Growth Prospects of Indian Textile Industry – Home Textile focus J. N. Singh Textile Commissioner

Indian Textile Sector - Overview Key contributor to GDP 4 percent of GDP 14 percent of National Industrial production Significant forex earner 15 percent of exports Employment generator Provides direct employment to 35 million people 2004-05 Textile Mills Spinning Mills Nos. 2,012 Composite Mills Nos. 1,566 Exclusive weaving mills Nos. 202 Capacity Installed Spindles Million Nos. 37.47 Looms Lakh Nos. 1.03 Powerloom Lakh Nos. 19.03 Handloom Lakh Nos. 38.91 Textile exports $ billion 17.8 Textile imports $ billion 2.2

Key contributor to GDP

4 percent of GDP

14 percent of National Industrial production

Significant forex earner

15 percent of exports

Employment generator

Provides direct employment to 35 million people

2004-05

Textile Mills

Spinning Mills Nos. 2,012

Composite Mills Nos. 1,566

Exclusive weaving mills Nos. 202

Capacity Installed

Spindles Million Nos. 37.47

Looms Lakh Nos. 1.03

Powerloom Lakh Nos. 19.03

Handloom Lakh Nos. 38.91

Textile exports $ billion 17.8

Textile imports $ billion 2.2

What is the Indian Market Size (Bn US $) 2005-06 100 47 29.12 17.88 Total 40.72 19.14 9.99 9.24 Textile 59.28 27.86 19.22 8.64 Apparel % to Total Total Domestic Export

Home Textile Market Globally Global Home Textile Market is estimated at US $12b in 2005, and is expected to grow at 16% CAGR and reach US $22-25b By 2010. India ranks 2 nd in the global market with a share of approx. 9-10% of market share. India's home textile exports expected to grow from $1.2 billion now to $5 billion by 2010 Great opportunity to be the market leader.

Global Home Textile Market is estimated at US $12b in 2005, and is expected to grow at 16% CAGR and reach US $22-25b By 2010.

India ranks 2 nd in the global market with a share of approx. 9-10% of market share.

India's home textile exports expected to grow from $1.2 billion now to $5 billion by 2010 Great opportunity to be the market leader.

Our Vision 2010 Market size of US$95 Bn Export Target- US $ 50 Billion (National Textile Policy, 2000 ) Domestic market - US$ 45 Billion (CRISIL Study, 2004) India’s market share in World textiles trade to grow from 3% to 6%. Growth Projections of 20% in exports, 16% domestic

Market size of US$95 Bn

Export Target- US $ 50 Billion

(National Textile Policy, 2000 )

Domestic market - US$ 45 Billion

(CRISIL Study, 2004)

India’s market share in World textiles trade to grow from 3% to 6%.

Growth Projections of 20% in exports, 16% domestic

Reasons for Optimism: Growth in fabric production

Reasons for Optimism: Raw Materials India is now the 2 nd largest producer of cotton 2 nd largest producer of Silk Very well placed in Man-made Fibres too.

India is now the 2 nd largest producer of cotton

2 nd largest producer of Silk

Very well placed in Man-made Fibres too.

Reasons for Optimism: Growth in Investments in Textile sector Investments under TUFS have grown significantly recently.

Investments under TUFS have grown significantly recently.

Reasons for Optimism :Growth in exports

Winners and Losers in EU Market 2005 over 2004 Gainers: China, India, Turkey Losers: Thailand, Pakistan, Indonesia

Gainers: China, India, Turkey

Losers: Thailand, Pakistan, Indonesia

EU MARKET VARIATION JAN – JUN 2006/05

US IMPORTS OF TEXTILE AND APPAREL PERCENT VARIATION 2005/04

US IMPORTS OF TEXTILE AND APPAREL PERCENTAGE VARIATION JAN – SEPT. 2006/05

DRIVERS OF DOMESTIC GROWTH : Demand Side Factors: Increasing Income Levels * - Projections Note : Income is in Rs.’000 per annum at 2001-02 prices and the households are in ‘000s Source : NCAER 2.1 221,945 204,283 188,193 Total 27.7 141 53 20 >10000 Super rich 25.4 255 103 40 5000-10000 Sheer rich 22.9 1,037 454 201 2000-5000 Clear rich 20.6 2,373 1,122 546 1000-2000 Near rich 17.7 6,173 3,212 1,712 500-1000 Strivers 12.7 22,268 13,813 9,034 200-500 Seekers 9.0 75,304 53,276 41,262 90-200 Aspirers -3.6 114,394 132,250 135,378 <90 Deprived CAGR 2009-10* 2005-06* 2001-02 Income class Classification Distribution of households by income category

Favorable Demographics for Home Tex The population of India is expected to increase from 1029 million to 1400 million during the period 2001-2026. The population profile of India is shifting towards a larger composition of people in the age group 15-59 .India most favourably placed globally. Out of the total population increase of 371 million between 2001 and 2026, the share of the age-group 15-59 years in this total increase is 83 percent. The low median age of population means a higher current consumption spending vs savings The growth in population is taking place in the urban area. Out of the total population increase of 371 million during 2001-2026 in the country, the share of increase in urban population is expected to be 249 million. Favourable Demographics- increasing young population and that too in the urban area- coupled with rising income levels will act as a key growth factor for the Indian textile and Fashion Industry

The population of India is expected to increase from 1029 million to 1400 million during the period 2001-2026.

The population profile of India is shifting towards a larger composition of people in the age group 15-59 .India most favourably placed globally. Out of the total population increase of 371 million between 2001 and 2026, the share of the age-group 15-59 years in this total increase is 83 percent.

The low median age of population means a higher current consumption spending vs savings

The growth in population is taking place in the urban area. Out of the total population increase of 371 million during 2001-2026 in the country, the share of increase in urban population is expected to be 249 million.

Favourable Demographics- increasing young population and that too in the urban area- coupled with rising income levels will act as a key growth factor for the Indian textile and Fashion Industry

Increasing Working Female Population Source : CENSUS

Increased usage of credit cards and availability of cheap finance The use of credit cards (plastic money) has increased significantly in the last 3-4 years. The number of credit cards issued has grown at 26 per cent per annum in the past 5 years while debit cards have grown by a whopping 113 per cent. Increase in the number of installations of electronic data converter machines will provide fillip to impulse apparel purchases.

The use of credit cards (plastic money) has increased significantly in the last 3-4 years. The number of credit cards issued has grown at 26 per cent per annum in the past 5 years while debit cards have grown by a whopping 113 per cent. Increase in the number of installations of electronic data converter machines will provide fillip to impulse apparel purchases.

Demand Driver- Domestic Housing Boom Asian Development Bank expects that by 2008, the housing deficit will be 22 mn units and by 2030 India will be requiring upto 10 mn housing units every year. A very huge requirement for home tex. The Real estate sector has given phenomenal returns in the last 2-3 years as per the global trend. A property owner is now more inclined to buy/renovate his home furnishings etc. The domestic housing boom is further enhanced by the reducing age of Indian borrower- from 43 years in 1995-99 to 33 years in 2005-9.

Asian Development Bank expects that by 2008, the housing deficit will be 22 mn units and by 2030 India will be requiring upto 10 mn housing units every year. A very huge requirement for home tex.

The Real estate sector has given phenomenal returns in the last 2-3 years as per the global trend. A property owner is now more inclined to buy/renovate his home furnishings etc.

The domestic housing boom is further enhanced by the reducing age of Indian borrower- from 43 years in 1995-99 to 33 years in 2005-9.

Drivers of Domestic Growth:Supply side factor : Retailing Revolution - Growth so far

Five year outlook

Growth of Mall Space From 2 mn sq ft in 2001 , we had 28 mn sq ft of mall space in 2005 – and by end 2008, the eight Indian large cities will have a supply of 66 mn sq ft and the next seven large cities about 13 mn sq. ft. The entry of Reliance , Aditya Birla group , expansion of Futures and now of Bharati-Walmart is expected to further sizzle Indian market.

From 2 mn sq ft in 2001 , we had 28 mn sq ft of mall space in 2005 – and by end 2008, the eight Indian large cities will have a supply of 66 mn sq ft and the next seven large cities about 13 mn sq. ft.

The entry of Reliance , Aditya Birla group , expansion of Futures and now of Bharati-Walmart is expected to further sizzle Indian market.

Drivers of Export Growth Dismantling of the MFA regime and the full play to the Indian entrepreneurship. Progressive dismantling of the textile and mass apparel industry from the Western world. India is a major player to fill this gap. The current quantitative restriction on China is helping India. Buying of several Western brands by Indian industry, thus facilitating entry in EU and US. Increasing modernization of Indian textile and apparel manufacturing sector in response to the increased global demand and facilitated by the TUFS scheme.

Dismantling of the MFA regime and the full play to the Indian entrepreneurship.

Progressive dismantling of the textile and mass apparel industry from the Western world. India is a major player to fill this gap. The current quantitative restriction on China is helping India.

Buying of several Western brands by Indian industry, thus facilitating entry in EU and US.

Increasing modernization of Indian textile and apparel manufacturing sector in response to the increased global demand and facilitated by the TUFS scheme.

Global Housing Boom According to estimates by The Economist , the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs . The global boom in house prices has been driven by two common factors: historically low interest rates have encouraged home buyers to borrow more money; and households have lost faith in equities after stockmarkets plunged, making property look attractive . Naturally as people buy more property or as their property becomes costlier , the propensity to spend on home-textile increases significantly .

According to estimates by The Economist , the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs .

The global boom in house prices has been driven by two common factors: historically low interest rates have encouraged home buyers to borrow more money; and households have lost faith in equities after stockmarkets plunged, making property look attractive .

Naturally as people buy more property or as their property becomes costlier , the propensity to spend on home-textile increases significantly .

Other Export Drivers The IMF forecasted a 4 th continuous year of income increase globally at 4.7%- naturally leading to a more than higher purchase of textiles including home-tex. Also a phenomenon of decline in textile prices over a continuous period esp in developed economies- driving higher the worldwide demand of textiles and clothing.

The IMF forecasted a 4 th continuous year of income increase globally at 4.7%- naturally leading to a more than higher purchase of textiles including home-tex.

Also a phenomenon of decline in textile prices over a continuous period esp in developed economies- driving higher the worldwide demand of textiles and clothing.

Real Clothing Prices Index, 1994=100 United States South Korea Germany Thailand Japan China

Strategy of various Stakeholders

Strategy of various

Stakeholders

Strategy for the GOVERNMENT 1.Further investments must continue to be encouraged- TUFS should be continued (may be with some modification) TUFS help to processing sector – Vital for home tex 13.42 986 7349 2004-5 7.91 260 3289 2003-4 14.63 210 1438 2002-3 P.c % Processing (in crores) TUFS all segments (in crores) Year 22.30 2081 9335 2006-7 (april-sept) 7.7 1157 15032 2005-6

1.Further investments must continue to be encouraged- TUFS should be continued (may be with some modification)

TUFS help to processing sector – Vital for home tex

2. Continuance of textile infrastructure schemes SITP ( Scheme for Integrated Textile Parks) has had a huge success : 26 parks approved. GOI contribution to be 866 crores with another 1250 crores to come from private sector. Estimated investment of Rs.13445Cr. Need to continue such schemes on the PPP model.

SITP ( Scheme for Integrated Textile Parks) has had a huge success : 26 parks approved. GOI contribution to be 866 crores with another 1250 crores to come from private sector. Estimated investment of Rs.13445Cr.

Need to continue such schemes on the PPP model.

3. HRD Governments in PPP mode with the industries must invest heavily in training in the textile sector because a huge shortfall of over 40 lakh workers is expected in the next 5 years.

Governments in PPP mode with the industries must invest heavily in training in the textile sector because a huge shortfall of over 40 lakh workers is expected in the next 5 years.

4.High Transaction Costs Issues: According to EXIM Bank Study (2002), transaction cost is very high in Textile & Garments Sector ranging from 3-10% Ownership of exports – less support from State Governments Non-refundable incidence of State Taxes – VAT, Entry Tax, Luxury Tax, Mandi Tax, Electricity Duty, Octroi, etc. Proposal: To consider refund of State / Local levies through appropriate refund mechanism

Issues:

According to EXIM Bank Study (2002), transaction cost is very high in Textile & Garments Sector ranging from 3-10%

Ownership of exports – less support from State Governments

Non-refundable incidence of State Taxes – VAT, Entry Tax, Luxury Tax, Mandi Tax, Electricity Duty, Octroi, etc.

Proposal:

To consider refund of State / Local levies through appropriate refund mechanism

5.High Power Cost Issues : High power cost: Cross subsidisation Frequent power interruption Competitors’ Edge: 3.49 Bangladesh 6.04 China 3.65 Indonesia 8.87 India Cost (Cent / KWH) Country Cost (Cent / KWH) Country

Issues :

High power cost:

Cross subsidisation

Frequent power interruption

Competitors’ Edge:

High Power Cost Proposal: Export oriented textile units be exempted from cross subsidy Duty free import of furnace oil to units for captive power generation Uninterrupted power supply for export oriented textile clusters

Proposal:

Export oriented textile units be exempted from cross subsidy

Duty free import of furnace oil to units for captive power generation

Uninterrupted power supply for export oriented textile clusters

Industry’s Strategy Integration - Moving up/down the full value chain. Leading Home-tex players like Welspun, Alok are now fully integrated, with strong competencies in spinning, weaving,and finishing. Scale - Massive expansion plans of existing as also new players to take advantage of this unprecedented opportunity. Smaller companies, some of whom are in unrelated businesses, are also foraying into home textiles - Gangotri Textiles, KG Denim, S Kumars Nationwide, Bannari Amman Spinning, to name a few.

Integration - Moving up/down the full value chain. Leading Home-tex players like Welspun, Alok are now fully integrated, with strong competencies in spinning, weaving,and finishing.

Scale - Massive expansion plans of existing as also new players to take advantage of this unprecedented opportunity. Smaller companies, some of whom are in unrelated businesses, are also foraying into home textiles - Gangotri Textiles, KG Denim, S Kumars Nationwide, Bannari Amman Spinning, to name a few.

Brand presence - there has to be greater shift towards branded products.Realization that real value addition comes only after branded sale. Domestic- Spaces brand of Welspun Carmichael House of S.Kumars International- Purchase of Christy by acquiring CHT Holding by Welspun. Dan Rivers and Roseby’s by GHCL.

Brand presence - there has to be greater shift towards branded products.Realization that real value addition comes only after branded sale.

Domestic- Spaces brand of Welspun

Carmichael House of S.Kumars

International- Purchase of Christy by acquiring CHT Holding by Welspun.

Dan Rivers and Roseby’s by GHCL.

Designer labels will also have to be brought in to counter the pull of top international labels like Tommy Hilfiger, Zegna, Mark and Spencer and likely presence of Italian Pozzi Industria Tessile and Ralph Lauren. Alliance with Indian designers important over here.

Designer labels will also have to be brought in to counter the pull of top international labels like Tommy Hilfiger, Zegna, Mark and Spencer and likely presence of Italian Pozzi Industria Tessile and Ralph Lauren. Alliance with Indian designers important over here.

Future ? The home-textile sector in India is in for BOOMING TIMES. Save for major implementation problems, India poised to become a leader in this sector.

The home-textile sector in India is in for BOOMING TIMES.

Save for major implementation problems, India poised to become a leader in this sector.

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