The Textile Industry Has Been One of the Oldest and Most Important Sectors of the Indian Economy

7/27/2019 The Textile Industry Has Been One of the Oldest and Most Important Sectors of the Indian Economy

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IntroductionThe Textile Industry has been one of the oldest and most importantsectors of the Indian Economy. It is the second largest employmentprovider in the country, next to Agriculture; it contributes to almostone third of foreign exchange earning; contributing to 3% of the !".India has also been a significant player in the global textile mar#ets. Itis the third largest producer of cotton, the largest producer of $ute, thesecond largest producer of sil# and the th largest producer ofsynthetic fiber&yarn. India's exports of textiles and readymadegarments gre( by )*% in +**)+**+ and no( stand at over -)billion. Export of synthetic and rayon textiles rose by +3%. There hasalso been a remar#able increase in export of polyester&viscose yarn

by more than 3%, polyester yarn by /% and polyester spun yarn by+0%. !uring this period, polyester filament fabrics increasedregistered an )0% gro(th and polyesterviscose fabrics increased by)*%. Textile is a #ey sector for Indian economy. It's the corecompetence of the u$arat and contributes significantly to the gro(thof u$arat 1tate.

As business scenario has changed from 2an +**, It's impact (ill beuite visible on Indian economy. Ahmedabad is one of the ma$or

cities (here many big textile mills such as 4eliance textile division,Arvind mill ltd., Ashima textile ltd. etc., are located. It's important tosee ho( this changeover of the present big players because theycontribute significantly to Indian economy in terms of !" and totalemployment generated.


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COLONIZATION - AN END OF THE INDIAN TEXTILE LEGACY

8oloni5ation put an end to India's glorious textile legacy. The 6ritish#ne( that they could not compete (ith the Indian textile industry andas a result resorted to complete destruction of the industry. 6y )00*the domestic mar#et had gro(n to be serviced solelyby the 6ritish manufacturers@ India, once the (orld's leadingexporters of textiles, (as forced to become a net importer. Tariffs(ere imposed to ma#e sure that the 6ritish goods entered the Indianmar#et virtually free (hile Indian goods (ere #ept out of the 6ritishmar#et.

ne of the aspects of India's freedom struggle, led by 9ahatmaandhi, (as to (ea#en the 6ritish textile industry by (earing

homespun clothes. andhi$i (as convinced that the textile sectorcould be a catalyst in advancement of the Indian population bycreating employment for the excess labour pool.

"ostindependence, till about the late )/0*s, the overnment of Indiaput numerous policies and regulations in place to ensure thatmechani5ation did not occur and that labourintensive textiles (ereproduced.


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REFORMS ERA - RE-EMERGENCE OF THE INDIAN TEXTILEINDUSTRY

The )/0*s has seen a progressive relaxation of regulatory policies(ith a vie( to increasing the efficiency and competitiveness of theindustry. The Textile "olicy of )/0 heralded a ne( beginning in thehistory of the Indian textile industry. It accepted that the crisis in theindustry (ere neither cyclical nor temporary but (ere rooted indeeper structural (ea#nesses. It identified the main tas# of the textileindustry as increase in production of cloth of acceptable uality atreasonable prices to meet the clothing reuirements of a gro(ingpopulation. It (as envisaged that this basic ob$ective (ould be metthrough cost efficiencies and a freer play of mar#et forces rather thanthrough controls and restrictions. Among other things, the Textile

"olicy of )/0 addressed the issues of ra( material supply atreasonable and stable prices, progressive reduction of duties onsynthetic ra( materials, removal of entry and exit barriers along (ithemphasis on technology moderni5ation and increasing thecompetitiveness of Indian textiles in the international mar#et.

he )/0 Textile "olicy illustrated the government's attempt to relaxthe regulatory burden on the composite mill sector by elimination ofcompartmentali5ation in the industry, lifting of restrictions on

composite mill loom capacity expansion and euali5ation of taxationamong composite mills, po(er looms and independent processingunits.

The ushering in of the reforms in the )//*s provided a further boostto the Indian textile industry. In line (ith the general policy ofliberali5ation, several measures (ere underta#en to reduce controlsand bring about greater transparency in the textile sector.

The textile industry (as delicensed as per the 1tatement of Industrial

"olicy of )//) and the Textile !evelopment and 4egulation rder of)//+. 4eforms on the fiscal and external fronts (ere also pursued(ith rene(ed 5eal.

All these measures liberated the Indian textile industries from theshac#les of regulation that (ere in place up to the late 0*s. Thesesteps (ere only a beginning in ensuring that the different segments ofthe textile industry become competitive in the (a#e of globali5ation.


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TBE IC!IAC TEDTI


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THE VALUE CHAIN


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The Indian textile industry (ith all these advantages is (aiting (ithbated breath for the post uota regime that came in effect from2anuary ) +**. The abolition of uotas (ill open up a plethora ofopportunities for the Indian textile sector, (hich is favorably placed toleverage its comparative advantages and increase its mar#et share inthe post uota regime.

To have a deep insight of the Indian textile industry, (e studied the(or#ing of one of the leading Indian companies, TBE A4IC! 9I


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TBE

A4IC!9I


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aimed at the export mar#et and the company is IndiaLs biggestexporter of textiles. It has recently added gabardine as a ne( productto its textiles division. It has a strong presence in middle and uppersegments of the denim mar#et. The customers in the premiumsegment include manufacturers of Grangler"epe,>lying9achine,etc.8ottons shirting and bottoms, mainly fine and superfine cottonshirting are targetted at the upper segment. In export mar#ets, Arvind9ills customers include 8apital 9ercury, xford 1hirts in the 1A,!e(hirst in the H and Arro( in 6ra5il.

HBAHI1

The Hha#is fabric plant is a part of Arvind "roducts


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also exports high value cotton shirting fabric to the 1, Europe, >arEast and the 1AA48 countries. Arvind is the leading exporter of highvalue shirting from India. ur buyers are garment converters,international buying houses, retailing chains and over t(o hundredand fifty manufacturers around the (orld, including names li#e6anana 4epublic, >lex, A",


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The ne( plant manufactures )**% cotton piece dyed fabric (ith(eights up(ards of =.* o5. In tune (ith the mar#et trends of movingto(ards softer and more comfortable garments for (earing both at(or# and at home, Arvind has introduced three exciting ranges ofbottom(eights flats fabrics@

). 1ports


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+. Arvind Intex@Ahmedabad based Arvind Intex (as a sic# unit The Cagri 9ills


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Arvind 8lothing


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!"rtici#"tion in G$o%"$ T&'ti$& Tr"d&

:as on 2anuary +**


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T(& To# I)#ort&r*

Apparel Trade

Total global buying in 1- )/6n :year +**+Top contribute /%.

TO! + IM!ORTERS IN WORLD

M/.+=

==.3/

)/.)%)=.)

3./+

*

)*

+*

3*

*

%*

=*

M*

0*

/*

E 1 2A"AC BH&8BI 8ACA!A

,i$$ionUSD

1eries)

Textile Trade

Total lobal buying is 1- )= 6n :Fr +**)*+Top )M contribute M%.


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T(& To# E'#ort&r*

A##"r&$ Tr"d&

Imports into 1

Total 1 buying is 1- ==6n.Top )* contribute 0% to total 1 importsGhile 9exico used to be largest supplier to 1, today that positionhas been ta#en by 8hina.

valuesin-9illion

4an#Came of8ountries +**) +*** )///Gorld ==3/) M*/= M==M

) 8hina /+M M00 M=0+ 9exico 0)/0 M+/= M0*M3 BH /0 ++0 0+

Europeannion +=0+ ++) +/=

Bonduras +0= ++3M ++)= Indonesia +0 )/=3 )0+=M Horean.4ep. +M) ++/ +3=)

0!ominican4ep +3+M ++3 +3/*

/ Thailand ++=M )M/) )M/))* 6angladesh ++3+ )=+/ )==+

India +*=3 )=3* )=


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Import into E

valuesin-9illion

4an#Came of8ountries +**) +*** )///Gorld M/+=3 0)=) 0+M

)Europeannion 3)33 330+ 3)/

+ 8hina 0+M 0*/* M0M3 Tur#ey * 3) *03

Total E buying is1- M/6n.Top 3 contribute about =*%Top )* contribute M0%Intra E Trade remains uite substantial, ho(ever its seen to bedropping year on year.


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T&'ti$& Tr"d&

Imports into 1.

Total 1 Textiles buying is around 1- ). 6nTop )* contribute 03%

Imports into E

Total E Textiles buying is around 1- 6n.Top )* contribute 0M%Intra E Trade remains uite substantial, ho(ever is seen to bedroping year on year.


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1ome insight at the Indian figures in relation to the last year:+**trade.


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T4A!E AEE9ECT1 AC! 4E1T4I8TIC1??A short history

The ATT :eneral Agreement Tariffs and Trade (as launched ateneva in )/0 by +3 countries, including India. It (as a part ofefforts to reshape the (orld economy after the reat !epression:)/+/3+ and the 1econd (orld (ar :)/3/. The AATTcomprised of a trade pact among the membercountries :then morethan a hundred and an organisation. ATT provides a place for

negotiating trade issues and a frame(or# for guiding the conduct oftrade.

Efforts under the ATT to liberali5e trade have al(ays met (ithparticular difficulties in textiles and clothing. >or more than thirtyyears, this sector (as governed by special regimes@ the 1hort Term8otton Arrangement in )/=), the


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The #ey elements of the Agreement on Textiles and 8lothing :AT8,(hich (as finalised during the ruguay 4ound, are as follo(s @

i. 1etting up of a timeframe for integration of textiles and clothingproducts into GT :ATT)// disciplines i.e. integration oftextiles :or abolition of uotas (ithin a time frame of )* years in fourstages abolition of uotas on specified products to be )= per cent ofthe total volume of imports into the uota countries in )//* on thedate of commencement of the agreement on )st 2anuary, )//; )Mper cent on )st 2anuary, )//0; )0 per cent on )st 2anuary, +**+; andthe remaining / per cent on the final day of the transition period i.e.)st 2anuary, +**.ii. "rogressive gro(th of uota limits during the period of transition

preceding final integration of the textile sector into T1ATT. >orproducts remaining under uota, at (hatever stage, the Agreementlays do(n a formula for increasing existing gro(th rate. Thus, theannual gro(th rate should be )=%, +% and +M% higher than thegro(th rate established for the previous 9>A restrictions under 9>Abilateral agreements in the three stagesLiii. Application of safeguard mechanism during the transitionperiod. A specific transitional safeguard mechanism allo(sremembers to impose restrictions against individual exporting

countries if the importing country can sho( that both the overallimports of a product and imports from the individual countries areentering the country in such large uantities as to cause :or tothreaten serious damage to the relevant domestic industry.

!efinition of Quota @

ATT to enforce antidumping of goods introduced the concept ofQuota, This is a type of uantitative restriction to produce a healthyenvironment of 6usiness to 1hare the domestic industries of theimported goods.The uota restriction (as meo(ed for country import in to developcountry for saving their domestic "roducers.


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TF"E > QTA @

"ast "erformance Entitlement :""E 1ystemAvailable levels (ill be allotted prorata on the value of exports duringthe base year by the applicants in each countrycategory. Allotments,ho(ever, (ill be restricted to the average annual export performanceof India in the countrycategory during the base year.

9anufacturer Exporters' Entitlement :9EE 1ystemAllotment under this system shall be made to 9anufacturerExporters' (ho have underta#en substantial modernisation andupgradation of technology in their plant and machinery during thebase period.

"o(er loom Exporters' Entitlement :"EE 1ystem.The Textile 8ommissioner (ill separately notify detailed guidelinesand norms of eligibility for allotments under the "EE 1ystem afterobtaining approval from the 9inistry of Textiles

4eady oods Entitlement :4E 1ystemThe Textile 8ommissioner may fix the maximum uantity that can beapplied for by an applicant for each country category under this

system per day in consultation (ith the Quota Administering Authorityconcerned


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4easons for increase in 4egional Trade

>ollo(ing are some of the reasons that have led to the tremendous

increase in regional trade;

The gro(th in import from lo( cost countries to 1 and E andhence increasing competition to domestic producers inspired"T arrangement (ith preferential tariff structure.

8omparatively lo(er labours costs compared to costs prevalentin E and 1.

A mar#et for all intermediate textile products that E and 1ma#e.

6etter control possibilities.

Quic# response possibilities and reduced leadtime because ofproximity and better coordination.

Initiative of E and 1 textile manufacturers to protect thedomestic textile industry (hen the restrictions have been finallyremoved.


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ECI4C9ECTA< I11E1 @

Eco labeling@

EHTED 1tandard )**

91T :9ar#en5eichen 1chadstofffgeprufter Textilien

9T

European product guarantee

ut &u(

1TEI


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Industry Gish F, C>F and "1> to )% from +*%

Apparel Export "romotion 8ouncil :AE"8 is pitching for )**% tax

exemption on profits from apparel exports

Exempt texturising companies from mandatory duty


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Hey "ositives

ItLs a free (orld@ "ost +**, the 9ulti >iber Arrangement :9>A hasbeen phased out. This (ill enable Indian companies to export theirproducts in any uantity to any country as against a specific uotaprovided for export.

sho(ing results@ In order to restructure the sector, thegovernment set up a textile reconstruction fund that (ill help inreducing the effective interest burden on viable textile companies.This fund targets reduction in interest rate for all borro(ers in rangeof 0%/%. This move has proved to be very successful thus far.

Buge potential@ The government has set an ambitious textile exporttarget of 1- * bn by +*)* as compared to 1- )) bn currently.8onsidering the huge potential in the European and the 1 mar#ets,it seems possible.


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Hey Cegatives

1tringent labour la(s@ Impractical labour la(s also restrict largeplayers to lay off redundant (or#ers to improve competitiveness.Though promise of labour reforms have been made n the past, therehas been a lag in terms of implementation.

Bigh fragmentation@ ne of the biggest dra(bac#s of the Indiatextile sector is that it is highly fragmented at lo(er levels. Access tofinance and technology has been hard to come by, thus affectinggro(th prospects of smaller manufacturers.

olatile ra( material prices@ 1ince ra( material cost as percentageof expenses is significant, the textile ma$ors have suffered.


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The India Textile has several #ey 1trengths

Abundant 4a( 9aterial AvaibilityAllo(ing the industry to control costs and reduce overall leadtimes

across the value chainIndia@ ne of the largest producers of Catural N 9anmade >ibres


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Bo(ever there are several (ea#nesses as >ragmented Industry

Effect of historical overnement policies


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The Textile Industry Has Been One of the Oldest and Most Important Sectors of the Indian Economy

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