TEXTILE INDUSTRY stitching together the future

With the growing fashion trends among Indian consumers, there is an increased demand of apparels

in India which provides an opportunity of growth to the textile manufacturers. This report aims to

find the key happening in the textile industry and analyze the present opportunities, challenges and

way forward for the industry.

About the Author

Swapnil Jha has 2 years of experience inIT sector with Infosys in a project for MNCbank. He is currently persuing PGPM from IIMTiruchirapalli. He has a keen interest inOperations and Marketing. He has anengineering background in ElectricalEngineering.

Kumar Rishi is a Post Graduate inMaekting from IMT Ghaziabad and aMechanical Engineer from Thapar University,Patiala. He has experience in auto componentindustry and market research.

Ashwani Kumar holds 5 years ofexperience helping SMEs growth in Steel &Automotive Component industries usingOperational excellence, LEAN & Six Sigmaconcepts. He is a graduate from IIM Rohtakwith a Mechanical Engineering backgroundfrom IIT Delhi and currently running SookshmManagement Consulting Firm catering toSMEs.

Contents Executive summary ................................................................................................................................................................ 2

Textile Industry brief Overview ............................................................................................................................................. 3

Key Segments of the Textile Industry.................................................................................................................................... 3

Industry Trends ...................................................................................................................................................................... 3

Size of the Industry ................................................................................................................................................................ 4

Country wise Exports ......................................................................................................................................................... 5

Cyclicality Trends- .............................................................................................................................................................. 5

Key Cost Factors affecting this Industry ................................................................................................................................ 6

Opportunities..7

Challenges..8

Way Forward9

Executive summary

The importance of Textile industry can be gauzed from the fact that it contributes up-to 2% of India's GDP and to 13 % of India's export earnings. With 45 million people employed directly, the textile industry is one of the largest employer of people in India. From 2008-2013, it has grown at a CAGR (compound annual growth rate) of 13% and is expected to continue to grow further at a CAGR of 12% and attain a size of $440 billion by 2025.

The Indian textile industry comprises both hand woven sector and highly automated textile mills. The industry includes power looms, knitting sectors and hosiery. This industry also includes large variety of fibers such as jute, man-made fibers, cotton and wool. The organized sector in this industry just comprises of 6 % while the unorganized (Decentralized) sector amounts to 94 % of the industry. Production of cloth is primarily from the decentralized sector.

Due to globalization, the industry has shown some signs building competitiveness not only in terms of price but also in terms of quality. Also, Government has shown interest in improving the standards of this industry. Benchmarking with global standards, quality certifications and best management practices, have only been, but still it is not applied properly in the SMEs. India is the largest cotton producing country and it is the second largest exporter of cotton of the world. It exports cotton to Bangladesh, Pakistan, Vietnam, Indonesia and China. As per report from DGCIS (Kolkata) ,the Share in total exports (% wise ) for Bangladesh , Pakistan ,China , Vietnam is 31%, 39 %, 9%, 9% each respectively.

Although India is a leading exporter of cotton, there are some serious challenges that is being faced by this sector. India is lacking behind in economies of scale. Indian textile manufacturers, especially SMEs are not competitive globally and are unable to cater to large orders. There is shortage of trained manpower. Higher energy cost is affecting the overall production cost and making production in India costlier than countries like Bangladesh, Pakistan and Indonesia and India has committed WTO to reduce its export incentives by 2018. Over the years, government has taken various initiatives such as Amended Technology Up gradation Fund Scheme (A-TUFS), National Textile Policy, simplified labor laws and introduced IPDS and EPCG scheme. This has benefitted the textile industry of India's by increasing its efficiency in the sector and with 100% FDI allowed in the industry will help the Indian textile firms strengthen their export positions and technological enhancement. The future prospects of the textile Industry looks positive. FDI is allowed up to 100% in single-brand retail and in multi-brand retail, the ceiling for FDI has been increased to 51% which is a good step. As SMEs are the integral part of the garment industry, they (SMEs) will surely benefit if more international brands enter into Indian market. Also, with the growing fashion trends among Indian consumers, there will be an increased need to shorten lead times which will further force international brands to look at local sourcing options and will result in increased business opportunities for the SMEs.

Textile Industry brief Overview The Indian textile industry comprises both hand

woven sector and highly automated textile mills.

The industry includes power looms, knitting

sectors and hosiery. This industry also includes

large variety of fibers such as jute, man-made

fibers, cotton and wool. The industry contributes

to 10%, 2% and 13% to manufacturing production,

India's GDP and India's export earnings

respectively. The textile industry is one of the

largest employer in India with 45 million people

employed directly. It has grown at a compound

annual growth rate (CAGR) of 13% from 2008-

2013 and is projected to continue to grow at a

CAGR of 12%.

Key Segments of the Textile

Industry

Industry Trends Production of cloth is primarily from the

decentralized sectors. Five segments of the textile

industry, namely, mills, power looms, handlooms,

hosiery and khadi produce cloth. Some of the key

trends of this industry are

The Indian textile industry is facing the problem

of excess capacity with the presence of a large

number of small players in each sector and lacks the

economies of scale. For example, the excess

capacity in fabric production can be seen from the

gap between the per capita availability of around 31

sq. meters of cloth and the per capita consumption

of 20 sq. meters of cloth. This is the trend during the

period of more than a decade.

Due to globalization, the industry has shown

some signs building competitiveness not only in

terms of price but also in terms of quality. Also,

some of the global retail giants are beginning to

source Indian fabrics.

Benchmarking, HRD, best management

practices, and quality certifications have only

recently started gaining importance in the textile

industry. But these are limited to only the

professionally managed companies, not in SMEs.

IT systems are playing a major role in manufacturing companies. Companies now can

monitor and keep track of various items and plan

their strategy and production with the help of IT

systems.

Size of the Industry The Textile Industry comprises of various sectors

such as Cotton textile, Jute products, silks and

woolens. The Organized sector just comprises to

only 6% while the unorganized (Decentralized

informal) sector amounts to 94 % of the total

Industry. Geographically, the market structure can

be divide in 4 zones which are East, West, North

and South. The size of the industry is estimated

around $ 108 million in India.

North Ludhiana

South Erode, Salem, Tirupur

East Varanasi, Bhagalpur

West Surat, Bhiwandi

Table 1 Major Textile hubs

Diagram 2 Area Market Share

In terms of sector variation, this Industry can be

again divided into 4 sectors-

Sector Variation

Type Share (in %)

Mill sector 42 %

Handloom Sector 21%

Power loom Sector 26%

Hosiery Sector 11 % Table 2 Sector Variation

Import and International Trend

India is the largest cotton producing and second

largest cotton exporting country of the world. In

order to collect data for demand, supply, stocks,

export & import position of cotton in the Country

the Cotton Advisory Board (CAB) is constituted by

Government of India. Major markets for Indian

Cotton exports are Bangladesh, Pakistan,

Vietnam, Indonesia, Turkey, Thailand etc.

Surat, Varanasi, Ludhiana and Erode are

some of the major textile hubs of India

India Textile Industry has excess supply over demand, but is gaining

competitiveness by benchmarking, quality

certifications & best management

practices.

North34%

East17%

West30%

South19%

Share (%)

Country wise Exports (One bale -170 KGs)

2014-15 2015-16

Export

(In Lakh

Bales)

Share in total

Exports (%)

Export

(In Lakh

Bales)

Share in total

Exports (%)

Bangladesh 22.91 40 % 21.50 31 %

China 16.76 29 % 6.46 9 % Pakistan 3.79 7 % 27.16 39 %

Indonesia 1.47 3 % 2.88 4 % Vietnam 8.01 14 % 6.17 9 %

Thailand 0.80 1 % 0.53 1 %

Turkey 0.43 1 % 1.17 2 % Others 3.55 6 % 3.13 5 %

Total Export 57.72 - 69.00 - Table 3 Country wise Exports

It can be seen that Indias export to Pakistan has risen up significantly. This can be attributed to the improving

relationship between the two countries and PM Modis surprise visit to Pakistan.

Cyclicality Trends- Cyclicality parallel to discretionary income

The cyclicality in the textile business is closely

linked to the discretionary income in the hands

of people, in other words - the state of the

economy. However, it should be noted that with

the global markets now being accessible, the

industry slowdown related risks in the domestic

economy remains limited.

Key Cost Factors affecting this

Industry The key Cost factors can be segregated in two

parts which are Direct Cost and Indirect cost.

Major Direct cost includes Raw Material Cost,

Wage cost and other expenses like power cost,

which account to 40 %, 25% and 15 % of total

costs.

Indirect cost includes sales commission,

insurance, sample cost and administrative

overhead. ITMF (International Textiles

Manufactures Federation) conducts a study

every four year for comparison of manufacturing

costs in China, India, Brazil, Turkey, Indonesia,

Egypt, Italy and Korea.

Key cost factors can be

classified as direct costs

and Indirect costs

As per the ITMF study 2012: If we take Indias Wage

Cost base figure as 100 in 2012 then following table

compares the power cost of India with other

countries:

Diagram 3 Wage cost comparison

This shows that India has competitive advantage in terms of labor over china and Indonesia, but it lacks behind Bangladesh, Vietnam and Indonesia.

Similarly, if we take Indias power cost in 2012 as 100 then following table compares the power cost of India with other countries:

Diagram 4- power cost comparison

This shows that India has higher power cost as

compared to almost every competitor.

Diagram 4 Textile machinery

100 101 94

6376

59

Power Cost

Power Cost

Higher Wage cost &

Power cost shift the focus

from producing to

exporting in India.

100

214

89 53

160

56

Wage Cost

Wage Cost

The Way Forward

Opportunities For SMEs

Government initiatives has created opportunities for the SMEs in this industry

Amended Technology Up gradation Fund Scheme (A-TUFS)

Government provides the textile industry with one time capital subsidy for eligible benchmarked machinery.

Segments with higher potential for exports are eligible for one time subsidy at the rate of 15% subject to a cap of

30 crores. Segments such as weaving, processing jute and silk are eligible for capital subsidy at the rate of 10%

subject to a cap of 20 crores.

Integrated Processing Development Scheme

The ministry of textile introduced this scheme to help the sector to meet the environmental standards

through technologies such as Zero Liquid Discharge (ZLD). The GOI provides financial assistance up to 50 % of

project cost for common Effluent Treatment Plants (CETPs) subject to a ceiling of 75 crores.

The textile industry has benefitted from India's increasing efficiency in the sector along with 100% FDI

allowed in the industry and helping Indian textile firms strengthen their export positions. With US economy being

slightly on the revival mode and 'Make in India' campaign, the textile sector will improve even more. In the coming

years, increased penetration of organized retail, favorable demographics and rising income levels are expected to

drive textile demand.

Along with the opportunities created by the government, other opportunities for the textile industry lies in

The spending power of Indians is increasing along with the rise in discretionary income. Indian textile

industry should grab the opportunity by focusing on satisfying this emerging need.

Apart from this, China currently has a market share of approx. 39% and 40 % respectively in apparels and made-

up carpets. But the future of Chinese textile market looks bleak as their labor cost and power cost is higher than

India. India has the ability to capture the Chinese share of exports as India not only has a cheaper labor availability,

but also the average age of India (29) is lesser compared to china (37) . This provides the Indian textile Industry an

opportunity to grow itself further by focusing on value addition, improved efficiency, modernization and

integrated operations.

Challenges For SMEs

Lack of economies of scale: Lack of economies of scale is a major issue in Indian textile and apparel

manufacturing sector. Countries like China and Bangladesh have developed large production setups.

Smaller units, which lack economies of scale and have a low level of technology, dominate the Indian textile

sector. Due to lack of large manufacturing capacities Indian manufacturers, particularly SMEs are unable

to cater to large orders and become globally competitive.

Low-availability of trained manpower: The demand for trained workers in India mismatches with

the availability. Casual workers (without proper vocational training), who constitute over 90% of the labor

force, resulting in a shortage of skilled workers at the national level for SMEs.

Higher Energy Cost: Energy costs in India are escalating and quality of power (regular availability,

voltage variations) provided by state grids has rooms for improvement. Whereas, Indias competitors have

access to cheaper and better power. Even in a country like the US, energy cost in textile mills is significantly

lower than that of India.

The Trans-Pacific-Partnership (TPP): It is a duty free trade agreement between 12 nations and may

impact the Indian textile and garment export sector negatively and put Indian textile exports of around US

$ 40 billion at risk over the medium term. The TPP deal gives the member nations duty free access to each

other, and makes imports from other countries uncompetitive.

Commitments to WTO: India has committed to WTO to reduce its export incentive by 2018.

India's global export share in textile and clothing has already crossed 3.25% threshold required by WTO

to be termed as export competitive with obligation to phase out export subsidies.

The Way Forward

From the industrys perspective, allowing up to 100% FDI in single-brand retail and 51% FDI in multi-

brand retail seems like a favorable proposition, since a large part of the fashion industry supply consists

of SMEs and they will surely benefit if more international brands make entry into India.

The government aims to double farm income by 2020, making farming a more lucrative activity.

This should address the problem of high suicide rates among farmers, especially cotton farmers. The

proposed schemes for organic farming should give a boost to organic farming of cotton too, creating

much value for the chain. Moreover, to improve farm productivity, the government has identified

irrigation projects as focus area, further giving a boost to the cotton and agricultural economy.

Also, with the growing fashion trends among Indian consumers, there will be an increased

need to shorten lead times which will further force international brands to look at local sourcing

options. Thus, with more international brands entering India, the demand in the domestic apparel

market will increase. Also, large foreign brands and retailers will bring with them their best practices

in supply chain, manufacturing and product design & quality. This will help Indian SMEs to upgrade

their manufacturing setup and knowhow in terms of products, designs and processes.

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