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NEW DELHI — Gayatri Lal, head of design for Modelama Exports here, cautiously approaches new clients with design concepts for its brands.

“Initially, it’s a big challenge to convince buyers that we Indians are clued in and have an idea about trends and forecasting,” said Lal, who heads the company’s 25-person design team.

But in the five years since she started her department, Lal said her clients, which include Banana Republic, Zara and Old Navy, not only embrace her work but rely on it.

“At least 20 percent of what we manufacture is in-house designs that have been picked up as is,” she said.

A graduate of India’s prestigious National Institute of Fashion Technology, Lal represents what’s fast becoming one of India’s greatest strengths in apparel manufacturing — the outsourcing of product design and creativity.

“It’s the value-added design expertise which puts India ahead of the others,” said Harmeet Bajaj, whose company, Jade Filigree, manufactures for Anthropologie, Nicole Miller, Rachel Roy and Nanette Lepore. “Our biggest competitive advantage has always been in the details, and now, as design costs are getting very high in the West, companies are looking for more of that input from us.”

Bajaj, also a founding professor at NIFT, said India’s textile traditions are a major asset.

“When designers send us very complicated designs, we know how to interpret those,” Bajaj said. “Indians have an eye for color and the subtleties of design because of our history of craftsmanship and embroideries.”

Though India seems naturally suited to be the world leader in apparel and textile manufacturing, it has long been bogged down with infrastructural challenges and bureaucratic red tape that has left it lagging behind its competitor to the north, China.

But the dismantling of the global quotas among World Trade Organization members in January 2005 opened a window of opportunity for India to reposition itself. The first year’s results have been encouraging for the industry. Apparel exports from India jumped 32 percent to $8.2 billion in 2005 from $6.2 billion in 2004. India’s textile exports had parallel growth, jumping to $17 billion from $13.49 billion in the year.

This story first appeared in the May 16, 2006 issue of WWD. Subscribe Today.

Vijay Mathur, director of the Apparel Export Promotion Council of India, said much of this success has to do with the government taking major steps in the right direction.

“It used to be that what Singapore and China would do in a couple of hours would take India a couple days, simply because of all the red tape,” Mathur said. “But the government in the last few years has been very supportive in working toward solutions that will benefit the industry.”

Those measures include allowing 100 percent foreign direct investment in manufacturing and establishing a Technology Upgradation Fund to give companies access to state-of-the-art technology at reduced costs.

One of the most obvious barriers to industrial growth in India is the lack of infrastructure. Experts say it will take India many years to build the highways and power plants needed to rival China in mass manufacturing.

“We realize we need $200 billion to bring in world-class infrastructure for the country,” said Ajay Dua, head of Industrial Policy & Promotion at India’s Ministry of Commerce & Industry. “We’re not going to get that much in domestic or foreign investment right away, so we focus on certain areas which can take off quicker than others, areas that already have some infrastructure in place.”

One of the government’s most successful programs has been the establishment of Special Economic Zones throughout the country. SEZs offer tax incentives and lower trade barriers for exporters.

Dua said the government has been flooded with applications from companies that want to set up in the SEZs. With the success of the program, the government has created a task force that is exploring expanding the zones to create Special Economic Regions that would span 77 square miles. From an infrastructure perspective, the idea is to make entire regions self-sufficient, thereby tackling the frequent power outages and water shortages that raise costs and discourage companies from expanding.

India has a growing competitive advantage against China because its hourly labor wage is about half that of China’s. However, outdated labor laws prevent companies from fully harnessing the potential of the workforce.

“China’s got a huge advantage in that their labor is ‘hire and fire,'” said Gaurav Uppal, managing director of Richa & Co., an apparel exporter in New Delhi. “Our laws are impossible. For example, they don’t allow for contract labor, which is crucial,” so seasonal employment is not an option.

Dua said widespread labor reform is in the works, but will take time. In the past few months, the government has passed legislation allowing women to work night shifts in the apparel and textile industry. In many rural areas, they are a key component in the workforce. As far as contract, seasonal labor is concerned, Dua believes the Special Economic Regions could be the answer because they are not subject to the same labor regulations.

One of India’s greatest advantages is the availability of raw materials. India is the world’s third-largest cotton producer. The largest areas of growth in apparel and textiles exports have been in the cotton and woven segments, where exports have jumped nearly 40 percent in the last year. With fabric available locally, turnaround time is cut by nearly a third, making it an attractive option for foreign buyers. In addition, companies see huge savings on freight.

Experts expect the denim industry to see a major boost in business, too. Raymond Industries, one of India’s largest manufacturers, invested $45 million to upgrade its denim manufacturing capacity last year. Uppal says India’s huge domestic consumer market is also an added benefit. Even exporters are looking into tapping that market.

India’s major competitors, such as Hong Kong and Taiwan, which have comparatively much smaller domestic markets, are facing rapidly rising wages. In contrast, India’s large domestic market, driven by high levels of consumerism, is creating new markets as wages rise. In essence, the workers of today are the customers of tomorrow.

“India offers a lot of stability that China does not — more stable economic conditions and free-flowing currency,” Mathur said. “It’s just a matter of time before India will dominate the world stage.”