Industry Overview

Chapter II

Section A: Textiles Industry

Introduction

The Indian textiles industry plays an important role in the countrys economic growth. The industry is important in terms
of output, foreign exchange earnings and employment. It contributes around 14% to industrial production, 4% to GDP and
17% to the countrys export earnings. One of the key trends seen in the liberalised post-quota period is that India emerged
a major sourcing destination for new players. With growing interest in the Indian textiles and clothing sector, a number
of buyers opened their sourcing/liaison offices in India. The recent couple of years were challenging for the Indian textiles
industry as a result of the global economic slowdown. Back home, the industry faced challenges of strong demand side
pressures due to inflationary trends and volatility in commodity prices.

Size and structure of the industry

The Indian textile industry is fragmented, with only a few large players and numerous small and medium-size companies.
The industrys size is estimated at US$ 55 bn with 64% companies catering to domestic demand. The textiles industry
provides direct employment to more than 35 mn people and indirect employment to 47 mn. In addition, the industry
generates significant employment through forward and backward linkages, both in traditional (production of cotton and
other natural fibres) and modern activities (textile design, etc). In fact, the textiles industry is the second-largest employment
generator after agriculture.
The clothing sector is the final stage of the textiles value chain, with maximum value addition at this level. It is a lowinvestment and high labour-intensive industry; an investment of ` 0.1 mn creates 6 to 8 jobs. The industry employs around
5 mn workers, of which, around 2.5 mn are in the export sector. The clothing industry consists mainly of knitted and woven
garment segments. This industry is fragmented and is predominantly in the small scale sector.
Apparel clusters in India
The apparel industry is concentrated mainly in eight clusters: Tirupur, Ludhiana, Bengaluru, Delhi/Noida/Gurgaon, Mumbai, Kolkata,
Jaipur and Indore. While Tirupur, Ludhiana and Kolkata are major centres for knitwear, Bengaluru, Delhi/Noida/Gurgaon, Mumbai,
Jaipur and Indore are major hubs for woven garments.

Industry structure

The textiles sector in India comprises both organised and unorganised segments. More than 70 textile and clothing clusters
account for about 80% of total production in the country. There are 39 power loom clusters in the country. Major states
with a number of clusters are Maharashtra, Tamil Nadu, Andhra Pradesh, Karnataka, Kerala and Uttar Pradesh. The
textiles industry is extremely diversified with hand-spun and hand-woven sectors at one end and the capital-intensive,
sophisticated mill sector at the other. The de-centralised power loom/hosiery and knitting sectors form the largest section
of the textiles industry.
Major sub-sectors of the textiles sector are organised cotton/man-made fibre textiles mills, man-made fibre/filament yarn,
wool and woolen textiles, sericulture and silk textiles, handlooms, handicrafts, jute and jute textiles and textiles exports.

Exhibit 2.1: Textile industry value chain

Source: D&B Research

Table 2.1: SWOT analysis of the Indian Textile industry

Strengths

Opportunities

Various types of raw materials are available in abundance

Government initiatives to encourage exports and upgrade
technology
Low cost of labour
Strong presence across the entire value chain, from fibre to
garments

Favourable demographics in the domestic market; increasing young

population coupled with rising income levels
Emergence of retail Industry as a whole and development of various
malls provide huge opportunities for the apparel segments
Opportunities in product diversification (for e.g, Technical Textiles)
Increasing working female population with higher propensity to spend
compared with home keepers
Change in consumption pattern, including rising demand for highquality premium fabrics and development of various products cater
to global needs
Replacement of the Multi Fibre Agreement (MFA) and integration of the
textile industry resulting in huge opportunities for exports. Moreover,
gradual development in the technical side of the industry provides an
opportunity

Weaknesses

Threats

Low cotton yield per hectare, high financing cost and lack
of adequate technology
High dependence on EU and US for exports
Highly fragmented industry with large number of smallsize and technologically-outdated plants, lacking benefits
of economies of scale
Infrastructure bottlenecks for handling huge volumes
Lack of trained manpower and low labour productivity due
to lack of technological development

Increased, cost-based competition from other countries (Bangladesh,

Vietnam, and Sri Lanka)
Pricing pressures due to removal of US and EU quotas on imports from
China
Fluctuations in the demand in exports due to the elimination of quota
regime
Higher borrowing cost which affects the profitability of the small and
medium firms
Rising input costs

Source: D&B Research

Growth in cloth production accelerated in FY10

Between FY03 and FY11, Indias cloth production recorded year-on-year growth in each of the years, barring FY03 and
FY09. After the 2% decline in production in FY09, cloth production grew 9.8% to 60,333 mn sq metres during FY10.

Chart 2.1: Trend in cloth production

*Provisional
Source: Office of the textile commissioner

Composition of cloth production

The composition of cloth production has remained more or less unchanged during the past decade. The average share of
cotton in total cloth production was around 47.4% during FY02-FY11. Average share for non-cotton cloth was 37.8% during
this period. During FY11, production of cotton cloth grew 7.9% to 31,201 mn sq mtrs. On the other hand, production of
non-cotton cloth declined 5.2% to 21,663 mn sq mtrs.
Chart 2.2: Composition of cloth production (mn sq mtrs)

Source: Office of the textile commissioner

Exports scenario

Textile exports play an important role in overall exports from India. The Indian textiles and clothing industry is one of the
largest contributors to the countrys export. Textile exports constitute about 12% of Indias total export. Indias share in the
world textile and clothing market, although small, is rising steadily. Indias share in the global textile and apparel markets
is 4% and 2.8% respectively. The export basket of the Indian textiles industry consists of a wide range of items: readymade
garments, cotton textiles, handloom textiles, man-made fibre textiles, wool and woollen goods, silk, jute and handicrafts,
including carpets.

Basic facts: Indian textiles and clothing (T&C) exports

Indias share in global T&C trade: 4% in textiles and 2.8% in clothing
Indias rank in world trade: 7th in textiles and 6th in clothing
Share in the countrys total exports basket: 12%
Readymade garments share: nearly 50% of total textile exports
Indias textiles products are exported to over 100 countries
Two-third of Indias textiles are exported to the US and EU
Other major export destinations include Canada, UAE, Japan, Saudi Arabia, Republic of Korea, Bangladesh and Turkey.
Source: Ministry of Textiles

Indias textile exports

Indias textile exports declined in FY09 mainly due to fall in demand owing to the global slowdown. However, during
FY10, exports recovered and recorded a marginal increase of 0.52%. Nonetheless, exports of textiles increased to US$ 10.9
bn during FY11 marking a remarkable growth of 19.3% compared with FY10.
Chart 2.3: Exports of Textiles (US$ bn)

Source: DGCI&S

Chart 2.4: Composition of textile exports FY11 (%)

Source: Office of the textile commissioner

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USA and EU account for about two-third of Indias textiles exports. The other export destinations include Canada, UAE,
Japan, Saudi Arabia, Republic of Korea, Bangladesh, and Turkey. Although India exports textiles to more than 100 countries,
they are heavily skewed in terms of export destinations. The top 10 destinations for Indias readymade garments exports
account for nearly 80% of Indias total readymade garments exports. Even among the leading 10 export markets, the US
accounts for the largest chunk; readymade garments exports from India to the US had the largest share of 25% during
FY11.
The Middle East, particularly UAE, is another important destination for Indias readymade garment exports. UAEs share
in total RMG exports from India had halved from 10% in FY01 to around 5% by FY06. Nevertheless, since FY07, there has
been a reversal in trend; UAEs share recovered to 9.6% in FY11.
Chart 2.5: Major destinations for Indias readymade garments exports* (%)

*For FY11; up to February

Source: DGCI&S

Chart 2.6: Top-10 destinations for Indias readymade garment exports* (US$ mn)

*For FY11; up to February

Source: DGCI&S

Major government policies/initiatives

Post liberalisation, Government of India (GoI) has undertaken several key initiatives to boost the industrys growth. It has
removed barriers that hindered growth and expansion. Some major policies include:

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National Textile Policy - 2000

In 2000, GoI announced the National Textile Policy 2000, which replaced the previous Textile Policy of 1985. One of the
main objectives of the new policy is to enable the textile industry to attain and sustain a preeminent global standing in
manufacture and export of clothing.
Some other key objectives of the policy are:
- Equipping the industry to withstand pressures of import penetration and maintaining dominant presence in the
domestic market
- Liberalising controls and regulations so that different segments of textile industry are able to perform in a greater
competitive environment
- Developing a strong multi-fibre base with thrust on product upgrade and diversification
- Sustaining and strengthening the traditional knowledge, skills and capabilities of the weavers and craftsmen.

De-reservation of the garments sector

Prior to the National Textile Policy 2000, Indian garment sector was reserved for the SSI sector; large enterprises could
manufacture apparels, provided they met the export obligation of minimum 50% of output. This policy acted as an
impediment to growth by preventing capacity expansion and technological upgradation of garment manufacturing units.
To improve competitiveness of garment manufacturers, the Textile Policy 2000 removed this restriction and de-reserved
garments, hosiery and knitwear from the SSI sector.
Foreign Direct Investment 100% FDI is allowed in the textiles sector under the automatic route; this encourages international
textile companies to set up base in India. The chart below depicts inflow of FDI into the Indian textiles industry:
Chart 2.7: Inflow of FDI into the textiles sector (Rs bn)

*Up to October 2011

Source: Ministry of Textiles

Technology Upgradation Fund Scheme (TUFS): TUFS was initially commissioned in April 1999 for five years to facilitate
modernisation and upgradation of the textile industry. It is a flagship programme of Ministry of Textiles and has acted
as a catalyst in attracting investments into the textiles sector. Under this scheme, GoI provides credit to manufacturers in
the organised and unorganised sector at reduced rates. It provides capital subsidy of 10% and interest subsidy of 5% on
installation of machinery for manufacture of technical textiles, garmenting machinery and processing machinery under
TUFS. The scheme has now been extended up to March 31, 2012.

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Chart 2.8: Share of major textile sectors in TUFS (%)

Source: Ministry of Textiles

Table 2.2: Progress under TUFS - Garment manufacturing

Received
No. of applications
Non-SSI
SSI

Project cost
(` bn)

Amount of loan
required (` bn)

560

85.57

39.52

1,433

16.42

9.47

Sanctioned
No. of applications
Non-SSI

Project cost
(` bn)

549

SSI

1,433

Amount (` bn)

84

32.8

16.44

9.25

Disbursed
No. of applications
Non-SSI
SSI

Amount
(` bn)

546

29.73

1404

7.81

Note: Provisional; April 1, 1999 to June 30, 2010

Source: Office of the textile commissioner

Scheme for Integrated Textile Parks (SITP): This scheme has been implemented to facilitate setting up of textile units with
appropriate support infrastructure. The total project cost (including land, infrastructure, buildings and common facilities,
factory building for production and installed plant and machinery) is funded through a mix of equity/grants - from the
State Industrial Development Corporation, Industry and Project Management Consultant and Loan from banks/financial
institutions. GoIs support under the scheme is via grant or equity, limited to 40% of the project cost, subject to a ceiling of
` 400 mn.

The way forward

The Ministry of Textiles targets growth of 16% per annum to US$ 115 bn for the Indian textiles and clothing industry
by end of the Eleventh Five Year Plan period; it also intends to secure a share of 7% in global textiles and clothing trade.
Achievement of this target would also translate into the industry having a potential to employ 45 mn people by 2012. Going
forward, the domestic readymade garments industry is expected to be driven by a buoyant economy, increasing purchasing
power and increase in retail activity.

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The Indian textiles and clothing industry is of significant importance to domestic economic growth. The vision statement
for the textiles industry for the Eleventh Five Year Plan (2007-12) envisages India securing 7% share in global textiles trade
by 2012. Notwithstanding the bright prospects, on the export front, the industry faces certain critical constraints: lack of
proper infrastructure, high power and transaction cost, incidence of state level cess and duties, lack of state-of-the-art
technology.
On the export front, to reduce over-dependence on the EU and US markets, thrust should be on tapping new markets such
as Japan, South Asia, Australia, Latin America, and South Africa to promote exports.
To ensure sustained growth and expansion of the Indian textile industry, it is necessary to maintain healthy export growth
momentum, increase production and productivity in cotton yarn, enhance value addition in garmenting and apparel
sectors, promote the rich heritage of handlooms and handicrafts, institutional strengthening in the jute sector, and enhance
acreages under mulberry production and safeguard employment opportunities. More concerted efforts need to be taken to
bridge the skill gap in the textiles industry.
Exhibit 2.2: Future growth drivers of readymade garments

Source: D&B Research

India is still a relatively small but growing player in the global apparel market. With recovery in the world economy and
anticipated increase in demand, particularly in the emerging economies, prospects for growth of the Indian readymade
garments industry and the overall textiles industry seem bright.

Section B: Auto Component Industry

The Indian auto component industry is one of the few sectors that have a distinct global competitive advantage in terms of
cost and quality. It is also one among the fastest growing industries in India. The Indian auto component industry gradually
transformed from a local supplier to a global auto parts supplier to major global automobile companies. Indias costcompetitiveness in raw material and labour and its established manufacturing base is a compelling attraction for global
Original Equipment Manufacturers (OEMs) to outsource components from India.

Industry Structure

The Indian auto component industry grew robustly at 19.9% CAGR over FY05-FY11 and reached ` 1368 bn in FY11. The
remarkable growth can be attributed to government initiatives and incentives, additional subsidies, formation of various
clusters, gradual increase in the per capita income as well as disposable income giving a boost to the demand of automobile
industry and in turn auto component industry. Moreover, innovative marketing strategies and increase in competition due
to entry of various foreign players have further helped to drive the improvement in end products. Economic liberalisation,
coupled with technological, cost and manpower advantages, has made India one of the prime business destinations for many

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global automotive players. Indian auto components manufacturers can be broadly divided into organised and unorganised
players. The organised sector accounts for three fourth of total production. The forte of the organised sector is high, valueadded precision engineering products, a large unorganised sector characterises the lower value-added segments.
Chart 2.9: Size of Indian auto component industry

Source: Automotive Component Manufacturers Association of India (ACMA)

Industry Classification

The Indian auto component industry can be classified into various product range of which eight components contribute
majorly to the industry. Engine parts contributed remarkably 31% towards the auto component industry in FY11 followed
by drive transmission and steering component manufacturing. Electrical parts contributed only 9%, lowest in the Indian
auto component industry.
Chart 2.10: Classification of Indian auto component industry

Source: Annual Report FY11, ACMA

The Indian auto component industry is categorised based on their class and size of their location as Tier I, Tier II and Tier
III firms. Tier I firms mostly include large firms. Tier II comprises medium-sized companies and the smaller, single-auto
component manufacturing firms, mostly unorganised players, form Tier III.
The facilities provided and technology used in manufacturing varies across the three tiers. Tier I is referred to as an
advanced region and most OEMs operate here. They are equipped with high-end technology on par with global standards.
Further, most companies have high-end research and development centers to carry out new innovation. On the other hand
Tier II and III regions have less access to the latest technology and they generally use traditional technology and methods
to manufacture various components.

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Exibit 2.3: Location wise categorization of Indian auto component industry

Source: D&B research

Table 2.3: Auto components: Regional clusters

Cluster

Cities

Western Cluster

Pune, Aurangabad, Nashik (Maharashtra)

Southern Cluster

Chennai & Coimbatore (Tamil Nadu); Bengaluru (Karnataka)

Central Cluster

Pithampur, Dewas, Indore (Madhya Pradesh)

NCR Cluster

Faridabad & Gurgaon (Haryana); Alwar, Bhiwadi, Khuskhera & Chopanki (Rajasthan)

Eastern Cluster

Jamshedpur & Guptamani near Kharagpur; Singur (West Bengal)

Source: D&B Research

Table 2.4: Auto component clusters in India

State

Number

Andhra Pradesh

Delhi

Gujarat

Haryana

Jharkhand

Karnataka

Maharashtra

Madhya Pradesh

Punjab

Tamil Nadu

Source: D&B Research

Demand Drivers

Demand for auto components directly relates to demand for automobiles; hence, demand drivers for automobiles indirectly
influence those for auto components. Factors that influence original equipment demand for auto components differ from
those that influence replacement demand for components. The key demand drivers are listed below:
Demand drivers for OEMs:
Economic growth
Infrastructure development
Easy availability of finance and sales promotion offers
Inadequate public transport
Freight rates.

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Demand drivers for the replacement market:

Automobiles
Rising penetration of personal vehicles
Vehicle life
Use of automobiles.
Auto components
Growing market for used vehicles
Overloading of vehicles
Deteriorating road infrastructure
Upgradation of emission standards.

Supply Dynamics

Raw materials constitute a major cost component in the auto components industry, accounting for ~60% of total expenses,
followed by labour charges with ~10%.Indian auto components manufacturers have been focusing on R&D, innovation,
design and engineering to meet global quality standards and emerge as full-service providers to OEMs. Notwithstanding
the slowdown in the global economy in recent years, the Indian auto components industry continues to attract investments
and the industry continues to add new capacities.
Investments in the industry increased from US$ 3.10 bn in FY04 to US$ 9 bn in FY10, growing at 19.40% CAGR. Investments
are estimated to have increased to US$ 12 bn in FY11. Major foreign companies have been investing in the domestic industry
through joint ventures and partnerships or setting up their own production plants. Domestic component players are also
investing heavily in the industry to reap benefits of long-term growth prospects.
Chart 2.11: Auto components industry: Investments snapshot

*Estimated
Source: ACMA

Exports Scenario

Exports constitute 15% of the Indian auto components industrys total turnover. Exports of auto components from India
grew from US$ 1.69 bn in FY05 to US$ 5 bn by FY11at 19.80% CAGR. Exports were flat in FY10 at US$ 3.80 bn primarily due
to slow recovery in developed countries. However, they once again bounced back in FY11, registering sharp growth of 32%.
During FY11, global OEMs/tier-I manufacturers accounted for 80% share in the Indian auto component industrys exports
and global aftermarkets accounted for the rest. Europe accounted for nearly 37% of Indias exports and continues to be one
of the major export destinations, followed by Asia.

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Chart 2.12: Auto components: Composition of export destinations (%)

Source: ACMA

Table 2.5: SWOT analysis of the Indian Textile industry

Strengths

Opportunities

Comparatively lower cost of operations

May serve as sourcing hub for global automobile majors
Better quality control
Significant export opportunities may be realised through diversification of
Better access to updated technology
export basket
Easy availability of raw materials and other resources
Implementation of Value-Added-Tax (VAT) in FY2004 will negate the cascading
Easy availability of industrial parks with state-of-art technology and
impact of prices
many incentives from government
Better regulatory policies
Weaknesses
Low level of research and development capabilities
Very high competition
Exposed to cyclical downturns in the automotive industry
High dependency on global majors for technology
High rate of interest for working capital and also taxation issues
Source: D&B Research

Threats
Presence of a large counterfeit components market
Pressure on prices from OEMs continues
Imports pose price based competition in the replacement market
Marginalisation of smaller players
Comparative technology difference with reference to other countries

Issues and Challenges

The auto components industry is in a robust growth phase. However, the industry faces certain challenges to growth that
include:
Technological capability not enough to match global standards
Surging raw material prices putting pressure on profit margin
Slowdown in global economy affecting exports
Players losing bargaining power with larger OEMs
Increasing rivalry among players with numerous small firms targeting the same customer segments
FTAs signed with other developing countries increasing bulk imports of cheaper auto components.

Way Forward

Going forward, the Indian auto components industry is well poised to achieve strong growth owing to rising domestic
demand in the OEM market and expanding replacement market. The export market for auto components is likely to see
strong traction once the global market stabilises and economic uncertainty diminishes. According to the Auto Components
Manufacturers Association (ACMA), the Indian auto components industry is likely to grow to US$ 110bn by 2020 with
the domestic market share of ~US$ 80 bn. The share of the auto components industry in the countrys GDP is likely to
increase to 3.60% by 2020, up from 2.10% in FY10. Given good long term demand prospects in the domestic market and
with India emerging as a favoured low-cost sourcing destination, auto component manufacturers are likely to invest in
increasing production capacities and technological capabilities. Further, companies would continue to diversify their
product portfolio to de-risk their businesses. However, competition is expected to increase and prices of raw material are
likely to follow an upward trend. This is expected to exert pressure on the industrys profit margins. In such a scenario, cost
control programmes would assume greater significance for the industry players, both big and small.

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