Indian Textile Landscape Date - 17th August 2018 Coimbatore By - I J Dhuria

-Waves of relocation in the global textile industry- Historically, the development of textiles and apparel manufacturing has been an important “first step” of many countries’ industrialization progressions 1950’s Wave 1: Shift of production capacity from western countries to Japan Wave 2: Shift to Korea and Taiwan Wave 3: Shift to ASEAN countries Wave 4: Shift to China 1960’s/70’s 1980’s/90’s 1990’s- Current -Waves of relocation in the global textile industry- Labor intensive manufacturing has shifted base to Japan in the 1950s, to Korea and Taiwan in the 60s /70s, to ASEAN countries in the 80s /90s and now to China… Trend Continues… Source: Accenture 2

Relative Competitive Advantage (RCA) … on a relative basis more globally competitive than any other industry in India - Attributes of India’s Textile Industry which provides structural advantage to grow - Textiles Leather Clothing Engineering Equipment's Electronics and Office equipment Relative Competitive Advantage (RCA) RCA = Share of India’s export in world trade for a particular category Share of India’s total export in world trade 3 Source: “Where Do India’s Exports Face The Greatest Obstacles?”, A. Ganesh-Kumar and Rajendra R. Vaidya, Indira Gandhi Institute of Development Research 3

Context for Firm Strategy and Rivalry Related & Supporting industries …and an industry which structurally has a significant potential to grow High competitive intensity in spinning sector Presence in all parts of value chain; however weaving and processing is not that strong. Context for Firm Strategy and Rivalry High availability of all raw materials (One of the largest producers of cotton yarn in the world; good availability of silk, polyester, viscose etc.) Strong presence of highly skilled labour and management skills Factor (Input) Conditions Largest constituent of industrial economy of the country (industry contributes to over 14% of manufacturing output) Large domestic market for textiles growing at 5-8% (excluding apparel) Moderate export share in world trade Demand Conditions Self sufficiency only in spinning textile machinery (Indian textile machinery industry growing at a CAGR of 14.5%) Reasonable presence of packaging units Related & Supporting industries - Attributes of India’s Textile Industry which provides structural advantage to grow - Source: Accenture analysis 4

Overall Indian Economy Indian GDP– USD 2.6 trillion approx. (6th Rank in World) Per Capita Income- USD 2,134 (139th Rank in the world) Total Indian Exports - USD – 303 Billion Population - 1.3 Billion (2nd Highest after China) High Share of Young population and growing urbanization 5 5

Indian Textile Economy Textile is one of the oldest industries in Indian economy and is integrated well. Industry size is about of 6% of the GDP i.e about USD 120 billion and it is projected to reach USD 220 billion by 2025. Textile sector contributes 14% of the manufacturing output. Textile industry contributes about 13% of Indian exports valuing about USD 38 billion for FY 2017-18. In which textile is USD 20 billion & clothing is USD 18 billion. It is 5% share in Global Exports of Textile & Clothing (755 USD Billion) in 2017. In textile has a share of 6% in the Global textile export (USD 327 Billion). In Clothing has a share of 4% in World Clothing export (USD 428 Billion). 6

Indian Textile Economy….contd. Textile industry is the largest employer. 35 million people directly and almost similar number in other agriculture & allied industry. Strong base for cotton & man-made fibre production. Strength across the entire value chain right from fiber, Yarn, Fabric, Apparels and home textile. 1 Indian Textile Industry has two broad segments i.e. Unorganized sector and Organized Sector. Domestic market is growing at the rate of 8%. Existing government textile policy is aligned to potential growth of the industry. India is fairly competitive in terms of manufacturing cost. Recent fiscal reforms like introduction of GST and labor reforms have helped the industry in a big way. 7 7

Fiber Consumption Trends World India 11.0 Source: ICAC, Fiber Year book

Indian Cotton Economy Largest producer of cotton in the world. Area under cotton cultivation is estimated 12.4 million hectares (2017-18) against the world area of 33.3. Cotton production is estimated at 6.30 million MT against world production of 26 Milion MT. Average yield is 505 kgs/hec as against world average of 780. India’s cotton consumption is 5.6 million MT as against world consumption of about 26 million MT. India is cotton surplus country and is the second largest exporter of cotton after USA. 9 9

Indian Spinning Segment India has the 2nd largest spinning capacity in the world with about 49 million spindles. India is 2nd largest producer of spun yarn India has added about 21 million spindles in the last 10 years. Largest exporter of cotton yarn with 26% share in the world exports. India is quite competitive in spinning because of following factors : Raw material availability Cost competitive 90% of the spinning industry is large and composite units and 10% is in small scale sector. 10 10

Indian Fabric Segment 45% of global loom capacity is in India. No. of Airjet looms in the organised mill sector is about 53000 looms and number of power looms in the unorganised sector is close to 2.5 million. Fabric Production of about 67 billion square mtrs. 74% (50 billion sq. meter) is woven 26% (17 billion sq. meter) is knitted fabric. 38% (24 billion sq. meters) is cotton fabric production. About USD 4.5 billion Fabric is exported. Out of which 1.7 billion (38%) is of cotton woven fabrics and this has been growing at the CAGR of 8% in the last 7 years. The decentralised power looms / hosiery & knitting sector is the largest component of the textile sector in India. Industry is extremely varied with the hand spun and hand woven textile sector at one end of the spectrum and the capital intensive sophisticated mill sector at the other end of the spectrum. High level of inter dependence exists between organized sector, power loom sector and independent process houses. Only about 3% production happens in the organised mill sector and balance 97% production is in decentralised sector. 11 11

Indian Garments and Made Ups Garment production in India is estimated about 18.5 billion pieces 2016-17. India is 4th largest apparel exporter at USD 18 billion. Made ups production is about 2.1 million tons. Export of Made Ups is at 4.87 Billion USD. The garment sector of India is less competitive primarily because of lack of economies of scale, obsolete machinery and low automation. The availability of skilled man power in garment sector is a challenge confronting this sector. 12 12

Factor Cost Comparison of India with Competing Countries Cost Element Unit India Bangladesh China Vietnam Indonesia Brazil Turkey Pakistan Labor Cost * US$/Month 175 80-100 600 275 300 1000 150 Power Cost USD$/kwh 0.10 0.13 0.075 0.09 0.08 Lending Rate % 10% 4.50% 8.0% 11.0% 18.0% 12.0% Water Cost *** US Cents/m3 37 40 55 50 75 27 NA *Cost for semi-skilled labor; includes all benefits ***Water Cost is based on the average tariff of the water supply companies of specific countries. 13

Challenges to Indian Textile Industry Size and scale is most important part of textile value chain Upgradation of Technology in weaving, processing and garmenting No new significant number of entrepreneurs entering into textile industry Low level of FDI High Cotton Contamination Low yield of cotton 14 14

Challenges to Indian Textile Industry… contd. Data or Tagging of Cotton Bales Increasing manufacturing cost – Labour, Power and Financing. Shortage of skilled manpower Inadequate government support No Preferential Access to the major consuming market like EU and USA. Under developed infrastructure resulting in Delays and increased logistic cost. Government Interventions by the way of support to Cotton Farmers 15 15

Challenges to Indian Textile Industry… contd. Developing Trends – Unpredictability becomes new normal Sustainability Shifts to the Circular Economy Digitalization, on line platforms, increasing role of artificial intelligence, fast changing fashions, traceability, transparency, consumer awareness - who made my garment and preference to the natural fibers. 16 16

…..the Road Ahead Future of the Indian Textile Industry looks promising on account of growing domestic consumption as well as export demand. With the government continuous support for strengthening of textile industry it is likely to grow from USD 120 billion to USD 220 by 2025. Export is projected to grow from USD 38 Billion to 80 and domestic market from USD 80 billion to 140 in 2025. Total fiber consumption is likely to increase from estimated from 11 million tons more than 15 million tons by 2025. Cotton consumption is likely to grow from present 5.6 million tons to 7.2. Investment in textile and clothing industry is likely to be USD 50-60 billion during this period. 17 17