The big race for the global textile market will kick off in January 2005, when all quotas in the global textile trade will be abolished and exporters will have a free run of the markets in the developed West.

The competition will be intense and in due course throw up new winners and losers. Most analysts predict a smooth run for China and India, in that order. So a silver medal for India appears a near certainty.

Therefore, the post-MFA shake-out in the global textiles and apparel market is going to hugely benefit the Chinese dragon, but will leave a definitive unassailable space for the Indian tiger as well.

The two countries are all set to mount a major offensive in the global marketplace, precipitating a pervasive price war of unprecedented magnitude. Consumers across the world would gain from the structural overhaul of the global textile industry.

Thinking of India's textile and clothing industry, what strikes you first these days. A picture of a deserted textile mill, reduced to a controversial piece of real estate at the Mumbai suburb, Lower Parel or a huge promise this industry holds out?

Despite that 472 of India's 3,140 spinning and composite mills (spinning/weaving/processing) in the organised sector are still sick, the domestic textiles-to-garment industry, dominated by the unorganised segment, currently has a size of $36 billion, exports goods worth over $12 billion, holds over 3% of world textile and garment market of $353 billion (in '02), and employs 8.5 million people.

Not only that, the industry now aims, realistically, to achieve a size of $85 b by the year 2010 with exports of $40 billion, a 6% share of the projected world market of $655 billion, and to create additional employment of 12 million.

The textile sector, therefore, needs an investment of about Rs 1,40,000 crore by '10, of which Rs 50,000 crore will be for setting up world-class processing houses, while weaving, spinning and garment segments will need fresh investments of Rs 25,000 crore, Rs 37,000 crore and Rs 25,000 crore respectively.

Assuming a debt-equity ratio of 1.5:1, India, therefore, needs equity investments of Rs 56,000 crore complemented by Rs 84,0000 crore of debt in the textile sector by '10. Big indeed. What makes all this possible given the sub-contracting culture in the industry and a seemingly insurmountable cottage industry hangover that persists ?

The agreement of textiles & clothing (ATC) under the WTO requires countries to integrate textiles and clothing trade over a 10 year transition period ending on 1 January '05, by total dismantling of the quota restrictions under the Multi-fibre Agreement (MFA). This means that the huge "quota markets" of the EU, the US and Canada will be open for everybody, starting January next year.

But why so much hope is pinned on the Indian industry in particular? This is because conventionally, India's textile units has been prevented from optimum performance, thanks to a scale-sensitive tax regime favouring the small, sundry reservations, supply obligations, rigid labour norms, and, of course, the export quotas.

This despite the fact that India is one of the few integrated textile industries in the world equipped with a diverse, rich raw material base comprising cotton, viscose, acrylic, polyester and nylon. Factors that have impeded growth of the textile industry have now been largely removed.

The government, through the last three union budgets, has not only accorded the organised sector that had suffered from a discriminatory tax regime, a level-playing field, but also substantially reduced the overall tax burden on the industry.

The entire natural fibre chain (up to garments) is now free from mandatory excise duty. Finance minister Mr P Chidambaram has also signalled that manmade fibres, the only segment of the industry, which is subjected to mandatory excise duty, will also be totally free from the duty in a couple of years, leading to a zero excise regime.

These measures reducing cost further would hugely increase India's competitiveness in the export markets. Besides, a robust economy coupled with a rising middle class could allow an estimated 9% growth in domestic market.

A contrast with China may reinforce this argument. China's share in the world textile and clothing trade jumped from 6.9% ($7.2 billion) in textiles and 8.9% ($9.7 billion) in clothing in 1990 to 13.5% ($20.56 billion) and 20.6% (41.30 billion) in 2002.

Compare this with India's share of 2.1% ($2.2 billion) and 2.3% (2.5 billion) in 1990, which grew to 3.7% ($5.4 billion) and 2.8% (6 billion) in '02.

No, it was not simply because China was more efficient. In fact, Chinese garment industry have benefited from huge subsidies, which may not last for long, now that that country is a member of the WTO, which commits to eliminate export subsidies.

Also, the dramatic increase of China's presence in the US and EU markets was majorly due to preferential quota access given to the country. (The US has plans to give tax relief to countries in Africa and Middle East, while being wary of a possible aggression by Indian textile industry).

China's garment industry is import-intensive whereas India's is not, although the quality of fabrics produced in India has to be improved. China exports grey fabrics and imports processed fabrics with about 60% cost escalation.

China is the largest producer of manmade fibres in the world with a capacity of 10 million tonnes, but, to an extent, it depends on imported raw materials.