Growth Prospects of Indian Textile Industry – Home Textile focus

J. N. SinghTextile Commissioner

Indian Textile Sector - Overview

Key contributor to GDP 4 percent of GDP 14 percent of National Industrial

production

Significant forex earner 15 percent of exports

Employment generator Provides direct employment to 35

million people

2004-05Textile MillsSpinning Mills Nos. 2,012Composite Mills Nos. 1,566Exclusive weaving mills Nos. 202 Capacity InstalledSpindles Million Nos.

37.47Looms Lakh Nos. 1.03Powerloom Lakh Nos. 19.03Handloom Lakh Nos. 38.91

Textile exports $ billion 17.8Textile imports $ billion 2.2

What is the Indian Market Size (Bn US $)

2005-06

Export Domestic Total % to Total

Apparel 8.64 19.22 27.86 59.28

Textile 9.24 9.99 19.14 40.72

Total 17.88 29.12 47 100

Home Textile Market Globally

Global Home Textile Market is estimated at US $12b in 2005, and is expected to grow at 16% CAGR and reach US $22-25b By 2010.

India ranks 2nd in the global market with a share of approx. 9-10% of market share.

India's home textile exports expected to grow from $1.2 billion now to $5 billion by 2010 Great opportunity to be the market leader.

Our Vision 2010

– Market size of US$95 Bn • Export Target- US $ 50 Billion

(National Textile Policy, 2000)• Domestic market - US$ 45 Billion

(CRISIL Study, 2004)

– India’s market share in World textiles trade to grow from

3% to 6%.

– Growth Projections of 20% in exports, 16% domestic

Reasons for Optimism: Growth in fabric production

4

-0.15

1

7

9

12

-2

0

2

4

6

8

10

12

14

2001-02 2002-03 2003-04 2004-05 2005-06 2009-10(Expected)

Perc

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Reasons for Optimism: Raw Materials India is now the 2nd largest producer of

cotton

2nd largest producer of Silk

Very well placed in Man-made Fibres too.

Reasons for Optimism: Growth in Investments in Textile sector Investments under TUFS have grown

significantly recently.

Project cost sanctioned under TUFS

1320 14383289

7349

15032

30000

0

5000

10000

15000

20000

25000

30000

35000

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07(Estimated)

(Rs.

cro

re)

Reasons for Optimism :Growth in exports

-10

15

9

4

2224

-15

-10

-5

0

5

10

15

20

25

30

2001-02 2002-03 2003-04 2004-05 2005-06(Provisional)

2006-07 (Initial figures)

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Winners and Losers in EU Market 2005 over 2004

SRILANKA

THAILAND

VIETNAM

INDONESHIA

TUNISIA

MOROCCO

RUMAINA

PAKISTAN

B'DESH

INTRA EU

INDIA

TURKEY

CHINA

-20 -10 0 10 20 30 40 50

Gainers: China, India, Turkey Losers: Thailand, Pakistan, Indonesia

Romania

South Korea

Turkey

China

USA

Pakistan

Taiwan

India

Indonesia

Bangladesh

0 5 10 15 20 25 30 35 40

EU MARKET VARIATION JAN – JUN 2006/05

Hong Kong

Mexico

Canada

Vietnam

Pakistan

Indonesia

Bangladesh

Cambodia

India

China

-20 -10 0 10 20 30 40 50

US IMPORTS OF TEXTILE AND APPAREL PERCENT VARIATION

2005/04

Mexico

Canada

Hong Kong

China

India

Pakistan

Bangladesh

Vietnam

Cambodia

Indonesia

-15 -10 -5 0 5 10 15 20 25 30

US IMPORTS OF TEXTILE AND APPAREL PERCENTAGE VARIATION

JAN – SEPT. 2006/05

DRIVERS OF DOMESTIC GROWTH : Demand Side Factors: Increasing Income Levels

Distribution of households by income category

Classification Income class 2001-02 2005-06* 2009-10* CAGR

Deprived <90 135,378 132,250 114,394 -3.6

Aspirers 90-200 41,262 53,276 75,304 9.0

Seekers 200-500 9,034 13,813 22,268 12.7

Strivers 500-1000 1,712 3,212 6,173 17.7

Near rich 1000-2000 546 1,122 2,373 20.6

Clear rich 2000-5000 201 454 1,037 22.9

Sheer rich 5000-10000 40 103 255 25.4

Super rich >10000 20 53 141 27.7

Total 188,193 204,283 221,945 2.1* - ProjectionsNote : Income is in Rs.’000 per annum at 2001-02 prices and the households are in ‘000s

Source : NCAER

Favorable Demographics for Home Tex

– The population of India is expected to increase from 1029 million to 1400 million during the period 2001-2026.

– The population profile of India is shifting towards a larger composition of people

in the age group 15-59 .India most favourably placed globally. Out of the total population increase of 371 million between 2001 and 2026, the share of the age-group 15-59 years in this total increase is 83 percent.

– The low median age of population means a higher current consumption spending vs savings

– The growth in population is taking place in the urban area. Out of the total population increase of 371 million during 2001-2026 in the country, the share of increase in urban population is expected to be 249 million.

– Favourable Demographics- increasing young population and that too in the urban area- coupled with rising income levels will act as a key growth factor for the Indian textile and Fashion Industry

Increasing Working Female Population

10

15

20

25

30

1961 1971 1981 1991 2001 2005 (E)

Pro

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Source : CENSUS

Increased usage of credit cards and availability of cheap finance

The use of credit cards (plastic money) has increased significantly

in the last 3-4 years. The number of credit cards issued has grown

at 26 per cent per annum in the past 5 years while debit cards

have grown by a whopping 113 per cent. Increase in the number

of installations of electronic data converter machines will provide

fillip to impulse apparel purchases.

Demand Driver- Domestic Housing Boom Asian Development Bank expects that by 2008, the

housing deficit will be 22 mn units and by 2030 India will be requiring upto 10 mn housing units every year. A very huge requirement for home tex.

The Real estate sector has given phenomenal returns in the last 2-3 years as per the global trend. A property owner is now more inclined to buy/renovate his home furnishings etc.

The domestic housing boom is further enhanced by the reducing age of Indian borrower- from 43 years in 1995-99 to 33 years in 2005-9.

Drivers of Domestic Growth:Supply side factor : Retailing Revolution - Growth so far

196.7 208.1 222.0

3.9

6.2

7.8

2.0

3.0

3.5

180.0

190.0

200.0

210.0

220.0

230.0

240.0

2003E 2004E 2005P

US

D B

illi

on

1.5

2.0

2.5

3.0

3.5

4.0

Perc

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t

Total retail industry Organised Penetration

Five year outlook

222.0 304.2

7.8

24.3

3.5

8.0

100.0

200.0

300.0

400.0

2005 P 2010 P

US

D B

illi

on

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

Perc

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Total retail industtry Organised Penetration

Growth of Mall Space

From 2 mn sq ft in 2001 , we had 28 mn sq ft of mall space in 2005 – and by end 2008, the eight Indian large cities will have a supply of 66 mn sq ft and the next seven large cities about 13 mn sq. ft.

The entry of Reliance, Aditya Birla group, expansion of Futures and now of Bharati-Walmart is expected to further sizzle Indian market.

Drivers of Export Growth

Dismantling of the MFA regime and the full play to the Indian entrepreneurship.

Progressive dismantling of the textile and mass apparel industry from the Western world. India is a major player to fill this gap. The current quantitative restriction on China is helping India.

Buying of several Western brands by Indian industry, thus facilitating entry in EU and US.

Increasing modernization of Indian textile and apparel manufacturing sector in response to the increased global demand and facilitated by the TUFS scheme.

Global Housing Boom

According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs .

The global boom in house prices has been driven by two common factors: historically low interest rates have encouraged home buyers to borrow more money; and households have lost faith in equities after stockmarkets plunged, making property look attractive .

Naturally as people buy more property or as their property becomes costlier , the propensity to spend on home-textile increases significantly.

Other Export Drivers

The IMF forecasted a 4th continuous year of income increase globally at 4.7%- naturally leading to a more than higher purchase of textiles including home-tex.

Also a phenomenon of decline in textile prices over a continuous period esp in developed economies- driving higher the worldwide demand of textiles and clothing.

Real Clothing PricesIndex, 1994=100

70

80

90

100

110

120

1995 1996 1997 1998 1999 2000 2001 2002 2003

United States

South Korea

Germany

Thailand

Japan

China

Strategy of various

Stakeholders

Strategy for the GOVERNMENT 1.Further investments must continue to be encouraged-

TUFS should be continued (may be with some modification)

TUFS help to processing sector – Vital for home tex

Year TUFS all segments (in crores)

Processing (in crores)

P.c %

2002-3 1438 210 14.63

2003-4 3289 260 7.91

2004-5 7349 986 13.42

2005-6 15032 1157 7.7

2006-7 (april-sept) 9335 2081 22.30

2. Continuance of textile infrastructure schemes

SITP ( Scheme for Integrated Textile Parks) has had a huge success : 26 parks approved. GOI contribution to be 866 crores with another 1250 crores to come from private sector. Estimated investment of Rs.13445Cr.

Need to continue such schemes on the PPP model.

3. HRD

Governments in PPP mode with the industries must invest heavily in training in the textile sector because a huge shortfall of over 40 lakh workers is expected in the next 5 years.

4.High Transaction Costs Issues:

– According to EXIM Bank Study (2002), transaction cost is

very high in Textile & Garments Sector ranging from 3-10%

– Ownership of exports – less support from State

Governments

– Non-refundable incidence of State Taxes – VAT, Entry Tax,

Luxury Tax, Mandi Tax, Electricity Duty, Octroi, etc.

Proposal:

– To consider refund of State / Local levies through

appropriate refund mechanism

5.High Power CostIssues:

High power cost:

Cross subsidisation

Frequent power interruption

Competitors’ Edge:

Country Cost

(Cent / KWH)

Country Cost

(Cent / KWH)

India 8.87 Indonesia 3.65

China 6.04 Bangladesh 3.49

High Power Cost

Proposal:

– Export oriented textile units be exempted from cross

subsidy

– Duty free import of furnace oil to units for captive power

generation

– Uninterrupted power supply for export oriented textile

clusters

Industry’s Strategy

Integration- Moving up/down the full value chain. Leading Home-tex players like Welspun, Alok are now fully integrated, with strong competencies in spinning, weaving,and finishing.

Scale- Massive expansion plans of existing as also new players to take advantage of this unprecedented opportunity. Smaller companies, some of whom are in unrelated businesses, are also foraying into home textiles - Gangotri Textiles, KG Denim, S Kumars Nationwide, Bannari Amman Spinning, to name a few.

Brand presence- there has to be greater shift towards branded products.Realization that real value addition comes only after branded sale.

Domestic- Spaces brand of Welspun

Carmichael House of S.Kumars

International- Purchase of Christy by acquiring CHT Holding by Welspun.

Dan Rivers and Roseby’s by GHCL.

Designer labels will also have to be brought in to counter the pull of top international labels like Tommy Hilfiger, Zegna, Mark and Spencer and likely presence of Italian Pozzi Industria Tessile and Ralph Lauren. Alliance with Indian designers important over here.

Future ?

The home-textile sector in India is in for BOOMING TIMES.

Save for major implementation problems, India poised to become a leader in this sector.

THANK

YOU