Ailing and unorganised until a few years back, the Indian textile industry today is one of the largest in the world.
Since the liberalisation of the economy, the sector has done exceedingly well. Take a look at the latest records:
Textile contributes about 14 per cent to industrial production, 4 per cent to the country’s gross domestic product (GDP) and 17 per cent to the country’s export earnings.
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With the increase in demand for Indian textiles from within and outside the country, the industry is witnessing a steady expansion. The current domestic textile market is expected to increase up to US$ 60 billion by 2012 from the current US$ 34.6 billion, while the overall market is expected to grow from the present US$ 70 billion to US$ 220 billion by 2020.
The growing international market demand promises a substantial increase in the exports. As per the Ministry of Textiles, there’s going to be a likely increase of 3 percent from the current share of 4 per cent within 2012.
| Textile Industry Strengths & Weaknesses |
| + Huge Domestic Market consumption + Tremendous Export Potential + The new age creative and risk taking entrepreneurs + Use of latest technology which produces high quality multi-fiber raw material + Supportive government policies – The increased global competition due to WTO policies – Use of outdated manufacturing technology from the low end suppliers – Inefficient supply chain management – The sector is still unorganized at many levels – Lack of appropriate government reforms for further improvisation |
Looking at the potential, the government has taken two key steps to direct more foreign funds toward the sector:
• It has allowed 100 per cent foreign direct investment (FDI) in textiles under the automatic route.
• It has sanctioned 40 textile parks with world class infrastructure facilities in nine states with a Government contribution of US$ 320 million under the Scheme for Integrated Textile Park (SITP).
Attracted by the tremendous export potential, low labour cost and supportive government policies, many western countries are now setting up their manufacturing units in India, opening up a wide array of possibilities for
all the stakeholders within the textile industry.
This trend has shifted the focus from Chinese textile, which was so far in the driver’s seat. Experts believe that the golden era of Chinese textile and apparel exports is over, and global players are now looking to make India, Pakistan and other low cost destinations their production base. However, the capability of the Chinese to supply quality products and cheap rates cannot be completely overlooked.
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| Fine Figures |
| • The total cloth production increased by 2.9 per cent during December 2010 as compared to last year • The total textile exports during April-September 2010 increased by 11.47 per cent • The industry attracted FDI worth US$ 934.04 million between April 2000 and January 2011 |
Looking Ahead
With most European companies wanting to set up facilities close to emerging markets, India now has substantial opportunity to export both technical textiles and hometextiles.
The Synthetic and Rayon Textile Export Promotion Council (SRTEPC) has set a target to more than double the export of man-made textile from the country. Currently, the global man-made fibre (MMF) trade accounts for 60 per cent of the total trade in textiles. SRTEPC plans to increase exports to US$ 6.2 billion by capturing a four per cent market share by 2011-12, as per a source from SRTEPC.
With an increased focus on catering to the domestic market, the denim industry in India expects production capacity to rise by 100 million metres by 2011. According to the Textile Association of India (TAI), the denim manufacturing capacity, which stands at 600-650 million metres per annum, is set to add another 100 million metres wherein 70 per cent focus will be on the domestic market.
Also considering the heavy capital investments in the textile industry, the government may extend the Technology Upgradation Fund Scheme (TUFS) by the end of the 11th Five Year Plan (till 2011-2012), in order to support the industry.
| Crisil Comments |
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CRISIL’s analysis of more than 500 SMEs in the textile industry covering spinning, fabric and garment production (excluding ginning) reveals superior business and financial risk profiles of enterprises from Tamil Nadu (TN) over their counterparts from other regions. Strong supply chain, specialisation, particularly in the knitwear segment, and access to skilled labour have resulted in SMEs from Tirupur (TN) and adjoining regions in TN enjoying better credit risk profiles over their counterparts from other states. The average size of the SME in terms of turnover in the sample was `198 million and the average sales per employee was Rs 0.74 million during 2009-10. Rated SMEs from TN had better operating profit margins (8.27 per cent) compared with their peers from Gujarat (4.94 per cent), Maharashtra (6.85 per cent), and Punjab (7.71 per cent) during 2009-10 (refers to financial year, April 1 to March 31). Similarly, the TN enterprises in the CRISIL sample had lower gearing (1.36 times) than their peers in other key regions — Gujarat (1.67 times), Punjab (2.07 times), and Maharashtra (3.13 times). On the other hand, TN-based enterprises registered lower growth in turnover (13 per cent) compared with 20.6 per cent for the overall sample during 2009-10. This was on account of their high dependence on exports to Europe and North America, which witnessed economic slowdown. The analysis reveals that larger enterprises (turnover more than Rs50 million) grew by a compounded annual growth rate of 31 per cent during 2007-08 and 2009-10 vis-à-vis 5 per cent of smaller enterprises. Similarly, investments in fixed assets by the larger SMEs grew by 28 per cent as against 12.5 per cent by smaller enterprises during the same period. Corporate entities that accounted for 53 per cent of the sample showed a higher operating profit margin, interest coverage, and lower gearing compared with partnerships and proprietorship firms in 2009-10. However, there is marginal difference in the turnover between corporate and non-corporates. |
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