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Textile Sector Analysis
both exports as well as domestic
markets. These countries will now
develop stronger textile expertise,
All Set to Boom!
which in turn will enable them to
handle all stages of the production
chain from growing natural fibres
- Kensource
to producing finished clothing.
Textiles have been one of the most important industrial sectors in India. One Lower wages give developing
of the earliest sectors to come into existence, it accounts for nearly 14% of the countries a competitive edge in
total industrial production and contributes to nearly 30% of the total exports. world markets. However, the time
It is, in fact, the second largest employment generator after agriculture. Its factor plays a crucial role in
unique position as a self-reliant industry, from production of raw materials determining international
to the delivery of finished products, with substantial value-addition at each competitiveness. Any country that
stage of processing transforms it into a major contributor to the country’s aspires for an export-led growth
economy. The textile industry is particularly important from the standpoint strategy in textiles and clothing
of economic growth, considering the vast potential that it has for creation of needs to complement its expertise
employment opportunities both in the organised as well as the unorganised in manufacturing by developing
sector and rural as well as urban areas. expertise in the higher end
segments of supply chain such as
6
design, sourcing or retail
o begin with, India has the second highest
distribution.
development of the spindleage in the world after
The removal of quota
textile sector in the China. Aggregate production of
restrictions has put the Indian
country was guided by cloth is on the rise, and India’s
textile industry in the driver’s seat.
general policies; contribution to world production
New investments are pouring into
however, considering the has gone up substantially. The
this sector and orders for the
importance of this sector, a textile policy of 2000 aims at
industry are on the rise, with
separate policy statement was achieving the target of textile and
made for the first time in 1985 to apparel exports of nearly $50
further its development. How has billion by 2010, of which the share
this sector evolved over time? of garments is expected to be 50%.
What is its economic importance The main markets for Indian
today, and what is the promise it textiles and apparels are the USA,
holds for the future? These are UAE, UK, Germany, France, Italy,
some of the questions that we Russia, Canada, Bangladesh and
address here in a bid to demystify Japan.
the importance of this critical
sector. Current scenario
The economic policies of the 90s With the quota restriction on
have accelerated economic growth export of textiles no longer
in India. The growth of the textile applicable, developing countries
sector has been led by the spinning like India are expected to prosper
and the man-made fibre industry. in the new environment. The end
The number of cotton/manmade of the quota regime will boost
fibre textile mills rose manifold opportunities for exports from
from just a few thousand in the 80s. India and other developing
Liberalisation further led to the countries. Due to this, the textile
setting up of export-oriented units industry in developed countries
(EOUs) in this sector. Currently, will face intensified competition in

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capacities being fully blocked till capacity), a vast pool of skilled
April 2005. The government’s manpower, entrepreneurship,
initiatives have seen investments flexibility in production process,
of Rs. 50,000 crore in the last 5 years and a long standing relationship
and 9 textile majors have invested with the US and EU markets.
nearly Rs. 2,600 crore and plan to However, there are quite a few
invest another Rs. 6,400 crore in the concerns relating to this
future. India’s cotton production fragmented industry. These
has increased by more than 50% in concerns relate to constraints of
the last 3 years, and 3 million processing, quality of cotton,
additional spindles and 30,000 concerns over power cost, labour
shuttleless looms have been reforms, and other infrastructural
installed. The investments in this constraints and bottlenecks. On the
sector are expected to be in the eve of Republic Day, President
range of over Rs. 100,000 crore in A.P.J. Abdul Kalam said “India is
the quota-free regime. presently exporting $ 6 billion
Vision 2010 for textiles, worth of garments, whereas with
formulated by the government the WTO regime in place, we can
after intensive interaction with the increase the production and export
industry and export promotion of garments to 18 to 20 billion US
councils to capitalise on the upbeat dollars within the next five years. Asian countries wanting to
mood, aims to increase India’s This will enable generation of increase exports will have to fight
share in world textile trade from employment in general and in it out with one another and also
the current 4% to 8% by 2010 and rural areas in particular. By with non-Asian countries.
to achieve export value of US $ 50 tripling the export of apparels, we India’s garment industry, with
billion by 2010. Vision 2010 for can add more than 5 million direct its inherent advantages (outlined
textiles envisages growth in Indian jobs and 7 million indirect jobs in above), can certainly compete
textile economy from the current the allied sector, primarily in the successfully for a share in the
US $37 billion to $ 85 billion by cultivation of cotton. Concerted global marketplace. However,
2010, creation of 12 million new efforts are needed in cotton considering that the exporters’
jobs in the textile sector and research, technology generation, productivity here is only 35 per
modernisation and consolidation transfer of technology, cent of the US levels—as compared
for creating a globally competitive modernisation and upgrading of to Chinese exporters’ 55 per cent—
textile industry. ginning and pressing factories, and and that the overall productivity of
an aggressive marketing strategy.” the Indian apparel industry,
The challenges ahead Now that the quotas have including tailors and domestic
Apart from the opportunities expired, productivity, labour costs manufacturers, is just 16 per cent
that are coming its way, the Indian and quality - at least for higher-end of the US industry’s productivity,
textile industry is also faced with goods - will determine which it might seem an uphill task. With
challenges in the post-quota countries win and which ones lose. full-blown reforms, Indian exports
regime. India has natural China is likely to capture a major could increase by 15 to 18 per cent
advantages it can capitalise on like chunk of the consequential growth annually—much more than the
a strong raw material base (cotton, in global exports. Regardless of historical growth rate of 6 per cent.
man-made fibres, jute, silk, etc.), whether the US and the European This expansion would enable India
large production capacity Union (EU) allow brand owners to win 5 per cent of the global
(spinning accounts for 21% of and retailers to buy freely or apparel-exports market by 2008
world capacity and weaving impose transitional safeguard and to capture $25 billion to $30
accounts for 33% of world mechanisms and increase duties, billion by 2013. With only minor

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reforms, annual growth could be of labour laws and a complex and apparel-export industry.
8% at best. inefficient tax regime that tends to Restrictions on hiring and firing,
favour small factories. As a result, including a law compelling
The way forward Indian clothing factories typically companies with more than 100
Over the past five years, the have, on an average, 10 to 20 per workers to obtain government
Indian government has removed cent of the machines Chinese approval before reducing their
many of the barriers hindering the factories have. workforce, should be removed.
sector’s growth. But to exploit the The duties of around 25% on The introduction of value-added
potential of the country’s apparel- fabric imports limit the ability of tax (VAT) from April1 will
export industry, the government Indian manufacturers to produce hopefully replace all indirect taxes
needs to eliminate the remaining apparel made from a wide range on manufactured goods, such as
restrictions that perpetuate the lack of fabrics, thus making these excise and central and state sales
of economies of scale and poor companies less competitive in the taxes. And the total taxes on
operational and organisational global market. Moreover, tailors manufactured goods should be
performance of local with low productivity who make reduced from 25-30 per cent of the
manufacturers. Such restrictions custom garments for domestic wholesale price to about 15 per
also discourage investment, consumers are a huge part of the cent, the current level in China.
particularly foreign direct sector—constituting 70% of its The other desirable
investment (FDI). workforce. To encourage Indian government-led reforms that
Regulations still protect small- manufacturers build scale, the would help attract FDI and
scale producers in a number of government needs to relax labour intensify competition include
ways. While the production of laws, remove all reservations for improving India’s infrastructure
readymade garments is no longer small-scale players and reduce (such as port capacity) and creating
reserved for small-scale import duties on apparel, textiles manufacturing clusters (so-called
manufacturers, a few products and machinery to around 10 per apparel parks). Indian apparel
such as hosiery still remain the cent—the current standard in the companies suffer from a much
exclusive preserve of the small- majority of Asian countries. higher rate of absenteeism and
scale industry. In addition, Indian India must reform its local more shipping delays than the
manufacturers often choose to set markets in order to attract FDI in average Asian exporter.
up several small plants, instead of textile sector. FDI has spurred Eliminating barriers to competition
a single big one, to take advantage spectacular growth in China’s forces manufacturers to improve
their organisations and to invest in
technology to speed up and
increase production and gain scale.
Since retailers and brand owners
try to diversify their import
channels, they are likely to source
half of their apparel from countries
other than China. India is well
positioned to become the primary
alternative, but only if it
undertakes reforms quickly to
make the apparel-export sector
more competitive. If the Indian
textile sector succeeds in taking on
the world, it will witness an
unprecedented boom in the new
world economic order.