Performance Evaluation of Indian Textile Industry

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1 International Journal for Management Research (Vol.1.No.3, October 2011, pp ) Performance Evaluation of Indian Textile Industry Vanishree Abstract: The Indian Textile Industry plays an extremely significant role in India in terms of share in value added, foreign exchange earnings, and employment. It has created a niche for itself in the world textile market. It is one of those industries that are vertically integrated from raw materials to finished goods. The Indian textile industry has some strategic and commercial advantages. Indian textile and clothing industry has tremendous potential, which has to be cultivated for global performance. With the dismantling of quotas in 2004 under mandate from the Agreement in Textile and Clothing of the WTO, the focus is now on the future of the Indian textile industry. This study is an attempt to evaluate performance of the Indian textile industry. Key Words: Indian textile industry, exports, production, consumption and competitiveness. Biographical Note: Vanishree is an Assistant Professor in the Department of Management at CVR College of Engineering, Ibrahimpatan, Andhra Pradesh. Her area of interest is Human Resource Management. She has a total experience of twelve years of which six years are in industry and six years are in academics. She can be reached at Introduction India is one of the fastest growing economies of the world. In recent years there has been lot of change in the lifestyle and expenditure pattern of the people. The consumers are having more discretionary income for clothing and other purchases after meeting their basic needs. India s huge domestic market as well as increase in trade and foreign investment in certain sectors offers significant growth opportunities in domestic textiles and apparel consumption. The textile and apparel industry is one of the leading segments of the Indian economy. It plays a vital role in the economy as it the textiles and clothing sector is the largest employer after agriculture and it is also the largest source of foreign exchange earnings for India. India s textile and apparel industry benefits from a large pool of skilled workers. India s textile industry depends heavily on 84

2 domestically produced cotton. The Indian textile industry comprises three interrelated but competing sectors the organized mill sector and the decentralized handloom and power loom sectors Export of textile Textile exports play a crucial role in the total exports of our country. The Indian textile industry has the potential for being a leading player in world trade after abolition of the quota regime. India has the advantage of being the largest maker of yarn and leading producer of cotton fibre. Table 1. World Cotton Exports (1000 MT) Country s Year Exports 2007/ / / /11 United States India Australia Brazil Uzbekistan Greece Turkmenistan Other Total Source: USDA Office of Global Analysis, August 2011 Indian has been the second largest exporter of cotton in the world after United States since 2007/08 except in the year 2008/09 when the Indian prices remained uncompetitive and even the global economic slowdown had hit the demand badly. The industry accounts for nearly 12 per cent share of the country's total exports basket. India s share of global textile and apparel exports has increased in recent years, but at a slower pace than that of other major suppliers. Indian textile exporters are facing stiffer competition in the US market from countries like China, Indonesia, Vietnam and Bangladesh, findings of a new report by the Federation of Indian Chambers of Commerce and Industry (FICCI) indicate. Production of Cotton Cotton is mostly produced in Northern States, Central states and in Southern states of India. Approximately 65% of India s cotton is produced on rain-fed. India produces a large number of cotton varieties and hybrids. 85

3 Table 2. World Cotton Production (Million of 480 lb bales) Country 2006/ / / / /11 December China India United States Pakistan Brazil Uzbekistan Turkey Australia African Franc Zone European Union Turkmenistan Greece Syria Argentina Burkina Rest of the World World Total Source: USDA Office of Global Analysis, September, 2011 India has been the second largest producer of cotton in the world since 2006/07.Its percentage share of production in the world has increased from 17.9% in the year 2006/07 to 26.0% in the year 2010/11. The Indian textile industry consumes a diverse range of fibers, but is predominantly cotton based. It is the principal raw material for the domestic textile industry comprising 1608 spinning mills and 200 composite mills with an installed capacity of million spindles, 448,000 open-end rotors and 69,000 looms in the organized sector and another 1219 small-scale spinning units with 4.00 million spindles and 157,226 rotors in the small-scale decentralized sector. Consumption of cotton Steady growth of the Indian population its strong economic growth would boost demand for cotton textiles. Developing countries like India consume a major proportion of global cotton 86

4 output. The share in global consumption of developing countries has become even more significant since 2000s. Table 3. World Cotton Consumption (Million of 480 lb bales) Country 2006/ / / / /11 December China India Pakistan Turkey Brazil Bangladesh United States Indonesia Mexico Vietnam Thailand Uzbekistan South Korea Taiwan Argentina Rest of the World World Total Source: USDA Office of Global Analysis, September, 2011 Cotton consumption in India has been increasing since 2006/07 because of its large domestic textile industry and increase in mill consumption of cotton in organized sector, textile mills and small scale spinning units in the country. India s percentage share of consumption in the world has increased from 14.6% in the year 2006/07 to 18.1% in the year 2010/11. Area, production and yield of cotton India has the largest area of cotton cultivation. There has been a significant quantitative increase in cotton production over the years. India has become self-sufficient in cotton production because of special schemes launched by the government like intensive cotton production programmes. Table 4. All-India Area, Production and Yield of Cotton Year Area (Lakh Hectares) Production (Lakh Bales of 170 Kgs Each) Yield (Kgs/Hect) 87

5 Source: GOI, 2011, Area, Production and Productivity of cotton in India, The Corporation of India, 2011 Cotton There has been a rapid growth in yields since 2000/01 due to expansion of biotech cotton, improved hybrid cotton varieties, improved crop management practices and use of better technology. The area under cotton plantation has increased from lakh hectares in to in The yield has increased from 278 kgs per hectare in to 486 kgs per hectare in For better yield, cotton farmers will have to invest more in production technologies for better management of fertilizers, irrigation, micro nutrients, pests and diseases. Competitiveness of India Textile Industry Sales and Distribution: India has a large fragmented sales and distribution network (Sundar A. Shetty, 2001). Many market intermediaries such as wholesalers, stockists, transporters, commission agents, dealers and retailers are involved in the distribution of apparel. While urban areas have outlets ranging from supermarkets to small retail stores, the rural areas have smaller stores. Since most of the distribution channels are independently owned and supply multiple brands, development of dealers is of the utmost importance in both urban and rural areas. Transportation and Communication: Lack of proper infrastructure has dampened the growth of textile and garment industry. Railways, road, and air are the principal means of transportation in India. Poor infrastructure lead to delays and high transaction costs are incurred in exporting goods abroad or transporting it within the country. Already, transaction costs in India are amongst the highest in the world and the delays increases the cost by another 15% to 20% which is roughly the margin of any garment unit (Abhisek Shanker, 2004).The government should set up Special Export Zones as it holds the key to helping its apparel manufacturers compete in the global market 88

6 (Asutosh Padhi, et.al., 2004) as well as indentify the large scale clusters and develop the infrastructure for those clusters ( T.S.Devaraja, 2011). Investment and Credit Flow: Even the companies that perform well do not have enough investible surpluses after substantial tax liabilities including income tax. The requirement of working capital should be met by the bankers, liberally. The exposure norms of Financial Institutions/ Banks for various sectors are the barriers in increasing the credit flow to the textile industry (ESCAP, 2008). The major percentage of NPAs in the textile industry discourages the Financial Institutions/ Banks to go for aggressive lending to the sector. The interest rates for export credit as well as interest rates on working capital should be brought down. Brand Promotion: Indian exporters neither have the marketing expertise to build brands nor the confidence to succeed with their brands in foreign markets. Some of the key issues involved in brand promotion of textiles are product quality, delivery, design, government support and policies, market information and price competitiveness (GOI, 2006). Activities like e-commerce, advertising, sponsored visits to foreign markets, presentations, locating consultants and hosting sites on government portals could be improved. There is a need for thorough market research to identify the related bottlenecks which prevent exporters or domestic brands from venturing into foreign branded markets. FDI in textile industry: Indian market now has the presence of several international brands. However, the presence is more in the nature of brand licensing with Indian players rather than direct investment. India is the second most attractive destination for FDI in textile and apparel sector, other than South Asian countries of Bangladesh and Vietnam. These are the countries where the FDI and textile and apparel exports have seen a major growth. The primary reason for major investment in other countries has been duty free access to major markets, a parameter on which India ranks way behind (Prashant Agarwal, et.al, 2009). In order to achieve the projected growth of textile and apparel sector, it becomes still more important to make efforts to educate the international investing community about the merits of investment in India. Innovation & Technology: Competitive edge for Indian textiles industry will come from improvement in processes, adoption of new materials. Special attention needs to be given to emerging areas such as nanotechnology, plasma technology, bio-technology, membrane technology and energy management etc. There should be ongoing review and evaluation of 89

7 research work to ensure benefits from R&D to the industry. There should be increasing research on developing practical recycling technologies that can take existing Synthetic fibers back into the textile supply chain (CCI, 2010). There should also be research on making the existing processes more energy efficient. Conclusion The Indian textile and clothing industry, the oldest industry of the country, which meets one of the basic needs of the population i.e., clothing, will have to be supported and strengthened and for this purpose, the Government and the industry should work to together. India is poised to become an even bigger participant on the global front, both as a consumer and as a producer. The Indian Textile Industry has the advantage of a large and very attractive domestic market and low cost production. However, in order to become a leading FDI destination in the textile and apparel sector, a lot needs to be done. The Government needs to work on a focused Pull Strategy. The way ahead is to identify and highlight the key strengths, the available resources and the large growing domestic market through focused marketing efforts. References: 1. Abhisek Shanker, 2004, Poor Infrastructure could tear apart textile trade s post-quota gains, The Economic Times, September, Asutosh Padhi, Geert Pauwels and Charlie Taylor, 2004, Freeing India s Textile Industry, McKinsey Quarterly, July, CCI, 2010, A Brief report Textile Industry in India, Indian_textile_ industry. 4. ESCAP, 2008, Protectionism: Regional Responses to Remaining Barriers in Textiles and Clothing Trade, United Nations, Thailand, GOI, 2006, Textile & Jute Industry for the Eleventh Five Year Plan, , Ministry of textiles, GOI, 2011, Area, Production and Productivity of cotton in India, The Cotton Corporation of India, Prashant Agarwal, Luv Jasuja and Rohit Nasa, 2009, FDI: A catalyst for growth of the Textile & Apparel Industry, Technopak, Volume 2,

8 8. Sunder A.Shetty, 2001, India s Textile and Apparel Industry: Growth Potential and Trade and Investment opportunities, Staff Research study, Office of Industries, U.S. International trade Commission, March, T.S.Devaraja, 2011, Indian textile and Garment Industry-An Overview, working paper supported by ICSSR, Minstry of HRD, GOI, New Delhi, USDA, 2011, Cotton: World Markets and Trade Archives, USDA, Foreign Agriculture Services 91