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Overview of the Textile Industry

The Indian textile industry is one of the largest and key sectors of the Indian economy. It plays a very important role in the economic development of India in terms of industrial output, employment and export earnings. It has witnessed phenomenal growth in recent years and attracted fair amount of foreign direct investment (FDI). It is the largest foreign exchange earner, contributing to approximately 16.63% of India’s exports, 4% to GDP and 14% of industrial output. India’s solid performance and growth in textile sector is fuelled by several key advantages that the country enjoys in terms of abundant availability of raw material and cheap labour, large domestic market, presence of supportive industries and supportive policy initiatives by the government. India is the third largest cotton producer in the world which contributes to 14% of the global production. The country is the seventh largest producer of wool and second largest producer of silk.

The textile industry in India is highly fragmented. It is vertically integrated across the whole value chain and interconnected with various operations. The organised sector consists of spinning mills and composite mills. The unorganised sector consists of handlooms, power looms and handicrafts. The major sub segments of the textile industry are cotton, blended, silk, wool and manmade. The major products in which Indian textile industry deals is readymade garments, suiting and shirting, shirts and trousers, fabrics, bed linen and embroidery work.

Man-Made Fibre/Filament Yarn

The industry consists of fibre and filament yarn manufacturing units of cellulosic and noncellulosic origin. According to the Ministry of Textile, during April – August 2006 period, the production of man made fibre and filament showed growth of 16% and 9% as compared to the previous corresponding period.

Cotton

The sector consists of 1,614 spinning mills and 209 composite mills, with an installed capacity of 35.41 million spindles, 443,000 open end rotors and 72,000 looms in the organised sector. There are another 1,250 small scale spinning units with 3.86 million spindles and about 147, 000 rotors. The cotton sector provides employment to around 6 millions farmers and also to another 40-50 million people engaged in cotton cultivation, trade and its processing. The cotton and cotton related textiles products play a vital role in the export earnings of the country.

Wool and Woollen Textiles

The woollen textiles industry is a rural based, export oriented industry which provides livelihood to around 2.7 million people. Around 85% of the wool produced is carpet grade; and 10% of the wool produced is coarse grade; while the remaining 5% of the wool is apparel grade. The production of the wool is not sufficient, thus the industry has to depend on imported raw material. In India, there are 718 woollen textile units with the majority of them in the small scale sector.

Handlooms

During April - October 2006, the handloom industry’s production was 3,756 million sq. meters of cloth, which grew by 4% as compared to the corresponding period of FY06. The government has taken various steps to promote handloom products. Various exhibitions and marketing events are held, wherein weavers showcase their products to the public. In FY07, 273 new yarn depots (covering all handlooms clusters) were set up and new 100 clusters have been identified for development of the handloom sector.

Sericulture & Silk Textiles

Sericulture is a labour intensive and agro-based cottage industry which provides employment to around 6 million people in the rural as well as in the semi urban areas. India is known for producing the mulberry, eri, tasar and muga silk. In FY07, the exports of silk increased by 17% as compared to FY06. India majorly exports silk products to the US.

Readymade Garments

Ready made garments contribute around 51% exports of the total Indian textile exports. Readymade garment export has been growing at a CAGR of 11.5% during FY03-07.

Handicrafts

The sector is very important in terms of perseverance of the cultural heritage, traditional skills and talent for which the country is known. Handicraft provides huge employment opportunities and has the potential for exports and foreign exchange earnings. It employs 6.3 million artisans. The total exports of textile were Rs 161 billion till January 2007.

Source : Reserve Bank of India

Future Outlook

As per D&B Industry Research Service estimates, India’s domestic textile market is expected to grow at 10.4–10.6% CAGR until 2010, with the garments segment expected to grow at 10.5–12.6% p.a. and home textiles segment at 15.0–17.3% p.a. during the same period. The retail boom has provided the Indian consumer choices amongst a variety of clothing brands. In future, many textile manufacturers may find domestic sales more attractive to exports due to growing textile demand from domestic apparel manufacturers. Also the appreciating rupee has taken its toll on the exports of textile and apparel products from India. The appreciating rupee has adversely affected the margins of the small and medium-sized firms, which have lost sizeable orders due to inability to service them at competitive prices.

Cluster Insights

The following Cluster Insights are aimed at grasping the pulse of the small and medium enterprises operating in their respective industry. The attempt is to chart their operational structure, business practices, future plans, etc., for which, we have considered the companies profiled in this publication

Key characteristics of the cluster

• The average revenue growth of the textile companies in the last two years was around 27%.
• The companies operated at an average capacity utilisation of 82%.
• Around 42% of the companies were relatively older and started operations prior to 1990s while 16% were established post- 2000.
• Garmenting is the most preferred service in the textiles in the NCR region.
• 26% of the companies operated with two or more manufacturing facilities.
• Around 26% of the companies manufacture and market branded products.
• 66% of the companies are involved in exports.
• Around 56% of the companies generated more than 50% of their revenue from exports.
• Europe is the most preferred destination for export of textile goods, followed by America.

Ownership Pattern

The ownership pattern of textile companies is more inclined towards proprietary firms.

• Of the total proprietary concerns covered, 86% fall in the turnover bracket of Rs 10 - 100 mn.
• 29% of the private limited companies have been involved in manufacturing as well as trading activities.
• Private limited companies showed an average revenue growth of 32% in the last two years, while proprietary concerns and partnership firms showed 27% and 24% revenue growth in the last two years.

Sub-segment

Most of the companies in the cotton segment fall in the turnover bracket of Rs 10 – 100 mn followed by silk and manmade.

• 60% of the companies dealing in cotton earn more than 50% of their revenue from the international market.
• Companies dealing in silk segment operated at average capacity utilisation of 87%.
• The average revenue growth of the companies dealing in silk is 30% and for cotton is 26%.

Turnover Bracket

Companies with a turnover range of Rs 10 - 100 mn were found to be operating at an average 85% of their installed capacity.

• Almost 48% of the companies covered in the turnover bracket of Rs 10 – 100 mn earn more than 50% of their revenue from overseas market.

• Europe is the most preferred destination for the companies covered in the turnover bracket of Rs 100 – 250 mn.
• Companies with a turnover range of Rs 10 – 100 mn showed a revenue growth of 30% in the last two years

Growth and Future plans

The companies covered in the study expect an average revenue growth of 41% in the next two years.

• 31% of the companies expect more than 40% revenue growth in the next two years.
• Most of the companies have envisaged future plans, that include entering into new markets, undergoing capacity expansion, diversifying and modernising. Around 32% of the companies are willing to enter into new markets, while 31% are planning for capacity expansion and rest are a mixed bag undertaking multiple plans like diversification and modernisation.

Cluster benefits and hindrances

Marketing initiatives, availability of the raw material, infrastructure, manpower training and funding from institutions were the key benefits derived by the companies. On the other hand, government subsidies and lack of technology were the major obstacles observed for the companies covered in the sector.