Economic Study on Textile Industry

A REPORT on Indian Textile Industry

Indian Textile Industry

The textile industry is the largest industry of modern India. It accounts for over 20 percent of industrial production and is closely linked with the agricultural and rural economy. It is the single largest employer in the industrial sector employing about 38 million people. If employment in allied sectors likes ginning, agriculture, pressing, cotton trade, jute, etc. are added then the total employment is estimated at 93 million. The net foreign exchange earnings in this sector are one of the highest and, together with carpet and handicrafts, account for over 37 percent of total export earnings at over US $ 10 billion. Textiles, alone, account for about 25 percent of India’s total forex earnings.

India’s textile industry since its beginning continues to be predominantly cotton based with about 65 percent of fabric consumption in the country being accounted for by cotton. The industry is highly localized in Ahmedabad and Bombay in the western part of the country though other centers exist including Kanpur, Calcutta, Indore, Coimbatore, and Sholapur.

The structure of the textile industry is extremely complex with the modern, sophisticated and highly mechanized mill sector on the one hand and the hand spinning and hand weaving (handloom) sector on the other. Between the two falls the small-scale power loom sector. The latter two are together known as the decentralized sector. Over the years, the government has granted a whole range of concessions to the non-mill sector as a result of which the share of the decentralized sector has increased considerably in the total production. Of the two sub-sectors of the decentralized sector, the power loom sector has shown the faster rate of growth. In the production of fabrics the decentralized sector accounts for roughly 94 percent while the mill sector has a share of only 6 percent.

Being an agro-based industry the production of raw material varies from year to year depending on weather and rainfall conditions. Accordingly the price fluctuates too.

India's trade in textiles and its share in world trade can be categorized as follows:

India’s Trade in Textiles

(1998)
|Type |India's Share in World Trade |
|Yarn |22% |
|Fabrics |3.2% |
|Apparel |2% |
|Made-ups |9% |
| | |
|Over-all |2.8% |

HISTORY OF TEXTILE INDUSTRY

India has been well known for her textile goods since very ancient times. The traditional textile industry of India was virtually decayed during the colonial regime. However, the modern textile industry took birth in India in the early nineteenth century when the first textile mill in the country was established at fort gloster near Calcutta in 1818. The cotton textile industry, however, made its real beginning in Bombay, in 1850s. The first cotton textile mill of Bombay was established in 1854 by a Parsi cotton merchant then engaged in overseas and internal trade. Indeed, the vast majority of the early mills were the handiwork of Parsi merchants engaged in yarn and cloth trade at home and Chinese and African markets.

The first cotton mill in Ahmedabad, which was eventually to emerge as a rival centre to Bombay, was established in 1861. The spread of the textile industry to Ahmedabad was 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 the great famine and a number of mills of Bombay and Ahmedabad were to be closed down for long periods.

The two world wars and the Swadeshi movement provided great stimulus to the Indian cotton textile industry. However, during the period 1922 to 1937 the industry was in doldrums and during this period a number of the Bombay mills changed hands. The Second World War, during which textile import from Japan completely stopped, however, brought about an unprecedented growth of this industry. The number of mills increased from 178 with 4.05 lakh looms in 1901 to 249 mills with 13.35 lakh looms in 1921 and further to 396 mills with over 20 lakh looms in 1941. By 1945 there were 417 mills employing 5.10 lakh workers.

The cotton textile industry is rightly described as a Swadeshi industry because it was developed with indigenous entrepreneurship and capital and in the pre-independence era the Swadeshi movement stimulated demand for Indian textile in the country.

The partition of the country at the time of independence affected the cotton textile industry also. The Indian union got 409 out of the 423 textiles mills of the undivided India. 14 mills and 22 per cent of the land under cotton cultivation went to Pakistan. Some mills were closed down for some time. For a number of years since independence, Indian mills had to import cotton from Pakistan and other countries.

After independence, the cotton textile industry made rapid strides under the Plans. Between 1951 and 1982 the total number of spindles doubled from 11 million to 22 million. It increased further to well over 26 million by 1989-90.

India’s Textile Industry Structure

Cotton textiles continue to form the predominant base of the Indian textile industry, though other types of fabric have gained share in recent years. In 1995‐96, the share o cotton and manmade fabric was 60% and 27% respectively. More recently, cotton fabrics accounted for 46% of the total fabric produced in 2005‐06, while man‐made fibres held a share of 41%. This represents a clear shift in consumer preferences towards man‐made fabric.

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The fiber and yarn‐specific configuration of the textile industry includes almost all types of textile fibers, encompassing natural fibers such as cotton, jute, silk and wool; synthetic man‐made fibers such as polyester, viscose, nylon, acrylic and polypropylene (PP) as well as multiple blends of such fibers and filament yarns such as partially oriented yarn (POY).

The type of yarn used is dictated by the end product being manufactured. The Man‐made textile industry comprises fiber and filament yarn manufacturing units of cellulosic and non‐cellulosic origin. The cellulosic fiber/yarn industry is under the administrative control of the Ministry of Textiles, while the non‐cellulosic industry is under the administrative control of the Ministry of Chemicals and Fertilizers.

It is well‐established that India possesses a natural advantage in terms of raw material availability. India is the largest producer of jute, the second‐largest producer of silk, the third‐largest producer of cotton and cellulosic fiber/yarn and fifth‐largest producer of synthetic fibers/yarn.

The industry structure is fully vertically integrated across the value chain, extending from fiber to fabric to garments. At the same time, it is a highly fragmented sector, and comprises small‐scale, non‐integrated spinning, weaving, finishing, and apparel‐making enterprises. The un organized sector forms the bulk of the industry, comprising handlooms, power looms, hosiery and knitting, and also readymade garments, khadi and carpet manufacturing units. The organized mill sector consists of spinning mills involved only in spinning activities and composite mills where spinning, weaving and processing activities are carried out under a single roof.

As in January 2006, there were 1779 cotton/man‐made fiber textile mills in the organized sector, with an installed capacity of 34.1 million spindles and 395,000 rotors. Of these, 218 were composite mills which accounted for just 3% of total fabric production, with 97% of fabric production happening in the unorganized segment. Cloth production in the mill sector has fallen from 1,714 million sq mtrs in 1999‐2000 to a projected 1,493 million sq mtrs in 2005‐06, declining at a rate of 2% per annum. As a result, the number of sick units in the organized segment has also been growing rapidly.

The competitiveness of composite mills has declined in comparison to the power looms in the decentralized segment. Policy restrictions relating to labour laws and the fiscal advantages enjoyed by the handloom and power loom sectors have been identified as two of the major constraints responsible for the declining scenario of the mill sector.
Nonetheless, overall cloth production in the country has been growing at 3.5% per annum since 2000, with growth driven largely by the power loom sector. Being the largest manufacturer of fabric in the country, the power loom sector produces a wide variety of cloth, both greys as well as processed. According to the Ministry of Textiles, there are 1.923 mn power looms in the country distributed over 430,000 units. The sector accounts for 63% of the total cloth production in the country and provides employment to 4.815 mn people.

The handloom sector is the second‐highest employer in the country after agriculture. The sector accounts for 13% of the total cloth produced in the country, not including wool, silk and hand spun yarn. The production of handloom fabrics had gone up to 4629 mn sq mtrs in 2005, from 500 mn sq mtrs in the 1950s, representing an annual growth of around 4%. The sector is weighed down by several problems such as obsolete technology, unorganized production systems, low The Man‐made textile industry comprises fiber and filament yarn manufacturing units of cellulosic and non‐cellulosic origin. The cellulosic fiber/yarn industry is under the administrative control of the Ministry of Textiles, while the non cellulosic industry is under the administrative control of the Ministry of Chemicals and Fertilizers. XV productivity, weak marketing links, overall stagnation in demand and competition from the power loom and mill sectors.

Knitting and hosiery units account for around 17% of fabric production in the country.

According to data available for the year 2000, India had about 6,000 knitting units registered as producers or exporters and most of these units were registered as small scale units.

Global Scenario

The textile and clothing trade is governed by the Multi-Fibre Agreement (MFA) which came into force on January 1, 1974 replacing short-term and long-term arrangements of the 1960’s which protected US textile producers from booming Japanese textiles exports. Later, it was extended to other developing countries like India, Korea, Hong Kong, etc. which had acquired a comparative advantage in textiles. Currently, India has bilateral arrangements under MFA with USA, Canada, Australia, countries of the European Commission, etc. Under MFA, foreign trade is subject to relatively high tariffs and export quotas restricting India’s penetration into these markets. India was interested in the early phasing out of these quotas in the Uruguay Round of Negotiations but this did not happen due to the reluctance of the developed countries like the US and EC to open up their textile markets to Third World imports because of high labour costs. With the removal of quotas, exports of textiles have now to cope with new challenges in the form of growing non-tariff / non-trade barriers such as growing regionalisation of trade between blocks of nations, child labour, anti-dumping duties, etc.

Nevertheless, it must be realised that the picture is not all rosy. It is now being admitted universally and even officially that the year 2005 AD is likely to present more of a challenge than opportunity. If the industry does not pay attention to the very vital needs of modernisation, quality control, technology upgradation, etc. it is likely to be left behind. Already, its comparative advantage of cheap labour is being nullified by the use of outmoded machinery.

With the dismantling of the MFA, it becomes imperative for the textile industry to take on competitors like China, Pakistan, etc., which enjoy lower labour costs. In fact the seriousness of the situation becomes even more apparent when it is realised that the non-quota exports have not really risen dramatically over the past few years. The continued dominance of yarn in exports of cotton, synthetics, and blends, is another cause for worry while exports of fabrics are not growing. The lack of value added products in textile exports do not augur well for India in a non-MFA world.

Textile exports alone earn almost 25 percent of foreign exchange for India yet its share in global trade is dismal, having declined from 10.9 percent in 1955 to 3.23 percent in 1996. More significantly, the share of China in world trade in textiles, in 1994, was 13.24 percent, up from 4.36 percent in 1980. Hong Kong, too, improved its share from 7.06 percent to 12.65 percent over the same period. Growth rate, in US$ terms, of exports of textiles, including apparel, was over 17 percent between 1993-94 to 1995-96. It declined to 10.5 percent in 1996-97 and to 5 percent in 1997-98. Another disconcerting aspect that reflects the declining international competitiveness of Indian textile industry is the surge in imports in the last two years. Imports grew by 12 percent in dollar terms in 1997-98, against an average of 5.8 percent for all imports into India. Imports from China went up by 50 percent while those from Hong Kong jumped by 23 percent.

India v/s Global Textiles

The global textile and clothing industry is estimated to be worth about US$ 4,395 bn and currently global trade in textiles and clothing stands at around US$ 360 bn. The US market is the largest, estimated to be growing at 5% per year, and in combination with the EU nations, accounts for 64% of clothing consumption.

The Indian textile industry is valued at US$ 36 bn with exports totalling US$ 17 bn in 2005‐2006. At the global level, India’s textile exports account for just 4.72% of global textile and clothing exports. The export basket includes a wide range of items including cotton yarn and fabrics, man‐made yarn and fabrics, wool and silk fabrics, made‐ups and a variety of garments. Quota constraints and shortcomings in producing value‐added fabrics and garments and the absence of contemporary design facilities are some of the challenges that have impacted textile exports from India.

India’s presence in the international market is significant in the areas of fabrics and yarn. • India is the largest exporter of yarn in the international market and has a share of 25% in world cotton yarn exports • India accounts for 12% of the world’s production of textile fibres and yarn. • In terms of spindle age, the Indian textile industry is ranked second, after China, and accounts for 23% of the world’s spindle capacity • Around 6% of global rotor capacity is in India • The country has the highest loom capacity, including handlooms, with a share of 61% in world loom age.

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Global factors influencing textile industry

The history of the textile and clothing industry has been replete with the use of various bilateral quotas, protectionist policies, discriminatory tariffs, etc. by the developed world against the developing countries. The result was a highly distorted structure, which imposed hidden costs on the export sectors of the Third World. Despite the fact that GATT was established way back in 1947, the textile industry, till 1994, remained largely out of its liberalisation agreements. In fact, trade in this sector, until the Uruguay Round, evolved in the opposite direction. Consequently, since 1974 global trade in the textiles and clothing sector had been governed by the Multi-fibre agreement, which was the sequel to an increasingly pervasive quota regime that began with the Short-term arrangement on cotton products in 1962 and followed by the Long-Term arrangement. After the successful conclusion of the Uruguay Round in 1994, the MFA was replaced by the Agreement on Textiles and Clothing (ATC), which had the same MFA framework in the context of an agreed, ten year phasing out of all quotas by the year 2005. The section that follows takes a brief look at the history of these protectionist regimes as also a more detailed look at the MFA and the ATC.

Multi–Fibre Agreement (MFA)

On January 1st, 1974, the Arrangement Regarding the International Trade in Textiles, otherwise known as the MFA came into force. It superseded all existing arrangements that had been governing trade in cotton textiles since 1961. The MFA sought to achieve the expansion of trade, the reduction of barriers to trade and the progressive liberalisation of world trade in textile products, while at the same time ensuring the orderly and equitable development of this trade and avoidance of disruptive effects in individual markets and on individual lines of production in both importing and exporting countries. Though it was supposed to be a short-term arrangement to enable the adjustment of the industry to a free trade regime, the MFA was extended in 1974, 1982, 1986, 1991, and 1992. Because of the quotas allotted, the MFA resulted in a regular shift of production from quota restricted countries to less restricted ones as soon as the quotas began to cause problems for the traders in importing countries. The first three extensions of the MFA, instead of liberalising the trade in textiles and clothing, further intensified restrictions on imports, specifically affecting the developing country exporters of the textile and clothing products. Increased usage of several MFA measures tended to further erode the trust which developing countries had originally placed in the MFA.

The MFA set the terms and conditions for governing quantitative restrictions on textile and clothing exports of developing countries either through negotiations or bilateral agreements or on a unilateral basis. The bilateral agreements negotiated between importing and exporting country’s contained provisions relating to the products traded but they differed in the details. The restraints under the MFA were often negotiated, or unilaterally imposed at relatively short intervals, practically annually. The quotas could be either by function or fibre

Under the MFA, product coverage was extended to include textiles and clothing made of wool and man-made fibres (MMF), as well as cotton and blends thereof. With regard to applications of safeguard measures, import restrictions could be imposed unilaterally in a situation of actual market disruption in the absence of a mutually agreed situation. However, in situations involving a real risk of market disruption only bilateral restraint agreements were possible. The Textile Surveillance Body (TSB) was set up to monitor disputes regarding actions taken in response to market disruptions.

The MFA permitted certain flexibility in quota restrictions for the exporters so that they could adjust to changing market conditions, export demands and their own capabilities. The MFA also provided for higher quotas and liberal growth for developing countries whose exports were already restrained. The MFA asked the participants to refrain from restraining the trade of small suppliers under normal circumstances. In general, developed countries, under MFA, chose not to impose restrictions on imports from other developed countries

The TSB ensured compliance by all parties to the obligations of bilateral agreements or unilateral agreements. It called for notification of all restrictive measures. A Textiles Committee – established as a management body consisting of all member countries – was the final arbiter under the MFA and worked as a court of appeal for disputes that could not be resolved under TSB.

Unsatisfactory experience with several extension protocols of the MFA, retention clauses, such as “good will”, “exceptional cases”, and “anti-surge” and other trade related factors led the developing countries to press for the inclusion of the textile issue in the agenda of the GATT Ministerial meeting.

The eventual outcome of prolonged negotiations was the Agreement on Textiles and Clothing.

Agreement on Textiles and Clothing (ATC)

The ATC calls for a progressive phasing out of all the MFA restrictions and other discriminatory measures in a period of 10 years. In contrast to the MFA, the ATC is applicable to all members of the WTO.

Four Steps over 10 Years

|Steps |Percentage of products to be brought under |How fast remaining quota should open up, if |
| |GATT (including removal of quotas) |1994 rate was 6% |
|Step 1 |16 percent (minimum taking 1990 imports as |6.96 percent annually |
|1st Jan 1995 – 31st Dec 1997 |base) | |
|Step 2 |17 percent |8.70 percent annually |
|1st Jan 1998 – 31st Dec 2002 | | |
|Step 3 |18 percent |11.05 percent annually |
|1st Jan 2002 – 31st Dec 2004 | | |
|Step 4 |49 percent (maximum) |No quotas left |
|1st Jan 2005 | | |

Top 10 Exporters (Textile)

|Country |1990 |1997 |
| |Billion US$ |% share |Billion US$ |% share |
|Hong Kong |7.99 |7.68 |14.6 |9.42 |
|China |7.10 |6.82 |13.83 |8.92 |
|South Korea |6.04 |5.81 |13.35 |8.61 |
|Germany |14.00 |13.46 |13.05 |8.42 |
|Italy |9.80 |9.43 |12.9 |8.32 |
|Taiwan |6.13 |5.90 |12.73 |8.21 |
|USA |5.03 |4.83 |9.19 |5.93 |
|France |7.21 |4.65 |5.86 |5.64 |
|Belgium-Luxembourg |6.54 |6.29 |7.01 |4.52 |
|Japan |5.88 |5.65 |6.75 |4.35 |
|Total (Top 10) |74.36 |71.5 |110.62 |71.37 |
|World |104.00 |100.00 |155.00 |100.00 |

Top 10 Exporters (Apparel)

|Country |1990 |1997 |
| |Billion US$ |% share |Billion US$ |% share |
|China |9.41 |9.14 |31.8 |21.06 |
|Hong Kong |15.37 |14.92 |23.11 |15.30 |
|Italy |12.07 |11.72 |14.85 |9.83 |
|USA |2.57 |2.49 |8.68 |5.75 |
|Germany |7.82 |7.59 |7.29 |4.83 |
|Turkey |3.44 |3.34 |6.7 |4.44 |
|France |4.65 |4.51 |5.34 |3.54 |
|UK |3.08 |2.99 |5.28 |3.50 |
|South Korea |8.11 |7.87 |4.19 |2.77 |
|Thailand |2.86 |2.78 |3.77 |2.50 |
|Total (top 10) |69.38 |67.36 |111.01 |73.52 |
|World |103.00 |100.00 |151.00 |100.00 |

EU Top Ten Suppliers of MFA Clothing: Rank Price
(AGR 1994-96)

| |1995 |1996 |Rank Price |
| |Ranks and Average Price |Ranks and Average Price |CAGR |
| | | |1994-96 |
|Country |Rank in Value|Rank in Volume |Avg. Price, |Rank in Value |Rank in Volume |Avg. Price, Ecu/Kg | |
| | | |Ecu/Kg | | | | |
|China |2 |1 |9 |1 |1 |8 |3 |
|Turkey |1 |2 |2 |2 |2 |6 |7 |
|Hong Kong |3 |3 |6 |3 |3 |5 |9 |
|Tunisia |4 |7 |3 |4 |6 |3 |4 |
|Morocco |5 |6 |5 |5 |7 |4 |2 |
|Poland |6 |8 |2 |6 |8 |1 |8 |
|India |7 |5 |7 |7 |5 |9 |10 |
|Romania |9 |10 |4 |9 |10 |2 |1 |
|Indonesia |10 |9 |8 |10 |9 |7 |6 |

Implications on Indian Exports (Optimistic Scenario)
Yarn
• Garment exports of Bangladesh increase leading to increase in consumption • of Indian fabric and yarn • Exports of Far-East & ASEAN increase further • Rationalization in duties of MMF leading to increase in processing of fibers in • India

Fabric/Made-ups • Garmenting dereserved leading to entry of large textile players ensuring • efficient sourcing and increase in the margins • Increase in investment for processing • Improvement in SAPTA trade

Garments • Garmenting and Knitting de-reserved to allow the units to grow bigger to be • able to service large orders and large clients • Labor laws in India become industry friendly • Garment parks come up in key regions giving a boost to exports • Successful Quota Phase-out without exports getting restricted by QRs

Fig in US $ Mn
| |1994 |1998 |2002 |2005* |2010* |
|Yarn |590 |1780 |2333 |2701 |3131 |
|Made-ups |851 |1498 |2620 |4527 |11266 |
|Fabric |1214 |1716 |2512 |3530 |7100 |
|Garments |3713 |4829 |6510 |10794 |21711 |
|Total |6368 |9823 |14035 |21552 |43208 |

Implications on Indian Exports (Pessimistic Scenario)
Yarn

- Change works to the advantage for S. Korea/ASEAN/Far-East
- Demand for packages increases
- EEC other garment supply countries invest in back-end processes

Fabric/Made-ups
- Environmental Clause impacts
- Investment in processing does not happen
- Blends and synthetic fabrics dominate reducing advantage of Indian cotton

Garments
- Social clause impact leading to ban on some categories, etc.
- SSA is a reality impacting exports of garments from India to USA and EU
- FTA becomes a reality
- Other projectionist measures come up

As opposed to the optimistic scenario, the pessimistic scenario shows a shortfall of nearly US $4000 mn of exports in year 2005 and the exports are not likely to be much higher than the present figures. It would also lead to development of textile and clothing industry in the other nations and India would lose out as a significant player in the industry. This would also stifle the domestic textile industry which would be in a very weak position to compete with imports. (These are expected to become cheaper with import duty rationalization as per international treaties and cost competitiveness of overseas players). Some of the subsidies currently extended by the Indian government to promote exports which are sector specific (TUF, 80 HHC) or region specific (EPZS, EOUS) may also need to be withdrawn. Fig in US $ Mn
| |1994 |1998 |2002 |2005* |2010* |
|Yarn |590 |1780 |2003 |2126 |2022 |
|Made-ups |851 |1498 |2038 |2427 |3098 |
|Fabric |1214 |1716 |1931 |2050 |2154 |
|Garments |3713 |4829 |5435 |5939 |6885 |
|Total |6368 |9823 |11408 |12542 |14159 |

The textile products continue to hold an important role in the Indian exports. The latest status of exports of textiles from the country is given in the Table below

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Investments

Investments in the textiles sector can be accessed on the basis of three factors: • Plan schemes such as the Technology Up gradation Funds Scheme (TUFS), Technology Mission on Cotton, Apparel Parks, etc. ‐‐ Under the TUFS scheme, a total of Rs 916 bn has been disbursed for technology up gradation. There are around 26 Apparel Parks in eight states in India, with a total estimated investment of Rs 134 Bn • Industrial Entrepreneurship Memorandums implemented from 1992 to Aug 06, amounting to Rs 263 bn • Foreign Direct Investments inflows worth US$ 910 mn have been received by the textile industry between Aug 91 and May 06, which account for 1.29% of total FDI inflows in the country.

Though significant investments are being made in the textiles segment, the bulk of them are in the spinning and weaving segments. A cumulative total of US$ 6.67 bn in investment is expected by 2008. Of this, more than two‐thirds is expected in the spinning and weaving segments, while only 25% is expected in processing and garment units.

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Government Initiatives

The Government’s role in the textile industry has become more reformists in nature.
Initially, policies were drawn to provide employment with a clear focus on promoting the small‐scale industry. The scenario changed after 1995, with policies being designed to encourage investments in installing modern weaving machinery as well as gradually eliminating the pro‐decentralized sector policy focus. The removal of the SSI reservation for woven apparel in 2000 and knitted apparel in 2005 were significant decisions in promoting setting up of large‐scale firms. Government schemes such as Apparel Parks for Exports (APE) and the Textile Centres Infrastructure Development Scheme (TCIDS) now provide incentives for establishing manufacturing units in apparel export zones.

The new Textile Policy of 2000 set the ball rolling for policy reforms in the textile sector, dealing with removal of raw material price distortions, cluster approach for power looms, pragmatic exit of idle mills, modernisation of outdated technology etc. The year 2000 was also marked by initiatives of setting up apparel parks; 2002 and 2003 saw a gradual reduction in excise duties for most types of fabrics while 2004 offered the CENVAT system on an optional basis. The Union Budget of 2005‐2006 announced competitive progressive policies, whose salient features included: • A major boost to the 1999‐established Technology Upgradation Fund Scheme for its longevity through a Rs 4.35 bn allocation with 10% capital subsidies for the textile processing sector • Initiation of cluster development for handloom sector • Availability of health insurance package to 0.2 mn weavers from 0.02 mn initially • Reduction in customs duty from 20% to 15% for fibres, yarns, intermediates, fabrics and garments; from 20% to 10% on textile machinery and from 24% to 16% in excise duty for polyester oriented yarn/polyester yarn • Reduction in corporate tax rate from 35% to 30% with 10% surcharge • Reduction in depreciation rate on plant and machinery from 25% to 15% • Inclusion of polyester text risers under the optimal CENVAT rate of 8

To meet the challenges of the post‐MFA setup, the Government of India initiated a reforms process which aimed at promoting large capital investments, pruning cumbersome procedures associated with the tax regime, etc. The Textile Vision 2010 was born as a result of interaction between the government and the industry which envisages around 12% annual growth in the textile industry from US$ 36 billion now to US$ 85 billion by 2010. Additionally, Vision 2010 also proposes the creation of an additional 12 million jobs through this initiative.

SWOT Analysis of Indian Textile Industry

|Self reliance |S |W |Highly fragmented |
|Manufacturing flexibility | | |High dependence on cotton |
|Abundance of raw material production | | |Lower productivity |
|Design expertise | | |Declining mill segment |
|Availability of cheap labour | | |Technological obsolescence |
|Growing economy and domestic market | | |Non‐participants in trade |
|Progressive reforms | | |Agreements |
| | | | |
|End of quota regime |O |T |Stiff competition from |
|Shift in domestic market to branded readymade | | |developing countries; especially China |
|garments | | |Pricing pressure |
|Increased disposable income | | |Locational disadvantage |
|Emerging mall culture and retail expansion | | |International labour and |
| | | |environmental laws |

FUTURE OUTLOOK

Expectations are high, prospects are bright, but capitalising on the new emerging opportunities will be a challenge for textile companies. Some prerequisites to be included in the globally competing textile industry are: • Imbibing global best practices • Adopting rapidly changing technologies and efficient processes • Innovation • Networking and better supply chain management • Ability to link up to global value chains.

The Indian textiles industry has established its supremacy in cotton based products, especially in the readymade garments and home furnishings segment. These two segments will be the key drivers of growth for Indian textiles. Readymade garment exports were worth US$ 8 bn in FY06 and will cross US$ 16 bn by the end of 2010, assuming a conservative growth of 15% per annum. According to estimates, investments in textiles are expected to touch US$ 31 bn by 2010.

The readymade garment segment will be the principal driver of growth even in the domestic industry. The changing preferences of Indian consumers ‐‐ from buying cloth to readymade garments ‐‐ have prompted several companies to move up the value chain into the finished products segment.

Investments in Textile and Garment Sector

As mentioned earlier, the textile exports are projected to reach a level of US $ 50 billion (Rs.176000 crores annually) from the present level of about 12 billion US$. This, would however, call for massive investments in the textile sector. As per the vision statement for the textile sector prepared by CRISIL investments of Rs.140000 crores will be needed not only to modernize the existing capacities but also to create fresh capacity. The largest investment need will be in the processing sector, which is a critical segment in the value chain that determines the quality of the fabrics/ apparels. An investment of Rs.64,900 crores is required to set up world-class process houses in the country. A broad break up of investments of Rs.
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The inherent strengths of the textile industry have seen the textile industry through rough days and hard times. There have been many periods of adversity, when growth charts have dipped and it has appeared that misfortune will overtake. But like phoenix the textile industry has risen each time from the ashes. Tremendous resilience and creative genius in India will achieve the due to this country. Today, rapid changes in the world trading system have endangered the stability of the textile-garment industry and created an atmosphere of uncertainty and turbulence in the industry. But it is also a fact that turbulence is necessary for any change in the system. In a world that is fast losing its traditional boundaries and borders are becoming invisible, there is need to bring about technological improvement, structural changes, and liberalization from controls and regulations, increased productivities of labour and machine and reliable quality assurance systems. If there is insecurity inherent in the globalised economy, there is also opportunity – opening up of vast markets to Indian textiles and Indian clothing that were earlier closed or regulated and Indian textile industry is ready to take up this opportunity of free trade and secure its well deserved position in the international textile arena.

Competition In Industry

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Conclusions

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 dereserving the small-scale sector so that it can achieve economies of scale and adopt a synergistic approach.

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 decentralisation 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 recognised 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 powerloom sectors also needs to be increased. The clothing sector needs the support of high quality and cost-effective cloth processing facilities. Modernisation 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 organisations.[pic]
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Compound Annual Growth Rate (CAGR) of different segments

Type |CAGR (1993-98) | |Yarn |31.79% | |Fabric |9.04% | |Made-ups |15.18% | |Garment |6.795% | |

Submitted To: Surta Mehta

Submitted By: Nirali Mehta

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