Textiles and Garments

Textiles and Garments

Background

After more than 4 decades of quota restrictions, the international textile trade moved into a quota free regime from January, 2005. This has provided an opportunity to the domestic textile industry to expand and strengthen itself in the international markets.

According to the Industry Vision, the Indian textiles and apparel industry can achieve a potential size of US$ 85 billion by 2010. In view of the growth potential of the industry, the Government is aiming at a still more ambitious target of attaining an Industry size of the order of 115 billion US Dollars by the terminal year of the Eleventh Plan.

India is emerging as one of the major outsourcing hubs in the post quota period as it has comparative advantage over its competitors on availability of relatively inexpensive and skilled workforce, design expertise, a large production base of basic raw materials, yarn and fabric and availability of a wide range of textiles. Higher investments, higher production and higher exports are illustrative of the resurgent mood of the Indian textile industry.

There has been a secular increase in investments in the textile sector during the last two- three years and the investments in the year 2006 are estimated to reach a level of US$ 6 billion. The Industry is aiming at investments of the order of USS 31 billion, that is Rs. 1,40,000 crores, by 2010, and thereby double India's share of the global trade.

Size

Textiles is a $36 billion industry in India; it constitutes about 4-5% of the GDP
India's share of the world trade in textiles (3.5% currently) is continuously increasing

The textiles exports, as per Directorate General of Commercial Intelligence & Statistics (DGCI&S), Kolkata, have registered strong growth in the post quota period, increasing from US$ 14.03 billion in 2004-05 to US$ 17.08 billion in 2005- 06, recording a growth of 21.76%. Therefore, the Government has fixed a higher target of US$ 19.73 billion for 2006-07.

The momentum has sustained in 2006- 07, and as per provisional figures of DGCI&S, the textiles exports during April - October 2006, are up by 6.47% in dollar terms and 11.43% in Rupee terms over exports during the corresponding period of the previous year.

As per the DGCI&S data, during 2005-06, the European Union (EU) and the USA accounted for about 62% of Indian textiles exports. The USA is the single largest destination of Indian textiles exports, with a share of over 26%. The other major markets for Indian textiles exports are United Arab Emirates (UAE), China, Canada, Bangladesh, Saudi Arabia and Japan.

India is amongst the largest producers of,

§ Cotton. India was the second largest producer (4.15 Million Metric Tons) of cotton during 2005-06, accounting for 16.75% of the global production.

§ Yarn - 4,170 million kgs. p.a.; about 25% share of world trade in cotton yarn

§ Fabrics - 4,283 million sq.mts. p.a.

There were 1818 cotton/man-made fibre textiles mills (non-SSI) in the country as on January 31, 2007 with a capacity of 35.37 million spindles, 448,000 rotors and 69,000 looms
The apparel industry has around 27,700 domestic manufacturers, over 48,000 fabricators, and around 1,000 manufacturer-exporters.
The Textile sector is the second largest Indian employer after agriculture. About 35 million people are directly employed. If we include those working in the allied industries and in marginal capacities, then the figure rises to 93 million people.

Structural Characterstics

The Indian textile industry is fragmented with only a few large and numerous small and medium companies
Cost advantages of manufacturing textiles and garments in India is derived from:

§ Abundant supply of inputs at competitive prices

§ Low cost manpower with a range of skill levels from unskilled labour to fashion design

§ Position as a leading cotton producer

India's ability to manufacture a wide range of products in the backward supply chain has endowed it with a very strong and diverse raw material base for manufacturing natural and artificial fibres. India also has capacity-based advantage in textile and spinning. However, the high power and interest costs impair the advantage to a great extent.
Most domestic companies lack global scale but are cost-competitive due to the ready availability of raw material and low-cost manpower.
Major expansions are now underway or planned by almost every large Indian manufacturer
India has become a sourcing base for many international labels such as GAP, Wal-Mart, Tommy Hilfiger, Benetton, G Star, Levi's and Marks & Spencer

Policy

Recently, the Government have taken significant measures for the textiles sector. Fiscal duty structure has been rationalized by doing away with the multiplicity of taxes, reduction in excise and customs duty, and by providing relief from maintaining excessive records under the Excise regime.
The Government of India have de-reserved the garments, hosiery and knitwear sectors from the Small Scale Industries sector to enable the industry to realize economies of scale.
For adequate infrastructure facilities two existing schemes have since been subsumed into a new scheme namely Scheme for Integrated Textile Parks™ as a pragmatic approach on implementation. The scheme is designed on the Public Private Partnership model and is intended to provide the textile industry with sound infrastructure that meets the scrutiny of environmental and social norms.
Since the inception of the Scheme, 26 integrated parks have been sanctioned with a total project cost of Rs. 2430 crores involving investments of more than Rs. 13445 crores and additional employment generation of more than 5 lakh persons.
To facilitate technology upgradation and new investments in this industry, the Government has strengthened and augmented the Technology Upgradation Scheme (TUFS). The continuation of TUFS, integrated textile parks and decline in customs duty on capital inputs are aimed at improving competitiveness of Indian textile industry.
Integrated cluster development schemes have been introduced in handloom and handicraft sectors under which the artisans and weavers are receiving assistance through various technological, social, infrastructure-related and market-related interventions.
A number of schemes for the welfare of the artisans like Artisan Credit Card™ for handicraft artisans and Swarozgar Credit Card™ for weavers have been introduced.
To address the health concerns of the poor weavers, "Health Insurance Scheme" and "Mahatma Gandhi Bima Yojana" for handloom weavers have been launched recently. The "Handloom Mark" has been launched to create a brand image for handloom products.
SEZs being set-up will build on these advantages by

Absence of domestic taxes or import duties
100% FDI is allowed through the automatic route
5 year income tax holiday followed by income taxes at 50% of the normal rate for as long as 10 years

Outlook

High growth is expected in the domestic market as well as exports
The industry is expected to more than double to $83 billion in the next five years
The National Textiles Policy, 2000 endeavours to achieve the target of textiles and apparel exports of US $ 50 billion by 2010, of which the share of garments will be US $ 25 billion.
The domestic market growth is driven by a larger consuming class and increasing per capita consumption (currently only 3 kgs. of fibre per capita: 1/3rd of world average)
India targets to become the second largest exporter of apparel among LCCs by 2010, next only to China.
The removal of international quota restrictions will now allow India to convert its cost advantages into a larger share of the global market.
Opportunity to also exploit India's large and growing consumer market with increasing spending power.
Reduced transaction costs
Better infrastructure
Total investment opportunity of over $30 billion for capacity expansion and modernisation
Carrera Jeans has announced setting up a greenfield Jeans manufacturing plant in India with an investment of over $110 million

References:
www.investmentcommission.in/
http://icra.in/recentrel/Textiles-200609.pdf
http://texmin.nic.in/annualrep/AR06-07-05.pdf