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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.
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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.
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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
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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.
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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.
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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 (%)
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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
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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
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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.
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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.
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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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