indian textile industry outlook_arpit nagda
TRANSCRIPT
Indian Textile Industry Opportunities and Challenges
An abstract of Indian Textile Industry vis-a- vis Global Textile Industry, India’s
current trade situation and standing in the global T&A trade, Opportunities lying
ahead and challenges that the sector is facing, big players of the industry and
favouring Government policies including ATUFS.
1
Summer Project Report
On
Indian Textile Industry: Opportunities and Challenges
Under the Guidance of
Mr. Priyank Parekh
Manager
SBI Capital Markets Limited
Submitted in partial fulfillment of the requirement for the award of degree of
Master of Business Administration
By
Arpit Nagda
Roll No: 32004
Bharathidasan Institute of Management Tiruchirapalli
JUNE 2016
2
The Management Internship at SBI Capital Markets Limited, Mumbai has been a
great learning experience for me. The success of this internship cannot be stated
without mentioning the interest, support and guidance provided by the organization
and I hope to maintain a long standing relationship with the organization.
I would like to thank Mr. Priyank Parekh (Manager – Infra Division) for his
constant guidance and for helping me complete this summer project successfully. I
would like to extend my gratitude to Mr. Manish Kothary (VP- Infra division) and
his entire team for guiding me and providing some valuable inputs.
I am also thankful to my Faculty Guide, Prof. Abhishek and Prof. M. Sankaran for
the guidance and support during the entire internship program.
At last I would like to thank all who have been left unmentioned above for their
support and guidance in making this internship a success.
Acknowledgement
3
Table of Contents Introduction .................................................................................................................................................. 5
History and Background ............................................................................................................................... 6
Global Textile and Apparel Industry ............................................................................................................ 8
Introduction .............................................................................................................................................. 8
China’s Dominance.................................................................................................................................. 10
Upcoming Trends .................................................................................................................................... 11
Global Textile Value Chains ..................................................................................................................... 12
Indian Textile and Apparel Industry .......................................................................................................... 13
Industry Specifics ........................................................................................................................................ 17
Raw Material ........................................................................................................................................... 17
Natural ........................................................................................................................................... 17
Cotton .............................................................................................................................. 17
Jute ................................................................................................................................... 22
Silk ................................................................................................................................... 22
Wool ................................................................................................................................. 23
Man-Made/ Synthetic .................................................................................................................... 23
PTA .................................................................................................................................. 24
MEG .................................................................................................................................. 24
Process and Output ................................................................................................................................. 26
Technical Textiles .................................................................................................................................... 28
Trade ........................................................................................................................................................... 30
Exports .................................................................................................................................................... 30
Imports ................................................................................................................................................... 33
Challenges Faced ........................................................................................................................................ 35
TPP .......................................................................................................................................................... 35
Contents
4
GSP+ Status to Pakistan ........................................................................................................................... 36
Emergence of Vietnam and growing competition .................................................................................. 37
Stringent Labor Laws ............................................................................................................................... 39
Complex Taxation System ....................................................................................................................... 40
Power and Infrastructure ........................................................................................................................ 40
Unskilled Workforce ................................................................................................................................ 42
Technology .............................................................................................................................................. 42
Sluggish Global Growth ........................................................................................................................... 44
Opportunities ............................................................................................................................................. 45
Strong growth in Domestic Retail Market .............................................................................................. 45
E-Commerce ............................................................................................................................................ 46
Policy Support ......................................................................................................................................... 47
ATUFS ............................................................................................................................................. 48
SITP ................................................................................................................................................. 49
Mega Cluster .................................................................................................................................. 50
ISDS ................................................................................................................................................ 50
Other Financial and Tax Incentives ......................................................................................................... 50
Wage Inflation in China ........................................................................................................................... 51
Porter’s Five Forces Model......................................................................................................................... 52
Industry Giants ........................................................................................................................................... 54
Mergers and Acquisitions in Industry ........................................................................................................ 59
Conclusion and Observations .................................................................................................................... 60
Reference .................................................................................................................................................... 62
5
India has been in the midst of a great social, political and economic change ever
since reforms were introduced in various spheres of activity. The country has
greater confidence to take on the competition from developed countries and has
attracted global investors in ever increasing measure. The Textile industry is one of
the oldest industries in India. The sector has made significant contributions in
terms of forex earnings and employment and is one of the mainstays of the
economy.
Indian Textile Industry occupies a very important place in the economic life of
India. It contributes to the Indian Economy through generation of employment,
output and export earnings. Besides this, the contribution of this industry amounts
to 14% of the total output generation by the industrial sector. Indian Textile
industry's contribution towards GDP has been estimated to be hovering around 4-
5% which itself is a commendable one. Textile has been one of the main sources of
income for the Indian economy through export. The total share of the Indian
Textile Industry in the total earnings from export has been calculated to be 14%, as
estimated by Ministry Of Textiles, India. This industry has shown the potential of
being one of the largest employment generating industries of the Indian economy.
On a direct basis, Indian Textile Industry employs a whooping thirty five million
people and more. In terms of employment generation, textile industry has come up
to the second position, just after agriculture.
Introduction
6
The history of textile is almost as old as that of human civilization and as time
moves on the history of textile has further enriched itself. In the 6th and 7th
century BC, the oldest recorded indication of using fiber comes with the invention
of flax and wool fabric at the excavation of Swiss lake inhabitants. In India the
culture of silk was introduced in 400AD, while spinning of cotton traces back to 2
3000BC. In China, the discovery and consequent development of sericulture and
spin silk methods got initiated at 2640 BC while in Egypt the art of spinning linen
and weaving developed in 3400 BC. The discovery of machines and their
widespread application in processing natural fibers was a direct outcome of the
industrial revolution of the 18th and 19th centuries. The discoveries of various
synthetic fibers like nylon created a wider market for textile products and gradually
led to the invention of new and improved sources of natural fiber. The
development of transportation and communication facilities facilitated the path of
transaction of localized skills and textile art among various countries.
As far as Indian Textile and Apparel (T&A) Industry is concerned, it is believed to
be close to 3000 years old. There is archaeological evidence of a cotton textile
industry at Mohenjo-Daro in the Indus Valley around 3000 B.C., and a few
fragments survive from much later periods.
During the colonial regime the traditional textile industry of India was virtually
decayed. However, in the early nineteenth century the modern textile industry
took birth in India when the first textile mill was established at Fort Gloster near
Calcutta in 1818. However, the real beginning of this industry only happened in
1850‟s when The Cotton Textile Mill of Bombay was established in the year
History & Background
7
1854. The vast majority of early mills were the handiwork of Parsi merchants
engaged in yarn and cloth trade at home and Chinese and African Markets. Later
in 1861, another mill was set up in Ahmedabad which emerged as a major rival
center to Bombay and later spread the textile industry largely due to the Gujarati
trading class. The cotton textile Industry made rapid progress in the second half
of the nineteenth century and by the end of the century there were 178 cotton
textile mills; but during the year 1900 the cotton textile industry was in bad state
due to great famine and a number of mills of Bombay and Ahmedabad were to be
closed down for long periods.
8
Introduction
The current global Textile and apparel market is estimated at US$1,100bn with
trade value of US$700bn. EU is the largest consumer market, reaching US$350bn
per annum, whilst China is the largest exporter with US$288bn. Leading countries
such as U.S, EU and Japan focus solely on highest-value stages of textile and
apparel value chain, that are designing, marketing and distribution. Meanwhile,
manufacturing activities are concentrated in China, India and other developing
countries such as Bangladesh, Vietnam, Pakistan, Indonesia, etc. The connection
between manufacturers and the end-users created by traders from Hong Kong,
South Korea and Taiwan is a unique trait of global textile and apparel sector.
Global Textile Industry
9
Global textile and apparel sector is forecast to develop with following
trends. Growing at a CAGR of 5% per year and reaching US$2,100bn by
2025.
The growth rate of the developed countries will slow down and the big
emerging economies like China, India will be the key driver of growth.
Processing activities for export will switch partly from China to other
countries. Bangladesh and Vietnam are 2 first destinations of this shift.
Global textile and apparel value chain attracts investment worth US$350bn
over the period of 2012- 2025.
T&A industry accounted for 1.8% of global GDP in 2012. It is forecast to reach
US$2,110bn by 2025, equivalent to CAGR at about 5% per year for the period of
2012-2025. 4 main consumer markets are the EU-27, U.S, China and Japan; with a
population of only about one third of the global population, these markets account
for over 75% of global apparel value. EU-27 is currently the largest market with a
value of US$350bn per year. However, China is forecast to become the largest
market by 2025 with a value of US$540bn, equivalent to CAGR of 10% per year
for the period of 2012-2025. Brazil, India, Russia, Canada and Australia are also
the largest markets on the list. Indian market is forecast to have the highest growth
rate with CAGR of 12% per year and value of US$200bn by 2025, thus, India will
surpass Japan and Brazil to become the country with the 4th largest scale in the
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10
world. Other countries account for about 44% of the world population but only
about 7% of global apparel market.
China’s Dominance:
36 109
272 273
663 686 814 831
1050
153 138
377 454
740 781 804
1080
1221
1643
247
India China Brazil Russia EU-27 US Canada Japan Australia WorldAverage
Apparel spending per Person (USD/Person)
2012 2025
Global Trade Share (in USD Billion)
Sou
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dviso
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Sou
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Waz
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11
China holds a 40% share of this astounding USD 1.1 Trillion global Textiles
market. It is estimated that the share of China in the global textile trade would
come down to 30-35% by 2025, majorly due to it‟s rising lobor costs; however, it
would still be the largest player of an increased (Almost doubled) market size.
Upcoming Trends
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As China starts leaving some space because of soaring labor costs, it‟s the time for
lesser developed countries to jump in the fray. Hence it won‟t be a challenging task
to predict the upcoming trend. Clearly, cost and proximity would be the two factors
to look at. However, technological advancements, basic infrastructure and skilled/
semi-skilled work force is equally important. This being the reason, it is estimated
that Asia would remain a big textile supplier to the world as it weighs better than
it‟s African counterparts on all the parameters except for Labor Cost.
Global Textile Value Chain:
The greater value in the textiles chain is generally created at the Marketing
Networks. Branded items fetch higher margins and hence it becomes lucrative for a
producer to aim for forward vertical integration. Many Indian and Chinese
Producers are now aiming for it.
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Today, the Indian textile industry has earned a unique place in our country. It has
become a great pillar of strength for Indian Economy and its overall exports. It
accounts for almost 14% of total industrial production and contributes nearly 13%
to the total Exports of India. It is also the second largest employment generating
sector after agriculture. Not just that, share of T&A industry in Indian GDP is close
to 5%. The size of Indian Textile and Apparel Industry (T & A Industry) as of
2014 was approximately US $107 Billion. Out of this, domestic market aggregates
to US $67 Billion while the export market stands at US $40 Billion.
Indian Textile Industry
67
40
Indian Textile Industry
Domestic Market
Exports Market
Numbers are in Billion USD
Total Industry size: US $107 Billion
*As of 2014
Sou
rce:
IBEF
14
Key Facts:
The fundamental strength of the textile industry in India is its strong
production base of wide range of fibre/yarns from natural fibres like cotton,
jute, silk and wool to synthetic/man-made raw material.
Fibres like polyester, viscose, nylon and acrylic.
According to UN Comtrade data released in June, 2014, India/India‟s:
Was announced as the world‟s second largest exporter of textiles and
clothing
Is 6th largest exporter of clothing only
Accounts 63 percent of the market share of textiles and garments
Is the 2nd
biggest producer of silk and cotton
0.8%
0.5% 0.6% 0.6%
0.5% 0.4%
0.8%
0.6%
1.4%
FDI in Textile
As a % of total FDI flows in India
*Jan-Jun
0.19
0.16 0.15
0.13
0.16
0.1
0.2 0.2
0.13
FDI in Indian Textile
In USD Billion
Sou
rce:
Min
istr
y o
f Te
xtile
(M
oT)
15
Textile industry accounts for about 24 percent of the world‟s spindle
capacity and 8 percent of global rotor capacity
Has the highest loom capacity(including handlooms) with 63 percent of the
world‟s market share
Accounts for about 14 percent of the world‟s production of textile fibres and
yarns(largest producer of jute, second largest producer of silk and cotton;
and third largest in cellulosic fibre)
24%
8%
14%
Spindle Capacity Rotor Capacity Textile Fibres and Yarn
India's share (2014)
As a % of Global Market
106 115
126 136
148 161
175 190
207 225
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Indian T & A Industry
USD Billion
Sou
rce: IB
EF
Sou
rce
: ITA
16
India is today world’s fastest growing established T&A Industry. It is expected to grow at the rate of 9-10% and reach USD 225 Billion by the 2025. That would mean a lot of investment would be required by this sector. Reaching this mark isn’t going to be difficult for Indian T&A Market, however, what matters is that India emerges as an established brand for the sourcing of all kind of Apparels and Textiles. This would need an increased focus towards changing global demand. The world is moving towards higher consumption of synthetic and Technical textiles. Technical textiles, specifically, is going to grow at much larger pace than other most of the other textile items. Hence, an increased focus on Technical Textile would only establish India as a key destination to source it from. This would further help India in not just meeting this ambitious target, but to ensure a solid base for further growth in upcoming years and years post that. Indian policies and labor laws would also play a vital role here. It would be interesting to observe the direction these factors take, as there exist an strong correlation of these factors with T&A industry. An Increased focus on Technology through ATUFS is an step in right direction at the right time. However, India should reconsider the upper limit, fixed for the permissible incentives under this scheme. There should be no such scheme that would limit India in achieving scale and thus becoming more competitive in Global market. Advances on all these fronts by India would have a direct impact on how fast China’s dominance would come down.
17
Raw Material:
Raw Material for the T&A Industry can be broadly classified into two categories,
namely:
Natural Raw Materials
Man Made Raw Materials
Natural Raw Material:
Cotton
Cotton is one of the most important commercial crop cultivated in India. It plays a
major role in sustaining the livelihood of an estimated 5.8 million cotton farmers
and 40-50 million people engaged in related activities such as cotton processing
and trade. The Indian Textile Industry consumes a diverse range of fibres and yarn.
In the raw material consumption of the Industry, the ratio of the use of the cotton to man –made fibres and filament yarn is 69:41. Hence, growth and all around development of cotton and cotton industry has a vital bearing on the overall
Industry Specifics:
Cotton
Jute
Silk
Wool
18
development of the Indian economy. The consumption of cotton is more than 300 Lakh Bales(170 Kg) per year. To support the cotton industry, GoI announces Minimum support price (MSP) for two basic staples groups viz., medium and Medium long staple cotton. Cotton Corporation of India (CCI) under the Textile Ministry is one of the nominated agencies of GoI for undertaking MSP operations in the event of prevailing Kapas price touching MSP Level. As per the mandate and in order to avoid distress selling by cotton farmers, CCI purchases raw cotton(Kapas) directly from the cotton farmers, under the MSP operations at the designated market yards, without any quantitative restrictions.
Cotton Production:
While Tamil Nadu has set a record of exceptionally high yield of 1214 Kg/Ha (As
far as other Indian States are concerned), It is Gujarat which wins the title of
highest Cotton producing state of India, primarily due to its large area under
707
345
515
626 624 665
528
695
529
1214
Yield (Kg/Ha)
125
85
50
28 28 25 18 17 14
5
Production (lakh Bales)
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cultivation. Sadly, Maharashtra stands a distant second despite having the largest
area under cultivation, primarily, due its poor yield.
Cotton Production: Global Comparison
If India was to be ranked on the basis of cotton yield among its peers globally,
India would stand far at 31st place. In fact, even Bangladesh would precede India.
However, what is interesting to observe is the yield and crop cultivation area trend
of world‟s largest cotton producing country, China. China‟s success on this front is
remarkable.
30.06
41.92
16.51
7.6 7.36 6.39 5.79 4.16 4.5
0.7
Area under cultivation (in Lakh Ha)
Source: Textile Commissioner, Mumbai
20
From the above figure it becomes very clear why India need to work on Technical
advancements in Cotton Production, which is nothing but upgrading the process
employed in cultivation of cotton. Despite having an area under cultivation twice
as large (even 2.5 or more during certain years) as that of China, India‟s yield is
merely1/3rd
of what China is capable of. And this is what that has dragged India to
second spot in World‟s leading Cotton producing countries. No doubt, India needs
to bring in some great reforms.
111 122 120 120
130 117
53 55 53 48 44
38
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
Cotton Cultivation Area (Lakh Ha)
India China
496 496 525 566
511 535
1,265 1,346
1,438 1,486 1,484 1,562
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
Cotton Yield (kg/Ha)
National Average China
Note: State-wise yield for 2015-16 is yet to be estimated by CAB Source: CAB, USDA, ICAC
21
Cotton Price trends: (Values are in Rs/Kg)
Cotton is an important cash crop and amounts for nearly a third of the Indian farm
Sector GDP. The modest prices during past couple of years has, therefore hurt the
Agriculture Sector. However, the textile industry has largely benefited from this.
These modest price trends are supposed to continue for the time being as global
production remains high. And as large amount of supplies available in countries
like Bangladesh and Vietnam‟s renewed focus on self-reliance on cotton
production (Because of Yarn Forward clause in TPP), Indian cotton is bound to see
a decline, may be a small decline if not big.
There‟s a small jolt from CAB (The Cotton Advisory Board) which has forecasted
that cotton production in India will fall by over 7% to around 35.2 million bales
(170 kg each) for the October 2015-September 2016 crop year against 38 million
bales in the previous year. However, there pretty less that Industry needs to worry
about as despite a drop in production, cotton prices are expected to remain in a
bear grip owing to higher carryover stocks.
1,833.00
1,633.00
1,591.00
1,559.00
1,530.00
1,524.00
1,234.00
1,197.00
1,089.00
1,089.00
653
605
560
517
Australia
Israel
Mexico
Turkey
Brazil
China
Venezuela
Syrian Arab Republic
Bulgaria
Tunisia
Vietnam
Bangladesh
Pakistan
India
Sou
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exmu
nd
i
Country wise Cotton Yield (Kg/Ha)
22
Item Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Raw Cotton
Wt. Avg.
2015-2016
88.78 86.6
87.44
89.46
89.86
88.65
85.91
PV(M) -2 -2 1 2 Nil -1 -3 PV(Y) -9 -4 -2 -2 6 6 -1 2014-
2015 97.55
89.92
89.09
91.29
84.66
83.56
87.13
91.85
93.68
91.42
90.89
90.68
PV(M) -9 -8 -1 2 -7 -1 4 5 2 -2 -1 Nil
PV(Y) -18 -21 -18 -17 -27 -28 -22 -17 -16 -19 -18 -15 2013-2014
118.3
113.82
108.66
109.79
116.03
115.99
111.79
111.29
111.23
113.44
110.77
107.13
PV(M) -3 -4 -5 1 6 Nil -4 Nil Nil 2 -2 -3
PV(Y) 23 38 19 18 25 20 8 12 11 6 Nil -13 2012-2013
96.35
82.27
90.96
93.11
92.75
96.27
103.42
99.45
99.84
106.64
110.49
122.4
PV(M): % Variation w.r.t. previous month. PV(Y): % Variation w.r.t. same month of the previous year.
N.A: Not Available
Source: CAB, MoT
Jute
The Jute industry occupies an important place in the national economy of India. It
is one of the major industries in West Bengal. Jute, the golden fibre meets all the
standards for „safe‟ packaging in view of it being a natural renewable,
biodegradable and eco-friendly product. It is estimated that the Jute industry
provides direct employment to 0.37 million workers in the organized mills and in
diversified units including tertiary sector and allied activities and supports the
livelihood of around 4.0 million farm families. In addition, there are a large
number of persons engaged in the trade of jute. The Jute sector is supported by a
host of policy initiatives including the statutory mandatory jute packaging norms,
the MSP operations, and the promotion of modernization and diversification of the
Jute Industry.
Silk
India continues to be the second largest producer of Silk in the world. Among the
four varieties of Silk produced, for 2014-15, Mulberry accounted for 74.5%(21390
Prices are in INR/Kg
23
MT), Tasar 8.5% (2434 MT), Eri 16.5% (4726 MT) and Muga 0.5% (158 MT) of
the total raw silk production of 28,708 MT. This is against the production of
26.480 MT Silk during the 2013-14 in India. The CSB (Central Silk Board)
implements a large number of schemes and policy for promotion of sericulture and
silk in the country. There has been a significant increase in raw silk production in
2014-15. Silk production has shown remarkable progress during the year 2014-15
in-spite of drought, un-seasonal rain, Cyclone etc. The target set for the year has
been fully achieved. The silk production in the country increased to 28,708 MT by
end of 2014-15 from the level of 26,480 MTs during the year 2013-14, registering
increase of 8.4% growth. The important substitute Bivoltine silk production has
increased from 2559 MTS to 3870 MTs registering an increase of 51%. Vanya Silk
production has increased from 7004 MTs to 7318 MT showing an increase of
4.5%. Muga silk has recorded highest ever production of 158 MTs and has set a
new momentum of growth.
Wool
The Central Wool Development Board works under overall guidance of governing
body of Board and under administrative control of the Ministry of Textiles, GoI.
The Board also functions as an Advisory Body to the Ministry of Textiles on the
matters relating to growth and development of wool sector. Shri Jaswant Singh
Bishnoi is the current Chairman of the Board. There are total 29 members in
governing body of the Board. Out of total financial outlay of Rs.96 Crore for 12th
Five Year Plan, the Ministry of Textiles has allocated Rs. 36.62 Crore to the
Central Wool Development Board (CWDB), Jodhpur for annual Plan schemes and
programmes for the holistic growth and development of wool sector.
Apart for this, MoT is also implementing Pashmina Wool Development
Programme (PWDP) through Central Wool Development Board in the Ladakh and
Kargil region of J&K State for further development of Pashmina Wool with a
budget provision of Rs.30 Crore.
Man Made/ Synthetic Raw Materials
There are numerous synthetic raw materials and fibers which are being used in the
industry. Synthetic fibers are made from organic synthetic high-molecular
compounds and are made synthetically from raw materials such as petroleum oil.
Using this fiber alone or mixing it with natural pulp provides products with the
24
useful characteristics of fiber. Some of the commonly used raw materials are as
follows:
PTA (Purified Terephthalic Acid)
Purified terephthalic acid (PTA) is a raw material used in making high-
performance multi-purpose plastics such as polybutyl terephthalate(PBT),
polyethylene terephthalate(PET), and the new bioplastic that has been garnering
attention in recent years, polytrimethylene terephthalate(PTT). Purified
terephthalic acid (PTA) is made by causing a reaction between the secondary
petroleum product paraxylene (PX) and acetic acid.
The picture above explains briefly the process to production employed for PTA.
There are many suppliers of PTA around the world. The PTA prices have a
dependency on Crude Oil. The price trends of PTA are presented in the later part
of this report.
MEG (Mono-Ethylene-Glycol)
MEG is a vital ingredient for the production of polyester fibres and film,
polyethylene terephthalate (PET) resins. It is also used for packaging, kitchenware,
Polyester and fleece fabrics, upholstery, carpets pillows and etc. It is basically a
Co
urtesy: H
itachi So
lutio
ns
25
colorless, odorless liquid with a syrup-like consistency. China amounts for close to
40% of global MEG Consumption.
Ethylene glycol is produced from ethylene, via the intermediate ethylene oxide
Ethylene oxide reacts with water to produce ethylene glycol according to the
chemical equation
C2H4O + H2O → HOCH2CH2OH
This reaction can be catalyzed by either acids or bases, or can occur at neutral pH
under elevated temperatures. The highest yields of ethylene glycol occur at acidic
or neutral pH with a large excess of water. Under these conditions, ethylene glycol
yields of 90% can be achieved. The major byproducts are the ethylene glycol
oligomers diethylene glycol, triethylene glycol, and tetraethylene glycol.
Price Trends
Raw material prices of PTA and MEG were hovering around INR 60,000 per ton.
PTA and MEG prices started going up and reached a peak of about USD 1,500 and
USD 1,250 per metric tons respectively in March 2011 (1 USD= 44.826 INR as of
March 30, 2011).The prices started to taper down from May 2011 and reached a
low of USD 945 and USD 908 per metric tons respectively in June 2012, however,
weakening of Indian Rupee against USD has kept prices balanced in Indian
currency (As can be observed in the chart above).
Source: MCPI PTA India Inc
26
Process and Output:
Ginning:
Cotton Ginning is the process of separating the cotton fibers from the cotton seeds.
Perfect ginning operation would be performed if the separation of fibers from seed
was effected without the slightest injury to either seeds or to the fiber. A cotton gin
is a machine that quickly and easily separates the cotton fibers from the seeds, a
job previously done by hand. These seeds are either used again to grow more
cotton or, if badly damaged, are disposed of. It uses a combination of a wire screen
and small wire hooks to pull the cotton through the screen, while brushes
continuously remove the loose cotton lint to prevent jams. The term "gin" is an
abbreviation for engine, and means "machine". Spinning:
Yarn spinning is a process of making or converting fiber materials into yarns.
Spinning process might differ based on what yarn is to be produced. Of course
there are many varieties of Yarn that can be produced. However two broad
Raw Material
Ginning
Spinning
Weaving/Knitting
Processing
Garments Production
Fibre
Yarn
Processed Fabric
Fabric
Clothes
27
varieties which cover the majority among Yarn production are: (i) Staple Yarn (ii)
Filament Yarn.
Staple Yarn Filament Yarn
Weaving
The method or process of interlacing two yarns of similar materials so that they
cross each other at right angles to produce woven fabric. The warp yarns, or ends,
run lengthwise in the fabric, and the filling threads (weft), or picks, run from side
to side. Weaving can be done on a power or hand loom or by several hand
methods.
Knitting
It is a method of constructing fabric by interlocking series of loops of one or more
yarns. There are many classes of Knitting; the two major classes of these are Warp
knitting and Weft knitting.
Ring Spinning
Rotor Spinning
Friction Spinning
Self twist Spinning
Electro-static
Spinning
Vortex Spinning
Air Jet Spinning
Twist Less Spinning
Wet Spinning
Dry Spinning
Melt Spinning
Bi-Component
Spinning
Film Splitting
Reaction Spinning
28
Technical Textiles:
Technical Textiles are defined as Textile Material and products manufactured
primarily for their Technical performance and functional properties rather than
aesthetic and decorative characteristics.
The Technical textiles can be classified under many categories, listed below are
few of them:
Technical Textiles
Agrotech
Meditech
Buildtech
Mobitech
Clothtech
Oekotech
Geotech
Packtech
Hometech
Protech
Indutech
Sporttech
29
The technical textiles segment is a relatively new one for Indian textiles industry.
Its applications have provided scope for making various products – from Car
Upholstery to Parachutes, Shelter Fabric to Home Furnishing, Infrastructure to
Environmental and Hospitals too. The cost-effectiveness, durability and versatility
of technical textiles along with health and safety compliance and user friendliness
will make it a force to reckon with in the coming years.
Currently, India‟s technical textile industry is based on producing commodity
products that are not very R&D intensive (i.e. tarpaulins), and therefore unlike
conventional textiles, technical textiles is an import intensive industry. Many
products, like disposable diapers, wipes, protective clothing, fabric for disposables
and webbings, are imported to a large extent. The domestic technical textile
industry currently lacks the ability to domestically fulfill the rising demand for
technical textiles. Currently, 12 percent of the technical textile products are
manufactured by non-woven technology in India, as compared to 24 percent in the
rest of the world. Therefore, India‟s technical textile Industry has a long way to go
in order to be globally competitive in the technical textile sector.
30
Export Scenario:
The outsourcing apparel businesses for garment export often apply 4 methods of
export, that are, CMT, FOB, ODM and OBM.
1. CMT (Cut - Make - Trim)
This is the easiest export method of apparel industry and brings the lowest
added value. When cooperation under this method, purchasers offer entire
input to outsourcing businesses for production including raw materials,
transportation, design and specific requirements; manufacturers only carry
out stages of cutting, sewing and finishing products. Businesses following
export method of CMT only need the basic understanding of design patterns
and the ability to produce finished product.
Trade
31
2. OEM/FOB (Original Equipment Manufacturing)
FOB export method creates higher value compared to CMT; which is
the production method of "buying raw materials, selling products".
Businesses are actively involved in the production process on FOB,
from acquisition of raw materials to production of final products.
Unlike CMT, exporters using FOB actively buy necessary material
inputs instead of being supplied directly from their buyers. The
activities under the FOB have significantly changed based on forms of
the actual contractual relations between suppliers and foreign buyers
and are divided into 2 types.
FOB level I. Businesses following this method will purchase inputs
from a group of suppliers specified by buyers. This method requires
garment enterprises to bear the financial responsibility for the
procurement and transportation of materials.
FOB level II. Businesses following this method will receive product
designs from foreign buyers and take full responsibility for sources of
raw materials, production, and transportation of raw materials and
finished goods to ports specified by buyers. The bottom line is that
businesses must find the material suppliers with capability of
providing special materials, and having confidence in the quality and
delivery time. Risks from this method are higher but manufacturing
companies also receive higher added value.
3. ODM (Original Design Manufacturing)
This method of production for export includes the design and production
process of purchasing fabric and materials, cutting, sewing, finishing,
packaging and shipping products. The ability to design reflects the higher
level of knowledge of the providers and therefore will bring higher added
value for products. ODM businesses create designs, finish products and sell
them to buyers, which are most of the owners of major brands in the world.
4. OBM (Original Brand Manufacturing)
This method of production is improved based on method of OEM, but the
manufacturers are responsible for their own designs, and sign domestic and
foreign goods‟ supply contracts for their own brands. Manufacturers in
developing economies following OBM method mainly distribute products in
their domestic market and markets of neighboring countries.
32
India‟s exports have soared at a good pace of close to 10% over the past decade.
India‟s exports for the year 2014-15 were USD 40 Billion and it is estimated to
remain flat for the year 2015-16 (As per Minister of textile in his latest Press
Conference in June, 2016). However, in the long term, it is estimated that the
exports will soar to USD 80 Billion by 2021. Of course it would need favorable
trade practices and superior quality for India to achieve this ambitious target.
Majority of the export in 2014 constituted of Textile Items, weighing 61% of the
total exports; the apparel exports constituted the remaining 39% of the total
exports. As more and more Indian fabric producers are planning for forward
19.2 22.2 21.2 22.4
27.8
33.3 33.2
37.5 40 40
0
5
10
15
20
25
30
35
40
45
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
USD Billion
Indian Exports (USD Bn)
Source: IBEF, and MoT
9%
23%
14%
39%
11%
4%
Indian Export Split (2014)
Cotton Fibre
Cotton Yarn, Fabrics and Made ups
Man-made Textiles
Garments
Handlooms & Handicrafts
Others
Sou
rce:
IBEF
33
integration, it is expected that share of apparel exports would go up gradually to
overtake Textile‟s share by 2021.
Partner Country
Million United States Dollars % Share
2012-13 2013-14 2014-15 2012-13 2013-14 2014-15
United States 6,137 6,713 7,155 18.5% 17.9% 19.0%
UAE 2,192 2,680 3,774 6.6% 7.1% 10.0%
China 3,617 4,075 2,594 10.9% 10.9% 6.9%
United Kingdom 2,104 2,271 2,484 6.3% 6.1% 6.6%
Bangladesh 1,772 1,928 1,974 5.3% 5.1% 5.2%
Germany 1,593 1,823 1,828 4.8% 4.9% 4.9%
France 846 974 1,102 2.5% 2.6% 2.9%
Spain 754 828 907 2.3% 2.2% 2.4%
Italy 766 872 862 2.3% 2.3% 2.3%
Turkey 669 868 737 2.0% 2.3% 2.0%
World 33,228 37,517 37,661 100.0% 100.0% 100.0%
USA remains to be one of the biggest destinations for Indian Exports. However,
over the past couple of years, UAE has emerged as a large textile exports market
for India and has balanced the decreasing exports to China. Meanwhile, UK and
other European nations have been more or less having the same share in India‟s
export split.
Imports:
India‟s T&A import has grown at a modest pace during past years. Fibre, Yarn and
Fabric put together held a large representation constituting to around 62% of the
total Indian T&A imports. Producing high quality Fabric remains to be a big
challenge for India. It needs to invest heavily in R&D so that the import bill on
Fabric can be reduced by producing high quality fabric locally.
Sou
rce: textile Co
mm
ission
er, Mu
mb
ai
34
India‟s rising Fiber import is another issue to be addressed. As per the data
compiled by Synthetic and Rayon Textile Export Promotion Council (SRTEPC), In
the first 11 month of 2014-15, staple fibre import rose to $197 million as compared
to $149 mn in the same period of 2013-14. SRTEPC‟s Chairman, in a separate
comment also mentioned that it is very imperative to reduce excise duty on all
synthetic textile raw materials and fabric, to enable Indian producers to become
globally competitive and grab the global opportunity vacated by China. As this
12.5% Excise duty on Synthetic fibres is making local produce costlier than the
imported ones.
2.7 2.8 3.3 3.5 3.4
4.2
5.2 5.4
2.7 3.04
0
1
2
3
4
5
6
FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15Source: Ministry of Textiles, Budget 2015, TechSci Research
Note: * FY15 Export data till November’14 FY15 Import (April-Oct’14)
Indian T&A Imports (in USD Billion)
23.4%
0.5%
17.0%
21.3%
9.6%
9.8%
18.4%
India's Import Breakup
FIBRE
FIBRE WASTE
YARN
FABRICS
RMG
MADEUPS
OTHER TEXTILES
Sou
rce:
IBEF
35
Trans Pacific Treaty: The Trans Pacific partnership is the free trade partnership
(Currently under negotiation) between USA and 11 other countries, namely:
Australia, Peru, Vietnam, New Zealand, Mexico, Canada, Japan, Singapore, Chile,
Brunei Darussalam and Malaysia. It is intended to boost the trade volume amongst
the member countries by
offering duty concessions or
relaxed duties on majority of
the goods. It is touted as the
most ambitious of trade deals
between these countries that
have about
800 million people and account
for 40 per cent of the global
trade. It began with the P4
trade agreement between just
four nations: Brunei, Chile,
New Zealand and Singapore –
that came into effect in 2005.
That deal removed tariffs on
most goods traded between the
member countries, promised to cut more and to co-operate on wider issues such
as employment practices, intellectual property and competition policies. It involves
most goods and services, but not all tariffs are going to be removed and some
will take longer than others. In all, some 18,000 tariffs are affected.
On textiles and clothing, they will be removing all tariffs, but while the US Trade
Representative says most tariffs will be removed immediately after the deal is
ratified, "tariffs on some sensitive products will be eliminated over longer
timeframes as agreed by the TPP Parties".
Challenges:
Trade ministers from a dozen Pacific nations in Trans-Pacific
Partnership ministers meeting in Atlanta on 1 October 2015.
Photo: Reuters
36
What’s the worry?
Indian exports of textile and apparel products have been growing steadily; but they
have been limited to only a few markets. The EU and the US remain the major
export destinations with 50% share of the Indian export market. Now, with the TPP
in pipe line, emerging textile hubs like Vietnam which is a part of this would enjoy
Tariff exemption on it‟s textile exports to USA and other markets. This would
make Indian textile exports 14 to 35% expensive compared to Vietnamese exports.
Hence, USA is prone to shift towards imports from Vietnam. With USA being
such a big contributor for the Indian Textile Industry, it would be interesting to see
what all developments happen in the days to come and how would they impact
India. As of now, things look a bit gloomy for the Indian Textile sector.
GSP+ Status awarded to Pakistan:
Though well expected, it has come as a potential threat to Indian Textile Industry
which is already speculating a grim future as far as exports to U.S. are concerned,
because of TPP. This would not bring any direct impact to Indian exports to EU
(Considering the clause of 7% trade share of EU, which says that the country
which has been awarded the GSP+ status, should not contribute to more than 7% of
total EU imports). However, what is worrisome is it‟s long terms impacts. Pakistan
and Indian Textile Industry are almost alike in nature and that means there is less
distinction available, hence, India would have a tough fight in clinching back it‟s
share from Pakistan, and Pakistan would have an upper hand in increasing its share
in EU market even after GSP+ status is lifted.
Naturally, the size of this market is large enough to concern any country. And
when it comes to India, EU put together become a larger export Market than US.
Top 10 exporters of Textiles and Clothing to EU (28)
Country
Value in Billion USD % Growth % Share
2012 2013 2014 2013/2012 2014/13 2013 2014
China 45.57 45.75 48.95 0.39 7 37.55 37.05
Turkey 16.21 17.25 18.22 6.38 5.6 14.16 13.79
Bangladesh 11.87 13.49 15.16 13.63 12.35 11.07 11.47
India 8.26 8.63 9.48 4.51 9.88 7.08 7.18
Pakistan 3.71 4.18 5.17 12.78 23.6 3.43 3.91
37
Vietnam 2.61 2.77 3.34 6.14 20.7 2.27 2.53
Morocco 3.02 3.01 3.33 -0.36 10.43 2.47 2.52
Tunisia 3.09 3.08 3.11 -0.58 0.94 2.52 2.35
Cambodia 1.89 2.36 2.96 24.88 25.58 1.94 2.24
Indonesia 2.17 2.16 2.2 -0.6 2.11 1.77 1.67
World 117.24 121.83 132.1 3.92 8.42 100 100
Imports of Textiles and Clothing EU (28)
Details 2012 2013 2014
Textile (Bn. USD) 30.46 32.56 35.07
% Growth -14.60% 6.89% 7.70%
Clothing (Bn. USD) 86.78 89.27 97.04
% Growth -10.83% 2.87% 8.70%
T&C (Bn. USD) 117.24 121.83 132.1
% Growth -11.84% 3.91% 8.42%
Emergence of Vietnam and Growing Competition:
It is clear that China‟s dominance in the Textile Sector is for here to stay, at least
for a decade if not longer. However, there‟s least doubt that China‟s share would
be on a declining ride given the rising wage inflation and other cost elevating
phenomenon occurring in Chinese economy including a shift in the Governments
focus towards service sector from the manufacturing sector which has for long
been the major growth driver for the Economy.
China‟s graduation/elimination from the GSP beneficiary countries is just a start of
this phase. This is bound to create a new opportunity for the developing countries
like India, Vietnam, Bangladesh, Pakistan and etc., with all these countries
competing to snatch a larger share of this surpassed opportunity. For a long time,
world has been considering India as a rightful heir of this space considering its
capabilities in textile Industry and availability of a cheap & large workforce.
However, in recent years textile Industry has witnessed entry and rise of two new
players namely: Bangladesh and Vietnam. Both these countries holds the same
advantage of availability of Cheap labor. While Bangladesh is an old player with
big players and a considerable expertise in textile industry, Vietnam is
comparatively a new player and lacks Vertical integration (both Backward and
Forward).
Source: European Commission (Trade)
38
However, recent surge in FDI in the textile sector of Vietnam, it‟s inclusion in
Trans Pacific Partnership has opened new doors of opportunity for this small
nation.
48%
15%
13%
9%
15%
50%
17%
13%
7%
13% U.S
EU
Japan
Korea
Others
Vietnam: Export Structure in Major Markets
Source: Wazir Advisors, FTPS
Sou
rce:
Blo
om
ber
g, F
TPS
39
Hence, it is obvious that Trans Pacific Partnership is going to hurt Indian interest
and Vietnam is going preparing to ride on this wave to benefit from this. What acts
like salt on the wound is the clause of “Yarn Forward” included in TPP, which
means that stages of spinning, weaving - dyeing - finishing and sewing have to be
done at TPP member countries. Thereby hurting Indian exports even more as
currently India supplies a good deal of Raw Materials like Cotton, Yarn and
Fabrics to Vietnam. Now, in order to receive TPP benefits, Vietnam would be
compelled to reduce its dependence on India and locally produce all of these.
Stringent labor Laws:
The current Indian labor laws are outdated with most of them dating back to pre-
colonial era. The too many and too complicated labor laws have only resulted into
either Labor exploitation or Labor aristocracy and has failed to benefit both the
parties in the picture, the labors and the Industry. Things are no different for
Textile Industry as labor related issues such as threat to safety and health of
workers, poor working environment, and exploitation of children, strict labor laws
and skills gap keep haunting the industry.
Also, these restrictive labor laws prevent companies from recruiting large numbers
of workers. When the enterprises hire more than 100 workers, they have to deal
with worker unions. Under the unions‟ pressure, only 2% of Indian textile 7
factories have three shifts, whereas about 20% of Chinese counterparts are
operating 24 hours a day.
Vietnam’s Garment Exports to USA
Source: VITAS, FTPS Vietnam
40
Complex Taxation System and uncertainty over GST:
India‟s complex tax regime continues to be a pinch point for the manufacturing
sector. Some of the issues that hurt specifically Textile Industry are:
12.5% Excise duty on Synthetic/ Man Made Fiber.
Threat of imposition of Anti-dumping duty on VSF (Viscose Staple
Fiber).
5% tax on Technical Textiles by major producing state, Gujarat.
Anil Rajvanshi, chairman of the Synthetic and Rayon Textiles Export Promotion
Council (SRTEPC) in a letter to Union Textile Minister, Santosh Kumar Gangwar
writes: “A poor man wearing synthetic shirt of Rs 200 bears highest excise and tax
burden, whereas a rich man wearing cotton shirt of Rs. 1,000 bears no excise or
taxes, This has fragmented and weakened the industry. You have to save this
industry or else we will not be able to sustain and give way to countries like China,
Vietnam and Bangladesh to march past India,”.
All hopes are now tied to implementation of long pending Goods and Services Tax
(GST). However there is a big uncertainty about the implementation date of GST
as it keeps getting deferred because of lack of upper Parliamentary support.
However, Finance Minister, Mr. Arun Jaitely is confident that the GST Bill will
sail through all the negotiation in FY 17. Whatever the outcome be, the fact is that
not just textile industry but the whole manufacturing sector of India continues to be
hopeful of GST.
Power and Infrastructure:
Textile mills face acute power shortage. Frequent electricity cuts and load
shedding lead to loss of man hours and low production in the mills. Textile SMEs
are severely affected by power shortage and are forced to use manual machines,
which produce lower quality products and are more costly to maintain.
There are many reasons which can be blamed for lack of power supply, however
one of the major reason that has affected the power supply in recent past is the
shortage of coal faced by Thermal plants across the country, given the fact that
65% of the power produced by India comes from coal powered thermal plants. The
coal production during the past couple of years has failed to match the pace of the
demand; some of this can be attributed to the exposed Coal Scam which reduced
41
the speed of awarding of new contracts for Coal Mining. However, with new
energy minister Mr. Piyush Goyal having taken the charge of expediting the entire
process, the power sector can be hopeful of improved situation.
On the infrastructure front, when compared with China, external conditions in
India are not friendly to mass production. The road traffic, train transportation, and
harbor facilities in India are of poor quality.
261
306 324
343 361
379 404
431 431 436 452 462
494
536
0
100
200
300
400
500
600
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
MM
T
Financial YearSource: Ministry of Power
17.5%
5.6% 6.1% 5.1% 5.1%
6.4% 6.8%
0.0% 1.0%
3.8% 2.3%
6.9%
8.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Financial Year
CIL Output growth
Source: CIL
Production: Coal India Limited
42
Unskilled Workforce:
India is a country with the largest workforce. Hence, availability of workers for
textile industry is not a big challenge. However, there is a serious problem of skills
with this workforce. Also, as literacy level remains low, it becomes pretty
challenging in training the workforce, especially when dealing with machines.
Over the years the scarcity of skilled workforce has only increased which has led
to lower productivity per personal. India remains to be one of the lowest
productive nations in the world.
Technology:
India has ended up converting its strength into its weakness. India‟s strength of
being one of the oldest textile producers amongst its competitors has now become
one of its core problems. Comparing with China, where most of the competitive
private textile mills and garment factories were set up only after the economic
reform in 1978, while the old state-owned textile enterprises lost their competence
and went bankrupt and hardly exist today. On the other hand, today‟s Indian textile
giants are much older than their Chinese counterparts. For example: Arvind Mills
was founded in 1931; Premier Mills was set up in 1949; The Raymond Group was
incorporated in 1925; Lakshmi Mills was established in 1910. Even the “younger
Global Labor Productivity Index: Manufacturing Sector
Source: UNIDO China, FPTS
43
brother” Vardhman, established in 1962, is almost two decades older than its
Chinese counterparts.
Now, what is wrong with this experience is that most of these old companies have
their stable process and have been very slow to external changes relative to the
Chinese Textile sector. While these established Indian companies like to play more
with the margins than on the lower cost and market share front, Chinese like to
exploit on the market share and low cost by attracting large orders at comparatively
lower margins. Result? In order to remain cost effective, Chinese firms need to
reinvent entire process, scale up production and seek for latest technology to bring
their cost down while their Indian counterpart are happy with smaller orders with
better margins. Hence, they hardly find a need to reinvent themselves as frequently
as their Chinese counterparts do.
For example, China‟s export of textile products to the US in 2010 was $ 38.47
billion in value and 26.00 billion square meters in volume. The average value of
the Chinese exports is US$1.48 per square meter. India‟s textile exports to the US
in 2010 were US$5.38 billion in value and 3.26 million square meters in volume.
The average value of the Indian exports is US$1.65 per square meter,5 about 12%
higher than the Chinese products.
One of the demonstrations of China‟s splendid success on the technological
advancements in the textile sector is that between 2000 and 2010 over 55% of
spinning machines and over 68% of weaving machines delivered worldwide went
to China (According to the International Textile Manufacturers Federation).
Also, today more and more Chinese companies are planning to adopt technologies
like ERP and CRM, Indian companies are still struggling with the core issues of
replacing Handlooms with Power looms and scaling up the production.
Today, technology is the reason that the biggest factories in India look like
lightweight players in China. For example, the largest spinning company in India,
Vardhman Group, has a capacity of 500,000 spindles. In contrast, the largest
Chinese spinning company, Weiqiao Textile, is running 3,000,000 spindles. The
largest weaving company in India, Arvind Mills produces 110 million meters of
denim and 30 million meters of fabric per year, while Weiqiao Textile has a
capacity of 157 million meters of denim and 844 million meters of fabric in total.
On average, the size of Chinese textile companies is five times larger than that of
the Indian ones. It is high time Indian government take note of these issues and
start addressing the problems. Though TUFS has been rolled out, it‟s only time that
will tell how effective it proves to be.
44
Sluggish global growth:
Declining global growth globally has become a big cause of worry, especially in
the Consuming markets (mostly developed nations). This has had a considerable
impact on the global trade growth rate and thus the textile and apparel industry.
Since, close to 40% of Indian Textile industry depends upon exports, It wouldn‟t
be wrong to speculate it‟s negative impact on Indian textile market. However,
optimistic projections from IMF about Global Growth rate and China‟s emergence
as a Textile market has kept the global balance going as economic growth in China
is still close to 6.5% per year.
4.08%
2.85% 2.26% 2.37% 2.49%
2010 2011 2012 2013 2014
Source: World Bank
45
Apparel retail growth in Domestic Market:
The Indian retail market is expected to demonstrate a promising year-on-year
growth of 6% to reach USD 865 billion, by 2023, from the current USD 490
billion. The share of apparel in India‟s retail market is 8%, corresponding to a
value of USD 40 billion. In addition to fashion apparel, the growing demand for
fashion accessories makes the Indian fashion market both interesting and lucrative.
The major positives for Indian Retails market that would be beneficial for T & A
Industry are as follows:
India’s Demographic Dividend
The demographic dividend of India is tilted in favor of the consuming age group.
This young consuming class has new aspirations and is more open to
experimenting with fashion brands and modern designs.
Retail specific policies
The government‟s decision to allow Foreign Direct Investment (FDI) in multi-
brand retail is considered one of the most radical and reform-oriented decisions
taken in recent times.
Shift in Consumer’s buying behavior
The Indian fashion consumer is undergoing an evolution and is rapidly adapting
to international fashion statements. Increasing disposable incomes, exposure to
international events and fashion icons, and rising confidence levels are driving the
changes in the consumer purchase behavior.
Corporatized Retail
Corporatized retail is expected to grow in India, from a share of 8% in 2013 to
24% by 2023. The drivers of the growth are expected to be the continued large
share of private consumption in India‟s economy, the growth of alternative retail,
and the continued growth of brands and retailers.
Opportunities:
46
E-Commerce:
Indian E Retail market totaled USD 500 Million and accounted for a meager 0.1%
of total retail market of India. However, it is projected to grow to USD 70 Billion
by 2020. The size of fashion or apparel retail in this is around 26% of USD 130
Million. Apparel E-tailers fetched 40% of the total funding received by Indian
Ecommerce space in past two years. Local Textile and Apparel Industry
understands this situation and many apparel brands are all set to ride this growth
wave. Some of the brands have already started investing or have made
commitments to increase their online presence.
The surge in online retail and attention being paid to it by apparel industry is due to
the fact that online retail tends to do away with the concept of geographic bounds;
Thereby creating a whole new market which might have been untapped till now
because of no physical presence.
Hence, the rationale behind heavy investments in E-Commerce platforms by local
apparel industry is well justifiable. Ease of convenience and mobility are other plus
69%
8%
6%
6%
2% 2%
1%
6%
Food & Grocery ApparelApparelConsumer Durables & ITJewelry & WatchesPharmacy & WellnessFurniture & Furnishings
Share of Retail Market
Sou
rce:
Tec
hn
op
ak A
nal
ysis
490
689
865
0
100
200
300
400
500
600
700
800
900
1000
2013 2019(P) 2023(P)
Indian Retail Market (USD Bn)
47
points of this segment apart from new market access. As of 2015, India witnessed
dozens of Fashion E-tailers; some of them, as shown below, have gained a
considerable share of the market.
Myntra with its parent company Flipkart holds around
50% of the total Apparel Ecommerce market. In 2014,
Myntra alone clocked revenues of INR 560 Crores
(Excluding Flipkart)
Jabong is the second largest player in this segment. It
clocked revenues worth INR 520 Crores in FY 14
Amazon has got acquired a big share in Indian E
Commerce segment. It is burning lots of cash to keep
its growth going. It sells close to 11,000 brands with
around 2 Million Fashion items.
Snapdeal is eyeing big on Apparel retail and recently
tied up with Shoppers Stop and Madura Garments for
apparel sales online. It has recently launched its own
design studio in partnership with FDCI
Yepme is relatively smaller player in this market.
However it‟s not a multibrand marketplace; It sells
only one brand. It had revenues of INR 140 Crores in
FY 14
Policy/State Support:
Policy support is key to nourishment of any industry. Policy support includes
incentives for enhancement of technology, scaling up the production, favorable tax
regime, Export promotion schemes, focus on overall infrastructure for the sector
specific and addressing key concerns. Textile industry has received all good in this
regard. Thanks to its sensitivity for Indian Economy and impact index
(Employment, share of Manufacturing and Exports), that it has always been in for
fonts for the reception of policy support. Many things still need to be done,
48
however, it is important to appreciate the efforts taken so far which have resulted
in the phenomenal growth of this industry. Some of the policies, implementation of
which would prove instrumental in deciding the fate of Textile Industry in India
are discussed below.
ATUFS (Formerly: RR-TUFS/TUFS):
The Technology Upgradation Fund Scheme (TUFS), was launched in 1999 by
Ministry of Textiles for modernization and technology upgradation in the textile
sector. This scheme was launched for making available funds to the domestic
textile industry for technology upgradation of existing units as well as to set up
new units with state-of-the-art technology so that its viability and competitiveness
in the domestic as well as international markets may enhance. Over the years, it
has seen many improvements based on inputs from Textile industry bodies. In
2011, it was restructured and became R-TUFS (Restructured TUFS) and it
continued till March 2013, after it was extended to the 12th
Five Year plan. W.E.F
April 1 2013, Govt. launched the updated TUFS and it was now called RR-TUFS
(Revised Restructured TUFS). In April 2015, RR-TUFS was amended keeping the
demand of Industry in mind and ATUFS was rolled out replacing RR-TUFS.
The new scheme specifically targets employment generation and export, promotion
of technical textiles, conversion of existing looms to better technology looms and
encouraging quality in processing industry. ATUFS is not only expected to give a
boost to “Make in India” initiatives in the textiles sector but also attract investment
and create employment potential.
A budget provision of INR 17822 cr has been approved of which INR 12671 cr is
for committed liabilities under the ongoing scheme and INR 5151 cr for new cases
under ATUFS.
Implementation Status:
Year-wise Progress of TUFS (Position as on 05.04.2016)
(Amount in Rs. Crore) Sr. No. Year
No. of Cases Project Cost
Term Loan Sanctioned
Subsidy Released (By MoT)
1 1999-2000 309 5,074 2,421 1
2 2000-2001 616 4,380 2,090 70
3 2001-2002 444 1,320 630 200
49
4 2002-2003 456 1,438 839 203
5 2003-2004 884 3,289 1,341 249
6 2004-2005 986 7,349 2,990 284
7 2005-2006 1,078 15,032 6,776 485
8 2006-2007 12,589 66,233 29,073 824
9 2007-2008 2,260 19,917 8,058 1,143
10 2008-2009 6,072 55,707 24,007 2,632
11 2009-2010 2,352 27,611 6,612 2,886
12 2010-2011* 256 397 254 2,784
13 2011-2012 1,794 24,364 13,619 2,938
14 2012-2013 2,163 13,154 8,276 2,151
15 2013-2014** 585 6,387 4,328 1,731
16 2014-2015 4,005 17,021 10,769 1,885
17 2015-2016 … … …. 1,394
Total 36,849 268,673 122,083 21,859
* The scheme was under suspension from 29.06.2010 to 28.042011 **The scheme was started w.e.f. 04.10.2013
Scheme for Integrated Textile Parks (SITP)
The Scheme for Integrated Textile Parks (SITP) was launched in 2005 with
primary objective of the SITP is to provide the industry with world class state of
the art infrastructure facilities for setting up their textile units. SITP would create
new parks of international standards at potential growth centers. This scheme
envisages engaging of a panel of professional agencies for project identification
and execution.
Each Integrated Textile Park (ITP) under the scheme would normally have 50
units. The number of entrepreneurs and the resultant investments in each ITP could
vary from project to project. However, aggregate investment in land, factory
buildings and Plant & Machinery by the entrepreneurs in a Park shall be at least
twice the cost of common infrastructure proposed for the Park. The scheme targets
industrial clusters/locations with high growth potential, which require strategic
interventions by way of providing world-class infrastructure support. The project
cost will cover common infrastructure and buildings for production/support
activities (including textiles engineering, accessories. packaging), depending on the
Source: MoT
50
needs of the ITP. There will be flexibility in setting up ITPs to suit the local
requirements.
As of 2016, Government has already sanctioned 40 Projects under this scheme.
Out of these 40 Projects, 27 have started functioning while the rest 13 have
received in principle approval. Additionally, in Budget 2015-16 another layout of
$21.96 Million has been proposed for setting up 21 more parks under this scheme.
Mega Cluster
Mega cluster approach is a Drive to scale up the infrastructural and production
chain at Handicrafts clusters which have remained unorganized and have not kept
pace with the modernization and development that have been taking place so far.
Two clusters i.e Moradabad (Uttar Pradesh) and Narasapur (Andhra Pradesh) with
more than 20000 artisans have been identified for scaling up infrastructure and
production base.
Integrated Skill Development Skill (ISDS)
With low labor productivity and unskilled productivity being the core laggards in
the industry, it has become pivotal for Indian Textile Industry to address these
issues which would result improved efficiencies of the Textile Units and hence
increased outcome. ISDS has been introduced to address the problem.
. The scheme envisages three Components:
(i) Component I for Institutions /TRAs under MoT
(ii) Component II for private bodies in PPP mode
(iii) Component III for State Government Agencies.
Other Financial and Tax incentives
BCD (Basic Custom Duty) on raw materials for manufacture of spandex
yarn viz. Polytetramethylene ether glycol and diphenylmethane 4,4 di-
isocyanate is being reduced from 5% to NIL.
A weighted tax deduction of 200% under Section 35 (2AB) of the Income
Tax Act for both capital and revenue expenditure incurred on scientific
research and development. Expenditure on land and buildings are not
eligible for deductions.
51
Incentives for units in SEZ/NIMZ as specified in respective acts or the
setting up of projects in special areas such as the North-east, Jammu &
Kashmir, Himachal Pradesh & Uttarakhand.
Export Incentives: Export Promotion Capital Goods (EPCGS), Duty
Remission Scheme (DRS), Focus Product Scheme, Special Focus Product
Scheme and Focus Market Scheme.
Wage Inflation in China
Chinese economy is going through a transition phase. It‟s trying to evolve as a
Domestic Consumption based economy from the current Exports based economy.
This would also mean a shift in the focus from Manufacturing to Service sectors.
52
Competitive Rivalry Competitive rivalry in the textile sector in un-organized sector is low. However, in
the organized branded sector rivalry is intense among established players. Also, in
Porter's Five Forces Model
Competitive Rivalry
Threat of new
entrants
Bargaining power of Suppliers
Substitute Products
Bargaining Power of
Customers
53
the exports markets Indian industry faces a high competition from various other
markets like Bangladesh, China and Pakistan.
Threat of new Entrants
This is relatively moderate. Large initial investment required is one of the setbacks
for new entrants. Also, the reason behind despite of having 100% FDI approval,
sector continues to enjoy a moderate threat of new entrants is the other emerging
markets and their proximity or partnerships with established markets which lures
much large chunk of foreign investors.
Substitute Products
This is a high impact area. Of course there is no switching cost involved and low
cost producers from countries like China, Bangladesh and Vietnam offers these
easy substitutes. Unorganized sector, which represents a large chunk of domestic
Textile market, also provides cheap alternatives.
Bargaining Power of Suppliers
Presence of large number of players, with relatively smaller scale of production
leaves suppliers with very less power. Industry generally has many suppliers
providing in little quantities.
Bargaining Power of Customers
Low scale of production and many available suppliers with little product
differentiation means customers would have a relatively higher bargaining power.
This phenomenon is very evident in Indian Textile industry. Also, on the exports
front, buyers remain more empowered compared to domestic suppliers. Even in
Domestic markets, established brands have a high bargaining power.
54
Name of the Company
Revenues (2015)
CAGR (Last 5 Years)
D/E Ratio
(2015)
Promotor Holding (Share)
PBT Margin (5Yrs Avg)
Quick Ratio (5 Yrs Avg)
Vardhman Textiles 5,607 12% 0.58 0.6221 11.406 0.896
Welspun India 4,197 23% 1.41 0.7348 7.53 0.522
Trident 3,708 11% 1.52 0.6651 3.034 0.306
Arvind 4,978 19% 0.97 0.4378 7.276 0.598
Alok Industries 14,897 25% 2.45 0.3702 6.91 1.094
Vardhman Textiles
Vardhaman Textiles commissioned its first plant in Punjab, India in 1975. It
currently has 12 production plants located in the states of Punjab, Himachal
Pradesh and Madhya Pradesh. Currently the group has manufacturing capacity of
approximately 25 metric ton/per day of sewing thread in its plant at Hoshiarpur,
Ludhiana, Baddi and Perundurai. Currently the group employs 20,000 people.
It is also undertaking Research and Development activities in order to develop of
new products and for improvement in the production process and quality of
products.
Vardhman Textiles, exports its products to more than 25 countries and has a strong
presence in markets like the EEC, USA, Canada, China, Japan, Korea, Mexico,
Brazil and Mauritius, Middle East. The company has an annual turnover of INR
Indian Textile Giants
55
5,607 Crore (2015) and has received ISO 9002/ ISO 14002 certification for its
quality management.
Welspun India Ltd.
Started in 1985 at Palgadh, Maharashtra, it is primarily engaged in Home Textiles
segment and has presence in over 50 Countries. Welspun India is largely an Export
driven company with USA being its largest exports market. Welspun is also one of
the largest Home Textile Manufacturing Company in the world. Welspun is one of
India‟s biggest examples of forward integration and has established itself as a big
brand in USA through its U.S based subsidiary Welspun Global Brands Limited.
Welspun clocked revenues of INR 4197 Crore in 2015 and has an impressive
CAGR of over 20% in past 5 years. Company has a capacity to manufacture
40,000 tons in towels and 45 million metres flat sheeting fabric which it wish to
grow to 60,000 tons and 72 million metres respectively in the next three years (By
2019). Company is also adding 250,000 new spindles, apart from modernizing all
the existing spindles. It has plans to invest in automation processes to make the
process more efficient. Towards this, a contract worth $100 million has already
been signed with HP for IT solutions.
Trident
Headquartered in Ludhiana, it is one of the Indian giants in Home Textile segment.
Trident is a quality producer and exporter of Terry Towels and other Home textiles
items. Its customer base is widespread in close to 100 countries. It has its
manufacturing base in Punjab and Madhya Pradesh.
It is ISO 9001:2008 & OHSAS 18001:2007 certified for quality management
accredited by DNV, the Netherlands.
It has a large capacity of 688 Looms of Tery Towels, 500 Looms of Bed Linen
(Once the M.P Plant is functional), 555,000 Spindles for Yarn and 6,825 TPA of
Dyed Yarn. The company has achieved a sound growth despite a modest beginning
in 1991.
56
Though the share of Home Textile segment in the Global T&A Industry is
relatively very small, close to 8%. However, two if India‟s largest textile
companies are largely catering to this segment. It hints towards an interesting
phenomenon. Over the years India has evolved as a global leader in Home Textile
sourcing destination, an status which was enjoyed by Turkey earlier. However, it‟s
European markets where turkey continues to hold its leading position, losing
slowly.
Looking at the current size and the growth rate of the Home Textile segment, it
would not be an easy guess that there lies a great opportunity for India and
25%
23% 16%
36%
China
Pakistan
ROW
India
Country-wise market share(by Value) in US cotton Towel Imports
46%
24%
18%
12% India
China
Pakistan
ROW
Country-wise market share in US Sheet Imports
13%
19%
13% 17%
38%
China
Pakistan
ROW
India
Turkey
Country-wise market share(by Value) in Europe cotton Towel Imports
11%
16%
34%
19%
20%
India
Bangladesh
Pakistan
Turkey
ROW
Country-wise market share in Europe Sheets Imports
Sou
rce: Triden
t Ind
ia
57
companies like Welspun and Trident have a lot to cover. That is a good sign for
their business.
Arvind Textile Mills
Arvind is India‟s largest Denim wear producer and Exporter and stands 4th
in the
world. Arvind can also be credited to be the first Indian company which looked up
for the Production of Fine and Superfine fabrics in 1931. With 52,560 ring
spindles, 2552 doubling spindles and 1122 looms it was one of the few companies
in those days to start along with spinning and weaving facilities in addition to full-
fledged facilities for dyeing, bleaching, finishing and mercerizing.
Arvind is also the largest producer of Fire protection fabrics in India. Arvind is
well committed towards ensuring a good quality and use of Technology. It adopted
ERP from SAP in 1997. To expand its foothold it has formed JVs with many
foreign players like: PD Group, Germany (2012, Glass Fabrics), PVH Corp for
Calvin Klein (2014), Goodhill Corporation Limited of Japan for Formal suits
(2014) and OG Corp, Japan, for manufacture and sale of non-woven fabrics
(2014). In 2014, it also forayed into E-Commerce segment with custom clothing
brand “Creyate”.
Today, Arvind holds many brands under its portfolio, some of them are:
Owned: Flying Machine, New Port, Excalibur, Ruf & Tuf
Licensed: Arrow, Lee, Wrangler, EdHardy, Billabong, Nautica and U.S. Polo
Assn.
Alok Industries
With its exports clients in around 90 countries and close to 1/4th of its produce
getting exported, Arvind is surely that one big shot in Indian Textile and Apparel
Industry. It started in 1986 in Mumbai. Its main business involves weaving,
knitting, processing, home textiles, ready-made garments and polyester yarns.
58
Today, it owns many foreign brands such as Store Twenty One (Based in U.K),
Mileta (Czech).
It has achieved a high growth during the past decade. Much of this growth has
invited a large debt. Today, it sits on a pile of debt and the consortium of lenders is
considering SDR.
59
Over the past decade India has seen many mergers and Acquisition activities
happening around the Textile and Apparel Industry. On having a look at the deals
would suggest the maturity towards which Indian T&A industry is heading. It
suggests the lure of producers for Forward Integration as Fashion Retail forms a
big chunk of all these deals.
Listed below is a brief account of all the deals during the past decade ending in
2015. Of-course, there were many deals that took place apart from the one‟s listed
below, and it is not claimed to be an exhaustive list. However, this list contains all
the large deals and represents the very idea of the new direction that these Mergers
and Acquisition are shaping the industry towards.
Acquiring Company Target Company Deal Size
(USD Million)
Aditya Birla Fashion and Retail Aditya Birla Nuvo (Apparel Business) NA
Grasim Industries Aditya Birla Chemicals NA
PremjiInvest Future Lifestyle Fashion 21
Future Lifestyle Fashions Ltd Unico Retail Pvt. Ltd NA
Grasim Industries Terrace BayPulp 110
Pantaloons Fashion Madura Garments NA
Himachal Fibres BalmukhiTextiles Pvt Ltd NA
BR Machine Tools Pvt Ltd Bombay Rayon Fashions Ltd 721.1
Group of investors Provogue (India)Ltd 526.9
M C Spinners Pvt Ltd Maxwell Industries 8.5
Bombay Rayon Leela Scottish Lace 35 Source: Various Business Articles, IBEF
Mergers and Acquisitions
60
Having grown at a bullish pace of around 10%, Indian textile industry continues to
be the fastest growing textile industry among large markets. While there are many
factors of the Indian economy that works in the favor of this industry, industry still
seems to be in need of urgent and large scale reforms. Removal of Excise Duty on
Synthetic Textile so as to make the exports more viable is one of them. T & A
Industry in India faces challenges like Poor Infrastructure, Power Shortages,
Unskilled labor, Tedious Labor laws that have worked against the nourishment of
this industry. The fact is that the industry has a huge potential. Having grown at
double digit pace despite the above mentioned challenges is an achievement in
itself. However, the maturity in the industry has already been achieved and to keep
the momentum of growth going we need to work on addressing these key issues so
that a saturation alike situation can be avoided. As discussed in the report, the
schemes initiated by GoI wouldn‟t just address these issues, but also improve the
ease of doing business in this industry, which is a primary drag for the industry.
Encouraging entrepreneurship would be very important if India wish to watch the
industry towards it‟s next phase. With new entrepreneurs would come new ideas,
zeal for innovation and healthy competition. Currently, the average age of Indian
Textile Industry is close to double of that of its Chinese counterparts. This suggests
that Textile Manufacturing has not lured the new generation and is being seen as
not so good business by younger generation. Involvement of younger generation
has led to the massive transformation of Chinese Textile Industry. Government
needs to create more and more first generation entrepreneurs in this sector.
Proposed Freight corridors, Power capacity expansion and Focus (and incentives)
for renewable energy are steps in right direction towards solving core issues of the
industry. Recently modified and launched ATUFS, ISDS, SITP and other schemes
Conclusion and Observations
61
all are a welcome step, however the key would be the implementation part. It will
be interesting to see how do these initiatives mold the industry.
Slowing growth in the export seems to be another concern. In the press meet held
in June 2016, the textile minister Mr. Snatosh Gangwar himself hinted towards flat
exports of approx. $40 Billion for 2015-16, which is a slight decline compared to
2014-15. However, there is nothing to worry about as it is just a mere reflection of
low global demand which seems to be an aftermath of slowing Chinese and Global
Economy. With Crude surging ahead, there are strong hints towards a slight
recovery in global economy. As consumption in the developed countries grow,
macro-economic indicators would start showing signs of recovery. India, though
has a huge potential in the domestic market as well and it would be very important
to focus on structuring it. A big chunk of the Domestic textile market remains to be
un organized which is a golden opportunity for the Textile Industry. Atleast, this
can be a good hedge against the unpredictable global market. Emergence of
Vietnam would be a threat for short term, provided India works towards large scale
technological upgrades and Economy of scale. We will also have to work towards
forward integration in the global markets (exports markets). Overall, the prospect
of the Indian Textile industry looks good in the upcoming future and it is highly
recommended to be a part of this growth story.
62
http://trade.gov/topmarkets/pdf/Textiles_Top_Markets_Report.pdf
http://ministryoftextiles.gov.in/textile-data
http://txcindia.gov.in/expimp/scr_import_export.htm
http://commerce.nic.in/eidb/ecomcntq.asp
http://wits.worldbank.org/CountryProfile/en/Country/IND/Year/2014/TradeF
low/Import/Partner/all/Product/50-63_TextCloth
http://www.indexmundi.com/agriculture/?commodity=cotton&graph=yield
References