Emerging Markets Insight - India Textiles Sector Report Overview

8/10/2019 Emerging Markets Insight - India Textiles Sector Report Overview

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Textile Sector

India

February 2013

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I. Sector Overview

India’s fiscal year runs from Apr 1 to March 31. Thus, FY 2012 (also called fiscal 2012) means Apr 1, 2011 – Mar 31, 2012. In Indian documents, FY (fiscal) 2012 is also labeled FY11-12.

Indian fiscal year 2013 ends in March 2013 and the remaining nine months of calendar 2013 belong to fiscal year 2014.

In order to better align with calendar years and make international comparisons more meaningful, Emerging Markets Insight has chosen to label data by the year in which most of the resultoccurred. Unless otherwise stated, in charts throughout this report, 2011, for example, means the 12 months between Apr 1, 2011 - Mar 31, 2012, or what in India is referred to as fiscal 2012.







Sector Highlights

India is the second largest producer of textile and garments in the world after China (2010), being also the second largest cotton

producer and the leader in jute production. In terms of exports, it is among the top 5 global players, constantly expanding its share in

world trade. With a traditionally positive trade balance, the textile sector accounts for about 12% of the country’s total ex ports and

contributes around 4% to the Indian GDP and 14% to the industrial production.

Overview

Prospects

Risks

Segmentation

India is one of the few countries in the world that has expanded at all levels of the textile value-chain, from natural and synthetic fibres

through yarn and fabrics right up to finished goods, thus having a quite diversified and competitive position on the global market.

On the other hand, the favourable demography in terms of increasing share of working women, urban population and young people,

along with rising income levels, are expected to act as a key growth factor for the Indian textile and apparel industry domestically.

Despite the stable dynamics of the sector over the last decade, its future development is not without problems. The southern regionsare faced with unstable power supply, which increases the production costs. The high domestic lending rates make financing moredifficult. Another risk for the sector arises from being a labour intensive business and therefore dependent on appropriate work force.The exposure to foreign currency and price volatility is also substantial. The dynamics in cotton prices in 2011, for example, affected

negatively many of the cotton mills and producers.

Market structure represents another weakness of the textile sector, being hugely unorganized and decentralized, with organizedplayers representing only 5% of the total. Small enterprises, which are the prevailing share of local entities, are not so resistant toexternal economic dynamics and many of the operating entities were forced by the slow-down in main export markets, such as theU.S. and the EU towards consolidation and losses. Moreover, the small scale of the companies restricts their investment abilities andmost of the manufacturing technology is outdated.







Source:

Main Sector Indicators

Textile sector main indicators

CEIC, UN COMTRADE; *Trade and FDI data for calendar years; Trade data based on HS, incl. HS50-HS63.

2007 2008 2009 2010 2011

Raw cotton production, mn kg 5,219 4,930 5,185 5,763 6,001

Raw silk production, mn kg 18.3 18.4 19.7 20.4 23.1

Raw wool production, mn kg 44.0 42.9 46.2 43.3 43.3

Manmade fibre production, mn kg 1,244

1,066

1,268

1,285

1,234

Yarn production, mn kg 4,003 3,912 4,193 4,713 4,373

Fabrics production, mn sq m 56,025 54,966 60,333 62,559 61,364

Textile consumption, mn kg 6,318 6,140 6,466 6,939 n/a

Cloth consumption, mn sq m 802 1,144 1,653 1,754 n/a

FDI, INR mn 4,151 8,696 9,688 3,819 6,929

Sector export, USD bn 21.0 22.7 21.9 27.1 33.4

Sector export, % total 14.4 12.5 12.4 12.3 11.1

Sector import, USD bn 3.0 3.6 3.2 3.9 4.9

Sector import, % total 1.4 1.1 1.2 1.1 1.1

GDP current prices, INR tn 49.9 56.3 64.6 76.7 88.6







Source:

Production

Industrial Production Index, annual dynamics (2004=100)

CEIC, Ministry of Textiles

IPI, monthly dynamics

Comments

117125 120

127136 134

137 150

135 137 142130127

150154

161

176181

123

142

145153

166 170

2006 2007 2008 2009 2010 2011Textiles Apparel Manufacturing Total index

139 141 136

139135 141 143 148 147 143 142 133 144

193 189 187 199173 179 178 177 176 175 182 177

191180 178 175 188

164 170 168 167 165 163 172 166179

173 161 154

68129 132 122 116 126 143 126 115

159

Dec 2011 Jan 2012 Feb 2012 Mar 2012 Apr 2012 May 2012 Jun 2012 Jul 2012 Aug 2012 Sep 2012 Oct 2012 Nov 2012 Dec 2012

Textiles Manufacturing Total index Apparel

Although total industrial growth and manufacturing kept increasing in 2011, the year was not favourable for the textile sector. Textile index declined from

136 to 134, while apparel index slumped from 142 in 2010 to 130 in 2011. In FY 2013, apparel production witnessed several ups and downs and reached

159 in December, jumping from 129 in April 2012. On the other hand, textile production dynamics have been more moderate, the index started from 138

in March 2012, and after picking up in the summer months, stood at 143.8 in December 2012. According to the Ministry of Textiles, in April-November

2012, most of the sub-sectors have shown positive growth, ranging from 3% - 17%, except for production of filament yarn, blended and non-cotton yarn

and cloth production in Handloom sector, for which production remained unchanged on annual basis.







Comments

Source:

Production and Investment

Despite its recent development, the Indian textile industry remains a low value-added, labour-intensive production. Future development is

dependent on investment in machinery modernisation and human resources development.

Textile sector output and value added (INR bn) Textile sector capital (INR bn)

CEIC

1,717.0

1,976.1

2,719.7

198.2 263.1379.5

2008 2009 2010

Total Output Net Value Added

8 6 1

. 0

9 7 4

. 7

1 , 0

8 5

. 7

1 , 0

5 8

. 2

1 , 2

4 9

. 0

1 , 3

4 3

. 8

1 , 1

4 8

. 9

1 , 3

4 2

. 4

1 , 6

5 9

. 1

2008 2009 2010

Fixed Capi tal Produc tive Capital Invested Capital




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Source:

Textile Machinery

Capacity, Production and Utilization (INR bn)

Comments

Segment-wise production of textile machinery (INR bn)

Ministry of Textiles Note on Textile Machinery Industry; WG on Textile and Jute Industry Report

CategoryInstalled

capacity2006 2007 2008 2009 2010

Ginning and

processing1.7 1.1 1.2 0.8 0.7 1.1

Spinning and allied

machines43.9 33.2 35.5 23.4 20.4 33.9

Synthetic fibre/yarn

machines8.9 5.8 6.3 4.1 8.3 9.0

Weaving and allied

machines7.0 5.8 6.2 4.1 5.0 6.0

Processing

machines8.9 5.9 6.4 4.2 4.6 7.0

Hosiery machines 0.7 0.5 0.5 0.3 0.4 0.5

Textile machine

parts2.2 2.4 1.2 0.8 0.3 0.5

Textile testingequipment 3.2 1.1 2.5 1.7 1.7 2.0

Multiple segments 1.4 0.5 0.5 0.3 0.3 0.4

Others 2.6 1.3 1.3 0.9 0.9 1.1

Total 80.5 57.5 61.6 40.6 42.5 61.5

% Increase/

Decrease- 31.0% 7.0% -34.0% 4.0% 45.0%

Year Installed capacity Production Capacity Utilization

2005 70.0 44.0 63.0%

2006 80.5 57.5 71.0%

2007 80.5 61.6 76.0%

2008 80.5 40.6 50.0%

2009 80.5 42.5 53.0%

2010 90.0 61.5 68.0%

Domestic textile machinery industry covers on average less than

50% of the domestic demand.

During the 11th Five year plan, the annual machine production

underperformed, compared with the set annual targets.

The textile machinery industry is expected to grow at a compound

rate of 17% during the 12th Five Year Plan.






Source:

Foreign Direct Investments

FDI in Textile (incl. Dyed, Printed), INR mn Sector-wise distribution of equity FDI (2000-Nov2012)

CEIC; Ministry of Commerce and Industry of India, Department of Industry Policy and Promotion

3,462

5,268

4,151

8,696

9,688

3,819

6,929

8,575

2005 2006 2007 2008 2009 2010 2011 Sep'12

Other 50%

Services 19%Construction

12%

Telecommunications 7%

Computersoftware 6%

Pharmaceuticals 5%

Textile 1%






Source:

Wholesale and Consumer Prices

Wholesale Price Index (2004=100)

Consumer Price Index (2010=100)

CEIC

100

110

120

130

140

J a n - 1

1

F e b - 1

1

M a r - 1 1

A p r - 1 1

M a y - 1

1

J u n - 1

1

J u l - 1 1

A u g - 1

1

S e p - 1

1

O c t - 1 1

N o v - 1

1

D e c - 1

1

J a n - 1

2

F e b - 1

2

M a r - 1 2

A p r - 1 2

M a y - 1

2

J u n - 1

2

J u l - 1 2

A u g - 1

2

S e p - 1

2

O c t - 1 2

N o v - 1

2

D e c - 1

2

J a n - 1

3

Clothing, Bedding and Footwear Total index

100

120

140

160

180

J a n -

1 0

F e b -

1 0

M a r -

1 0

A p r -

1 0

M a y -

1 0

J u n -

1 0

J u l -

1 0

A u g -

1 0

S e p -

1 0

O c t -

1 0

N o v -

1 0

D e c -

1 0

J a n -

1 1

F e b -

1 1

M a r -

1 1

A p r -

1 1

M a y -

1 1

J u n -

1 1

J u l -

1 1

A u g -

1 1

S e p -

1 1

O c t -

1 1

N o v -

1 1

D e c -

1 1

J a n -

1 2

F e b -

1 2

M a r -

1 2

A p r -

1 2

M a y -

1 2

J u n -

1 2

J u l -

1 2

A u g -

1 2

S e p -

1 2

O c t -

1 2

N o v -

1 2

D e c -

1 2

J a n -

1 3

Total Textiles Cotton Manmade fibre Manmade fabric Woolen Jute Hemp and Mesta Others WPI






Source:

Comments

Exchange Rates

The Chinese yuan (CNY) appreciated against the USD by about 1.1% as at January 2013 in the current fiscal year (Apr12-Jan13), as

compared to the INR, which depreciated by 12.4%, thus boosting Indian export competitiveness in general and textile exports specifically.

In the same period, the Bangladeshi Taka depreciated by only 6.9% against the USD. Bangladesh is among the Asian countries with fast

growing share in world textile trade.

Exchange Rate dynamics, yoy change %

X-Rates, Bangladesh Bank

-25

-20

-15

-10

-5

0

5

10

J a n - 1

1

F e b - 1

1

M a r - 1 1

A p r - 1 1

M a y - 1

1

J u n - 1

1

J u l - 1 1

A u g - 1

1

S e p - 1

1

O c t - 1 1

N o v - 1

1

D e c - 1

1

J a n - 1

2

F e b - 1

2

M a r - 1 2

A p r - 1 2

M a y - 1

2

J u n - 1

2

J u l - 1 2

A u g - 1

2

S e p - 1

2

O c t - 1 2

N o v - 1

2

D e c - 1

2

J a n - 1

3

USD/CNY USD/INR USD/BDT






Comments

Source:

Textile Trade

In global comparison, India has a stable position among the top textile exporters, its share rising from 3.3% in 2005 to 4.4% in the calendar

2011. The growth, however, is substantially below the expansion of China. As world textile trade doubled in 2001-2011, China’s share rose

from 13.8% to 31.8%. Nevertheless, China’s export is expected to decelerate due to rising per capital income, huge domestic consumption

and stronger currency.

Among the EU-countries only Germany and Italy perform better than India, the latter losing share in the last years.

World textile export shares India and China in world textile export

UN COMTRADE, Emerging Markets Insight calculations

2.93 3.002.91

2.94 3.33 3.40 3.36 3.49 3.92 4.21 4.41

13.7515.28

17.1118.44

21.04

24.5826.62

27.6228.83

30.9331.77

100104

118

133

141

155

172180

154

178

209

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

India export share China export shareWorld export index, 2001=100

China USD240bn, 31.8%

EU 27 USD168bn, 22.2%

India USD33bn, 4.4%

USA USD29bn, 3.8%

Turkey USD25bn, 3.3%

Others USD261.2, 34.5%






Source:

Textile Trade (cont’d)

Textile in Indian external trade

Textile export by main product groups, USD bn

UN COMTRADE, Emerging Markets Insight calculations

14.416.4

17.919.1 18.7

23.2

28.4

17.0% 15.8%14.4%

12.5% 12.4% 12.3%11.1%

1.9% 1.5% 1.4% 1.1% 1.2% 1.1% 1.1%

2005 2006 2007 2008 2009 2010 2011

Net exports, USD bn Textiles in total exports, % Textiles in total imports, %

4 . 9

5 . 0

3 . 6

7 . 4

8 . 3

2 . 5

3 . 0

3 . 0

3 . 8

4 . 9

9 . 4

1 0

. 3

1 1

. 3

1 0

. 6 1 3

. 7

4 . 2

4 . 4

4 . 0 5

. 4 6

. 5

21.0 22.7 21.9

27.1

33.4

2007 2008 2009 2010 2011

Cotton, silk, wool Man made filaments and fibres Apparel Others Total




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Source:

Wages and Employment

Monthly Earnings at Cotton Textile Mills by Region (INR)

Labour cost per manday worker (INR)

Employment in textile and allied sectors, mn persons

Office of the Textile Commissioner, CEIC; * forecast in the 12th Five Year Plan (2012-2017)

Mar 2011 End of 12th

Plan (2017) *

Increase

I. Textile sector 45.2 52.0 6.79

1Cotton/Man-made Fibre/Yarn

Textile/Mill Sector1.4 1.6 0.21

2Man-made Fibre/Filament Yarn

Industry0.2 0.3 0.04

3 Decentralised Powerlooms Sector 5.1 5.8 0.76

4 Handloom Sector 7.0 8.1 1.05

5 Knitting Sector 0.5 0.5 0.07

6 Processing Sector 0.4 0.5 0.07

7 Woollen Sector 3.2 3.7 0.48

8Ready Made Garment Sector

(including Knitwear Sector)11.2 12.9 1.68

9 Sericulture 7.7 8.9 1.16

10 Handicraft Sector 8.0 9.2 1.2

11 Jute Industry 0.5 0.5 0.07II. Allied Sector s 60.2 69.2 9.04

1 Cotton (Agriculture, Ginning, Trade) 40.3 46.4 6.05

2 Sheep rearing 2.8 3.2 0.42

3 Jute Agriculture 17.0 19.6 2.55

4Textile machinery industry &

accessories0.1 0.1 0.0

III. Total 105 121 15.81

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

J a n - 0

9

A p r - 0 9

J u l - 0 9

O c t - 0 9

J a n - 1

0

A p r - 1 0

J u l - 1 0

O c t - 1 0

J a n - 1

1

A p r - 1 1

J u l - 1 1

O c t - 1 1

J a n - 1

2

A p r - 1 2

Ahmedabad

Bangalore

Coimbatore &ChennaiIndore

Kanpur

Mumbai

West Bengal

2008 2009

Spinning, Weaving and Finishing of

Textile Fibres263 291

Wearing Apparel, except Fur Apparel 290 291

Knitted and Crocheted Apparel 230 255

Other Textile 266 295







Source:

Government Policy

TUFS

Government’s incentive schemes for export and investment promotion have been the key drivers of the sector growth.

The Technology Upgradation Fund Scheme (TUFS) was introduced in 1999 for five-year period and was extended several times.Its main objective is to support the technology up-grade of the textile manufacturing. Under the scheme, producers are offered 5% (4%for spinning machinery) reimbursement of interest charged by the financial institutions or protection of up to 5% per annum (4% inrespect of spinning machinery) against exchange rate fluctuation on foreign currency loans. Companies could also use a 5% interestreimbursement and 10% capital subsidy for introduction of specified finishing machinery, garmenting machinery or technical textilemachinery.

In end 2012, the Office of Textile Commissioner has approved 3,551 applications with total project cost of INR 359.61bn and subsidyrequirement of INR 48.14bn under the restructured TUFS (effective since Apr 2011).

Regarding the 10% capital subsidy, the total number of units applied for the scheme is 692 with a total investment in proposedmachineries of approximately INR 38.31bn.

According to WG on Textile and Jute projection, during the 12th Five year period, under TUFS will be disbursed INR 355.7bn forprojects worth INR 1,445.9bn.

SITP

&ISDS

&

TMTT

Scheme for Integrated Textile Parks (SITP) provides funding assistance for setting up modern textile manufacturing

facilities to meet international environmental and social standards. Up to 40% of the financing could be covered by the

Government and technical advisory could be extended. Under the scheme the Central Government is responsible for the

balance funding as well as for providing support in the form of land acquisition and infrastructure development.

Integrated Skill Development Scheme (ISDS) is implemented with the target to provide appropriate work force. Thescheme covers all the sub-sectors of the textile sector - textile and apparel, handlooms, jute and sericulture, as it trains

candidates as per industry needs.

The Technology Mission of Technical Textile (TMTT) extends support for the technical textile segment development.

Specifically, it addresses infrastructure improvement in terms of testing facilities, market development support, skilled

manpower, R&D and setting up of specifications and standards for technical textile, among others. Support other activities

like business start-ups, workshops, social compliances, market development for institutional and export business and

promoting contract research and development through Institutes of Technology and Textile Institutes.

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Source:

Government Policy (cont’d)

Cotton

trade

For several years cotton export in India was allowed on quota allocation basis, effective for both public and private entities.

That however weighted on companies in times of restricted domestic demand and instead of trading the extra volume firmswere pushed to keep large carryover stock. In mid-2011 the Government placed cotton export under Open GeneralLicensing i.e. it could be exported freely, but this resulted in huge export and increase in domestic demand. The gap had tobe covered by import, which pushed prices up. In view to ensure availability of cotton to the domestic textile mills, theGovernment of India banned cotton exports from the country in March 2012. Later, the restriction was levied again andcurrently export is under OGL.

There is no quota imposed on cotton import, but the import duty stands at 14%.

Minimum

Support Price

To support farmers, every year the government determines the Minimum Support Price (MSP) of cotton. At those rates theGovernment procures cotton. The purchases are made in procurement centres in different Indian regions.

After an upward revision in Oct 2012, the decided minimum support price of medium staple cotton went up to INR 3,600per quintal from initial rate of INR 2,800. Similarly, the MSP for long staple cotton was raised to INR 3,900 per quintal fromINR 3,300. This rate is fixed for the fiscal year 2012-13. The government has formulated a contingency plan to procure9mn bales of cotton under MSP operations in the season of cotton production in 2012-13 and it has also operationlized288 procurement centres across all the nine cotton growing states. To meet the new MSP, the working capital requirementof the Cotton Corporation of India (CCI) was raised to INR 150bn.

Wool

The institution responsible for the wool sector development in India is the Central Wool Development Board (CWDB). For

the implementation of CWDB’s 2011-2012 Annual Plan, Indian Government has allocated INR 130.4mn. The main policy

targets are improvement of wool fibre (through so called sheep “health care”, “breeding improvement” and better marketing

in wool manufacturing) and Human Resources development.

Another problem in Indian wool manufacturing is the outdated technical equipment in the unorganized sector, which results

in low productivity, but also affects negatively the health of workers.

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