Indian Textile Industry

The textile industry is the largest industry of modern India. It accounts for over
20 percent of industrial production and is closely linked with the agricultural and
rural economy. It is the single largest employer in the industrial sector employing
about 38 million people. If employment in allied sectors like ginning, agriculture,
pressing, cotton trade, jute, etc. are added then the total employment is
estimated at 93 million. The net foreign exchange earnings in this sector are
one of the highest and, together with carpet and handicrafts, account for over !
percent of total export earnings at over "# $ %0 billion. Textiles,
%
alone, account
for about 2& percent of India's total forex earnings.
India's textile industry since its beginning continues to be predominantly cotton
based with about (& percent of fabric consumption in the country being
accounted for by cotton. The industry is highly localised in )hmedabad and
*ombay in the western part of the country though other centres exist including
+anpur, ,alcutta, Indore, ,oimbatore, and #holapur.
The structure of the textile industry is extremely complex with the modern,
sophisticated and highly mechanised mill sector on the one hand and the
handspinning and handweaving -handloom. sector on the other. *etween the
two falls the small/scale powerloom sector. The latter two are together known as
the decentralised sector. 0ver the years, the government has granted a whole
range of concessions to the non/mill sector as a result of which the share of the
decentralised sector has increased considerably in the total production. 0f the
two sub/sectors of the decentralised sector, the powerloom sector has shown the
faster rate of growth. In the production of fabrics the decentralised sector
accounts for roughly 12 percent while the mill sector has a share of only (
percent.
*eing an agro/based industry the production of raw material varies from year to
year depending on weather and rainfall conditions. )ccordingly the price
fluctuates too.
1
Yarn, cloth, fabrics, and other products not made into garments.
India3s trade in textiles and its share in world trade can be categori4ed as follows5
Indias Trade in Textiles
-%116.
Type India's Share in
World Trade
Yarn 22%
Fabrics 3.2%
Apparel 2%
Made-ups 9%
Over-all 2.8%
Global Scenario
The textile and clothing trade is governed by the 7ulti/8ibre )greement -78).
which came into force on 9anuary %, %1!2 replacing short/term and long/term
arrangements of the %1(0's which protected "# textile producers from booming
9apanese textiles exports. :ater, it was extended to other developing countries
like India, +orea, ;ong +ong, etc. which had ac<uired a comparative advantage
in textiles. ,urrently, India has bilateral arrangements under 78) with "#),
,anada, )ustralia, countries of the =uropean ,ommission, etc. "nder 78),
foreign trade is subject to relatively high tariffs and export <uotas restricting
India's penetration into these markets. India was interested in the early phasing
out of these <uotas in the "ruguay >ound of ?egotiations but this did not
happen due to the reluctance of the developed countries like the "# and =, to
open up their textile markets to Third @orld imports because of high labour
costs. @ith the removal of <uotas, exports of textiles have now to cope with new
challenges in the form of growing non/tariff A non/trade barriers such as growing
regionalisation of trade between blocks of nations, child labour, anti/dumping
duties, etc.
?evertheless, it must be realised that the picture is not all rosy. It is now being
admitted universally and even officially that the year 200& )B is likely to present
more of a challenge than opportunity. If the industry does not pay attention to the
very vital needs of modernisation, <uality control, technology upgradation, etc. it
is likely to be left behind. )lready, its comparative advantage of cheap labour is
being nullified by the use of outmoded machinery.
@ith the dismantling of the 78), it becomes imperative for the textile industry to
take on competitors like ,hina, Cakistan, etc., which enjoy lower labour costs. In
fact the seriousness of the situation becomes even more apparent when it is
Compound Annual Growth Rate
(CAGR) of different segments
Type CAGR (199398!
Yarn 31.79%
Fabric 9.!%
Made-ups 1".18%
Gar#en$ %.79"%
realised that the non/<uota exports have not really risen dramatically over the
past few years. The continued dominance of yarn in exports of cotton,
synthetics, and blends, is another cause for worry while exports of fabrics is not
growing. The lack of value added products in textile exports do not augur well
for India in a non/78) world.
Textile exports alone earn almost 2& percent of foreign exchange for India yet its
share in global trade is dismal, having declined from %0.1 percent in %1&& to .2
percent in %11(. 7ore significantly, the share of ,hina in world trade in textiles,
in %112, was %.22 percent, up from 2.( percent in %160. ;ong +ong, too,
improved its share from !.0( percent to %2.(& percent over the same period.
Drowth rate, in "#$ terms, of exports of textiles, including apparel, was over %!
percent between %11/12 to %11&/1(. It declined to %0.& percent in %11(/1! and
to & percent in %11!/16. )nother disconcerting aspect that reflects the declining
international competitiveness of Indian textile industry is the surge in imports in
the last two years. Imports grew by %2 percent in dollar terms in %11!/16,
against an average of &.6 percent for all imports into India. Imports from ,hina
went up by &0 percent while those from ;ong +ong jumped by 2 percent.
Glo"al #a$tors in#luen$in% textile industry
The history of the textile and clothing industry has been replete with the use of
various bilateral <uotas, protectionist policies, discriminatory tariffs, etc. by the
developed world against the developing countries. The result was a highly
distorted structure, which imposed hidden costs on the export sectors of the
Third @orld. Bespite the fact that D)TT was established way back in %12!, the
textile industry, till %112, remained largely out of its liberalisation agreements. In
fact, trade in this sector, until the "ruguay >ound, evolved in the opposite
direction. ,onse<uently, since %1!2 global trade in the textiles and clothing
sector had been governed by the 7ulti/fibre agreement, which was the se<uel to
an increasingly pervasive <uota regime that began with the #hort/term
arrangement on cotton products in %1(2 and followed by the :ong/Term
arrangement. )fter the successful conclusion of the "ruguay >ound in %112, the
78) was replaced by the )greement on Textiles and ,lothing -)T,., which had
the same 78) framework in the context of an agreed, ten year phasing out of all
<uotas by the year 200&. The section that follows takes a brief look at the history
of these protectionist regimes as also a more detailed look at the 78) and the
)T,.
&ulti'(i"re A%reement (&(A!
0n 9anuary %st, %1!2, the )rrangement >egarding the International Trade in
Textiles, otherwise known as the 78) came into force. It superseded all
existing arrangements that had been governing trade in cotton textiles
since %1(%. The 78) sought to achieve the expansion of trade, the
reduction of barriers to trade and the progressive liberalisation of world
trade in textile products, while at the same time ensuring the orderly and
e<uitable development of this trade and avoidance of disruptive effects in
individual markets and on individual lines of production in both importing
and exporting countries. Though it was supposed to be a short/term
arrangement to enable the adjustment of the industry to a free trade
regime, the 78) was extended in %1!2, %162, %16(, %11%, and %112.
*ecause of the <uotas allotted, the 78) resulted in a regular shift of
production from <uota restricted countries to less restricted ones as soon
as the <uotas began to cause problems for the traders in importing
countries. The first three extensions of the 78), instead of liberalising the
trade in textiles and clothing, further intensified restrictions on imports,
specifically affecting the developing country exporters of the textile and
clothing products. Increased usage of several 78) measures tended to
further erode the trust which developing countries had originally placed in
the 78).
The 78) set the terms and conditions for governing <uantitative restrictions on
textile and clothing exports of developing countries either through
negotiations or bilateral agreements or on a unilateral basis. The bilateral
agreements negotiated between importing and exporting country's
contained provisions relating to the products traded but they differed in the
details. The restraints under the 78) were often negotiated, or
unilaterally imposed at relatively short intervals, practically annually. The
<uotas could be either by function or fibre
"nder the 78), product coverage was extended to include textiles and clothing
made of wool and man/made fibres -778., as well as cotton and blends
thereof. @ith regard to applications of safeguard measures, import
restrictions could be imposed unilaterally in a situation of actual market
disruption in the absence of a mutually agreed situation. ;owever, in
situations involving a real risk of market disruption only bilateral restraint
agreements were possible. The Textile #urveillance *ody -T#*. was set
up to monitor disputes regarding actions taken in response to market
disruptions.
The 78) permitted certain flexibility in <uota restrictions for the exporters so that
they could adjust to changing market conditions, export demands and their
own capabilities. The 78) also provided for higher <uotas and liberal
growth for developing countries whose exports were already restrained.
The 78) asked the participants to refrain from restraining the trade of
small suppliers under normal circumstances. In general, developed
countries, under 78), chose not to impose restrictions on imports from
other developed countries
The T#* ensured compliance by all parties to the obligations of bilateral
agreements or unilateral agreements. It called for notification of all
restrictive measures. ) Textiles ,ommittee E established as a
management body consisting of all member countries E was the final
arbiter under the 78) and worked as a court of appeal for disputes that
could not be resolved under T#*.
"nsatisfactory experience with several extension protocols of the 78), retention
clauses, such as Fgood willG, Fexceptional casesG, and Fanti/surgeG and other
trade related factors led the developing countries to press for the inclusion of the
textile issue in the agenda of the D)TT 7inisterial meeting.
The eventual outcome of prolonged negotiations was the )greement on Textiles
and ,lothing.
A%reement on Textiles and Clothin% (ATC!
The )T, calls for a progressive phasing out of all the 78) restrictions and other
discriminatory measures in a period of %0 years. In contrast to the 78),
the )T, is applicable to all members of the @T0.
(our Steps o)er 1* +ears
S$eps &ercen$a'e o(
produc$s $o be
brou')$ under
GA**
+includin'
re#oval o(
,uo$as-
.o/ (as$ re#ainin'
,uo$a s)ould
open up0 i(
199! ra$e
/as %%
Step 1
%
st
9an %11& E %
st
Bec %11!
1, per$ent -minimum
taking %110
imports as
base.
(.1( percent annually
Step -
%
st
9an %116 E %
st
Bec 2002
1. per$ent 6.!0 percent annually
Step 3
%
st
9an 2002 E %
st
Bec 2002
18 per$ent %%.0& percent
annually
Step /
%
st
9an 200&
8ull integration into D)TT and final
elimination of <uotas , )T,
terminates
/9 per$ent -maximum. ?o <uotas left
Top 10 Exporters (Textile)
1oun$r2 199 1997
3illion
4S5
% s)are 3illion 4S5 % s)are
;ong +ong !.11 !.(6 %2.( 1.22
,hina !.%0 (.62 %.6 6.12
#outh +orea (.02 &.6% %.& 6.(%
Dermany %2.00 %.2( %.0& 6.22
Italy 1.60 1.2 %2.1 6.2
Taiwan (.% &.10 %2.! 6.2%
"#) &.0 2.6 1.%1 &.1
8rance !.2% 2.(& &.6(
&.(2
*elgium/
:uxembourg (.&2 (.21 !.0% 2.&2
9apan &.66 &.(& (.!& 2.&
Total (Top 1*! ./03, .101 11*0,- .103.
World 1*/0** 1**0** 1110** 1**0**
Top 10 Exporters (Apparel)
1oun$r2 199 1997
3illion 4S5 % s)are 3illion 4S5 % s)are
,hina 1.2% 1.%2 %.6 2%.0(
;ong +ong %&.! %2.12 2.%% %&.0
Italy %2.0! %%.!2 %2.6& 1.6
"#) 2.&! 2.21 6.(6 &.!&
Dermany !.62 !.&1 !.21 2.6
Turkey .22 .2 (.! 2.22
8rance 2.(& 2.&% &.2 .&2
"+ .06 2.11 &.26 .&0
#outh +orea 6.%% !.6! 2.%1 2.!!
Thailand 2.6( 2.!6 .!! 2.&0
Total (top 1*! ,9038 ,.03, 1110*1 .301-
World 1*30** 1**0** 1110** 1**0**
23 Top Ten Suppliers o# &(A Clothin%4 Ran5 6ri$e
(AGR 199/9,!
1991
Ran5s and A)era%e 6ri$e

199,
Ran5s and A)era%e 6ri$e
Ran5
6ri$e
CAGR
199/9,
,ountry >ank in
Halue
>ank in
Holume
)vg.
Crice,
=cuA+g
Rank in
Value
>ank in
Holume
)vg. Crice,
=cuA+g
,hina 2 % 1 % % 6
Turkey % 2 2 2 2 ( !
;ong +ong ( & 1
Tunisia 2 ! 2 ( 2
7orocco & ( & & ! 2 2
Coland ( 6 2 ( 6 % 6
India . 1 . . 1 9 1*
*angladesh 6 2 %0 6 2 %0 &
>omania 1 %0 2 1 %0 2 %
Indonesia %0 1 6 %0 1 ! (
6ost&(A 7 ATC S$enario
It is generally believed that <uota phase/out can only be "ene#i$ial for the
industry. In %11, a study of seven countries found that the price of cotton yarn
per kilo, was cheapest in India at "#$ 2.!1, compared to "#$ .0 in *ra4il, "#$
2.%1 in 9apan, and "#$ .%0 in Thailand. This was because overall labour and
raw material costs are cheaper in India.
;owever, it should be realised that the opposite can also happen. >emoval of
<uotas may open new frontiers but will also close captive markets. The =" and
the "# will no longer be restrained in buying as much as they want from the
cheapest possible sources. #ome argue that the ending of <uotas will result in
cut/throat competition between developing countries. ,oupled with this is erosion
in the growth of markets in industrial countries. )pparent consumption of textile
products, in real terms, remained stagnant during the decade %16&/1&.
Curchases become discretionary and fashion/driven. )s a result, fashion cycles
got shorter and order/cycles compressed. >etailers order re<uirements on short/
order cycle term and demand rapid responses to in/season ordering. ;ence,
they are compelled to secure their supplies of top/up orders from those in close
vicinity.
There is, therefore, a propensity towards sour$in% #rom lo8$ost $ountries in
the neighbourhood as also a growth of offshore processing by manufacturers in
developed countries. >egional integration reinforces this.
8urther exporters in India fear that freer imports could lead to dumpin% o# lo8
$ost #a"ri$s from ,hina and other #outheast )sian countries. Thus, the industry
needs restructuring on all fronts. )lthough the policy framework can be blamed
partially for its ills, internal factors are e<ually important.
>ecent studies indicate that India is beginning to lose out to its rivals. In one
survey of "# textile and apparel imports, ,hina and ;ong +ong had higher
market shares than India. In certain categories, other )sian low cost producers
like Cakistan and Indonesia had higher market shares and had emerged as close
competitors to India. *ecause many of these countries depend on imports,
however, India can take advantage of home produ$tion.
8urther, formation of ?)8T) means dire$t $ompetition from the :atin )merican
countries. The "nited #tates has farmed/out offshore processing work to
enterprises in 7exico and the ,aribbean *ase Initiative countries. #imilar
relocation has taken place in =urope with manufacturers shifting base to =astern
=urope, which provides similar advantages of cheap labour and proximity.
According to projections by TECS, EU imports of ready-made fabrics will double
between 199 and !"", as a result of t#e elimination of $uotas% US imports are
e&pected to treble o'er t#e same period%
According to anot#er prediction, apparel output could more t#an double (i%e%
e&pand by !1)* between 199+ and !""+, compared to an increase of only
11), wit#out t#e agreement on te&tiles and clot#ing%
*y increasing market access, the )T, will generate multiplier e##e$ts in the
Indian economy, eventually feeding back into the textile industry itself. The rise in
demand for exports could increase output and employment in the textile industry.
This in turn will stimulate the agricultural sector to meet the rising demand for
cotton. )s profits rise, so will wages, which will act as further stimulus. The export
boom in the textile and clothing industry will also generate considerable foreign
exchange.
Diven India's high <uota growth rates during the phase/out period, its competitive
product niches and established links with retailers and importers in developed
countries, it should experience vigorous growth in the future. The @orld *ank
predicts a growth rate of %(I per annum in the coming decade.
Ultimately, t#e e&tent t#at ,ndia will benefit from trade liberalisation depends on
its current cost competiti'eness, its ability to increase producti'ity and upgrade
$uality%
6#plica$ions on 6ndian 78por$s +Op$i#is$ic Scenario-
-arn
J Darment exports of *angladesh increase leading to increase in consumption
of Indian fabric and yarn
J =xports of 8ar/=ast K )#=)? increase further
J >ationali4ation in duties of 778 leading to increase in processing of fibres in
India
.abric/0ade-ups
J Darmenting dereserved leading to entry of large textile players ensuring
efficient sourcing and increase in the margins
J Increase in investment for processing
J Improvement in #)CT) trade
1arments
J Darmenting and +nitting de/reserved to allow the units to grow bigger to be
able to service large orders and large clients
J :abor laws in India become industry friendly
J Darment parks come up in key regions giving a boost to exports
J #uccessful Luota Chase/out without exports getting restricted by L>s
.ig in US 2 0n
199/ 1998 -**- -**19 -*1*9
Marn &10 %!60 2 2!0% %%
7ade/ups 6&% %216 2(20 2&2! %%2((
8abric %2%2 %!%( 2&%2 &0 !%00
Darments !% 2621 (&%0 %0!12 2%!%%
Total 3435 95!4 1"4+ !1++! 4!"5
N Crojections
6#plica$ions on 6ndian 78por$s +&essi#is$ic Scenario-
-arn
/ ,hange works to the advantage for #. +oreaA)#=)?A8ar/=ast
/ Bemand for packages increases
/ ==, other garment supply countries invest in back/end processes
8abricA7ade/ups
/ =nvironmental ,lause impacts
/ Investment in processing does not happen
/ *lends and synthetic fabrics dominate reducing advantage of Indian cotton
Darments
/ #ocial clause impact leading to ban on some categories, etc.
/ ##) is a reality impacting exports of garments from India to "#) and ="
/ 8T) becomes a reality
/ 0ther projectionist measures come up
)s opposed to the optimistic scenario, the pessimistic scenario shows a shortfall
of nearly "# $2000 mn of exports in year 200& and the exports are not likely to
be much higher than the present figures. It would also lead to development of
textile and clothing industry in the other nations and India would lose out as a
significant player in the industry. This would also stifle the domestic textile
industry which would be in a very weak position to compete with imports. -These
are expected to become cheaper with import duty rationali4ation as per
international treaties and cost competitiveness of overseas players.. #ome of
the subsidies currently extended by the Indian government to promote exports
which are sector specific -T"8, 60 ;;,. or region specific -=CO#, =0"#. may
also need to be withdrawn.
.ig in US 2 0n
199/ 1998 -**- -**19 -*1*9
Marn &10 %!60 200 2%2( 2022
7ade/ups 6&% %216 206 222! 016
8abric %2%2 %!%( %1% 20&0 2%&2
Darments !% 2621 &2& &11 (66&
Total 3435 95!4 11"5 1!+! 11+9
N Crojections
Con$lusions
To effectively tackle the situation India needs to invest in research and
development to develop new products, reduce transaction costs, reduce per unit
costs, and finally, improve its raw material base. India needs to move from the
lower/end markets to middle level value/for/money markets and export high
value/added products of international standard. Thus the industry should
diversify in design to ensure <uality output and technological advancement.
The weakest links in the entire chain are the powerlooms and the processing
houses. The latter especially are very important because they are responsible
for the highest value addition in the manufacturing line. ) powerloom co/
operative structure could be evolved for pooling of common services and
functions such as <uality testing, marketing, short/term financing, etc. 8urther,
because of the geographical proximity enjoyed, a cluster approach can be
adopted.
The government also needs to make policy changes like dereserving the small/
scale sector so that it can achieve economies of scale and adopt a synergistic
approach.
;andlooms by their very nature can adopt a strategy of PnicheG marketing. In
this respect, export promotion, common credit and marketing facilities and more
significantly publicity are important areas for co/operation. ;ere too, a co/
operative structure would be useful though government agencies should be
involved because of their outreach. ?ewer and more innovative forms of
involvement are re<uired where decentralisation should be a key element.
India has made little attempt to forge partnerships E in e<uity, technology and
distribution in overseas markets. The newer nuances of global apparel trade
demand joint control of brand positioning, distributing and <uality assurance
systems.
The Indian textile industry has recognised the need for a cradle/to/grave
approach when tackling environmental issues i.e. eco prescription should be
applied right from the stage of cultivation to spinning to weaving to chemical
processing to packaging. ;ere especially there is great scope for private /public
partnerships.
) great deal of work has been done by Indian trade and industry to comply with
ecological and environmental regulations, and so Indian garments can adopt an
appropriate label signifying a distinct <uality.
=fficiency and output of handloom and powerloom sectors also needs to be
increased. The clothing sector needs the support of high <uality and cost/
effective cloth processing facilities. 7odernisation of mills is a must.
;uman resource is another area of focus. The workforce must be trained and
oriented towards high productivity.
The business environment of the future will be intensely competitive. ,ountries
will want their own interests to be safeguarded. )s tariffs tumble, non/tariff
barriers will be adopted. ?ew consumer demands and expectations coupled with
new techni<ues in the market will add a new dimension. =/commerce will
unleash new possibilities. This will demand a new mindset to eliminate wastes,
delays, and avoidable transaction costs. =ffective entrepreneur/friendly
institutional support will need to be extended by the Dovernment, business and
umbrella organisations.
Areas 8here German de)elopment $ooperation $an help are
enumerated "elo80
6npu$ Areas
&olic2 (ra#e/or9 is co#ple8 /i$) inpu$s (ro# #an2 #inis$ries. *)e
(ollo/in' c)ar$ is no$ #ean$ $o be e8)aus$ive bu$ onl2 $o indica$e areas
/)ere Ger#an develop#en$ co-opera$ion can )ave an i#pac$.
:ATI;:A< 2C;:;&IC 6;<IC+
Industrial 6oli$y 7 Textile 6oli$y
&lannin' Financin' 6nves$#en$ 78por$ Manpo/er :;< 6n(ras$ruc$ure
,ompetitive
positioning
,redits Cromotion *ilateral
agreements
=ducation Luality control Corts
=valuating
domestic and
foreign needs
)id through
multi/lateral
agencies
Information
technology
=xport
promotion
Training Croductivity ,ontainers
=xport
strategy
#ector specific Bevelopment
of support
industries
#kills and
development
#tandardisatio
n
)irports
=xport
financing
7achinery A
spares
@elfare I#0 1000 >oads
#ynthetic raw
materials
:iteracy Cackaging >ail
:anguage >KB Telecom
=ntrepreneur
development
=cology
standards
Cower
@ater
Das
Possible Indo-German Co-operation in Textiles
Areas o# Cooperation
6ro'ision of co-operati'e structures for $uality testing, mar7eting,
brand-building
Tec#nological upgradation (egs% Effluent treatment plants, energy
sa'ing de'ices, and ot#er mac#inery related directly to t#e
production process li7e spreading, cutting, finis#ing, etc%*
Adoption of en'ironment-friendly tec#nology to pre-empt t#e ad'erse
impact of non-tariff barriers% T#is includes en'ironmental monitoring /
testing e$uipment and ser'ices, combating air pollution (pac7age
scrubber, special air pollutant treatment for 8
!
S, CS
!
*, solid waste
remo'al, wastewater disposal
9e'elopment of te&tile-specific software for ,ndia, Computer-Aided
Te&tile 9esigning, aiding ,T integration
:or7ing out alternati'e tec#ni$ues / frame conditions suc# t#at
sanitary and p#yto-sanitary measures are not a problem
0anagerial training to encourage adoption of tec#ni$ues li7e ;,T,
<uic7 =esponse Systems
Usage of E6S (Electronic 6oint of Sale* software
6romoting labels li7e =U10A=> (carpets* in te&tiles so t#at
consumers are satisfied t#at c#ild labour #as not been employed, to
counter negati'e publicity generated by t#e ?Clean Clot#es?
mo'ement, etc%
6romoting #and-made articles by impro'ing $uality of raw materials
and introducing mac#inery w#ere possible in t#e process so as to
maintain standards of $uality and design
9e'elopment of new products
Adoption and adaptation of state-of-t#e-art information tec#nology in
enterprise resource planning so as to pre-empt non-tariff barriers
w#ic# curtail mar7ets for t#e ,ndian te&tile industry
8elping firms build close relations#ips wit# customers
Training centres
S#ort-term credit
,mpro'ement of synt#etic fibre-base to reap economies of scale, use
of genetic engineering, bio-tec#nology, and cellular biology in bot#
natural and synt#etic fibre-base