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The Indian textile industry is one the most important industries for the Indian economy. Its importance is underlined by the fact that it accounts for around 4% of GDP, 14% of the industrial production and 17% of the country’s total export earnings. Besides, the sector employs nearly 35 mn employees; the textile industry is the second-largest employment generating industry in both rural and urban areas, after the agriculture industry.

The vast pool of skilled and unskilled workers, availability of labour at low costs, strong base for production of raw materials characterise the textile industry in India. The increase in domestic demand and ability of the units in the industry to process small or customised orders are some of the advantages for the textile industry in India. The textile sector is highly diverse and has hand-spun and hand woven segments at one end of the spectrum, and capital-intensive, sophisticated and modern mills at the other.

Industry Structure

The textile industry is vertically-integrated across the value chain and extends from fibre to fabric to garments. At the same time, it is a highly-fragmented sector, and comprises small-scale, non-integrated spinning, weaving, processing and cloth manufacturing enterprises.

The textile sector has always been an important part of people’s lives in India. Much before industrialisation, hand weavers and handloom workers contributed to the growth of the industry. The government framed policies during 1950-1970 for the development of SSIs in the sector; as a result, the power loom and handloom sectors, mainly small and medium scale enterprises, were decentralised.

Textile sector remains highly-fragmented

The textile segment is highly fragmented and many large textile companies are also conglomerates of medium-sized mills. According to the statistics released by the Ministry of Textiles, the entire textile industry is highly fragmented except the spinning sub-segment. The organised sector contributes more than 95% of spinning, but hardly 5% of weaving fabric. SSIs perform the bulk of weaving and processing operations. 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. These organised units are mostly independent and small scale in nature unlike the composite units that undertake all activities together.

The textile industry of India operates largely in the form of clusters - mostly natural clusters - with roughly 70 textile clusters producing 80% of the country’s total textiles. Based on a UNIDO study conducted on SME clusters in India, some of the key textile clusters in India are:

• Panipat, accounts for 75% of the total blankets produced in the country
• Tirupur, responsible for 80% of the country’s hosiery exports
• Ludhiana, accounts for 95% of India’s woolen knitwear produced.

As on January 2009, there were 1,828 mills in the organised sector in India. Of these, 177 mills were composite mills and 1,651 mills were spinning mills. The cloth production in the organised mills sector has increased from 1,496 mn sq mtrs in 2002-03 to a projected 1,796 mn sq mtrs in 2008-09 (P). Despite the increase in the production, the organised sector contributes merely 3% to the total fabric production of the country. The remaining 97% of the fabric is produced in the unorganised sector.

The competitiveness of composite mills has declined in comparison to powerlooms in the decentralised segment. Policy restrictions relating to labour laws and the fiscal advantages enjoyed by unorganised sectors are two of the major constraints that are responsible for the decline. The number of composite mills in India decreased from 285 in 1999-00 to 177 in January 2009.

The powerloom segment is the largest manufacturer of fabric in the unorganised sector. The segment produces a wide variety of grey and processed cloth. According to the Ministry of Textiles, as on December 31, 2008, India had nearly 2.2 mn powerlooms that were distributed across 482,000 units.

Indian advantage in raw material

The Indian economy has primarily been an agriculture-driven economy. The vast stretches of land, resources and climatic conditions aid the production of varied raw materials for different industrial purposes. Historically, India has been known for its high-quality cotton, jute and other natural fibre. Over the years, however, the domestic industry has progressed and diversified into many types of fibre and yarn, both natural and man-made. The textile industry in India includes almost all types of textile fibres – natural fibres such as cotton, jute, silk and wool; synthetic / man-made fibres such as polyester, viscose, nylon, acrylic and polypropylene (PP) and multiple blends of such fibres and filament yarns such as partiallyoriented yarn (POY). The type of yarn used is dictated by the end product that is 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 noncellulosic industry is under the administrative control of the Ministry of Chemicals and Fertilisers.

As seen, the abundant availability of raw material is one of the important advantages of the Indian textile industry. 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 cotton and silk and among the largest producers of wool across the world.

Trends in production of yarn and fabric

During FY05-FY09 the growth in the yarn production averaged by more than 5.7%. In the same period, the highest growth was noticed in the man-made filament yarn segment. In 2008-09(P), the production of yarn was 5,330 mn kg.

The effect of slowdown has also affected yarn production, though, to a lower extent. During FY09, production of yarn slipped by 3% over the previous year. The highest fall in production was recorded in the man-made filament yarn segment, as its production fell by 6.2% and stood at 1.4 bn kg. Likewise, cotton yarn production also decreased. As the manufacturing activity in the textile segment has shifted focus to more developing markets, apart from the US, the sector will benefit once the fall in production stabilises and the economic scenario improves.

Cotton yarn remains major component of yarn production

Since 1999-00, cotton yarn has been contributing more than 53% to the total yarn produced in the country, while man-made yarns has been contributing around 25%.

During FY09, the production of cotton yarn slipped by 1.7% over the previous year to 2,898 mn kg. However, the man-made filament yarn production dropped by 6% during the same period at 1,416 mn kg.

Powerloom accounts for maximum cloth production

During FY09 the total cloth production, excluding production of khadi, wool and silk, was 54,198 mn sq mtrs. The production of both organised and unorganised sector dropped by about 2% over the previous year. The high fragmentation in the textile industry is clearly visible from the production in the decentralised segment of the sector. The handloom, power loom and hosiery segments of the decentralised segment had more than 96% share in the total cloth production.

The powerloom segment accounts for majority of the cloth produced among all segments. The production in the textile mill segment has been consistent and in FY09, the production was 1,796 mn sq mtr.

The powerloom sector accounts for more than 62% of the total cloth production in India. Apart from that, it employs 5.4 mn people and accounts for 60% of the cloth that is exported.

The handloom sector is the second-highest employer in the country after agriculture. During 2008-09 (P), the sector accounted for 12% of the total cloth produced in the country. The production of handloom fabrics increased from 5,722 mn sq mtr in 2004-05 to 6,677 mn sq mtr in 2008-09, representing an average annual growth of around 4%.

During 2008-09 (P), the decentralised hosiery units accounted for around 22% of cloth production in India. The hosiery industry grew by more than 53% from 7,881 mn sq mtr in FY03 to 12,077 mn sq mtr in 2008-09 (P).

Increase in demand of non-cotton fabrics

Cotton textiles continue to be the predominant base of the Indian textile industry, though other types of fabric have emerged in recent years. In 1995-96, the share of cotton fabric and non-cotton fabric was 60% and 27% in the total textile production, respectively. More recently, cotton fabrics accounted for 48% of the total fabric produced in 2008-09 (up to January 2009), while non-cotton fibres held a share of over 38%. The decrease in production of cotton fabric over a period of time represents a shift in consumer preferences towards non-cotton fabrics such as silk, wool, khadi, etc.

The production of fabrics peaked 55,268 mn sq mtr in 2007-08; however, during 2008-09 (P), the production of fabrics registered a yearly decline due to the decrease in demand for Indian textiles in both domestic and international markets. During April-January 2009, the production of cotton fabrics, which constitute around 48% of the total fabric produced, registered a yearly decline of over 17%, whereas the production of 100% non-cotton fabrics, which constitute over 38% to the total fabric production, declined by 15%.

Trade scenario

According to the Ministry of Textiles, India’s textile exports during FY09 was USD 20.9 bn (Rs 963.1 bn) and registered a negative growth of 5%, in dollar terms, over the previous year. According to the provisional figures for FY09, exports of textiles constituted about 11.5% of the country’s total exports; however, during the same period, the exports of textiles in USD terms registered a yearly decline of over 5%. In rupee terms textile exports registered a growth of 8% evidently due to the depreciation of the rupee against major foreign currencies.

The textile exports from India include readymade garments (RMG), cotton textiles and man-made textiles. The RMG, excluding cotton, includes accessories, man-made fibre. In FY09 (P), RMG exports was worth Rs 471.1 bn, and accounted for more than 48% of India’s total textile exports. The cotton and man-made textile export constituted over 22.5% and 15.5% of India’s overall textile exports, respectively. The effect of economic slowdown was visible throughout major export segments in the sector. During FY09, exports of all textile products, except cotton textiles and handicrafts, registered a yearly growth. The exports of cotton textiles and handicrafts registered a yearly decline, in rupee terms, of 21.0% and 15.5%, respectively. The percentage contribution of handicrafts and cotton textiles in the overall textile exports also declined.

The main markets for India’s textile products are the US, the European Union and Japan. According to the Ministry of Textiles, the European Union (EU) accounts for nearly 36% of India’s total textile exports whereas the US accounts for around 21%. Overall, in dollar terms, the exports recorded a negative growth in FY09, but exports to the EU countries recorded positive growth.

Shift in export destinations

The global economic slowdown and reduced consumption in major markets like the US has made domestic companies look at other growth markets of the EU, and consequently the exports to this region has seen an increase. The total exports to EU countries during FY09 were worth USD 7.7 bn. Other countries where India’s textile products are exported include Canada, UAE, Saudi Arabia, Republic of Korea, Bangladesh and Turkey among others.

Readymade garments remain the highest export segment

Readymade garments segment (RMG), as per provisional figures, contributed about 49% to the total textile exports during FY09. The RMG segment constitutes cotton garments and accessories, man-made fibre products and garments made of other textile materials. The contribution of RMG has been increasing over the last 3 years, with an exception of last year.

Apart from the textile exports, India exports jute and jute products. In FY09, India exported Rs 13.7 bn (provisional) worth of jute and jute products, which grew by more than 4% over the previous year.

India imports textile products such as raw wool and silk, synthetic fibres, woolen yarn and fabrics, cotton yarn and fabrics, man-made filament spun yarn, readymade garments, silk yarn and fabrics, raw jute and raw cotton among others. According to the provisional figures from the Ministry of Textiles, India’s imports during FY09 was worth Rs 160.9 bn and grew yearly by over 20% over the previous year. Yarn and fabrics, inclusive of silk, woollen yarn and fabric, and made-ups accounted for more than 40% of India’s textile imports.

Total investment of Rs 466.1 bn during FY09

According to the Ministry of Textiles, the total investments in the textile sector during FY09 registered a yearly growth of around 50% at Rs 466.1 bn. However, this amount was considerably lower than the investments made during FY07. During FY07, the total investments in the textile sector were Rs 903.7 bn. In the absence of reliable data source, the investment flows into the textile sector can be assessed on the basis of the following:

• Trends in major plan schemes

To encourage investment in the textile sector, the government launched the Technology Upgradation Fund Scheme (TUFS) in 1999 and Scheme for Integrated Textile Park (SITP) in 2005. Planned schemes of the government, such as the TUFS, Technology Mission on Cotton (TMC) and SITP, among others, provide insights into the investments in the sector. Under TUFS, the government has facilitated projects of around Rs 1,668.4 bn in the textile industry since the inception of the scheme in 1999. As per the provisional figures till March 31, 2009, under TUFS, 25,248 applications worth Rs 645.3 bn were disbursed. During FY09, 5,780 applications were sanctioned. Further, in June 2009, the government released an additional subsidy of Rs 25.5 bn in the textile sector under the TUFS.

During April-February 2008-09, under 20% Capital Subsidy Scheme (CLCS-TUFS @20%) for powerloom units, 410 applications worth Rs 332.7 mn subsidies were sanctioned and Rs 316 mn disbursed in respect of 389 applications.

Under the SITP, the government is implementing 12 apparel park schemes (APS) and 18 textile centre infrastructure development projects (TCDIS). The estimated project cost of projects under APS is Rs 4.4 bn, out of which the government’s assistance will be Rs 1.8 bn; so far Rs 1.2 bn has been released. The estimated project cost under TCDIS is Rs 4.7 bn, of which the government’s assistance will be Rs 2.7 bn; so far Rs 1.8 bn has been released. Further the government sanctioned 40 integrated textile park projects during April-December 2008.

• Industrial Entrepreneurship Memorandum (IEM)

During April-December 2008, 240 IEM applications worth Rs 65.2 bn were made in the textile sector; however, the number of applications under IEM reduced considerably over the previous year.

• Foreign Direct Investments

According to the Ministry of Commerce and Industry, the total FDI inflows during April 2000 to July 2009 in the textile sector was Rs 30.8 bn, which constituted merely 0.75% of the total FDI inflows into the country during the period. During FY09, the FDI inflows in the textile sector was Rs 7.8 bn, which constituted merely 0.6% of the total FDI inflows of Rs 1,229.2 bn during FY09.

Textile mills account for highest capital investment

Due to the economic boom in the last few years and rising consumption levels both in the domestic economy and globally, manufactures invested heavily and added capacities to meet the ever-increasing demand. According to the Ministry of Textiles, the capital investments made in the textile mills remains the highest over the past 3 years. During FY09, the capital investment in textile mills grew by more than 100% to Rs 164.3 bn. During the same period, investments in the garment segment registered an impressive growth at Rs 328.7 bn.

Over the last few years, the investments have increased in the textile industry due to robust demand, both in the domestic and global markets; however, in the backdrop of global slowdown, companies have stalled or foregone their expansion plans. Consequently the investments, particularly for capacity expansions, in coming years will slowdown. The fall in demand, which was restricted during last year, has started picking up, but full recovery will take time; therefore, the investment activity will remain curtailed till such time.

Government initiatives

The government has taken various initiatives to increase the investments in the sector and to develop the textile industry on an overall basis. The initiatives range from providing financial support to companies to promoting exports and investments. Some initiatives are mentioned below:

Technology Upgradation Fund Scheme (TUFS)

The government launched TUFS in 1999 for 5 years and extended it by 5 years till 2007. However, the scheme was further modified to support the entire textile value chain and extended till 2012:

• As on March 31, 2008, the government sanctioned Rs 725.2 bn and disbursed Rs 609.5 bn under the TUFS. Of the total amount sanctioned, around 25% was sanctioned during 2008-09, whereas of the total amount disbursed, around 27% was disbursed during 2008-09.
• In June 2009, the government released an additional subsidy of Rs 25.5 bn in the textile sector under the TUFS.

Scheme for Integrated Textile Parks (SITP)

• Under the SITP, the government has approved the establishment of 40 textile park projects in India, which would be spread across 4,611 acres at a projected investment of Rs 217 bn.
• Construction of two textile parks projects, namely Gujarat Eco-Textile Park, Surat and Brandix Apparel City, Vishakhapatnam are to be completed during 2009.

Initiatives under National Textile Policy (NTP) 2000

• The government has provided a credit-linked capital subsidy at 10% under the TUFS in addition to the existing 5% interest reimbursement.
• The rate of depreciation for investment in high-tech processing machines has been increased from 25% to 50%.
• The import duty on specified hi-tech processing machines has been brought down to 5%.
• Import of hi-tech processing machines has been permitted under zero duty Export Promotion Capital Goods Scheme.

Technology Mission on Cotton (TMC)

• Under the Mini Mission III, the development of 250 market yards has been sanctioned, and out of these 250 yeards, 161 were completed by March 31, 2008. The total cost of the project is Rs 4.9 bn and the TMC shared Rs 2.5 bn of this cost.
• Under the Mini Mission IV, modernisation of 993 ginning and pressing factories have been sanctioned, of which, 829 were completed up to March 31, 2008. The total cost of the sanctioned projects is Rs 14.5 bn and the share of TMC in the total cost is Rs 2.3 bn.
• The total funds allocated to TMC (Mini Mission III & IV) during 2008-09 were Rs 500 mn.

Other Government Initiatives

• a scheme was reintroduced for reimbursement of one-time rebate of 10% given on sale of handloom products by the handloom agencies during 2006-07, 2007-08 and 2008-09.
• Under the Focus Market Scheme (FMS), exports of all textile products to 83 foreign markets covered under the scheme are eligible for duty credit scrip at 2.5% of FOB value of exports.
• Under the Focus Product Scheme (FPS), silk yarn was given an incentive of 1.25% of exports; hand-made carpets and other textiles floor coverings are included under the scheme with incentive of 5% on exports since February 2009.
• Under the Market Linked Focus Product Scheme, exports of garments to Australia, Japan and Brazil are given incentive of 2.5% w.e.f. January 1, 2009. In addition, garments exported to EU-27 and USA are eligible for incentive of 2% of exports on FOB value from April 2009 to September 2009.
• During 2009, the customs duty payable under the Export Promotion Capital Goods (EPCG) scheme was reduced from 5% to 3%.
• The income tax benefits provided to 100% export oriented units under Section 10B of Income Tax Act was extended for one more year beyond March 31, 2009.
• Refund allowed on service tax on foreign agent commissions up to 10% of FOB value of exports as well as on service tax on output service while availing benefits under the Duty Drawback Scheme.
• Guarantee cover under credit guarantee scheme doubled to Rs 10 mn with a cover of 50%.
• The government has enhanced back-up guarantee to ECGC to cover exports to difficult markets or products.
• The scheme for interest subvention of 2% subject to a minimum of 7% per annum interest on pre and post-shipment export credit was extended till September 20, 2009.
• The Duty Entitlement Pass Book Scheme (DEPB) was extended till December 31, 2009.

Proposals for the textile sector in the Budget for FY09-10

• Plan allocation for the Ministry of Textiles is Rs 4.5 bn, of which Central provision provided for TUFS is Rs 3.1 bn, for SITP is Rs 3,970 mn, for handloom schemes is Rs 3,400 mn and for handicrafts scheme is Rs 2,200 mn.
• Setting up of two handloom mega clusters, one powerloom mega cluster and two mega clusters for carpets.
• Adjustment Assistance Scheme to provide enhanced ECGC cover at 95% to be extended up to Mar 2010.
• Allocation for Market Development Assistance Scheme enhanced to Rs 1,240 mn.
• Interest subvention of 2% on pre-shipment credit extended beyond deadline of Sep 30, 2009 to Mar 31, 2010.
• Sun-set clauses for deduction in respect of export profits under sections 10A and 10B of IT Act extended by one more year.
• Custom duty on cotton waste and wool waste to be reduced from 15% to 10%.
• Excise Duty on man made and natural fibres other than pure cotton beyond the fibre and yarn stage to be increased from 4% to 8% under the existing optional scheme.
• Excise Duty on man made fibre and yarn to be increased from 4% to 8%.

Focus on developing markets key for growth

From the second half of 2008, the textile sector has been adversely affected by the cut in exports as a result of the financial crisis in the economies across the globe. Despite several government initiatives to boost the performance of the sector, exports registered a yearly decline of over 5% in dollar terms during FY09 primarily due to the appreciation of the rupee against the US dollar and decrease in demand for imported textile products in foreign markets.

During 2008-09, exports to the US and other major markets declined; however, the demand for Indian textiles shifted from these markets to the markets in the EU and UAE. The exports of textiles in UAE, which had a share of over 7% of the total textiles exported, registered a yearly growth of around 20% whereas the exports to EU, which had a major share of over 34% of the total textile exports registered a growth of over 5%. This indicates the growing demand for Indian textile products in the EU and UAE.

Though the western markets are recovering from the crisis, their recovery is slow; therefore, companies should move towards the Asian markets and adopt the “look east policy”. The South East Asian and Japanese markets are largely untapped and provide enormous opportunities for the industry to grow. According to the Ministry of Textiles, Japan is one of the biggest consumers of textiles and clothing, but India has 1.1% share only in the Japanese import market. Thus there is tremendous growth potential for the industry in these markets.

Besides, the Indian textile industry must also focus on production of technical textiles and on the domestic demand for textile products.

According to the Ministry of Textiles, the global market size of the technical textile industry was USD 107 bn in 2005 and is expected to be USD 127 bn by 2010. India primarily imports technical textiles unlike the other textile products that are mainly export-oriented. India annually imports technical textiles worth Rs 40 bn from countries such as China, Malaysia, Hong Kong, Thailand, Germany and Italy.

The demand for quality Indian textile products is also increasing in the domestic market. According to the Ministry of Textiles, during 2008-09 (P), the textile industry was valued at over USD 52 bn and 64% of its production serviced the domestic demand. The domestic ready-made garments market, which was valued at USD 14 bn in 2004-05, is expected to grow by more than 70% to USD 24 bn during 2009-10. The factors that will aid this growth are: rise in working population, which is young and earning high incomes, the increase of population in urban areas, rise in the number of working women, more disposable income with customers, growth in consumer expenditure for purchasing luxury items and branded products, etc. Thus the growth prospects are good for the domestic industry.