research proposal for indian textile products promotion in
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RESEARCH PROPOSAL FOR INDIAN TEXTILE PRODUCTS PROMOTION IN
WESTERN EUROPE
INTRODUCTION
India is a traditional textile -producing country with textiles in general, and cotton in particular,
being major industries for the country. India is among the world’s top producers of yarns and
fabrics, and the export quality of its products is ever increasing. Textile Industry is one of the
largest and oldest industries in India. Textile Industry in India is a self-reliant and independent
industry and has great diversification and versatility. The textile industry can be broadly
classified into two categories, the organized mill sector and the unorganized decentralized sector.
The organized sector of the textile industry represents the mills. It could be a spinning mill or a
composite mill. Composite mill is one where the spinning, weaving and processing facilities are
carried out under one roof. The decentralized sector is engaged mainly in the weaving activity,
which makes it heavily dependent on the organized sector for their yarn requirements. This
decentralized sector is comprised of the three major segments viz., power loom, handloom and
hosiery. In addition to the above, there are readymade garments, khadi as well as carpet
manufacturing units in the decentralized sector.
The Indian Textile Industry has an overwhelming presence in the economic life of
the country. It is the second largest textile industry in the world after China. Apart from
providing one of the basic necessities of life i.e. cloth, the textile industry contributes about 14%
to the country's industrial output and about 17% to export earnings. After agriculture this
industry provides employment to maximum number of people in India employing 35 million
people. Besides, another 50 million people are engaged in allied activities. India is the largest
producer of Jute, the 2nd largest producer of Silk, the 3rd largest producer of Cotton and
Cellulosic Fiber / Yarn and 5th largest producer of Synthetic Fibers/Yarn. Textile Industry
contributes around 4% of GDP, 9% of excise collections, 18% of employment in industrial
sector, and has 16 % share in the country’s export. The Industry contributes around 25% share in
the world trade of cotton yarn. India is the largest exporter of yarn in the international market and
has a share of 25% in world cotton yarn export market. India contributes for 12% of the world’s
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production of textile fibers and yarn. Indian textile industry is second largest after China, in
terms of spindle age, and has share of 23% of the world’s spindle capacity. India has around 6%
of global rotor capacity. The country has the highest loom capacity, including handlooms, and
has a share of 61% in world loom age. The Apparel Industry is one of largest foreign revenue
contributor and holds 12% of the country’s total export.
CURRENT TREND
The Indian Textile Industry is one of the largest industry that provides high exports and foreign
revenue. Textiles exports, which were growing at a moderate pace till 2004-05, registered a
sharp growth of 21.77 per cent in 2005-06 to touch US$ 17 billion from US4 14 billion in 2004-
05, due to the scrapping of quotas. The growth has continued with total exports increasing to
US$ 19.62 billion in 2006-07. Currently India has a 3.5-4 per cent share in world export of
textiles and 3 per cent in clothing exports. While Europe continues to be India's major export
market with 22 per cent share in textiles and 43 per cent in apparel, the US is the single largest
buyer of Indian textiles and apparel with 10 per cent and 32.6 per cent share respectively. Other
significant countries in the export list include the UAE, Saudi Arabia, Canada, Bangladesh,
China, Turkey and Japan. Readymade garments (RMG) are the largest export segment,
accounting for 45 per cent of total textile exports and 8.2 per cent of India's total exports. This
segment has benefitted significantly with the termination of the Multi-Fibre Arrangement (MFA)
in January 2005. Readymade garments exports from India are expected to touch US$ 14.5 billion
by 2009-10 with a cumulative annual growth of 18 to 20 per cent, according to Apparel Export
Promotion Council. Another segment in which India has excelled in the export market is carpets.
Exports of carpets have increased from US$ 654.32 million in 2004-05 to US$ 930.69 million in
2006-07, showing a growth rate of 42.23 per cent. During April-October 2007, carpet exports
totaled US$ 404.74 million. This makes India the world leader in carpet exports with 36 per cent
of the global market share.
MARKET ANALYSIS OF INDIA'S POSITION IN WESTERN EUROPE
Following the elimination of quotas, there has been a marginal shift in the trade pattern in the
EU; the share of extra-EU trade in total trade has been growing, as also the share of developing
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countries of Asia. In the EU market, in 2007, growth in imports from China was 14% as
compared to the 3.7% growth in imports from India. Even imports from other Asian countries
such as Vietnam (11%), Sri Lanka and Pakistan (around 7% each) have also been impressive. In
the first quarter of 2008 (January-March), import growth in EU market was around 12%.
However, the role of developing economies from Asia in catering to this level of import growth
has come down during this period. Except the imports from Sri Lanka and Vietnam (which grew
at 13% and 7% respectively), and Bangladesh with a marginal growth of 0.6%, growth in
imports from other countries, including that of China and India were negative (-0.7 and –1%,
respectively). Other Asian countries such as Pakistan and Indonesia witnessed greater level of
negative growth during this period.
In some product groups, India has improved its market share in EU market, while in others it has
lost its market share to some other competitors. In men’s and boys’ garments segment, India has
improved its market share under HS codes such as 6205 and 6105; in babies garments segment,
India has improved its market share under HS codes such as 6111 and 6209; in home textiles
segment, India has improved its market share under HS code 6305; in made-ups, India has
improved its market share under HS code 6214. India’s position and market share is unchanged
in product sub groups such as men’s and boys’ garments (falling under HS codes 6201, 6107,
6203), women’s and girls' garments (falling under HS codes 6202, 6108, 6102), home textiles
(falling under HS codes 6302, 6303), technical textiles (falling under HS codes 5911, 6116), and
woven fabrics (falling under HS codes 5208,5209, 5515). India’s position has been captured by
China under HS codes 6206 (women’s and girls' garments), 6306 (technical textiles) by
Bangladesh, and 6307 (made-up's) by Turkey.
IMPACT OF RUPEE APPRECIATION ON EXPORTS
One of the recent challenges faced by the Indian textiles and garments sector was the sudden
appreciation of Indian Rupee vis-à-vis US dollar in 2007-08. This has slowed down the growth
momentum of textiles and clothing industry in India. Though, the growth trends in US dollar
terms is not very much affected during the period April-February 2007, in Rupee terms, exports
witnessed negative growth rate with regard to both textiles (-0.6%) and clothing (-4.8%). High
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export intensity of readymade garments and silk textiles has affected the export price realization
and profitability in these subsectors.
While appreciation of Indian Rupee adversely impacted the export price realization
of Indian exporters, the competitiveness of Indian textiles and clothing in international markets
have been gradually eroded with depreciation of competitor currencies vis-à-vis US dollar. The
currencies of Sri Lanka and Pakistan have been depreciating over the years strengthening the
price competitiveness of their exporters. However, in recent months, since April 2008 onwards,
Indian Rupee has been depreciating against US dollar, which may have positive impact on textile
exports.
COMPETETIVE THREATS FROM OTHER DEVELOPING COUNTRIES
In the year 2007, USA’s import of textile and clothing from China had grown at 16%, while the
overall import growth in USA decelerated to around 3%. USA’s textile and clothing imports
from India have grown a mere 0.6% in 2007, as compared to the impressive import growth of
35% from Vietnam, 13.3% from Cambodia, 10.1% from Nicaragua, 8% from Indonesia, 7.8%
from Egypt, and 6.3% from Bangladesh. During the period January-May 2008 , there has been a
negative growth (-2.8%) of overall import of textiles and clothing by USA, mainly contributed
by a negative import growth (-2.7%) of textiles and clothing from China. Though imports from
India had grown at 2.3% during this period, there has been a threat of competition from other
developing countries such as Vietnam (27%), Peru (6.5%), El Salvador, (6.7%), and Bangladesh
(6.3%). This indicates the level of competition and threats from other developing countries. With
regard to EU, it may be said that there has been a marginal shift in the trade pattern following the
elimination of quotas; while the share of intra-EU trade has reduced from 56% in 2005 to 54% in
January-March 2008, the share of extra EU trade has increased from 44% in 2005 to 46% in
January-March 2008. The share of developing countries of Asia has been increasing in extra-EU
trade, since the removal of quota, led by increasing exports by China. During the first quarter
(January –March) of 2008, import growth by EU has increased by around 12%. While EU
member countries have catered to most of the import requirements, the role of developing Asian
economies declined during this period. Except the imports from Sri Lanka and Vietnam, which
grew at 13% and 7% respectively, and Bangladesh a marginal growth of 0.6%, growth in
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imports from other countries including that of China and India were negative. Import growth
from China, during the period January – March 2008, was –0.7%, and that of India was -1%.
Other Asian countries such as Pakistan (-11%) and Indonesia (-5%) witnessed greater level of
negative growth during this period.
INCREASING CAPACITY EXPANSION IN ASIA
According to International Textile Machinery Manufacturers Federation (ITMF), the general
expansion of global textile machinery shipments, which is being observed in the last four years,
have continued in 2007 also. Shipments of short staple spindles, open-end rotors and texturing
spindles were up in 2007. In the segment of weaving, more number of shuttle-less looms have
been shipped in 2007 compared to the previous year. Shipments of electronic flat knitting
machinery increased to 21,800, a new record level. Except the circular knitting machinery, all
segments of weaving machinery witnessed expansion. Even though India had shown capacity
expansion in some segments of textile machinery compared to China, which showed increasing
capacity expansion in segments such as short staple spindles (47%), long staple spindles (52%),
open end rotors (51%), single heater draw-texturing spindles (44%), shuttle-less looms and
circular and flat knitting machinery (large) (68% each), the capacity expansion in India is
minimal. Thus, India needs to improve further to be more competitive as a global player.
ENVIRONMENTAL ISSUES
The rising ecological and social awareness has resulted in increasing demands from the buyers
room the Indian textile and clothing industry to follow international labor and environmental
regulations. In US and EU markets, there have been consumer outrage on issues such as
polluting dyes, deployment of child labor and unhealthy working conditions. Increasing
awareness on such issues lead the buyers to limit their sourcing from countries or companies
known to be not complying to such regulations. India’s main destinations being the US and EU,
players in the textile and clothing industry need to pay more attention on such issues and work
towards compliance to sustain in these markets.
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FRAGMENTED INDUSTRY
The textile and clothing industry in India is a fragmented one with large number of players,
which hampers its ability to emerge as a world-class supplier. Also very few players have
integrated their operations. One of the reasons for China’s supreme position in global textile and
clothing industry is its integrated production and consolidated supply chain facilities. The global
buyers prefer to buy from a few large vendors at competitive cost. The disintegrated nature of
textile and clothing value chain in India hampers the chances of securing such large orders as
also achieving the economies of scale. There are also challenges associated with productivity,
non availability of adequate resources to invest in high technology.
COST COMPETETIVENESS
With regard to cost of production, India fares well in labour cost advantage in the textile sector;
however, the cost of power and capital in Indian textile sector is greater than many other
countries. Labour cost in Indian clothing industry has grown since 2000. As of 2007, the cost of
labour in India is higher than the cost of labour in Asian competitor countries. Although, the
labour cost in coastal China is expected to be higher (US $ 0.85 per hour) than the national
average, the labour mobility would moderate the increase in labour cost in the coastal region.
The labour costs of Bangladesh, Pakistan and Vietnam are far below than the labour cost in
India, posing competitive threat to the Indian clothing industry.
RISING INPUT PRICES
There has been a continuous increase in input prices in the textile value chain leading to cost
escalation in production. For example, raw cotton prices in the month of July 2007 was around
Rs. 55.57 per kg., which has increased to Rs. 65.10 per kg in May 2008. Prices of cotton lint,
which was prevailing around Rs. 15000 per candy in June 2007 has moved up to Rs. 24,600 in
June 2008. Similarly, the price of viscose staple fibre, which prevailed around Rs. 108.24 per kg
in July 2007 has increased to Rs. 119.59 per kg in May 2008. The prices of yarn have also
increased in the last one year, but not proportionately with the increase in prices of fibres,
affecting the margins of spinning units. The price of hank yarn has increased from Rs. 102.34 per
kg in July 2007 to Rs. 108.38 per kg in May 2008. Polyester cotton blended yarn has increased
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from Rs. 127.38 per kg in July 2007 to Rs. 129.13 per kg in May 2008.The cost of energy has
also gone up significantly due to spike in global crude prices. Industry sources contend that there
has been no corresponding increase in unit price realization of final products, squeezing the
margins.
SKEWED FIBRE MIX IN INDIA
At present, in India, the fibre mix of textile industry is skewed towards cotton; about 75% of
yarn production in India is cotton based. On the other hand the fibre mix in the world is
estimated to be 60% of man-made fibres and 40% of cotton. Cotton fibre production had grown
at 16% in 2006-07 over the year 2005-06 – from 4.1 million tonnes to 4.8 million tonnes.
SOCIAL ISSUES
Internationally, there are increasing awareness about social issues such as preventing the usage
of child labour in textile value chain, especially in the developing countries. Sourcing firms are
undertaking surprise checks in the manufacturing premises and tighten the vigilance level to
prevent violation of such social standards in future. Some of the buyers have established
systematic tracking of hand-work orders including subcontractors in the value chain either
through credible third-parties (such as civil society organizations, NGOs) or directly. The buyers
are also seeking from the vendors to submit a plan giving extensive details about every sub-
contracted facility, as also the internal monitoring protocols to implement the vendor code of
conduct. Wherever possible, the importers demand production to be undertaken in-house at the
vendor’s facilities so that monitoring is easier.
INDIA- RETAL SOUCRING HUB
Given the abundant supply of fibre, strong production base and availability of skilled labour the
Indian textile industry is poised to become a hub for the global retailers. Following the abolition
of quotas, many global players are setting up their sourcing and buying offices in India. India is
being viewed as alternate sourcing base for China by these firms. It is estimated that the market
size of retail sourcing from India is around US $ 25 billion, which may reach US $ 40 billion by
2011. Both Wal-Mart and Marks & Spencers have identified India as a fastest growing retail
market. Also with the increasing fashion trends, India would emerge as a global hub for textiles.
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TECHNOLOGY UPGRADATION
Technology would play a lead role in the weaving and processing, which would improve the
quality and productivity levels. The economies of scale operating under hi-tech processing would
enable operating expenses to be lower with minimal fabric defects. Further, upgradation /
modernization in textile industry would help ensure economies of scale and quality
improvement. The industry needs to undertake innovations and product development and
strategies that would enhance efficiency in production, supply chain and product distribution.
However, at present, the Indian textile industry is having technological obsolescence and sub-
scale operations. Indian textile industry should turn into hi-tech mode to reap the benefits of
scale operations and quality. The Technology Upgradation Fund Scheme (TUFS) has a major
role in strengthening the technology upgradation effort of the Indian textile and clothing
industry.
SUMMARY
To effectively tackle the situation India needs to invest in research and development to
develop new products, reduce transaction costs, reduce per unit costs, and finally,
improve its raw material base. India needs to move from the lower-end markets to middle
level value-for-money markets and export high value-added products of international
standard. Thus the industry should diversify in design to ensure quality output and
technological advancement.
The weakest links in the entire chain are the power looms and the processing houses.
The latter especially are very important because they are responsible for the highest value
addition in the manufacturing line. A power loom co-operative structure could be
evolved for pooling of common services and functions such as quality testing, marketing,
short-term financing, etc. Further, because of the geographical proximity enjoyed, a
cluster approach can be adopted.
The government also needs to make policy changes like deserving the small-scale sector
so that it can achieve economies of scale and adopt a synergistic approach.
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Handlooms by their very nature can adopt a strategy of "niche” marketing. In this
respect, export promotion, common credit and marketing facilities and more significantly
publicity are important areas for co-operation. Here too, a co-operative structure would
be useful though government agencies should be involved because of their outreach.
Newer and more innovative forms of involvement are required where decentralization
should be a key element.
India has made little attempt to forge partnerships – in equity, technology and distribution
in overseas markets. The newer nuances of global apparel trade demand joint control of
brand positioning, distributing and quality assurance systems.
The Indian textile industry has recognized the need for a cradle-to-grave approach when
tackling environmental issues i.e. eco prescription should be applied right from the stage
of cultivation to spinning to weaving to chemical processing to packaging. Here
especially there is great scope for private -public partnerships.
A great deal of work has been done by Indian trade and industry to comply with
ecological and environmental regulations, and so Indian garments can adopt an
appropriate label signifying a distinct quality.
Efficiency and output of handloom and power loom sectors also needs to be increased.
The clothing sector needs the support of high quality and cost-effective cloth processing
facilities. Modernization of mills is a must.
Human resource is another area of focus. The workforce must be trained and oriented
towards high productivity.
The business environment of the future will be intensely competitive. Countries will
want their own interests to be safeguarded. As tariffs tumble, non-tariff barriers will be
adopted. New consumer demands and expectations coupled with new techniques in the
market will add a new dimension. E-commerce will unleash new possibilities. This will
demand a new mindset to eliminate wastes, delays, and avoidable transaction costs.
Effective entrepreneur-friendly institutional support will need to be extended by the
Government, business and umbrella organizations.