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The Indian textile industry is one the largest and oldest sectors in the country and among the most important in the economy in terms of output, investment and employment. The sector employs nearly 35 million people and after agriculture, is the second-highest employer in the country. Its importance is underlined by the fact that it accounts for around 4% of Gross Domestic Product, 14% of industrial production, 9% of excise collections, 18% of employment in the industrial sector, and 16% of the country’s total exports earnings. With direct linkages to the rural economy and the agriculture sector, it has been estimated that one of every six households in the country depends on this sector, either directly or indirectly, for its livelihood.

A strong raw material production base, a vast pool of skilled and unskilled personnel, cheap labour, good export potential and low import content are some of the salient features of the Indian textile industry. This is a traditional, robust, well-established industry, enjoying considerable demand in the domestic as well as global markets.

India vis-à-vis 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’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 of 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.

The Textile and Apparel supply chain

The fibre and yarn-specific configuration of the textile industry includes almost all types of textile fibres, encompassing natural fibres such as cotton, jute, silk and wool; synthetic / man-made fibres such as polyester, viscose, nylon, acrylic and polypropylene (PP) as well as multiple blends of such fibres 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 fibre and filament yarn manufacturing units of cellulosic and non-cellulosic origin. The cellulosic fibre/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 Fertilisers.

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 fibre/yarn and fifth-largest producer of synthetic fibres/yarn.

The industry structure is fully vertically integrated across the value chain, extending from fibre 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 unorganised sector forms the bulk of the industry, comprising handlooms, powerlooms, hosiery and knitting, and also readymade garments, khadi and carpet manufacturing units. The organised 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 fibre textile mills in the organised 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 unorganised 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 organised segment has also been growing rapidly.

The competitiveness of composite mills has declined in comparison to the powerlooms in the decentralised segment. Policy restrictions relating to labour laws and the fiscal advantages enjoyed by the handloom and powerloom 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 powerloom sector. Being the largest manufacturer of fabric in the country, the powerloom sector produces a wide variety of cloth, both grey as well as processed. According to the Ministry of Textiles, there are 1.923 mn powerlooms 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 handspun 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, unorganised production systems, low The Man-made textile industry comprises fibre and filament yarn manufacturing units of cellulosic and non-cellulosic origin. The cellulosic fibre/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 Fertilisers. XV productivity, weak marketing links, overall stagnation in demand and competition from the powerloom 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.

Trends in Production

Yarn and fabric production has been growing annually at 1.9% and 2.7% respectively, since 2000. Yarn production has increased from 3,940 mn kg in 1999- 00 to 4,326 mn kg in 2004-05. Man-made yarn has driven much of this, showing a robust growth of 4.3% in the last five years. Spun yarn production and the cotton yarn sector have also grown, albeit less impressively, recording growths of 2.4% and 0.6% respectively.


Source: Ministry of Textiles, GoI

Fabric production has been growing at 2.7% annually between 2000 and 2005, driven primarily by the smallscale, independent powerloom sector. Growth in the 100% non-cotton segment touched 5%, followed by cotton fabric at 1.5% and blended fabric at 0.3%. Fabric production touched a peak 45,378 million sq mtrs in 2004-05, and in Nov 06, production recorded a robust 9% growth compared to the corresponding period in the previous year.


Source: Ministry of Textiles, GoI

Trade Scenario

According to the provisional DGCI&S data, textile exports during fiscal 2005- 06 stood at around US$17 billion, recording a 22% growth year-on-year. Except for man-made textiles, all segments in the textile industry, including handicraft carpets, wool and silk, have recorded a growth in exports during 2005-06 -- the first year since the phasing out of the quota system in the global market.

Readymade garments (RMG) is the largest export segment, accounting for a considerable 45% of total textile exports. This segment has benefited significantly with the termination of the Multi-Fibre Arrangement (MFA) in Jan 05. In 2005-06, total RMG exports grew by 29%, touching US$ 7.75 bn. In 2003-04 and 2004-05, the growth in RMG exports was 8.5% and 4.1% respectively. The jump in 2005-06 exports has been largely due to the elimination of quotas.

Exports of cotton textiles -- which include yarn, fabric and made-ups -- constitute over 2/3rd of total textiles exports (excluding readymade garments). Overall, this segment accounts for 26% of total textile exports. According to the Ministry of Textiles, in 2005-06, total cotton textile exports Source: Ministry of Textiles, GoI Source: Ministry of Textiles, GoI XVI were worth US$ 4.5 bn, implying a growth of 27% over the exports in 2004-05, which were worth US$ 3.5 bn.

Man-made textiles exports have witnessed a decline of 2.5% in 2005-06. Between 1999-2000 and 2002-03, man-made textiles exports were growing at around 30% per annum. The slowdown began since 2003-04 and have been on the decline since.

Major export destinations for India’s textile and apparel products are the US and EU, which together accounted for over 75% of demand. Exports to the US have further increased since 2005, post the termination of the MFA. Analysis of trade figures by the US Census Bureau shows that post-MFA, imports from India into the US have been nearly 27% higher than in the corresponding period in 2004-05.

Segment-wise Exports, 2002-2006 (US$ bn)

Category
2002-03
2003-04
2004-05
2005-06
Cotton Textiles
3.62
3.68
3.54
4.49
Manmade Textiles
1.53
1.86
2.05
2.00
Silk
0.49
0.56
0.59
0.69
Wool
0.29
0.35
0.42
0.47
Ready Made Garments
5.75
5.92
6.02
7.75
Handicrafts
1.42
1.11
1.01
1.24
Jute
0.20
0.25
0.28
0.29
Coir & Coir Manufactures
0.08
0.08
0.11
0.13
Total
13.37
13.80
14.03
17.08

Investments

Investments in the textiles sector can be assessed on the basis of three factors:

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.


Source: Ministry of Textiles


Government Initiatives

The Government’s role in the textile industry has become more reformist 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-decentralised 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 powerlooms, 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:

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.