the WTO Agreement

on Textile and Clothing (ATC) marked a significant turnaround. According to the ATC,
beginning 1st January 1995, all textiles and clothing products that had been hitherto
subjected to MFA-quota, are scheduled to be integrated3 into WTO over a period of ten
years. “The dismantling of the quota regime represents both an opportunity as well as a
threat. An opportunity because markets will no longer be restricted; a threat because
markets will no longer be guaranteed by quotas, and even the domestic market will be open
to competition”4. From 1st January 2005, therefore, all textile and clothing products would
be traded internationally without quota-restrictions5. And this impending reality brings the
issue of competitiveness to the fore for all firms in the textile and clothing sectors,
including those in India. It is imperative to understand the true competitiveness of Indian
textile and clothing firms in order to make an assessment of what lies ahead in 2005 and
beyond.
Owing to its significant contribution, the Indian textile and clothing industry6
occupies a unique place in the Indian economy. It contributes about 4% of GDP and 14%
of industrial output. Second largest employer after agriculture, the industry provides direct
employment to 35 million people including substantial segments of weaker sections of
society. With a very low import-intensity of about 1.5% only, it is the largest net foreign
exchange earner in India, earning almost 35% of foreign exchange. This is the only
industry that is self-sufficient and complete in cotton value chain- producing everything from
fibres to the highest value added finished product of garments. Its growth and vitality
therefore has critical bearings on the Indian economy at large7.
Because Indian textile and clothing sector is predominantly
cotton based, this study would focus mainly on the cotton textile and apparel, and look at
the entire value chain from fibre to garment and retail distribution.

The Indian textile industry contributes about 14 per cent to industrial production, 4 per cent to the country's gross
domestic product (GDP) and 17 per cent to the country’s export earnings, according to the Annual Report 2009-
10 of the Ministry of Textiles.

It provides direct employment to over 35 million people and is the second largest provider of employment after
agriculture.

According to the Ministry of Textiles, during April’09-March’10

 the cumulative production of cloth has increased by 8.3 per cent as compared to the corresponding
period of the previous year.

 total textile exports have increased to US$ 18.6 billion from US$ 17.7 billion during the corresponding
period of the previous year, registering an increase of 4.95 per cent in rupee terms.

 the share of textile exports in total exports has increased to 12.36 per cent .

 cotton textiles has registered a growth of 5.5 per cent

 while wool, silk and man-made fibre textiles have registered a growth of 8.2 per cent
  while textile products including wearing apparel have registered a growth of 8.5 per cent.

Government Initiative

According to the Ministry of Textiles, investment under the Technology Upgradation Fund Schemes (TUFS) has
been increasing steadily. During the year 2009-10, 1896 applications have been sanctioned at a project cost of
US$ 5.23 billion. The cumulative progress as on December 31, 2009, includes 27,477 applications sanctioned,
which has triggered investment of US$ 45.5 billion and amount sanctioned under TUFS is US$ 18.9 billion of
which US$ 16.4 billion has been disbursed so far till the end of April, 2010.

Moreover, in May 2010, the Ministry of Textiles informed a parliamentary panel that it proposes to allocate US$
785.2 million for the modernisation of the textile industry.

The Scheme for Integrated Textile Park (SITP) was approved in July 2005 to facilitate setting up of textiles parks
with world class infrastructure facilities. 40 textiles park projects have been sanctioned under the SITP. According
to the Minister of State for Textiles, Panabaaka Lakshmi, under the SITP, a cumulative expenditure of US$ 204.3
million has been incurred against allocation of US$ 220.7 million in the last three years.

In the Union Budget 2010-11 presented in February 2010, the Finance Minister made the following
announcements to benefit the textile industry:

 The central plan outlay for the industry has been enhanced to US$ 1.03 billion. Of this US$ 521.4 million
is for TUFS, US$ 76 million for SITP, US$ 80.2 million for handlooms, US$ 69.3 million for handicrafts
and US$ 98.4 million for sericulture.
 Allocation for textiles and jute industry is US$ 713.4 million.
 The total allocation for village and small enterprises sector which include handicrafts and handlooms is
US$ 210.3 million.
 US$ 31.5 million has been provided for development of mega clusters in handlooms, handicrafts and
powerloom sectors.
 Customs duty at 4 per cent for import of readymade garments for retail sales has been withdrawn.
 The micro small medium enterprises in textiles sector have been given full CENVAT credit on capital
goods in one instalment in the year of receipt of such goods and the facility of payment of excise duty in
quarterly basis.

Investments

According to the Minister for Textiles, Mr Dayanidhi Maran, around US$ 5.35 billion of foreign investment is
expected to be made in India in the textile sector over the next five years.

The textiles industry has attracted foreign direct investment (FDI) worth US$ 817.26 million between April 2000
and March 2010, according to data released by the Department of Industrial Policy and Promotion.

 S Kumars Nationwide has formed a joint venture (JV) with Donna Karan International to design, produce
and distribute the entire range of DKNY menswear apparel across the world except Japan for 10 years.
The new venture will invest US$ 25 million for expansion of Donna Karan’s menswear brand and
expects to record sales of about US$ 140 million in the next three years.
 The Andhra Pradesh government has allocated over 1000 acres of land for the Brandix India Apparel
City (BIAC) in the state’s special economic zone (SEZ), which was inaugurated in May 2010. The
apparel city is expected to attract an investment of US$ 1.2 billion (around Rs 5,400 crore).
 Private equity firms TPG and Bain Capital have picked up stakes in children apparel retailer Lilliput
Kidswear for US$ 27 million and US$ 60.7 million respectively.
 Italian sportswear maker Lotto is planning to invest US$ 10 million over the next five years to capture 7
per cent of India’s branded sports apparel and equipment market. The brand, which started its stand-
alone retail chain in India in 2008, has 31 stand-alone stores across the country and plans to open 200
more such stores by 2015.
 World's leading lingerie brand, Germany-based, Triumph International, plans to invest over US$ 217
million in India to open 12 more flagship outlets and 30 additional EPS (Exclusive Partner Stores) during
2010.

The Road Ahead

The Synthetic and Rayon Textile Export Promotion Council (SRTEPC) has set a target to more than double the
export of man-made textile from the country. Presently, the global man-made fibre (MMF) trade accounts for 60
per cent of the total trade in textiles. SRTEPC plans to increase exports to US$ 6.2 billion by capturing four per
cent market share by 2011-12.

Exchange rate used:

1 USD = 44.49 INR (as on April 2010)
1 USD = 46.03 INR (as on February 2010)

The Indian apparel industry also has a vast existence in the economic life of the country. It plays
a critical role in the economic development of the country with its contribution to industrial
output, export earnings of the country and the generation of employment.

The Indian apparel industry has seen remarkable changes in the past few years and it is also one
of the India's largest foreign exchange earners. Embroidery being the traditional art form of
the country has contributed hugely for apparel industry. Indian embroidery market stands
out as being extraordinary in the international markets.

Apparel is one of the basic necessities of human civilization along with food, water and shelter. The
Apparel Industry reflects people’s lifestyles and shows their social and economic status. The Apparel
and Textile industry, is India’s second largest industry after IT Industry. At present, it is amongst the
fastest growing industry segment and is also the second largest foreign exchange earner for the
country. The apparel industry accounts for 26% of all Indian exports. The Indian government has
targeted the apparel and textiles industry segments to reach $50 billion by the year 2015 . China on
the other hand, has already reached their target of $52 billion in 2004, and therefore, it is very
possible for India to reach its target soon.

One of the most interesting features of the apparel industry is that, it migrates from high cost
nations to the low cost nations. The growth of the domestic demand for clothing in India is linked
with the success of the retailing sector. India presently has entered the second phase of growth and
is witnessing a massive rise in the domestic demand. This is primarily due to the rise in the standard
of living caused by the rise in the middle-income groups. In our present economic world of demand
and supply, price and quality are the key factors, which determine the success of any business. The
key element here though, is the cost of labor. India and China have a comparative advantage in this
industry though, their vast labor forces and the relatively low cost of labor.

Since, India and China have the advantage of making textiles and so fabric costs are lower than in
other countries, they have become the Apparel sourcing choice for many international companies.
Sourcing choices arise from profitability. This includes considering costs, such as, buying factors of
production, like land, buildings and machines versus factors affecting revenues, including pricing,
marketing, and distribution. The issues of labor, material, shipping costs and tariffs structure also
affect the sourcing choices. Since, apparel production is a labor-intensive activity, wage rates are
also a major factor in sourcing decisions. This gives immediate competitive advantage to producers
in countries like India and China to export to more developed and high cost countries like the United
States and the European Union.