India- An attractive investment & sourcing destination

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Wazir Advisors Report on India: Attractive Investment & Sourcing Destination released in Texcon 2013 by Dr Kavuru Sambasiva Rao, Minister of Textiles

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India- An attractive investment & sourcing destination

  1. 1. India : An Attractive Investment & Sourcing Destination Texc n 13 , Friday, 19 July 2013 | Hotel Lalit : New Delhi Confederation of Indian Industry Management Consultants Conference Knowledge Partner
  2. 2. Texc n 13 , India: An Attractive Investment & Sourcing Destination for Textile and Apparel Conference Knowledge Partner Management Consultants
  3. 3. Disclaimer Copyright © 2012 by Confederation of Indian Industry (CII), All rights reserved. No part of this publication may be reproduced, stored in, or introduced into a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of the copyright owner. CII has made every effort to ensure the accuracy of information presented in this document. However, neither CII nor any of its office bearers or analysts or employees can be held responsible for any financial consequences arising out of the use of information provided herein. However, in case of any discrepancy, error, etc., same may please be brought to the notice of CII for appropriate corrections. Published by Confederation of Indian Industry (CII), Northern Region Headquarters Block No. 3, Dakshin Marg, Sector 31-A, Chandigarh 160030 (India) T : +91-172-5022522 / 2607228 F : +91-172-2606259 E : ciinr@cii.in W : www.cii.in
  4. 4. TableofContents Foreword 1 1. Indian Economy:An Overview 2 a. Size and Growth of the Economy 2 b. Demography 3 c. Investments 3 d. Export Scenario 4 e. Infrastructure 5 2. Overview of Indian Textile &Apparel Sector 6 a. Installed Capacities 6 b. Structure of the industry 6 c. Market Size 7 d. Manufacturing Cost in India 10 e. Foreign Direct Investment (FDI) 10 3. Strengths of Indian Textile &Apparel Sector 12 a. Raw MaterialAvailability 12 b. InexpensiveTrained Manpower 13 c. Government Support forTextile Sector 14 d. Presence of CompleteTextile Value Chain 15 e. Strong IPLaws 16 4. Key Drivers of Future Growth 17 a. Exponential Growth of Domestic Demand 17 b. Opportunities in Exports 18 i) China’s increased focus on domestic demand expected to 18 create a global trade gap ii) Growth in IntraAsia trade 20 iii) Trade agreements 20 5. Investment Opportunities 22 a. Synthetic Value Chain 22 b. TechnicalTextiles 22 c. Textile Machinery 23 d. Specialty Fabric 23 About WazirAdvisors 25 About CII 26
  5. 5. ListofFigures Figure 1: Indian GDPand GDPper Capita 2 Figure 2: GDPGrowth Projections for BRIC Nations 2 Figure 3: India’s Population Segmentation & MedianAge 3 Figure 4: India's Domestic Capital Formation 3 Figure 5: FDI Inflows in India 4 Figure 6: India’s Global Export 4 Figure 7: MajorTextile andApparel Manufacturing Clusters 7 Figure 8: IndianTextile &Apparel Sector Market Size 7 Figure 9: Growth of IndianApparel Market (In US$ bn.) 8 Figure 10: IndianApparel Market Segmentation 8 Figure 11: Growth of Indian Export Market (In US$ bn.) 9 Figure 12: Category wise breakup of exports (In US$ bn.) 9 Figure 13: Manufacturing Cost Comparison 10 Figure 14: FDI Inflow inTextile Industry 10 Figure 15: Strengths of IndianApparel &Textile Sector 12 Figure 16: Textile Value Chain 15 Figure 17: India’s GDPand GDPper capita projections 17 Figure 18: Projected Growth of IndianApparel Market 18 Figure 19: China's Projected Share in GlobalTextileTrade 19 Figure 20: IntraAsiaTrade Value 20 Figure 21: TechnicalTextiles Market in India 22
  6. 6. ListofTables Table 1: Installed Capacities inTextile Sector 6 Table 2: Fibre Production in India & India’s Global Standing 13 Table 3: Apparel Factory Workers Monthly Wage (In US$) 13 Table 4: Key Features of Central Government Schemes 14 Table 5: Key Features of State GovernmentTextile Policies 15
  7. 7. 1 Foreword Textile and Apparel industry around the globe has witnessed sweeping changes since the turn of this century. One of the key changes is Asia’s emergence as a major manufacturer and supplier to the rest of the world. Two most important factors which caused this shift were the availability of low cost manpower and abundant availability of raw material in Asian countries. India, among other Asian countries, is one of the most competitive textile and apparel manufacturing country. When CII started having discussions about holding this year’s Texcon; the core program committee consisting of CII, industry representatives and Wazir Advisors (Knowledge Partner) decided to highlight how India is not only a preferred destination for sourcing, but also because of changing demographics and consumer trends, the domestic market is gaining importance. Hence, the theme “India:AnAttractive Investment & Sourcing Destination” was selected. The subtopics of this conference will shed light on the strengths of Indian textile and apparel sector making it a global sourcing hub as well as opportunities present in the sector. These opportunities can boost the textile and apparel sector growth provided investments happen. The idea for this conference is not only to discuss and debate on the topics which are most relevant in today’s context but also to identify what needs to be done, whose action is required and who will be the catalyst for boosting investment in the textile sector. Finally, as an industry representative CII will start taking suitable steps along with industry, towards achievement of the long term goals. We look forward to have your active participation and welcome your invaluable inputs. D. L. Sharma Gautam Nair PrashantAgarwal Director Managing Director Joint Managing Director VardhmanTextiles Matrix Clothing WazirAdvisors (Conference Chairman) (Conference Co-Chairman) (Knowledge Partner)
  8. 8. 2 1. IndianEconomy:AnOverview a. Size and Growth of the Economy Indian economy is one of the fastest growing, large economies in the world. Various macroeconomic factors have supplemented to this growth and have created an environment for a sustainable high growth. The resilience that Indian economy has shown in last 5 years by being far less impacted by the global financial meltdown indicates the structural strengths of the growth model. Indian GDP has grown at an average growth rate of ~7% in the last decade to reach at US$ 1.8 trillion in 2012-13 making it world’s 10th largest economy.Also, it is expected to grow despite having tough situation in the global markets. GDP per capita has also increased multifold during the same time period. Figure 1: Indian GDP and GDP per Capita Source: Economic Survey 2012-13 Going forward the Indian economy is expected to maintain its growth momentum by growing in the range of 6 to 7%, making it one of the best performing large economy. Figure 2: GDP Growth Projections for BRIC Nations Source: World Economic Outlook Database, IMF,April 2013 523 618 722 834 948 1,239 1,226 1,362 1,684 1,848 1,823 495 576 663 754 845 1089 1063 1164 1420 1537 1,519 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 GDP at MP (US$ bn) GDP per capita (US$) 2% 3% 4% 5% 6% 7% 8% 9% 10% 2013 2014 2015 2016 2017 2018 Brazil Russia India China
  9. 9. 3 b. Demography c. Investments India has a huge population base of over 1.2 billion which is the second largest in the world. Its median age is lower than that of world’s average and median age of other major countries. In 2010, working age group in India constituted more than 60% of the total population and it is projected to remain at the same levels in 2020 according to United Nation estimates. These demographic factors ensure proper availability of workforce to support industry growth in India. Figure 3: India’s Population Segmentation & Median Age Source: CIAWorld Fact book, UN Database Note: Data of MedianAge is for 2013 India has witnessed continuously increasing trend of capital formation during past decade. It has exhibited a robust CAGR of 19% in the same period. Due to high domestic capital formation, capacity of Indian entrepreneurs has also increased to further invest in building Indian infrastructure. Figure 4: India's Domestic Capital Formation Source: Economic Survey 2012-13 38.8 37.2 36.3 30.3 29.4 26.7 Russia USA China Brazil World India 343 350 363 694 740 855 82 96 129 2005 2010 2020 (P) 0-14 15-59 60+In mn. 120 130 166 237 289 338 472 421 498 591 654 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 In US$ bn.
  10. 10. Foreign Direct Investment has also played a key role in putting India on fast growth track. It has been on a constant rise since 2002-03 and has registered a strong CAGR of 16% in the last decade to reach at more than US$ 22 bn. in 2012-13 from US$ 5 bn. in 2002-03. Peak investment of US$ 38 bn. was achieved during 2008-09 & 2009-10 but due to global meltdown & Eurozone crisis, decline in the investment is experienced in last few years. Figure 5: FDI Inflows in India Source: Department of Industrial Policy & Promotion Statistics Over last ten years, India has registered a tremendous growth in its global exports. According to World Bank data, India’s global export has increased six fold in value terms as compared to three times increase in global trade since 2002-03. It has registered a strong CAGR of 19% during last decade to reach at US$ 300 bn. in 2012-13. During this period, peak export value of US$ 305 bn. was also achieved. Figure 6: India’s Global Export Source: Economic Survey 2012-13 Major exporting partners of India are UAE, USA and China with respective share of 12%, 11% and 8% in India’s total export. Categories of the products which are primarily exported from Indian shores are: engineering goods, gems & jewelry, petroleum, agricultural products and textiles & apparel. d. Export Scenario 5 4 6 9 23 35 38 38 30 35 22 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 In US$ bn 53 64 84 103 126 163 185 179 251 305 300 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 In US$ bn. 4
  11. 11. e. Infrastructure Roads Railways Ports Power Roads, Railways, Ports and Power are the four pillars of infrastructure required for the growth of any economy. Over the last decade, India has significantly build world class infrastructure to support its industry requirements. A snapshot of each of this infrastructure is provided below: Roads are a major mode of transportation in India today, as they carry almost 90% of the country's passenger traffic and about 65% of its freight. Indian Government has played a vital role in developing the road network in the country. It provides various incentives for private and foreign sector investment in the roads sector apart from allowing 100% FDI under automatic route for support services to land transport such as operation of highway bridges, toll roads, and vehicular tunnels. All these initiatives has made India’s road network 3rd largest in the world with a total length of ~4 mn. km. Indian Railways has a total route network of ~65,000 km. spread across more than 8,000 stations and operates more than 19,000 trains every day. India has the world's fourth largest rail network, which is the largest under single management. Over 30 million passengers travel and ~2.8 MMTof freight is transported by trains on a daily basis in India. Government of India has also increased the scope of public-private partnership (PPP), to provide maintenance and other such supporting roles to railways. It has plans to invest US$ 153 billion in 12th Five Year Plan against US$ 40 billion in 11th Five Year Plan for building new lines and increasing the rolling stock. There are 13 major and ~200 non-major ports in the country. The total cargo traffic in India stood at more than 900 MMT during 2011-12 and is expected to touch ~1,200 MMT in current fiscal. Strong growth potential, favorable investment climate and sops provided by central & state governments have encouraged domestic and foreign private players to enter the Indian ports sector. These all factors will help to further open this market and improve facilities. Apart from ports, India is home to ~350 airports some of which are world’s busiest and ranked among best in terms of infrastructure facilities. Electricity production in India (excluding captive generation) stood at ~900 terawatt-hour (TWh) in 2011-12 registering a y-o-y growth of 8%. Over last five years, the production has expanded at a CAGR of 6%. Indian government has targeted capacity addition of 100,000 MW each under the 12th and 13th FiveYear Plans in order to meet increasing power demand. The factors discussed above show that Indian economy is set to write another chapter of its growth story. Conducive environment along with presence of necessary supporting infrastructure makes India one of the preferred destinations to do business. This will ensure the sustainability and growth of industry in India in the years to come. 5
  12. 12. 6 2. OverviewofIndianTextile&ApparelSector a. Installed Capacities b. Structure of the industry The textile & apparel industry in India has an important presence in the country’s economy through its contribution to industrial output, employment generation, and the export earnings. It contributes almost 5% to the US$ 1.8 trillion Indian economy whereas its share in Indian exports stands at a significant 11%. India has the second largest textile infrastructure after China. India is one of the few countries in the world which has production at each level of textile manufacturing viz. fibre manufacturing, spinning, weaving, knitting, processing and garmenting. The snapshot of installed capacities of textile infrastructure in India is provided below: Table 1: Installed Capacities in Textile Sector Source: Ministry of Textiles, Government of India Indian textile & apparel manufacturing industry includes both the formats of organized as well as decentralized sectors. As on one hand, the mill sector is largely integrated across the value chain, while on the other hand, the MSME manufacturers are highly fragmented comprising of small scale spinning, weaving, knitting, finishing and apparel making enterprises. The decentralized sector forms the bulk of the industry, comprising handlooms, powerlooms, hosiery and knitting, readymade garments, khadi and carpet manufacturing units. The manufacturing is largely done in various clusters which are spread across India. Some of the prominent textile and apparel manufacturing clusters are depicted on the map below. Description Unit 2008-09 2009-10 2010-11 2011-12 2012-13 (Apr-Aug) Spindles Lac 410 420 480 490 490 Rotor Lac 7 7 8 8 8 Looms (Organised Sector) Lac 1 1 1 1 1 Powerloom Lac 22 22 23 23 23 Man Made Fibre ‘000 MT 1800 1800 1800 1800 1800 Man Made Filament ‘000 MT 2200 2200 2200 2300 2300
  13. 13. 7 Figure 7: Major Textile and Apparel Manufacturing Clusters The market size of Indian textile and apparel industry is estimated at US$ 96 bn. which includes domestic consumption of US$ 63 bn. and an export value of ~ US$ 33 bn in 2013. Within domestic consumption; apparel retail contributes ~ US$ 45 bn., technical textiles contributes ~ US$ 14 bn. and home textiles contributes ~ US$ 4 bn. The domestic market has grown at a yearly growth rate of 12% over last 5 years. In exports, the markets growth has been 8% in last 5 years and presently the share of textile and apparel in total export value stands at 60% and 40% respectively. Figure 8: Indian Textile & Apparel Sector Market Size Source: Wazir Advisors c. Market Size
  14. 14. 8 DomesticApparel Market The present apparel market size of India is estimated to be US$ 45 billion and it has registered a robust growth of 12% from 2007 to 2012 despite global uncertainties and slack demand. Figure 9: Growth of Indian Apparel Market (In US$ bn.) Source: WazirAdvisors The market segmentation of IndianApparel market shows a different trend with the fact that it is the only major apparel market where women’s wear is not the largest category in value terms. The reason behind this anomaly is the fact that womenswear in India is largely dominated by traditional, unbranded dresses which in value terms are lower than menswear market despite having larger volumes overall. Figure 10: Indian Apparel Market Segmentation Source: WazirAdvisors 25 27 31 35 40 45 2007 2008 2009 2010 2011 2012 12% CAGR Menswear 40% Womenswear 35% Childrenswear 25%
  15. 15. 9 Export Market India is the 5th largest exporter of textile & apparel in the world with a share of ~5% of the global trade. It exported textile and apparel goods worth US$ 33 bn. in 2012. The exports have grown at a CAGR of more than 8% in last five years. Figure 11: Growth of Indian Export Market (In US$ bn.) Source:DGCIS Category wise, apparel exports contribute the most to the overall exports in terms of value, followed by contributions from fibre, yarn and fabrics as depicted in the figure below Figure 12: Category wise breakup of exports (In US$ bn.) Source: Ministry of Textiles, Government of India 22 22 23 29 34 33 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 +8% CAGRr Fibre, 4.7 Yarn, 4.6 Fabric, 4.1RMG, 12.2 Made ups, 3.5 Other Textiles, 1.5
  16. 16. 10 d. Manufacturing Cost in India e. Foreign Direct Investment (FDI) India provides a diversified production base for the manufacturing of textile and apparel products in the world. It is also one of the most cost efficient textile manufacturing countries in the world. A manufacturing cost analysis done by ITMF covering Raw material, Waste, Labor, Power, Auxiliary material, Depreciation and Interest costs highlighted India’s cost competitiveness for textile sector manufacturing. Figure 13: Manufacturing Cost Comparison Source: ITMFInternational Production Cost Comparison 2012 In India, 100% FDI under automated route is permitted in textile and apparel manufacturing sector. Cumulative FDI inflows in the sector during April 2000 to March 2013 stood at US$ 1.23 bn. Looking at the opportunities in the Indian textile and apparel sector several international companies like Ahlstorm, Rieter, E-Land, Bilsar, Monti, Soktas, Fiberweb, MAS holdings, Brandix, etc. have started their operations. Figure 14: FDI Inflow in Textile Industry Source: Ministry of Textiles 1.8 1.62 1.32 1.42 1.25 1.4 1.56 0.75 0.72 0.59 0.62 0.55 0.58 0.65 0.32 0.25 0.19 0.25 0.23 0.24 0.3 0.043 0.026 0.036 0.026 0.022 0.036 0.028 Brazil China Egypt India Indonesia Korea Turkey Ring Yarn (US$/ Kg) Rotor Yarn (US$/ Kg) Weaving (US$/ Mt) Knitting (US$/ Mt) 5 54 9 43 94 127 185 158 150 130 164 105 2001-022002-032003-042004-052005-062006-072007-082008-092009-102010-112011-122012-13
  17. 17. 11 In last few years, Private Equity firms have also started showing interest to tap the Indian consumption story. There have been several investments by PE players in manufacturing as well as apparel retail sector. Some of these include Blackstone’s investment in Gokaldas, CX Partners investment in Sutures India, Peterson Partners investment in KPR mills, W. L. Ross’ investment in OCM, etc.
  18. 18. 12 3. StrengthsofIndianTextile&ApparelSector a. Raw MaterialAvailability Indian textile and apparel sector offers various competitive advantages as compared to other countries. For any manufacturing industry, raw material and manpower are the prerequisites. India possesses both these inherent advantages when it comes to textile and apparel industry. These along with other strengths of Indian textile and apparel industry serves as a strong base for growth and development. Following are the key strengths of Indian textile and apparel sector: Figure 15: Strengths of Indian Apparel & Textile Sector The fundamental strength of the Indian textile industry is its strong production base of wide range of fibre/ yarns from natural fibres like cotton, jute, silk and wool to synthetic/ manmade fibres like polyester, viscose, nylon and acrylic. The textile and apparel industry in India includes almost all types of fibres – natural fibres, synthetic fibres, multiple blends of these fibres and filament yarns such as partially oriented yarn, fully drawn yarn. Following table provides the production statistics of various textile fibres produced in India and India’s global standing in terms of their production: Textile & Apparel Sector Strengths Raw Material Availability Presence of Complete Textile Value Chain Inexpensive Trained Manpower Govt. Support for Textile Sector Strong IP Laws
  19. 19. 13 Table 2: Fibre Production in India & India’s Global Standing Source: Office of Jute Commissioner, Ministry of Textiles, Cotton Corporation of India The textile and apparel industry in India benefits from a large pool of skilled workers at comparative less wage rates. Though the wages across the globe are consistently increasing, wage rate growth in India is still lower than several other textile and apparel exporting nations. Table 3: Apparel Factory Workers Monthly Wage (In US$) Source: ILO Wage Report In today's dynamic business environment, the demand for trained manpower with requisite competencies for manufacturing quality products efficiently with sophisticated machines is a recognized need across textile and apparel sector. Realizing this, Government of India has implemented several initiatives to address the rising demand for skilled manpower in textile and apparel sector. It has launched Scheme for Growth and Development of Technical Textiles (SGDTT) and Integrated Skill Development Scheme (ISDS) for the textiles and apparel sectors with the objective of building capacities of institutions providing skill development and training in the textile and apparel sector. India’s large population base with government initiatives ensures the proper and economical availability of trained manpower to textile and apparel sector. b. Inexpensive Trained Manpower S. No. Fibre (Year) Production (In Mn Kg) Global Position 1. Jute (2012-13) 1,700 1st 2. Silk (2011-12) 23 2nd 3. Cotton (2012-13) 5,700 2nd 4. Synthetics (2012-13) 2,650 5th 5. Wool (2011-12) 45 7th Country 2009 2010 2011 China 173 184 193 India 121 129 135 Thailand 295 314 329 Philippines 379 403 423 Indonesia 148 157 165
  20. 20. 14 c. Government Support for Textile Sector Indian Government has initiated various schemes to support textile sector. These schemes provide numerous ben0efits to Indian textile manufacturers. Highlights of these schemes with their key features are provided below: Table 4: Key Features of Central Government Schemes Scheme / Policy Key Features Scheme for Integrated Textile Parks (SITP) • Grant/ Equity up to 40% of textile park development project cost to a ceiling of Rs 40 crore. • Further 9% grant by State Govt . to strengthen infrastructure to a ceiling of Rs 9 crore. Restructured Technological Upgradation Fund Scheme (RTUFS) • Reimbursement of 5% on the interest charged on technology upgradation project except spinning where it is 4% • Additional 10% capital subsi dy for specified processing, garmenting, technical textile machinery and shuttleless looms. • Cover for foreign exchange rate fluctuation up to 5% • Option for powerloom and independent preparatory units to avail 20% Margin Money in lieu of 5% interest reimbursement. • Option for SSI textile and jute sector to avail of 15% Margin Money subsidy in lieu of 5% interest reimbursement. Integrated Skill Development Scheme (ISDS) • Aims to support skill development by training ~3 million people in textile sector. • Provides fund support up to 75% of training cost per individual. Swarnjayanti Gram Swarozgar Yojana (SGSY) • Provide assistance to people by providing them income generating skills through a mix of bank credit and government subsidy. • Subsidy at a uniform rate of 30% of the project cost, subject up to Rs. 7500 per individual. Market Development Assistance (MDA) • Financial support to textile manufacturer for conducting export promotion activities abroad. Technology Mission on Technical Textiles (TMTT) • Upgrade exist ing Centre of Excellences and set up of four new COEs • Support for business start-up • Creating awareness through organizing workshops/ seminar • Support for standardization • Support for Market development targeted at bulk and institutional buyers • Market development support for export sales • Grant for conducting contract research in identified institutes Market Access Initiative (MAI) • Financial support for conducting market studies/survey. • 50% reimbursement of expenses incurred during trade promotion activities.
  21. 21. 15 Apart from the central government, many State Governments are also making efforts to attract investments in their states. States like Maharashtra, Gujarat, Tamil Nadu, Karnataka, Andhra Pradesh, Rajasthan, Madhya Pradesh and Punjab have come out with a host of investment related incentives in the sector. The states policies provide support in addition to central Government schemes like RTUFS, thus making investments more attractive. The same are concisely presented in the table below. Table 5: Key Features of State Government Textile Policies India is one of the few textile manufacturing countries in the world where all levels of textile value chain i.e. from fibre/ filament to garment manufacturing are present. Figure 16: Textile Value Chain d. Presence of Complete Textile Value Chain IncentivesStates Guj TN Maha. Karnataka AP Raj Punjab MP Infrastructure Land a a a a a a a Electricity/Power a a a a a a a Fiscal Stamp duty exemptions a a a a a Interest subsidy a a a a Entry tax exemptions a a a Venture capital funding a a VAT/CST/SGST exemptions a a a a a Capital investment subsidies a a a a a a Research and Development Patent and quality certification a a a a a a Technology development and upgrade a a a a a a a Human Resource Development Skill development a a a a a Employment a a a a Trade Export subsidies a a Import subsidies a Other Sick unit rehabilitation a a Energy and water conservation a a a a a Level 1 Level 2 Level 3 Level 4 Fibre Manufacturing Spinning Weaving/ Knitting Processing Garment Manufacturing Level 5 Filament Manufacturing
  22. 22. 16 Indian textile and apparel sector is fragmented into organized and unorganized sector. Unorganized sector primarily consists of handloom, small scale mills and medium scale mills while organized sector has large scale units with high production capacity. This structure gives textile and apparel sector a great flexibility to cater small & customized orders on one hand and on the other hand it possesses capability to execute large quantity orders as well. Government has been proactive in creating conducive business environment by making sweeping changes in IP culture and administration in India. As compared to other Asian countries, India has robust IP laws in place to protect the interest of manufacturers. Many international companies have already established their research and development centers in India due to strong IP base in India. The international companies investing in India have the full flexibility to venture into their own or join with any Indian partner of their choice. The law of the land allows companies to maintain their propriety product/services and any infringement can be challenged in the Court of Law. e. Strong IPLaws
  23. 23. 17 4. KeyDriversofFutureGrowth a. Exponential Growth of Domestic Demand India has already emerged as a major exporter of textile and apparel in the world. With changes in its economy, the domestic consumption is also on rise and it is fast becoming one of the major consumer nation as well. These factors will create several investment opportunities both for Indian companies as well as international ones, and also result in reinforcing India’s image as a sourcing hub for textile and apparel exports. Some of the future drivers of market growth are explained in the subsequent section. Indian economy has been one of the best performing economies in the last decade and expected to maintain high growth rate over the next 10-15 years. Indian economy is expected to grow at a CAGR of 8% to reach a level of US$ 4.8 trillion in 2025 from a current level of US$ 1.8 trillion. Such a high economic growth will be the major driver of an increase in demand and spending of consumer in India. Figure 17: India’s GDP and GDP per capita projections Source: CEPII- Baseline database 2050 In addition, Indian consumers are inclining towards brands and organized retailing. Organized retailing in India currently stands at only 6% of the overall retail market of US$ 500 billion. Within this, apparel is the single largest category with a share of ~ 35%. The vast population base and growing economy has caused global retailers and brands to actively seek Indian market participation, either on their own, or in partnership with a local player. The recent Government decision of allowing up to 51% FDI in multi-brand retail is expected to provide a boost to organized retail in India over the next few years. With growth of disposable incomes, favorable demographics, changing lifestyles, and a high potential for penetration into urban and rural markets; the share of organized retail in India is expected to reach 31% by 2025, within which ~ 42% will be apparel. 1,985 2,159 2,350 2,546 2,741 2,950 3,178 3,425 3,682 3,950 4,237 4,547 4,879 1,557 1,672 1,797 1,922 2,045 2,175 2,317 2,469 2,627 2,788 2,961 3,146 3,344 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 GDP (US$ Bn) GDP per capita (US$)
  24. 24. 18 On account of this, it is projected that the India’s domestic apparel market will grow at a CAGR of 12% to touch US$ 200 bn. by 2025, adding an additional US$ 150 bn in the market size in a span of 13 years. Figure 18: Projected Growth of Indian Apparel Market Source: WazirAnalysis There are three factors which will support the growth of exports of textile and apparel from India.They are: China is the single largest exporter of textiles and apparel in the world with a mammoth 40% of the global trade of US $700 bn. (2011). However, in near future the domestic demand of apparel in China is slated for a high growth. The per capita spend on apparel in China is expected to grow from US$ 109 in 2012 to US$ 377 by 2025; resulting in growth of total market size to US$ 540 billion from a present value of US$ 150 billion registering a CAGR of 10%. Such a demand will put pressure on exports and increase imports as well. In addition, there are other reasons as will which will cause a shift in China’s supply side of textile and apparel industry.They include: a. Shift of focus to innovation driven industry and service sectors Chinese Government is taking initiatives to reinforce higher productivity and greater income. The main steps taken include increasing minimum wages, further opening financial markets and increase competition in the economy to help expand private- sector activity for boosting employment and accelerate household-income. These initiatives are targeted towards shifting to advanced industries and service sector. From a GDP split of Industry: Service:Agriculture which stands at 47:44:9 today, it is projected that by 2025 the split will be 46:46:8. By 2030, the service sector will overtake the industry sector. b. Opportunities in Exports i) China’s increased focus on domestic demand expected to create a global trade gap 45 200 2012 2025 (P) In US$ Bn.
  25. 25. 19 The rise of manufacturing cost and a natural transition towards becoming a developed economy, China will concentrate on innovation driven industries like Aerospace, Artificial Intelligence, Biotechnology, Information systems, Photonics, Nanotechnology, Nuclear Physics, Robotics, etc. Basic textiles and apparel industry will no longer be the prime focus of Government has been since the 1990’s for enhancing exports and generating employment. This will eventually result in a slower growth of textile and apparel output, to a level of 5-6% from 7% currently. b. Rise in Manufacturing Cost China is no longer a low cost destination as it used to be at the turn of century. China’s labor pool is shrinking due to demographics and reduced flow of migrant labor from rural areas, exerting upward pressure on wages. The wages across sectors and regions in China have grown in double digits over the last couple of years. For a labour intensive sector like textile and clothing, this can put a brake on the fast growth in manufacturing output recorded historically. c. TradeAgreement with Region China has also entered into several trade agreements with South-east and East Asian countries where manpower cost are lower than that in China. Going forward, China is expected to support investment in overall infrastructure and specifically manufacturing capacities which will ultimately cater to China’s own domestic demand for apparel. Despite the growth slowdown; China with its vast land-base, plentiful resources, manpower strength and large existing manufacturing set up will continue to be the single largest textile and apparel global manufacturer in the foreseeable future. Exports will only slowdown to the extent that China’s domestic market will become increasingly attractive for its local firms as well as increasingly becoming a significant importer of value added textiles and apparel. The share of Chinese exports in global trade is expected to reduce from 40% currently to around 35% by 2025. The global trade in textiles and clothing during this period is expected to grow from around $700 bn at a CAGR of 6.5% whereas Chinese exports will lag behind registering growth of ~ 6%. Figure 19: China's Projected Share in Global Textile Trade Source: Wazir Analysis 420 1100280 600 2011 2025 (P) China Other exporters 700 1700 CAGR 6.5% CAGR 6% CAGR 7% China's share 35% 40%
  26. 26. 20 This lower-than-market performance will create a vacuum of ~100 bn. by 2025. China’s loss of share in global trade will throw up opportunities for India to take up the market share. Asia has emerged as the major manufacturer-supplier of textile and apparel products to the developed and developing world. But now, the region is on the verge of entering into a new phase wherein its own consumption of textile and apparel products is going to become very large. The last decade has seen a significant rise in the intra-Asia trade of textile and apparel products. In 2000, it accounted for ~20% of the global textile and apparel exports which grew to 27% by 2011. In 2011, the intra-Asia trade stood at US$ 180 bn. registering a steadily growth of 8% over the past decade. It is expected to grow at a CAGR of 5% to US$ 350 bn. by 2025. The intra-Asia trade is skewed towards a handful of countries in East and SouthAsia. China dominates trade with a majority share of ~65%. It is also importing significant quantum of commodities from the rest of Asia. Other major suppliers include India, South Korea and Japan. Figure 20: Intra Asia Trade Value Source: UN Comtrade database, Wazir Analysis Four of the largest trade partners inAsia will determine the shape of intra-Asia trade by 2025 viz. China, India, South Korea and Japan. These countries have cumulative exports of US$ 335 bn. and cumulative domestic markets of US$ 335 bn. as well. Another important influencer for Indian exports will be the trade agreements with various markets. India has already singed CEPAwith Japan. It has also trade agreements with other Asian countries like Bangladesh, Sri Lanka, etc. One of the major event which will prove to be a game changer is signing of FTA with EU. This will provide a major thrust to Indian exports to EU which currently suffers duty disadvantage in comparison to countries like Bangladesh. ii) Growth in IntraAsia trade iii) Trade agreements 80 109 150 180 350 2000 2005 2010 2011 2025 (P) In US$ Bn.
  27. 27. 21 Government policy will also play a fundamental role in shaping the growth, structure and technological evolution of the textile sector in India. With a large and growing domestic demand, significant opportunities for exports and strong policy support, India has everything in its basket to be an attractive investment and sourcing destination.
  28. 28. 22 5. InvestmentOpportunities a. Synthetic Value Chain b. Technical Textiles Several segments in the Indian textile and apparel industry provide growth potential the global as well as Indian manufacturers for investment. Some of such key opportunities are listed below: Synthetic fabric manufacturing and processing is a weak-link in textile value chain of India. At present, the segment is majorly unorganized and cotton focused. Most of the MMF based fabrics manufactured are basic commodity types, lacking value addition. Production of value added 100% MMF based fabric qualities (e.g. performance fabrics, sportswear fabric etc.) is very low in India. Due to this, lot of demand of MMF based fabrics is being met through imports. Technical textile is one of the untapped markets in Indian textile industry. It is still at a nascent stage in India but growing at a significant pace. India imports about US$ 1.5 bn. value of technical textile products from global markets whereas the overall technical textile market is estimated at US$ 14 bn. It is projected to reach US$ 43 bn. by 2020-21 at a CAGR of ~15%. Factors responsible for this growth are increased consumer awareness level about hygiene & safety, high spending in infrastructure and high per capita consumption. Categories which would be mainly benefitted from the changing trends are; Meditech (covering products like baby diapers, medical bandages, sanitary napkins etc.), Mobiltech (covering products like airbag, helmets, seat belts etc.), Geotech (reinforcing products like geo grids, river embankment etc.) & Protech (covering products like industrial gloves, high visibility clothing, fire retardant apparel etc.). Looking at these trends, growth of technical textile segment seems to be promising in future. Figure 21: Technical Textiles Market in India Source: Wazir Analysis 3 4 9 14 43 2001-02 2003-04 2007-08 2012-13 2020-21 (P) In US$ Bn.
  29. 29. 23 c. Textile Machinery d. Specialty Fabric Indian textile machinery market is also a key area which has potential of high growth in future years. Currently, only 50% of the industry demand is met through India based manufacturers. In the coming years, the exponential growth of end-product demand will create a demand for machinery as well. It is estimated that there would be requirement of ~US$ 80 to 90 bn. investment in textile machinery to meet this demand. Imports alone will not suffice the requirement not only because of lead time issue but also due to the fact that projects which will target domestic market will not be able to take duty waive off benefits as available to exporters. Usage of Specialty fabrics including coated, warp knitted and nonwoven fabrics is not only confined to industrial applications like roads and construction activities, but also find a place in lifestyle products like kitchen wipes, lingerie, bed sheets and clothes. These fabrics can be used to make sportwear that absorbs and dries sweat and curtains with anti-microbial qualities. The popularity of these products is increasing because of growing consumer awareness and changing lifestyles. In India, market of these products is not fully developed and still at nascent phase. Market of specialty fabric is expected to grow tremendously in near future providing opportunity to the global and Indian investors.
  30. 30. 25 WazirAdvisors is a management consulting firm based out of India that advises clients globally on business strategies, mergers and acquisitions, joint ventures, funding and investments. Wazir is focused on the Indian consumer segments like Textiles, Apparel, Technical Textiles, Retail, Education, Media & Entertainment, Consumer Durables, etc. Wazir offers strategic direction and momentum to Indian and multi-national firms that are looking to address the growing needs of one of the world’s largest and fastest growing market. Wazir assists its clients in developing winning business strategies and implementing them successfully from end to end. With a team of experienced professionals, Wazir offers a comprehensive range of services to its clients to create, compete and develop their consumer-centric businesses in the exciting and challenging Indian market. Wazir’s team comprises of engineers, MBA’s, financial experts and economists from reputed institutes. Wazir’s Service Offerings: a. StrategicAdvisory Services • Assess market opportunity • Develop business & sales strategy • Conduct business & financial planning • Support action planning & assist implementation c. Services for International Companies • Develop market entry strategy • Pursue M&Aopportunities • Identifying local partners: JV, franchisee or licensee • Facilitate setting up business in India b. BusinessAdvisory Services • Facilitate M&A • Promote JV & alliances • Provide funding & investment support d. Services for PE Funds • Develop sector investment strategy • Identify targets & facilitate investments • Due diligence of target companies
  31. 31. The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India, partnering industry, Government, and civil society, through advisory and consultative processes. CII is a non-government, not-for-profit, industry led and industry managed organization, playing a proactive role in India's development process. Founded over 118 years ago, India's premier business association has over 7100 member organizations, from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 companies from around 257 national and regional sectoral associations. CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and enhancing efficiency, competitiveness and business opportunities for industry through a range of specialised services and global linkages. It also provides a platform for consensus-building and networking on diverse issues. Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship programmes. Partnerships with over 120 NGOs across the country carry forward our initiatives for integrated and inclusive development, in affirmative action, healthcare, education, livelihood, diversity management, skill development, empowerment of women, and water, to name a few. The CII Theme for 2013-14 is Accelerating Economic Growth through Innovation, Transformation, Inclusion and Governance. Towards this, CII advocacy will accord top priority to stepping up the growth trajectory of the nation, while retaining a strong focus on accountability, transparency and measurement in both the corporate and social eco-system, building a knowledge economy, and broad-basing development to help deliver the fruits of progress to many. With 63 offices including 10 Centres of Excellence in India, and 7 overseas offices in Australia, China, France, Singapore, South Africa, UK, and USA, as well as institutional partnerships with 224 counterpart organizations in 90 countries, CII serves as a reference point for Indian industry and the international business community.. Confederation of Indian Industry The Mantosh Sondhi Centre 23, Institutional Area, Lodi Road, New Delhi – 110 003 (India) T: 91 11 45771000 / 24629994-7 • F: 91 11 24626149 E: info@cii.in • W: www.cii.in Reach us via our Membership Helpline: 00-91-11-435 46244 / 00-91-99104 46244 CII Helpline Toll free No: 1800-103-1244 26

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