1. Indian Textile Industry
October 2006

2. Contents Market Overview Government regulations & policy
Business opportunities and Advantage India

3. Indian Textile industry - important from perspective of overall economy
Total market size ( ): USD 38 bn
Domestic market ~ USD 25 bn
Exports ~ USD 13 bn
Strong contribution to Indian Economy
14% contribution to industrial production
4% contribution to GDP
16% contribution to export earnings
Direct employment to more than 35 million people
Industry functions in the form of clusters (roughly 70 in number) across India, producing 80% of the country’s total textile
Sector is diverse, with the hand-spun and hand woven sector at one end of the spectrum, and the capital intensive, sophisticated mill sector at the other
Unless otherwise specified, all references to a year implies Financial year – April to March
Indian Textile Industry has a pivotal role to play in the economic life of the country through its contribution to industry output and foreign exchange generation
It is the second largest provider of employment after the agriculture sector and has a direct link with the rural economy in terms of performance of major fibre crops as well as livelihood of millions of farmers
Some of the textile clusters in which productions happens are very huge and significant for the overall industry, for example
Panipat produces 75% of all blankets produced in India
Tirupur contributes 80% of the country’s cotton hosiery exports
Ludhiana makes 95% of total woolen knitwear produced
Source: Ministry of Textiles Annual Report, Industry Research

4. India has a strong base in raw materials
Cotton dominates the industry
Nearly 56% of yarn produced is made of cotton
Country produces nearly 23 varieties of cotton
India is the second largest player in the world cotton trade
India’s position is strong vis-à-vis other countries in most raw materials
Largest producer of jute
Second largest producer of silk
Third largest producer of cotton, accounting for nearly 16% of global production
Third largest producer of cellulosic fibre/yarn
Fifth largest producer of synthetic fibres/yarn
Eleventh largest producer of wool
Abundant availability of raw material is one of the key advantages of the Indian textile industry
Cotton - Predominant fabric used in the industry
With 4.13 million metric tonnes of production, country accounts for almost 16% of global production of cotton
India also leads the world in cultivated area under cotton (roughly 8.82 million hectares in )
Jute - Occupies an important place in the Indian economy
Has a strong contribution to direct employment as well livelihood in the tertiary sector and allied activities
India leads globally in jute with its annual production of 7.5 million bales in
Silk - Highly remunerative cash crop, with minimum investment and sustained attractive returns
India accounts for 18% of world raw silk production (15.74 thousand tonnes production in )
India has the unique distinction of being endowed with all 4 varieties of silk - Mulberry, Eri, Tasar, Muga
Wool - With its annual production of 50.7 thousand tonnes of raw wool fibre, India accounts of roughly 2% of global production
Source: Ministry of Textiles Annual Report, Industry Research

5. Industry fragmented and dominated by small scale units
Spinning
Weaving
Processing & manufacturing
100% = 2922 mills
100% = 5.83 million units
Of the 2300 processors in India, only 200 units are integrated with spinning, weaving or knitting units
Bulk of apparel and home textile manufacturing accounted for by 77,000 small scale units
Composite mills 8%
Organised sector 2%
Small independent units
39%
Large independent units
53%
Powerloom 31%
Handloom sector
67%
The Indian textile industry comprises mostly small-scale, non-integrated spinning, weaving, finishing and apparel making units
Spinning: Of the 2922 spinning units in 2004, 2699 units were independent in nature, with 1135 units in small-scale sector and 1564 units of larger scale; independent units account for 75% of total capacity and 92% of production
Weaving: Of the 5.83 million weaving units in India, only 0.1 million units are in the organised sector; number of mills have declined in number since 2003, while powerlooms have grown
Processing: Industry is dominated by hand processing and independent processing units
Manufacturing of garments and made-ups: Industry is dominated by small-scale units, mostly sub-contractors, a result of SSI reservation of the industry till a few years ago; almost 90% of garment export units are in the small scale sector
The textile industry across the value chain is largely decentralised
Units mostly independent and small scale in nature, rather than composite units undertaking all activities together
Large scope for entry of organised integrated textile manufacturers
Source: Compendium of Textile Statistics, 2004

6. Manufacturing units present at all levels of value chain
Raw materials
Cotton, wool, silk, jute
Garments
Fibres and yarn
Grey fabric
Knitting
Weaving
Processed fabric
Dyeing
Finishing
Man-made fibre/ filament yarn*
Petrochemicals
Home textiles
The textile industry in India covers the entire supply chain from fibre production through spinning, weaving, knitting, dyeing and finishing, to production of finished goods (apparel and home textiles)
Spinning: India, with its 39 million spindles in the organised sector as well as small-scale sector, accounts for 22% of world’s installed capacity. A notable feature of the industry is the installation of of large number of open end rotors in the 1990s
100% export oriented units in the spinning sector have grown in the past and the country today contributes about 25% of world trade of cotton yarn
Weaving: India has the highest loomage in the world, (1.87 million looms, accounting for 61% of the world loomage)
Hand processing units, independent power processing units, units attached to mills
Weaving/ knitting units - handlooms, powerlooms, hosiery units
Garments & home textile producers
Production unit
Spinning mills
Composite Mills
*Includes viscose staple fibre, polyester staple fibre, acrylic staple fibre, viscose filament yarn, nylon filament yarn, polyester filament yarn
Source: Industry Research

7. Industry experiencing high growth
Yarn production
million tonnes
Cloth production
billion sq. mtrs
CAGR
CAGR
3.6%
3.4
45.0
4.1%
3.1
10%
6.0%
38.6
8.9% 8%
41%
2.4
17%
3.8%
31.5
100% non cotton yarn
20%
100% non cotton cloth
36% 8%
27%
Blended yarn
17%
15%
13%
4.6%
Blended cloth
13%
Cotton yarn
75%
72%
73%
3.2%
Cotton cloth
60%
49%
46%
0.9%
1996
2000
2006
1996
2000
2005
Production of yarn has a witnessed healthy CAGR of 3.6% between 1996 and 2006, with production in 2006 being 3.4 million tonnes
Most of this growth has been driven by 100% non-cotton yarn, which grew at a CAGR of 6% to 349 million kilogrammes in 2006
Production of fabric saw an impressive CAGR of 4.1% between 1996 and 2005, with production in 2005 at 45 billion square metres
While production of cotton cloth remained more or less stagnant, 100% non cotton cloth and blended cloth drove the growth in the industry, with a CAGR of 8.9% and 4.6% respectively
Production of 100% non cotton cloth was 18.4 billion square metres, while that of blended cloth was 6 billion square metres in 2005
Increased output of yarn and fabric - CAGR of 3.6% and 4.1% respectively; global market has grown at a CAGR of 2-2.5% in this period
Highest growth seen in 100% non cotton yarn and fabric, followed by blended yarn and fabric
Cotton cloth continues to dominate the industry
Source: Compendium of Textile Statistics

8. Exports are dominated by readymade garments
Textile exports
100% = INR 654 bn 7%
13%
100% = INR 390 bn
55% 5%
25% 9%
52%
Year
Readymade garments
34%
100% = INR 199 bn
Cotton yarn, fabric & made-ups 4%
10%
Year
Manmade staple fibres, yarn, fabric & made-ups
Silk & woolen textiles, cotton raw, incl waste
51%
35%
Textile exports have grown to INR 654 bn in 2006, having witnessed a healthy CAGR of 11.8% between 1995 and 2006
Manmade textiles witnessed the highest CAGR during this period at 14.5%, followed by RMG at 12.4% and cotton textiles at 8.4%
Exports are made mainly to US and Europe and together account for more than 80% of textile exports
Export basket comprises a wide range of items - cotton textiles, man-made textiles, woolen and silk textiles, made-ups and ready made garments (RMG)
RMG exports contribute more than 50% to textile exports and have seen their share in textile export basket growing
International retailers are increasing sourcing from India through their buying houses; retailers like Gap, Wal-Mart, H&M, Target, JC Penny and Tommy Hilfiger crossed USD 100 million each in sourcing from India
Year
Readymade garments dominate textile exports
Share of manmade textiles in overall textile export basket has risen, whereas that of cotton textiles has fallen
Source: Ministry of Textiles

9. Dismantling of quotas has resulted in higher growth in large markets
In the first nine months of CY2005, US imports grew by 7% to USD 8.9 bn and EU imports grew by 3.7% to Euro 54.5 billion
India has been one biggest beneficiaries in post quota regime in these two markets, while countries like Mexico, South Korea and Turkey have lost share
Share in US textile and clothing market
Share in EU textile and clothing market
2004
1st 9 months of 2005
2008*
2004
1st 9 months of 2005
2008*
India has been one of the the biggest beneficiary of the end of quotas
In the US market, India’s exports grew by 27% to USD 4.6 bn and market share increased from 4.4% pre-quota abolition to 5.2% in the 1st nine months of CY2005
In the EU market, India’s exports grew by 16% and market share increased from 6.0% pre-quota abolition to 7.3% in the 1st nine months of CY2005
*Forecasts
Source: WTO study on gainers and losers post quota abolishment

10. Going forward, exports as well as domestic market to drive growth
Drivers of exports
Rising outsourcing budgets of retail giants
Indian companies evolving from mere converters to vendor partners of global buyers
Large outsourcing orders helping Indian companies build capacities, lower their per unit cost and become more competitive
Imposition of caps on certain import segments from China by EU and US given the surge in Chinese exports has opened up opportunities for India
Drivers of domestic market
Growing young population
Rising household income levels
Growth of organised retail
Market size estimates
USD bn 65 30 37
Exports 12
India is expected to be one of the biggest beneficiaries in the export market, post quota removal
Global retailers, accounting for the bulk of imports into their countries, used to source from all over the world because of quota restrictions, are now reducing the number of countries they source their products from, with key considerations being costs and manufacturing lead times
Domestic market would be driven by
India’s two-third population which is below 35 years of age and spending more on lifestyle products
Rising household incomes (National Council of Applied Economic Research estimates that by , households with annual income of USD 980 or above will constitute 80% of population)
Growth of new retail formats and brands, targeted at quality conscious consumers
Domestic market 25 35
2005
2010*
*Forecasts
Source: Research commissioned by Confederation of Indian Textile Industry

11. Contents Market Overview Government regulations & policy
Business opportunities and Advantage India

12. Industry has witnessed a change in regulations
Emphasis on increasing scale
Post 1985
Emphasis on small scale sector
Many segments (especially readymade garments, knitwear and hosiery) deserved from reservation for SSI
Schemes for technology upgradation and modernisation introduced
Multifibre approach adopted; emphasis on man made and synthetic fibres, in addition to cotton
Taxation structure made simpler
Pre 1985
Importance given to cotton textiles
Favourable fiscal treatment given to powerlooms (mainly tiny and small-scale units) as compared to composite mills
Most segments reserved for small-scale industry (SSI)*
Restrictions on installation of automatic looms
Historically the textile industry in India has been reserved for the small scale sector, which has been exempted from taxes, thus discouraging investments in increasing scale
The government, through its various Budget announcements has sought to rationalise taxes
Budget : Textiles brought under the ambit of Cenvat (credit for duties paid on inputs or capital goods) and introduced on all yarns
Budget : Cenvat extended across the entire textile chain to include fabrics, made-ups and apparel; excise duty exemptions on many sectors and processes, specially SSI removed; excise duty rates reduced
Budget : Cenvat made optional - every manufacturer allowed to choose between a complete exemption from payment of excise duty or adopt the Cenvat route; excise duties lowered to 4% on cotton textiles and 8% on non cotton textiles (except man made fibres, polyester filament yarn, nylon filament yarn) for those claiming Cenvat credit
Measures aimed at improving competitiveness of industry to face a post quota regime
*Latest definition: Investment in plant & machinery of INR 10 million for most industries, INR 50 million for specified industries like hosiery, hand tools, drugs & pharmaceuticals, sports goods and stationery items

13. Several government initiatives targeted to attract investments
Scheme launched in 1999 to provide firms access low interest loans for technology upgradation and setting up new units with state-of-art technology
Scheme has disbursed INR bn till 31st December 2005
Technology Upgradation Fund Scheme
Upto 100% foreign direct investment allowed in textile and apparel manufacturing industry, with approval of the Foreign Investment Promotion Board (FIPB)
~ USD 1.02 bn of FDI in the sector approved between 1991 and 2004
Companies free to set up fully-owned sourcing (liaison) offices, as well as marketing operations
Policy related to foreign investment
Technology Upgradation Fund Scheme (TUFS) provides for any one of the following
5% reimbursement of interest charged by lending agency on rupee term loam
5% exchange fluctuation (interest and repayment) from the base rate on foreign currency loan
Credit linked capital subsidy - 15% for SSI textile and jute sector and 20% for powerloom sector
5% interest reimbursement plus 10% capital subsidy for specified processing machinery
SITP Scheme expects to put in place 25 textile parks by 2007,with government support in the form of grant/ equity upto 40% of project cost (ceiling of INR 400 million)
“Scheme for Integrated Textile Parks” (SITP), based on public-private partnership model to build world class infrastructure facilities
Product specific “Cluster Approach” targeting development of 100 additional clusters in textiles
Technology Mission on Cotton (TMC), focusing on cotton R&D, dissemination of technology to farmers, improvement of market infrastructure and modernisation of ginning and pressing sector
Upgrading infrastructure
Source: Ministry of Textiles, Industry Research

14. Contents Market Overview Government regulations & policy
Business opportunities and Advantage India

15. India has a cost advantage vis-à-vis competing countries
Cost competitiveness
Yarn: USD per kg of yarn
Fabric: USD per yard of fabric
South Korea
China
Brazil
India
Open-ended yarn & fabric
Ring yarn & fabric
Textured yarn & fabric
Yarn
Woven fabric
India is more cost competitive vis-à-vis countries like Brazil, China and South Korea in manufacture of textiles
Cost advantage arises mainly from the large pool of low cost but skilled manpower available in India
In case of textured yarn and fabric, India is less competitive, which is a result of the higher tax burden (excise duty) on man made textiles in the country
Knitted fabric
India is cost competitive vis-à-vis competing countries in textile production, except in case of textured yarn and fabric

16. There are several other industry specific advantages arising out of the unique nature of the industry in India
Large raw material base
India has a rich raw material base, especially cotton which has seen improved productivity in the country under the Cotton Technology Mission
Wide variety of cotton produced India, making India capable of catering to various segments of world trade
Indian industry has ability to handle different materials - cotton, wool, silk and jute with equal skill
Positive developments in the Textile Policy
Reservation for small scale sector, especially key segments removed over last few years
Fiscal anomalies in terms of excise duty structure removed
Flexibility in production
Capabilities across the entire value chain within the country reduces lead time for production and reduces intermediate shipping time
Indian companies have flexibility and skilled manpower to handle small orders with complex designs
Product development and design capabilities
Several institutes in India for textile development, the major one being National Institute of Fashion Technology (NIFT)
Several leading colleges also offer courses in Textile Engineering

17. Business opportunities exist for foreign players
Invest in setting up vertically integrated large scale units
Invest in setting up retail chains (single brand)
Enter into marketing joint ventures with Indian companies
Brand licensing to Indian players
Investing in India
Partner with Indian vendors to import from India, by nominating large Indian companies having credibility in terms of capacities and quality
Readymade garments have maximum opportunity, given India’s cost competitiveness
Sourcing from India
Growth potential exists in several segments
Yarn - Reducing availability of good quality yarn is India, as yarn manufacturers are forward integrating into weaving and processing
Weaving & processing - Indian units are technologically weak and small in size; increased demand for fabric from garments and home textiles segment
Large integrated textile producers: Most preferred format for large global retailers, with increasing margins in the garments segment
Global buyers are increasingly collaborating directly with Indian suppliers to reduce costs, achieve faster turnaround and develop new products
Many retailers communicate their buying programmes 8-9 months in advance of shipping dates to their vendors, so that the vendors can strategise and achieve scale based on the targets
With Indian consumers increasingly getting exposure to international fashion trends, potential exists for export of lifestyle brands of garments and accessories to India
Export to India

18. Many foreign players have also entered India
Illustrative, not exhaustive
Top 10 buyers in India (Gap, Wal-Mart, Li & Fung, The Children’s Place, JC Penny, H&M, Federated, Fifth Avenue, Carrefour and Synergies India) account for 35% of total textiles sourced from India
Other major companies include El Corte, Ecko, Kellwood, VF Corporation, Tesco, Next, Karstadt-Quelle
Buying and liaison offices
Brand licensing/ franchising
Brand licensing - Hugo Boss, Tommy Hilfiger, Mango, Lovable, Nike, Lacoste
Master franchisee - Marks & Spencer, Crocodile
Indian Textile Industry has a pivotal role to play in the economic life of the country through its contribution to industry output and foreign exchange generation
It is the second largest provider of employment after the agriculture sector, hence its development has a direct bearing on all aspects of the economy
Some of the textile clusters in which productions happens are very huge and significant for the overall industry, for example
Panipat produces 75% of all blankets produced in India
Tirupur contributes 80% of the country’s cotton hosiery exports
Ludhiana makes 95% of total woolen knitwear produced
Manufacturing/ manufacturing cum retailing
VF Arvind Brands - joint venture between Arvind Brands and VF Corporation to manufacture and sell latter’s brands in India
Benetton
Levi Strauss
Reebok
Carreman Michel Thierry
Source: News articles

19. Illustrative, not exhaustive
Key players in India
Illustrative, not exhaustive
Large industry conglomerate, with turnover of USD 279 million and presence in textiles, retail, engineering goods, personal care and prophylactics
Textile products - worsted fabrics, wool and blended fabrics, specialty ring colour and stretch denim fabric, cotton and linen shirting fabric, readymade garments, woolen blankets and home furnishings
One of the oldest textile companies in the country, having turnover of USD 231 million
Produces suitings, shirtings, sarees, towels, bed linen and men’s apparel; significant exporter of polycotton blended fabrics and made ups
One of the largest producers of denim in the world, having turnover of USD 338 million and exports to more than 70 countries
Produces denim fabric, cotton and blended fabric, knitted fabric, voiles, apparel
One of the largest textile business houses in India, having turnover of USD 400 million
Significant presence in acrylic fibre, cotton, synthetic and blended spun yarns, grey and processed fabrics, cotton and synthetic sewing threads
India’s largest exporter of readymade garments, having turnover of USD 180 million
Supplies to more than 100 retailers and fashion brands across 39 countries
Source: Capitaline, Company websites

20. Illustrative, not exhaustive
Key players in India
Illustrative, not exhaustive
Leading producer of silk yarns and fabric (mainly for decorative and bridal use), with annual turnover of USD 32 million
Other businesses include retailing of home furnishings in India and manufacture of bed linen products for domestic and export market
Amongst the top 3 terry towel producers in the world, with annual turnover of USD 132 million
Other products include cotton yarns, polyester filament yarn, bathrobes, buttons and saw pipes
Belongs to one of the most diversified business groups in India (Aditya Birla Group) and has turnover of USD 577 million)
Key products in textiles include viscose filament yarn and branded apparel; other interests include insurance, telecom, IT, carbon black
Having turnover of USD 303 million, company is a major producer of polyester yarns, fabrics, garments and textiles
Has the largest composite textile mill in India for producing cotton fabric
Having a turnover of USD 95 million, its products include viscose filament yarn, viscose tyre/ industrial yarn, denim, cement and pulp and paper
Source: Capitaline, Company websites

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