 92tension most retailers !rote it off. Today it is pro+ing to be a formidable competitor to 3outh 92tension. Today the high street retailers are all feeling threatened. Kuiet changes ho!e+er are already taking place in the !ay generations of Indians ha+e shopped. Today !e are much more comfortable !ith the quality that brands connote than !ith a shop keeperJs !ord about the quality of a product. The consumer is ready no! for organi@ed retail.