1 CHAPTER III FOREIGN TRADE OF INDIAN COTTON TEXTILE INDUSTRY The chapter covers the following sections. (i) Textiles in the Indian Economy: (a) Indian Cotton Industry - This section deals with cotton production and concentration of cotton crop in a few states, and yield, and comparing the Indian scenario with that of a few other countries. (b) Indian Textile Industry structure and performance of the entire textile industry value chain. The analysis reveals SWOT analysis of the Indian Textiles Industry. Highlights of the draft National Fibre policy announced by the Ministry of Textiles, Government of India in July 2010 are also covered. (ii) Competitiveness of Indian Textiles and Clothing Industry. This section deals with various factors influencing competitiveness of Indian products in international markets where competition with products from other countries is involved. (iii) India s position in Textiles and Clothing Exports Composition. This deals with analysis of the composition of textiles exports, with break up for cotton and non-cotton; and in both the sub-sectors, further break up into five segments fibre, yarn, fabric, readymade garments, and made-ups. Direction of Indian Textiles and Clothing exports is covered in the second half of chapter IV. Time series data for 11 years, to are considered for intensive analysis. In some of the tables, data from to are used to analyse the impact of the quantitative restrictions during the period of operation of the Agreement on Textiles and Clothing (T&C) (January 1995 December 2004) on Indian textile exports, and in the quota free regime from January 2005 till date. Compound annual growth rate (CAGR), and annual per cent change and per cent share are worked out for specific periods for analysing variations. (iv) Indian Textiles and Clothing Imports Scenario for the period to For imports, composition and direction are covered in this chapter. Five hypotheses indicated in chapter II have been examined with data presented in
2 119 this chapter both for textile exports and imports; and results brought out. Trend lines have been drawn for the time series data for exports and imports, using the method of least squares. Chow Test has been used to analyse the position of exports and imports in five segments and the total, in the ATC period and post- ATC period. I. Textiles in the Indian Economy 3.1 India s Cotton Industry Cotton is one of the principal commercial crops cultivated in India. It plays a major role in sustaining the livelihood of an estimated 5.8 million cotton farmers, and million people engaged in related industry and trade activities. The Indian textile industry consumes a diverse range of fibres and yarn. The industry is multi-fibre based, using cotton, jute, wool, silk, man-made, and synthetic fibres. Cotton is the major raw material used in India. The fibre-mix of textile industry in India is skewed towards cotton, with 60 per cent of yarn as cotton-based, and the remaining 40 per cent being non-cotton based, using other fibres. Internationally the fibre-mix is skewed towards man-made fibres with 60 per cent input of this category, and the remaining 40 per cent as cotton-based. India is the second largest producer of cotton in the world, next to China, and has the largest cultivated area with China as the second, and USA as the third; and accounts for 20 per cent of global production of cotton. However, in yield, India lags far behind a number of other countries. The acreage under cotton cultivation during cotton season (October-September) has increased considerably in recent years from 8.8 million hectares in to million hectares in (9.8% growth over the previous year) (Table 3.1). It was 9.41 million hectares in , and 7.63 million hectares in Compound annual growth rate (CAGR) of acreage under cotton during works out to 1.7 per cent, and for production 6.6 per cent. The acreage has been fluctuating though it has been steadily increasing from Between and , CAGR is 4.4 per cent in respect of area, and 11.7 per cent in respect of production. About 62% of India s cotton is produced in rainfed areas, and 38% on irrigated land. Cotton farmers have been
3 120 showing increasing inclination to take to Bt cultivation which helps them in increasing their net earnings through higher yields and lower cost of pesticides consumption. The acreage under Bt cotton in is 78% (8.08 million hectares) of cotton cultivated area, as against 72% in India produces a large number of cotton hybrids and varieties with all the four species of cotton cultivation. The widespread use of Bt cotton seeds has played a catalytic role in enhancing cotton production in the country. During , the country harvested higher cotton crop for the sixth consecutive year at 5.02 million tonnes (equivalent to 29.5 million bales of 170 kgs each) as against 4.93 million tonnes (29 million bales) during (Table 3.3). Cotton yield during was 486 kgs lint per hectare as against 524 kgs in , and 567 kgs in (Table 3.4). Yield per hectare in China is 1251 kg, USA 912 kg, and the world average 766 kg. The decline was due to unfavourable agro-climatic conditions and insufficient rains. Cotton cultivation is mainly spread over nine states of the country, three each in the Northern, Central and Southern zones. The states are Punjab, Haryana and Rajasthan in the North, Gujarat, Maharashtra and Madhya Pradesh in the Centre, and Andhra Pradesh, Karnataka, and Tamil Nadu in the South. Cultivation in a few other states is relatively small. Among the states, Gujarat, Maharashtra and Andhra Pradesh stand prominent in production, above 5 million bales each in , while in respect of yield Tamil Nadu, Andhra Pradesh and Gujarat occupy the first three ranks in that sequence in With the further possibility of higher use of Bt seeds / hybrid seeds, and decline in the cost of such seeds, it is projected to improve the yield to 700 kgs per hectare, and cotton production to 6.6 million tonnes (39 million bales) by from 31.5 million bales in Technology Mission on Cotton has played an important role in improving yield of cotton, and increasing production, apart from modernisation of the industry value chain. Correlation Coefficients have been worked out for state-wise cotton production data for the 9 leading states for the years and to know
4 121 whether the ranking of various states during the 2 periods remains the same or has changed over years (Table 3.3). Karl Pearson s Correlation Coefficient ( r ) : Charles Spearman s Rank Order Correlation Coefficient (rho): Both the coefficients show very high degree of positive correlation. This shows that ranks have remained nearly the same. Changes noticed in the ranks of the states between the two periods are as follows; Maharashtra and Gujarat have exchanged their ranks 1 & 2, with Gujarat becoming 1 in , and Maharashtra 2; Haryana, Punjab and Rajasthan have been ranked as 5, 6 and 7 in The ranking of other states remains the same. Andhra Pradesh and Madhya Pradesh are 3 & 4, respectively; Karnataka and Tamil Nadu are 8 & 9, respectively. In comparison with the first 3 states, all others are at a much lower level in annual production. 3.2 Indian Textile Industry The Indian textile industry is pegged at US $55 billion in 2010, 64 per cent of which services domestic demand, and the rest is for the export-market. The Textile industry, also known as textiles and clothing (T&C), textiles and garments (T&G), and textiles and apparel (T&A) accounts for 14 per cent of industrial production, 4 per cent of Gross Domestic Product (GDP), and 12.5 per cent of the country s exports earnings in Exports was US $22.15 billion in , US $20.98 billion in , and US $22.38 billion in Out of total textile exports, export of readymade garments / clothing is around 51 per cent. Compound annual growth rate (CAGR) of textile exports in US $ terms was 10.5% during , as against 6.4% during During , it was 6.9%, and during , 6.0%. The corresponding percentages of CAGR for overall exports of the country are 22.0 for , 12.2 for , 6.9 for , and 17.8 for The Agreement on Textiles and Clothing (ATC) of the World Trade Organisation (WTO) has been in operation for phasing out quantitative restrictions on movement of textiles from developing countries to developed countries during January 1995 and December With the elimination of quota restrictions on completion of tenure of the ATC, quota free
5 122 regime has come into vogue for international trade in textiles, apart from other commodities. CAGR of the post-atc period for exports from 2005 for Indian textiles, as well as for overall exports has performed better compared to the ATC period. From up to , percentage of textile exports to the country s overall exports ranged from 21 to 28. In view of the faster growth of overall exports in US $ terms of 20 to 30% in recent years, the proportion of textile industry s contribution to overall exports has come down. The sector directly employs over 35 million people, which includes sizeable percentage of marginalised sections of the society and women. The sector is the largest employer after agriculture in the economy. Textile imports in constitute US $3.4 billion, 1.2% of the country s overall imports. CAGR for textile imports in US $ terms for has been higher (12.1%) compared to 9.6% for Corresponding figures for overall imports of the country were 28.5% and 14.6%. Growth rate in the second phase of ATC period ( ) has been higher for textile imports as well as for overall imports compared to the first phase ( ). The National Manufacturing Competitiveness Council (NMCC) has identified T&G as one of the priority sectors having high growth potential, and higher multiplier effects for employment generation, and inclusive growth. The NMCC envisaged the market potential for the industry at US $115 billion by This would create 12 million job opportunities 5 million direct and 7 million in the allied sectors. Indian apparel market has grown by more than 20 per cent annually in recent years, and is estimated to be valued at US $26 billion. A recent research study of Technopak Advisors, a leading management consultancy firm, presented the perspectives of the industry on the following lines. The industry is expected to grow from US $70 billion in 2009 to US $220 billion by 2020; domestic market size from US $46 billion in 2009 to US $140 billion by 2020; the apparel retail market worth US $33 billion in 2009 is expected to touch US $100 billion by India has the potential to increase its textile export share in world textile exports from the current 4.5% to 8% to reach US $80 billion by 2020 from the level of US $22.4 billion in Growth within the industry will be driven
6 123 by innovation across product, design, brand, channel, and also business processes. European Union and USA are the major destinations for India s textile and garment exports. Other major destinations include: United Arab Emirates (UAE), China, Bangladesh, Saudi Arabia, and Japan. As per data collated by WTO, for the year 2006, India accounted for 4.3% of total world exports of textile products, and in the clothing segment India s share was 3.3%. Having a highly fragmented structure, the Indian textile and apparel value chain consists of four stages. Ginning and Spinning Spinning is the process by which cotton or manmade fibre is converted into yarn. In case of cotton, before spinning, ginning is done where the impurities are removed. Weaving and knitting Conversion of cotton or manmade yarns into woven or knitted fabrics Processing includes bleaching, dyeing, mercerising, and printing, which results in finished fabric to be used for manufacture of clothing. Clothing manufacturing this is the final stage where the designing, pattern making, cutting, embellishing, stitching, finishing and packaging is done for distribution. Many players in India have been focusing on further expansion, and have been moving up the value chain by adopting a range of strategies. India s position in the world textile economy is given in Table 3.7(B). As can be seen from the table, India is ranked first in the weaving sector with a large number of shuttle looms and handlooms. However, India ranks only fourth position in the world in terms of capacity of shuttleless looms; as a result, India lags behind China in terms of production. India is also ranked first in the production of Jute. However, in case of raw wool and synthetic fibre, it was positioned 7 th and 5 th rank, respectively. The major sub-sectors that comprise the textiles sector include the organised cotton / man-made fibre textiles mill industry, the man-made fibre/ filament yarn industry, the wool and woollen textiles industry, the sericulture and silk textiles industry, decentralised powerlooms, handicrafts, jute and jute textiles industry, and textiles exports. The cotton/man-made fibre textile industry is the largest organised industry in terms of employment (nearly one million workers), and number of units.
7 124 Besides, there are a large number of subsidiary industries dependent on this sector, such as those manufacturing machinery, accessories, stores, ancillaries, dyes and chemicals, etc. As per the Annual Report of the Ministry of Textiles, at the end of October 2009, there are 1834 cotton/man-made fibre textile mills (nonsmall scale industries) in the country with an installed capacity of million spindles, 4.89 lakh rotors and 56,526 looms. The decentralised powerloom sector plays a vital role in meeting the clothing needs of the country. The powerlooms produce a wide variety of cloth, both grey as well as processed. Production of cloth as well as generation of employment has been rapidly increasing in the powerloom sector. At the end of December 2009, there are 2.24 million powerlooms in the country distributed over approximately 5.03 lakh units, constituting over 60% of the global powerloomage. The powerloom sector contributes about 62% of the total cloth production of the country, and provides employment to about 5.6 million persons. Powerlooms constitute about 14% of employment in the textile sector, account for 60% of the fabric meant for exports. The handloom sector has played an important role in creating awareness of the Indian cultural diversity and fashion, which is unique to the Indian textile industry. The handloom cloth production in is 6,677 million square meters (12.3% of total production of cloth). Production of cloth in the country in is as follows: total quantity 54 billion square meters, with the proportions in percentage terms segment-wise: organised mill sector 3.3, handlooms 12.3, powerlooms 62.1, and hosiery sector 22.3 (Table 3.7A). Decentralised powerloom sector has been maintaining steady growth annually of around 5 to 7 per cent, and hosiery sector with around 10 to 15 per cent in some years. Mill sector and handlooms have been showing declining trend. The clothing sector is fragmented and is predominantly in the small and medium enterprise (SME) sector. It is estimated that there are over 34,000 apparel units (excluding tailoring units) in India, majority of which are in the SME sector. The Apparel Export Promotion Council (AEPC ) conducted a study of Apparel Clusters in the country in As per this study, there are 19 clusters with annual production estimates representing 95% of production of garment units in the
8 125 country. These account for production of 89 billion pieces during Out of total production, 68 billion pieces (76.4%) are for domestic consumption, and 21 billion pieces (23.6%) are for exports. Total employment generated in the 19 clusters in 2008 was around 3.43 million with 51% of it as direct employment, and 49% as indirect employment. Top ten clusters representing 80% of national production are: Kolkata, Mumbai, Tirupur and Chennai in Tamil Nadu, Ludhiana (Punjab), Indore (Madhya Pradesh), Bellary and Bangalore in Karnataka, Jaipur (Rajasthan), and Okhla (Delhi). Other nine clusters are at Kanpur (Uttar Pradesh), Ahmedabad (Gujarat), Nagpur (Maharashtra), Jabalpur (Madhya Pradesh), Salem, Erode and Madurai in Tamil Nadu, NOIDA (Uttar Pradesh), and Gurgaon (Haryana). Clusters are specialised in terms of (a) types of garments manufactured (either woven or knitted), and (b) variety of products produced (i.e. men s, women s or children s). Seven major export clusters with exports in in Rs. billion given in brackets are : Tirupur (995), Gurgaon (425), Bangalore (400), NOIDA (350), Chennai (200), Ludhiana (140), and Kolkata (100). Fragmented Industry The textile and clothing industry in India is a fragmented one with a large number of players, which hampers its ability to emerge as a world class supplier. Also very few players have integrated their operations. With the exception of the organised mill sector, either as spinning or composite mills including weaving and processing facilities, all other stages of manufacture are in the small and medium enterprise sector. One of the reasons for China s supreme position in global textile and clothing industry is its integrated production and consolidated supply chain facilities. The global buyers prefer to place orders with a few large vendors at competitive cost. The disintegrated nature of the industry hampers the chances of securing large orders as also achieving economies of scale. Associated challenges are low productivity, inadequacy of resources to invest in high technology, etc. Cost Competitiveness With regard to cost of production, India fares well in labour cost advantage in the textile sector. However, the cost of power and capital (depreciation and interest) is greater than many other countries. The labour cost of Bangladesh,
9 126 Pakistan and Vietnam is far below that of India, posing competitive threat to the Indian readymade garments industry. Compared to year 2000, in the recent years, the cost of labour in India has gone up substantially as contrasted with the position in the Asian competitor countries. SWOT analysis of the Indian textile industry in the context of the global competitive environment is presented here in terms of strengths, weaknesses, opportunities, and threats. Text Table 3.1: Strengths Multi-fibre raw material base Cheap labour Supervisory skills Traditional skills Large domestic market Opportunities High labour costs in developed countries Absence of quotas from 2005 Source: Textiles Committee, Mumbai. 3.3 National Fibre Policy (2010) Indian Textile Industry A SWOT Analysis Weaknesses Lack of technology upgradation Low investment levels Poor yield and quality of raw material Product quality - lower end Traditional management Threats Absence of protection under WTO from 2005 Emerging competition Regional trading blocs Non-tariff barriers 1. A working group on National Fibre Policy was constituted by the Ministry of Textiles in July 2009, comprising representatives of government organisations, export promotion councils, industry associations, and experts drawn from prominent organisations. Eight sub-groups on various fibres were formed to critically examine the relevant aspects, and make recommendations to facilitate formulation of a comprehensive fibre policy. The National Fibre Policy was released by the Ministry of Textiles on its website on July 7, 2010 inviting comments and suggestions. The Policy will be formalised in the near future. A few of the Key aspects covered in the draft Policy Paper are presented in this section. (Source: Overview 2. The National Fibre Policy has been designed with a decadal perspective of , and seeks to place India firmly on the World Fibre map by strengthening the existing policy framework, and providing institutional and technological support for rapid Fibre growth in the country in the coming decade. The projected
10 127 growth trajectories envisaged under the National Fibre Policy are ambitious, and would benefit all stake holders in the Textile Industry value chain. 3. The National Fibre Policy seeks to build a strong and vibrant textile industry competent of producing quality cloth at acceptable price, increasingly contributing to enhanced employment provision and competing for an increased share of global market. The Fibre neutral policy seeks to balance the existing disparities within the complete range of fibres by providing additional fiscal and non-fiscal incentives for sustainable growth of all fibres, and be competitive in the international market. 4. The policy framework has been built keeping in mind the potential growth of technical textiles both for domestic and international demands. Special attention has been drawn to promote the lesser known specialty man made fibres and other natural fibres. The domestic fibre consumption ratio in India at present is 41:59 (FY09) between man-made fibres and cotton, while it is almost 60:40 globally. The global fibre consumption trend in future is likely to further tilt in favour of man-made fibres as there is a limitation to growth of cotton world wide on account of limited availability of land for cotton cultivation. Given that the future demand is expected to be largely in favour of man-made fibre based textiles; special attention is required to boost the consumption and production of man-made fibres in India. 5. Investments needed for modernization and technology upgradation have been envisaged through continuation of the TUFS scheme while promoting greater downstream integration. The policy also envisages extension of the TUFS scheme to Man Made Fibres production and Technical Textiles. The Handloom Sector plays a vital role in the economy. In terms of employment, the Sector is next only to agriculture and provides employment to the weaker sections of the society, with 86% handloom weavers/workers living in rural and semi-urban areas. The National Fibre Policy addresses increasing the demand for raw materials for handloom weavers keeping in view of the projected growth rates of the handloom sector.
11 The key elements of the National Fibre Policy thus include the following: a) Cotton production is envisaged to rise at a growth rate of 4.7 per cent from 31.9 million bales in to 48.3 million bales in ; Cotton Consumption is envisaged to increase to 41.3 million bales by with 7 million bales being surplus; b) Man Made Fibres and Speciality Fibres domestic demand will rise at a growth rate of 8 per cent per annum from 3.9 billion kgs in 2015 to 6 billion kgs in 2020; c) Jute production will rise at a growth rate of 3.6 per cent from 9.4 million bales in to 13.0 million bales in ; d) Wool consumption is projected to nearly double from million kgs in to million kgs in The National Fibre Policy also envisages significant institutional strengthening mechanisms in the form of the following: a) An Inter-Ministerial Committee of Secretaries headed by Textiles Secretary to calibrate cotton exports to ensure improved supply chain management for domestic consumption, Electronic data exchange between Customs Department and Textiles Commissioner for monitoring cotton and yarn export shipments; b) Establishment of a Yarn Advisory Board for formulation of a Yarn Balance sheet to ensure adequate yarn availability for handlooms and garments sector; c) Launching of a Technology Mission on Technical Textiles and creation of centres of excellence in the identified sub groups of technical textiles; d) Creation of a Jute Development Fund for R&D efforts in modern machinery development of Jute sector; e) Setting up of an MMF advisory council with all stakeholders to monitor excise duty and other concessions and take an integrated approach to solving the problems of MMF producers; f) Adopting a Mission Mode approach and establishing an Inter Ministerial Board for promotion of Organic, Suvin and ELS cotton sector; g) Restructuring the Central Wool Board on the lines of the Central Silk Board to effectively implement the various schemes and policies and achieve desired objectives; h) A Focus Fibre Focus State approach would be adopted for the development of Other Natural Fibres in the Country.
12 Aims and Objectives 9. The National Fibre Policy has the following aims and objectives: i. Augmenting investment, and providing support on both fiscal and nonfiscal front to increase fibre availability in the country, and facilitate high growth and competitiveness of the textile sector. ii. iii. iv. Focusing on improving quality of the fibre produced in India; Devising means to augmenting remuneration of all the stakeholders within the fibre eco-system; Correcting fiscal anomalies, and policy limitations that are currently present in the fibre eco-system in order to ensure balanced growth of the textile industry; v. Providing assistance for building capacity in both industry segment and human capital required for processing the expected surge in the fibre production; vi. vii. Supporting modernisation and technological up-gradation of various segments of the industry, to increase its competitiveness; Addressing the problem of infrastructure bottlenecks Future Outlook of India s Cotton Production and Consumption 10. Cotton production largely depends on the area under cotton production and productivity. Considering the issues pertaining to food security and land pressures, the area under cotton production is assumed to be largely constant at the current level. Thus, the future production is expected to be driven by improvement in cotton yield. Yield is assumed to grow at 4.7%. The final scenario for 2020 is encapsulated in the table below. Future Outlook for Cotton Production and Consumption (figures in lakh bales) Year Production Consumption Surplus In the years to come, the robust increase in domestic consumption is likely to drive down the surplus in cotton. Therefore, it is essential that there is greater focus on enhancing domestic production of cotton significantly to cater to the expected increase in domestic demand.
13 Man Made Fibres 12. Analysis of the world Textile and Garment production vividly brings out that India s failure to harness the potential of Man Made Fibres has proved to be a limiting factor in attaining a dominant position it deserves in the international Textiles and Clothing sector. 13. India is the second largest producer of man-made fibres in the world (World Fibre Report 2008) with presence of large plants having state-of-the art technology. MMF textiles constitute almost two-third of the domestic textile market. However, India s share in global exports of value-added textiles of manmade fibres is miniscule at around 2.25% in 2008 (India s MMF exports were US $ 3.3 billion as against global exports of US$ billion). Hence, the domestic MMF: cotton fibre consumption ratio in India is 41:59 (FY09) while it is the reverse globally. The share of man-made fibres in total fibre consumption has risen from 25% in early nineties to 41% at present. However, since quota abolition, the share of MMF in India s fibre consumption has almost stagnated at around 40% on account of rising cotton production and international demand for cotton by textile manufacturers to cater to export demand from global markets. 14. India s capacities for man-made fibres currently stand at 3.4 billion kg, which is around 6.6% of global MMF capacities. India s total production of manmade fibres stood at 2.5 billion kg in FY09, of which exports constituted 10.1% at 0.25 billion kg., and imports constituted 0.12 billion kg. Indian manmade fibre industry is largely polyester dominated, which constitutes over 83% of total manmade fibre production. 15. While man-made fibre production is highly concentrated, with limited players engaged in manufacturing of MMF, the value added MMF textiles manufacture is primarily in the decentralised sector, with presence of a large number of small and medium enterprises. Production of MMF fabrics has grown from 21 billion square meters in FY05 to 23.9 billion square meters in FY09. While in the domestic market, MMF textiles and garments are dominant (65-70%), cotton textiles are predominant in the export markets (over 80%).
14 Given the changing consumption pattern in favour of man-made fibre based textiles, there is a need to assess the medium term and long term demand for manmade fibres in India. The demand for man-made fibre depends upon the demand for yarn and fabrics, which in turn depends upon the consumption of finished textiles, namely, apparel and made-ups. 17. Considering future GDP growth of 8%, the domestic demand for man-made fibres/ filament yarns is estimated at 3.9 billion kg in FY15 and about 6 billion kg in FY20. Adjusting to this the likely exports and imports of MMF, the overall MMF requirement is estimated at 4.2 billion kg for FY15 and 6.48 billion kg for FY20. This implies capacity additions of about 1.8 billion kg (FY15) and 4.6 billion kg (FY20), which would require an investment of over Rs. 90 billion by FY15 and Rs. 230 billion by FY20.The PFY (Polyester Filament Yarn) has a majority share in the MMF fibre demand and the country s share in PSF (Polyphenylene Sulfide Fibres) is weak Speciality Fibres and Technical Textiles 18. Technical Textiles are textile materials and products used primarily for their technical performance and functional properties rather than their aesthetic or decorative characteristics. Some of the terms used for Technical Textiles include industrial textiles, functional textiles, performance textiles, engineering textiles, invisible textiles and hi-tech textiles. Technical Textiles are used individually to satisfy a specific function (fire retardant fabric used in the uniforms of firemen) or as a component of another product for enhancing its strength, performance or other functional properties (tyre cord fabrics used in automobile tyres). They are also sometimes used as accessories in processes to manufacture other products (paper maker felt in paper mills). Some examples of Technical Textiles in our day-to-day life include- tea bags, interlinings in clothes, carpets, wall coverings, sanitary napkins, baby diapers, mattresses, and blankets amongst others. Technical Textiles have a very important role in nation s security and infrastructure development and nation building in general. Some examples aregeo-textiles for long lasting roads, environment/ soil protection fabrics used in
15 132 disaster management, protective clothing (such as bullet proof vests) for security personnel, fire-retardant fabrics for public places, etc. 19. With globalisation of Indian economy and the rise in the expectations & capacity of the middle class, the market size for technical textiles has shown a healthy growth of 18% during to , and is expected to grow at 11% per annum till , and thereafter at 6-8% per annum till 2020 naturally. However, if government interventions take place in the form of a stimulus, the growth of technical textiles industry can be estimated at 12-15% per annum till Speciality fibres are special man-made fibres used for manufacture in Technical Textiles. The requirement / consumption of speciality fibres, therefore, have direct correlation with the manufacturing base of technical textiles in the country and its growth. 21. The proposed policy interventions in speciality fibre sector would enable the technical textiles sector to attract an investment of Rs.50 billion by 2012; to create additional employment opportunities for 12 lakhs persons by 2012, and to grow at 12-15% CAGR. 22. A comprehensive Technology Mission of Technical Textiles is also proposed to be launched Major Policy Initiatives Required to meet the Gap A: Cotton 23. India will be a cotton surplus Nation in the next decade. For the Textiles Ministry, therefore, supply side management issues are of vital importance which need to be addressed in the National Fibre Policy to ensure adequate availability and quality of spinnable cotton in the country. 24. The key issues involved in policy formulation include: (a) cotton contamination, (b) improving quality, (c) improving infrastructure, (d) problem of admixtures, (e) need for establishing uniform standards, (f) creation of testing facilities, and (g) need for an Indian arbitration for imported cotton. The responsibility for enhancing production rests with the Ministry of Agriculture. The policy measures include creating an institutional framework for development of
16 133 cotton fibre, improving irrigation facilities and water harvesting, and increasing awareness amongst farmers for suitable agronomic practices. Improving Supply Chain Management and Ensuring Cotton Security 25. After independence, most productive cotton lands became part of Pakistan and Indian Union was left with short cotton production for large cotton based Industry. This lead to serious shortage of cotton, and India turned from an exporting country to a net Importer of long staple cotton. Cotton security for domestic industry became a paramount need. 26. However, with various Governmental measures and agriculture extension schemes to grow more cotton in the Country through Intensive Cotton Development Program in , and setting up of Technology Mission on Cotton in 2000 coupled with release of Bt seeds for Commercial cultivation in ; the cotton production of the Country reached a record level of 30.7 million bales in With these developments, India became the 2 nd largest producer, consumer and exporter of cotton in the world. Minimum Support Price (MSP) Mechanism safeguards the interest of cotton growers in the wake of fall in kapas prices B: Cotton Export: Self Sufficiency in Cotton 27. Initially, cotton exports from India during the nineties were governed by long-term cotton export Policy of the Government of India. As per this policy, quota of 5 lakhs cotton bales including short staple non-spinnable Bengal Deshi used to be released in the beginning of the season depending upon the availability of surplus cotton. Thereafter the additional export quota used to be released in a phased manner depending upon the availability of surplus cotton after meeting the domestic consumption needs. A major portion of the quota was given to CCI. Some portion of this quota was also allocated to Co-operative Institutions like NAFED, HAFED, MarkFed, Maharashtra Federation etc. Since some of these institutes did not possess sufficient basic infrastructure & marketing expertise; therefore, CCI was facilitating in liquidating their quota. In late 1990s, residual quota was also given to private traders in small quantities. During this quota
17 134 system, Textile Commissioner s Office was tasked with undertaking registration of export contract. CCI, NAFED and other State Federations were under obligation to give a Legal Undertaking (LUD) while private traders had to give Bank Guarantee to ensure performance of Export Contracts. Now Maharashtra Federation, GUJFED, RAJFED and most of the other State Federations have become defunct, and are not involved in cotton marketing any more. 28. The Government of India with effect from July 2, 2001 had liberalised cotton exports from the country, and placed the same under Open General License (OGL). Thus, the system of allocation of cotton export quotas in favour of different Agencies including CCI was dispensed with. 29. Cotton exports from India which used to be around 5 to 6 lakhs bales up to , reached the level of 13 lakhs bales in Thereafter, there were only meager exports from the country except for the year and In , exports were 47 lakhs bales, and touched the highest level of lakhs bales in In , the actual export shipment from the Country is reported to the extent of lakhs bales. An additional 3.12 lakh bales are being shipped to Bangladesh and Pakistan. Considering the cotton consumption of the Country as 260 lakhs bales, the carry over stocks shall be around 34 lakh bales, which is equivalent to 45 days consumption only. Thus, carry over stock for next Cotton Season shall be around 14.3 % of cotton production of 292 lakhs bales estimated for Cotton Season , resulting in very tight supply position of cotton for Indian Textile Mills. 31. In the medium and long term, the stock to use ratio would be a determinant of the exportable surplus. The National Fibre Policy, thus, seeks to improve supply chain management with calibration of cotton exports, and putting in place credible and transparent institutional mechanisms for ensuring India s cotton security commensurate with the growth envisaged in the sector. 32. In order to avoid repetition of such a situation (09-10) of over exports resulting in shortages & disruption of supply of cotton to domestic textile industry, tangible steps have been considered under the National Fibre Policy for future to
18 135 ensure regular supply of quality cotton to Industry till the end of every cotton season. 33. The National Fibre Policy envisages the following policy measures: Though CCI is a major player for MSP operations, the National Fibre Policy envisages CCI to undertake commercial operations so as to ensure secured supply of cotton to textile mills at competitive prices. This shall obviate the possibility of cartelisation for individual gains; After projecting cotton consumption of domestic mills vis-à-vis expected cotton production, availability of surplus cotton would be ascertained by Cotton Advisory Board. An Inter-Ministerial Committee of Secretaries under the Chairmanship of Textiles Secretary would, based on recommendations of Cotton Advisory Board and other factors; consider exportable surplus of cotton from the country, and also ensuring the prescribed carry over stock at the end of season; Textiles Ministry in consultation with ISRO/ Department of Space would put in place improved crop mapping of cotton so as clearly identify production and acreage; In consultation with Department of Revenue, Textiles Ministry would put in place an electronic data exchange system, that would ensure that every Shipping/ Dry port provides a platform for data exchange on cotton shipments on a weekly basis to the Textiles Commissioner. 34. The National Fibre Policy to the extent possible will seek to eliminate export shipments to bonded warehouses in non-consumption countries, and shall be instrumental in getting better per unit export realisation, which shall ultimately benefit cotton growers of the country. Government would also seek to introduce a separate price index for Indian cotton C: Cotton Yarn 35. Textiles Ministry would also initiate necessary policy interventions for greater monitoring and streamlining of yarn exports to ensure adequate availability to the handloom and garment sector has witnessed significant price surges in the yarn industry that has resulted in significant distortions in the supply chain to the handlooms and garments sector. The policy interventions envisaged by the Ministry of Textiles to stabilise prices of cotton yarn for improved supply
19 136 chain management for textile yardage, handloom weavers and garment sector are the following: Yarn export registration which has commenced from April 2010 would be firmly established as an institutional strengthening mechanism. A Yarn Advisory Board would be established to formulate a Yarn Balance Sheet for the Country. The Yarn Advisory Board comprising of representatives of stakeholders, ministries of Government of India and the Industry would function on the lines of the Cotton Advisory Board and would be an enabling mechanism for considered policy making to ensure adequate supplies to downstream industry; Ministry of Textiles would intensify the Test Check of Hank Yarn Obligations through the Textiles Commissioner to ensure that the industry fully adopts the prescribed norms for ensuring adequate availability of hank yarn to the handloom sector. The Ministry of Textiles would advise the Textiles Commissioner to explore necessary legal and regulatory options available under the Essential Commodities Act to ensure that the mandatory obligations of the Spinning Industry to the Handlooms Sector are duly fulfilled. In addition to the above, Textiles Ministry has constituted a committee under chairmanship of Development Commissioner (Handlooms) to examine all issues of Hank Yarn Obligations to ensure adequate availability of hank yarn to weavers. The Committee s recommendations would be considered for future policy interventions. Appropriate fiscal measures on yarn would be considered in consultation with Finance Ministry to improve domestic availability of yarn if the trigger point prescribed for yarn exports by the Yarn Advisory Board is breached D: Improving marketing and branding of Cotton 36. Grading of Kapas is imperative for improving the marketing and branding of Kapas and lint. The grading system by an independent agency, regulated ware housing system, better contracting system with risk management instruments, will raise the dynamics of Indian cotton to a greater level of acceptance, fine image and remarkable branding. The National Fibre Policy envisages the following policy measures: A structured mechanism for promotion of cotton use would be developed, in order to sustain domestic consumption on a long term basis, so as to maintain the strength of cotton economy.
20 137 Pilot projects for marketing of lint by the farmers, instead of kapas would be considered. This would result in higher income to the farmers and accelerate cotton production. The role and functions of Government agencies involved in marketing of cotton fibre will be looked into for any reorientation of their role towards inclusion of price stability. II. Competitiveness of Indian Textiles and Clothing Industry 3.4 Supply Chain Management The Indian textile and clothing industries have one of the longest and most complex supply chains in the world, with existence of many intermediaries between the farmer and the final consumer. Each intermediary not only leads to lengthening of lead times, but also adds to costs. By the time the product reaches the final consumer, price of it increases manifold. This has to be reduced if India has to become competitive. The industries would need to develop supply chain management (SCM) perspective, and rationalise costs at each stage in the entire supply chain, and not only within their own units. Hong Kong apparel industry did take this initiative, and has managed to shrink the supply chain in terms of lead times, as well as costs. In recent years modern garment units are increasingly emphasising on supply chain management (SCM) which refers to delivery of enhanced customer and economic value through synchronised management of the flow of physical goods and associated information from sources to points of consumption. In a dynamic environment where demand is uncertain and significantly seasonal, where the product life cycles are short and where the competitive intensity is high - companies that are able to perform functional integration tend to outperform others (Verma, 2002). The supply chain in India is extremely fragmented mainly due to the government policies and lack of coordination between industry and relevant trade bodies. It is noteworthy that the countries that are globally competitive are the ones which have a significantly consolidated supply chain. Some of the countries with
21 138 much less fragmented supply chains are Korea, China, Bangladesh, Turkey, Pakistan and Mexico, and these are close competitors of India in the global market for exports. 3.5 Lack of Dyeing Facilities The major problem facing the structure of textile and clothing sector is lack of good infrastructure to develop dyeing/processing units. The small fabrics producing units belonging to the powerloom sector are not in a position to come out with better dyeing units, which is economical at large size, and require huge investment. But the large dyeing units find its survival very uneconomical for catering to the needs of small powerloom units producing in small lots. One dyeing unit catering to the processing requirement of a large number of powerloom units is not working well due to spread of units, and increase in transport and management costs which make co-ordination difficult. A few powerloom units have experimented the installation of modern dyeing units in a co-operative arrangement, but this has yet to become a widespread phenomenon. This lack of dyeing facilities is badly affecting the quality of fabrics available for garment units. This explains the poor quality fabric available to Indian garment producers compared to international standards. This affects our competitiveness in the apparel sector. A large number of garment units producing high value and designer garments products resort to import for good quality fabrics. Thus there exists a major gap in the garment value chain. This mismatch needs to be corrected and Government incentives are required for targeting incentives in a proper direction to allow good dyeing infrastructure to develop. 3.6 Low Labour Cost in Production of Indian Apparel Despite some glaring problems of the Indian apparels industry, there is immense potential for growth for Indian apparel exports. Garment sector is highly labour intensive in India, and thus labour cost assumes much significance in per piece cost of garment production. India compares very favourably across the developing countries in terms of low labour costs for the same skill of labour. Bangladesh, Pakistan and Vietnam are, however, countries having lower labour
22 139 costs compared to India. However, empirical evidence suggests that low wages are not always a factor of competitiveness particularly in case of good quality designer garments. Quite often high wages are paid to skilled labourers as remuneration for the high levels of skill and productivity which, in turn are important factors of export competitiveness. It is observed that export oriented garment units pay higher wages to their labourers than the domestic market oriented units. This difference in wage rates is attributed to the unique and indispensable skills of designers, pattern makers and craftsmen, as well as to better-trained cutters and tailors employed by exporting firms. However, the size of units is also crucial, and quality is not always the deciding factor for wage rate. Currently India has a 3.4 per cent share in the global market for textiles and clothing. Proliferation of retailer driven global supply chains in recent times means that the highest value activities are in designing, distribution, branding and marketing. For this, it is important that both backward and forward linkages be established domestically. India already produces good quality yarn, but integration in the industry is weak as is the capacity to deliver quality products on a timely and flexible schedule. Policymakers must now identify a strategic direction for the industry to ensure that sectoral initiatives impel rather than impede growth (G. Badri Narayanan, Economic and Political Weekly, February 26, 2005, pp ). 3.7 Competitiveness of Indian Textiles and Clothing Competitiveness is a function of factors related to cost of production, as well as those related to non-price factors such as delivery schedules, reliability of producers, and such intangible factors like image of the country/company and brand equity. Together, they define the competitive sinews of a product to compete under free market conditions. Findings presented in this section of inter-country comparison of competitiveness of Indian Textiles are based on the Study carried out by National Council of Applied Economic Research (NCAER), New Delhi (2009), titled, Assessing the Prospects for Indian Textile and Clothing Sector, hereafter referred to as NCAER study (2009). In the sphere of cotton yarn, India is one of the lowest cost producers. International Textiles Manufacturers Federation (ITMF) statistics, 2006 shows
23 140 comparative cost of production of yarn and fabric of some major textiles producing countries - India, Brazil, China, Italy, Korea, Turkey, and USA. Indian cost of Ring Yarn at US$2.13 per kg is much lower than USA (US$2.81 per kg.), Italy (US$3.20 per kg.) and China (US$2.89 per kg.) during 2006 (Text Table 3.2). Cheap availability of raw material and low labour cost are the major causes of low cost of production of ring yarn in India. In O-E yarn production, India is much competitive as compared to other countries. The analysis based on ITMF data includes Pakistan in their cost comparative analysis. This is one major limitation of ITMF data as Pakistan is one of India s key competitors. Gherzi Eastern Limited data helps in making comparison in this regard. Gherzi study shows that India s labour cost is very close to China s, but higher than that of Pakistan, which gave Pakistan a major advantage. Power cost in India is also quite high compared to Pakistan and China. The cheap cotton availability is the major advantage India enjoyed compared to even Pakistan and China. The cost comparison of other items using ITMF data show that India is much competitive in the international export market in case of woven ring yarn fabric shown by ITMF data. In 2006, total fabric cost for India was US $ per metre. India s closest competitor was Brazil with per metre fabric cost being US$ Chinese, US and Italian fabric incurred per metre fabric cost of US $0.740, US $0.837, and US $1.004 respectively (Text Table 3.2). Here also raw material and labour cost components were the major determining factors for competitiveness of Indian woven fabric. Similarly, in case of knitted ring yarn fabric, India is much competitive as compared to its competitors. In 2006, per metre cost of knitted fabric was US $0.511 which was much less than its competitors. In 2006 its closest competitor was Korea with per metre knitted fabric cost of US $0.621 (Text Table 3.2). Here also raw material and labour cost components were the most important factors for its competitiveness. It is notable here that in case of both woven and knitted fabric, Chinese fabric had a somewhat lower labour cost but it is more than compensated by cheap raw material availability in India.