The Indian Textiles and Clothing Industry-200901

8/8/2019 The Indian Textiles and Clothing Industry-200901

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THE INDIAN TEXTILES AND CLOTHING INDUSTRYJanuary 2009

ICRA Limited(An Associate of Moodys Investors Service)

www.IMaCS.in

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I M a C S

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I n d u s t r y C o m m en

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ICRA Management Consulting Services Limited


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Contacts:Vineet Nigam

Programme Leader (Research & Analytics) +91 124 4545344

Disclaimer

All information contained in this document has been obtained by IMaCS from sources believed by it to be accurateand reliable. Although reasonable care has been taken to ensure that the information herein is true, such informationis provided as is without any warranty of any kind, and IMaCS in particular, makes no representation or warranty,express or implied, as to the accuracy, timeliness or completeness of any such information. All information containedherein must be construed solely as statements of opinion, and IMaCS shall not be liable for any losses incurred byusers from any use of this document or its contents in any manner. Opinions expressed in this document are notthe opinions of our holding company, ICRA Limited (ICRA), and should not be construed as any indication of creditrating or grading of ICRA for any instruments that have been issued or are to be issued by any entity.


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Industry Comment Textiles and Clothing

TABLE OF CONTENTS

STRUCTURE OF THE INDUSTRY................................................................................................................... 4

OVERVIEW ....................................................................................................................................................... 4

FIBRE AND YARN P RODUCTION .......................................................................................................................... 9

FABRICS ....................................................................................................................................................... 19

APPAREL ....................................................................................................................................................... 21

KEY ISSUES FACING THE PLAYERS .......................................................................................................... 23

LOW DEGREE OF MODERNISATION .................................................................................................................... 23

PROBLEMS FACING DOMESTIC COTTON YARN INDUSTRY ...................................................................................... 26

POLICY REFORMS .......................................................................................................................................... 28

DOMESTIC DEMAND CHARACTERISTICS.................................................................................................. 33

EXPORTS ...................................................................................................................................................... 40

OVERVIEW ..................................................................................................................................................... 40

INDIAS EXPORT COMPETITIVENESS .................................................................................................................... 44

EVOLUTION OF INTERNATIONAL T&C TRADE ........................................................................................................ 44

TRENDS IN T&C TRADE DURING 1995-2004 .................................................................................................... 48

IMPACT OF QUOTA ELIMINATION......................................................................................................................... 50

TRADE DEVELOPMENTS SINCE 2005 IN MAJOR MARKETS ..................................................................................... 52

PRICES .......................................................................................................................................................... 67

COTTON ........................................................................................................................................................ 67SYNTHETIC /MANMADE FIBRES .......................................................................................................................... 70

FINANCIAL PERFORMANCE ........................................................................................................................ 73

COTTON TEXTILES ........................................................................................................................................... 73

READYMADE GARMENTS .................................................................................................................................. 75

MANMADE FIBRES .......................................................................................................................................... 77

OUTLOOK ...................................................................................................................................................... 79

ANNEXURE 1: C OST COMPARISON OF YARN AND FABRIC FOR 2006 ..................................................................... 82


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S TRUCTURE OF THE INDUSTRY

Overview

The Indian textile and clothing (T&C) market is estimated at around Rs. 2.8 trillion for FY2008, comprisingaround Rs. 1.65 trillion in the domestic market, Rs. 0.90 trillion of exports, and Rs. 0.25 trillion of technicaltextiles. The Indian textiles industry is presently one of the largest and most important sectors in the economyin terms of output, foreign exchange earnings, and employment. The textiles industry accounts for around 14%of Indias industrial production and 14% of its total exports. Besides, it provides direct and indirect employmentto nearly 35 million people, accounting for around 20% of the workforce.

The industry includes several sub-sectors: spinning, weaving, knitting and garmenting. Also, it uses differentmaterials like cotton, jute, wool, silk, man-made and synthetic fibres.

Cotton is the most important segment of the India textiles industry. With around 9.56 million hectares (mha)under cotton cultivation during cotton year (CY) 2008, India has the largest area employed for the purposethroughout the world, accounting for 28-29% of total global acreage under cotton. With cotton crop of 5,355million kg (mkg) or 5.36 mt for CY2008, India is amongst the worlds largest potential reservoirs of cotton.Currently, India is the second largest producer of raw cotton in the world, after China. Production of both cottonand MMF-based fabrics have increased at a high rate during FY2007-08 because of increased cotton productionand availability, higher prices, healthy growth in demand, and government incentives. Currently, with a significantportion of cotton being exported in the form of yarn, fabrics and apparel, the MMF based textiles have a share ofnearly 60% in the household market.

Empirical studies have found a negative relationship between cotton consumption and the price ratio of cotton to

polyester price. The price ratio captures the competitiveness of cotton with respect to polyester, i.e. if polyesteris relatively lower priced, then fibre substitution may occur and less cotton is likely to be consumed. Similarly,there is a negative relationship between cotton consumption and the MMF prices. Thus, fibre (natural andsynthetic) demand is dictated to some extent by relative prices. However, other factors such as the durability ofsynthetic fibres also explain the substitutability between fibres, and the significant increase in the consumptionshare of synthetic fibres over the last few decades.

Traditionally, Indias share of the world textiles and clothing (T&C) exports had been small till around 1980, afterwhich it began to grow significantly, reaching a figure of around 3.5% during 2007. Indian T&C is exported to over120 countries, the most significant among which are nations that are parties to the Multi-Fibre Arrangement(MFA). The MFA-importing countries together account for a total share of over 60% of Indias exports. The MFAprovides a framework under which developed countries impose quotas on exports of yarn textiles and apparelfrom developing countries. Amongst the regions, the most important export destinations for Indian apparel are

the US and Western Europe, which together account for over 60% of Indias total exports.

Share of Different Fibres in Cloth Production

FY


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Structure of Indias Textile Industry

FY Units 2001 2004 2005 2006 2007 2008

Textile Mills (Non-SSI) No. 1,846 1,787 1,789 1,780 1,808 1,773Spinning mills No. 1,565 1,564 1,566 1,570 1,608 1,597

Composite mills No. 281 223 223 210 200 176

Exclusive Weaving Mills No. 203 206 202 204 204 179(Non-SSI)

Spinning mills (SSI) No. 996 1,135 1,161 1,173 1,236 1,219

Powerloom units thousands 367 413 426 434 440 470

Installed Capacity

Spindles (SSI and Non-SSI) millions 37.91 37.03 37.47 37.51 39.50Rotors (SSI and Non-SSI) Thousands 454 482 500 520 601

Looms (Organised sector) Thousands 140 105 103 92 88

Powerlooms Thousands 1,662 1,837 1,903 1,944 1,990 2,106

Handloom Thousands 3,891 3,891 3,891 3,891 3,891

MMF Million kg. 1,081 1,101 1,189 1,191 1,663 1,659

MMF Yarn Million kg. 1,128 1,228 1,337 1,374 2,053 2,101

Worsted spindles (Woollen) Thousands 598 604 604 604 604

Non-worsted spindles (Woollen) Thousands 426 437 437 437 437

Fibres Production

Raw cotton Million kg. 2,380 2,907 4,131 4,148 4,760 5,355

Man-made fibres Million kg. 904 953 1,023 968 1,139 1,244

Raw wool Million kg. 48.04 48.50 44.60 44.90 45.20

Raw silk Million kg. 15.86 15.74 16.50 17.31 18.76

Yarn Production

Cotton Million kg. 2,267 2,121 2,272 2,521 2,824 2,948

Blended Million kg. 893 931 585 588 635 677

MMF Million kg. 920 1,118 366 366 355 378

Fabric Production

Cotton msm 19,718 18,040 20,655 23,873 26,238 27,205

Blended msm 6,351 6,068 6,032 6,298 6,882 6,888

100% NC msm 14,164 18,275 17,998 18,637 19,545 21,175

NC: non-cotton; msm: million square metres


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Indias textiles sector comprises

Composite Mills are integrated large-scale mills that integrate spinning, weaving and, sometimes, fabricfinishing. Around 176 composite mills were operating at end-March 2008, with an installed capacity of 5.63

million spindles, and employing around 0.264 million people. Between 1995 and 2008, while the weavingcapacity of the composite mills has declined from 111,540 looms to 55,480 looms; employment hasdeclined from 0.35 million to 0.219 million. However, the decline has been compensated by increase ofpowerloom and hosiery sector in decentralised sector.

State-Wise Composite Mills

As of March 31, 2008

FY No. Of Spindles Rotors Looms Knitting WorkersMills Machines

Andhra Pradesh (AP) 1 34,096 0 520 0 541

Assam 2 39,352 0 240 0 1,618

Bihar 1 5,200 0 60 0 286

Dadra Nagar Haveli 2 11,424 4,074 0 250 939

Gujarat 44 1,335,413 20,165 16,347 21 54,381

Haryana 2 37,176 168 155 3 1,946

Karnataka 7 207,977 3,600 1,162 0 6,057

Kerala 4 84,852 0 1,064 0 1,812

Madhya Pradesh (MP) 11 470,478 5,168 3,227 123 26,112

Maharashtra 43 1,325,840 21,104 13,205 26 40,819

Orissa 1 58,528 0 1,048 0 3,186

Pondicherry 2 44,620 0 1,100 0 3,304

Punjab 4 95,440 5,816 1,090 0 9,134

Rajasthan 9 448,565 7,592 961 59 16,379

Tamil Nadu (TN) 25 749,913 4,612 5,644 169 18,861

Uttar Pradesh (UP) 10 358,376 1,352 5,374 0 15,399

West Bengal (WB) 8 319,432 0 4,283 0 17,999

Total 176 5,626,682 73,651 55,480 651 218,773

Spinning Mills convert cotton or MMF into yarn to be used for weaving and knitting. Largely due toderegulation beginning in the mid-1980s, spinning is considered the most consolidated and technicallyefficient sector in Indias textile industry. At end-March 2008, India had around 2,816 spinning mills including1,219 in the small-scale industries (SSI) sector. These mills had an installed capacity of 34.41 millionspindles (including 4.17 million in the SSI sector), and a workforce of 0.625 million (including 0.05 millionin the SSI sector). Most of the spinning mills are located in Tamil Nadu (TN).


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State-Wise Spinning Mills

As of March 31, 2008

FY No. Of Mills Spindles (thousands) Rotors (thousands) Workers (thousands)

Non- SSI Total Non- SSI Total Non- SSI Total Non- SSI TotalSSI SSI SSI SSI

AP 108 20 128 2,500 103 2,603 6 7 13 37 1 38

Assam 6 0 6 110 0 110 0 0 0 2 0 2

Bihar 5 0 5 114 0 114 0 0 0 2 0 2

Chhattisgarh 1 0 1 25 0 25 0 0 0 1 0 1

Dadra/Nagar Haveli 6 0 6 240 0 240 13 0 13 2 0 2

Daman & Diu 1 1 2 7 1 8 0 0 0 0 0 0

Delhi 2 2 0 2 2 0 0 0 0 0 0

Goa 1 0 1 15 0 15 0 0 0 0 0 0

Gujarat 37 22 59 915 52 967 20 2 22 18 1 18

Haryana 66 72 138 267 30 297 71 42 113 11 2 13

Himachal Pradesh (HP) 18 2 20 671 0 671 7 2 9 14 0 14

Jammu & Kashmir (J&K) 2 0 2 146 0 146 0 0 0 7 0 7

Jharkhand 1 0 1 31 0 31 0 0 0 1 0 1

Karnataka 47 6 53 829 31 860 6 2 8 21 1 21

Kerala 30 5 35 717 20 737 2 1 3 11 0 11

MP 42 8 50 836 4 840 17 1 17 22 0 22

Maharashtra 126 17 143 2,657 62 2,719 29 5 34 71 2 72

Manipur 1 0 1 16 0 16 0 0 0 0 0 0

Orissa 16 1 17 293 1 294 4 0 4 13 0 13

Pondicherry 9 4 13 155 7 162 3 0 3 2 0 3

Punjab 79 30 109 1,872 109 1,981 42 9 51 44 2 46

Rajasthan 47 8 55 1,136 13 1,149 18 5 23 45 0 46

TN 868 976 1,844 14,767 3,646 18,413 139 88 227 196 39 236

UP 53 42 95 1,254 89 1,343 9 6 14 39 1 40

Uttaranchal 6 3 9 136 1 137 4 0 4 2 0 2

WB 21 0 21 525 0 525 2 0 2 14 0 14

Total 1,597 1,219 2,816 30,235 4,172 34,407 391 170 561 576 49 625


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Weaving and Knitting mills convert cotton, manmade, or blended yarns into woven or knitted fabrics.Indias weaving and knitting sector is highly fragmented, small-scale, and labour-intensive. This sectorconsists of about 3.89 million handlooms, 470,000 powerloom units operating around 2.11 millionpowerlooms. The powerloom sector comprises around 470,000 units with a workforce of around 5.27million people. Unlike the handloom sector, the powerloom sector uses power-driven shuttle looms; atypical powerloom unit has 12 to 44 looms. The powerloom sector accounts for 62% of fabric productionand is the primary supplier of fabrics to domestic apparel producers and consumers. Although the sectoruses technology that lags considerably behind that of the organised mill sector, some powerloom weavershave invested in more advanced shuttle-less looms.

Fabric Finishing Units include dyeing, printing, and other cloth preparation prior to the manufacture. Thissub-segment is also dominated by a large number of independent, small-scale enterprises. Overall, about2,300 processors are operating in India, including about 2,100 independent units and 200 units that areintegrated with spinning, weaving, or knitting units.

Apparel and clothing industry is fragmented and pre-dominantly in the small-scale sector. Majormanufacturers have at least 20-30 units each. The reason for this could be attributed to the SSI reservation

policy which was in force till 2001 for woven apparels and up to March 2005 for knitwear. The quota policywhich prevailed during the quota regime also did not encourage consolidation of the units. However,subsequent to quota phase out and dereservation, the process of consolidation has commenced, albeit ata slow rate primarily because of rigid labour laws. Excluding tailoring units, there are around 13,000 unitsof which 12,000 are SSI units. Most apparel manufacturers (80%) have small operations (with


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Fibre and Yarn Production

India is the second-largest producer of cotton (behind China) in the world with production of around 5.36 milliontonnes (mt) in CY2008, accounting for around 20% of world production.

World Cotton Production

Mt Growth

CY 2004 2005 2006 2007 2008 2009 2008 2009 2004-08

China 5.18 6.60 6.18 7.73 8.06 7.95 4.2% -1.4% 8.0%

India 3.05 4.14 4.15 4.75 5.36 5.23 12.8% -2.4% 18.3%

US 3.97 5.06 5.20 4.70 4.18 2.96 -11.0% -29.1% 2.2%

Pakistan 1.71 2.43 2.21 2.16 1.94 2.05 -10.1% 5.6% 2.2%

Brazil 1.31 1.28 1.02 1.52 1.60 1.26 5.1% -21.2% 13.6%

Uzbekistan 0.89 1.13 1.21 1.16 1.20 1.09 2.8% -9.1% 3.6%

Turkey 0.89 0.90 0.77 0.83 0.67 0.50 -18.4% -25.8% -5.8%

Turkmenistan 0.20 0.20 0.21 0.26 0.28 0.28 8.3% 0.0% 13.5%

Others 3.85 4.70 4.42 3.45 2.95 2.97 -14.4% 0.6% -4.0%

Total 21.07 26.44 25.38 26.56 26.24 24.29 -1.2% -7.4% 5.8%

CY: cotton year; Source: US Department of Agriculture (USDA)

Since the launch of Technology Mission on Cotton by the Government of India (GoI) in February 2000, significantachievements have been made in increasing cotton production and yields through development of high yieldingvarieties, appropriate transfer of technology, better farm management practices, increased area under cultivation ofgenetically modified (GM)/Bt cotton hybrids etc. These developments have resulted in a significant increase in cottonproduction since 2003-04. Yields per ha, which remained stagnant at about 300 kg/ha for more than 10 years,increased to 399 kg/ha in CY2004, and to 560 kg/ha in CY2008. During CY2008, in view of the above normal rainfallduring the South-West monsoon season, kharif sowing progressed with the advent of the South-West monsoon invarious States. Most cotton growing areas received good late-season rains in September 2007 resulting in excellentgrowing conditions for the crop. Area under cultivation increased 4.5% to 9.56 mha in CY2008. Combined with a 7.5%increase in yields to 553 kg/ha, Indias cotton production increased 12.5% in CY2008 to 5.36 mt.

IndiaCotton Production and Yield


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During Kharif 2008-09 season, lack of rains in the Central and Southern States (where large areas depend onmonsoon for cotton sowings) had affected sowings during June-July 2008. However, receipt of good rains fromthe last week of July 2008 helped to revive sowings and made up for the fall in acreage to a large extent. In thenorth zone, acreage has declined in Punjab and Rajasthan. Sowings in the Central zone have lagged behind inGujarat and Maharashtra. However, acreage in AP has increased 21%. Based on the latest cotton plantingestimates in various states, area under cultivation is expected to decline 3.1% in CY2009 to 9.26 mha. However,yields are expected to increase 5.5% to 591 kg/ha, primarily because of higher acreage under Bt. Cotton.Preliminary estimates about the coverage by Bt. Cotton in 2008-09 indicate that there is wide variation betweenStates, from 65% to 95%. Overall coverage under Bt. Cotton is expected to increase 21% in CY2009 to 7.4 mha,and coverage under Bt. Cotton is expected to increase from 64% in CY2008 to 80% in CY2009. Because ofhigher yields, Indias cotton production is expected to increase 2.2% in CY2009 to 32.2 million bales (or 5.47mt). The following table presents Indias cotton balance sheet for the last few years:

Indias Cotton Balance Sheet

Mkg Growth

CY 2004 2005 2006 2007 2008 2009 2008 2009Supply 3,574 4,695 5,440 5,738 6,273 6,290 9.3% 0.3%

Opening Stock 408 357 1,224 884 808 731 -8.7% -9.5%

Crop 3,043 4,131 4,148 4,760 5,355 5,474 12.5% 2.2%

Import 123 207 68 94 111 85 17.5% -23.1%

Demand 3,217 3,471 4,488 4,931 5,542 5,372 12.4% -3.1%

Mill Consumption 2,557 2,788 3,094 3,313 3,451 3,451 4.2% 0.0%

NonMill Consumption 221 282 340 361 391 391 8.2% 0.0%

Small spinners Consumption 233 246 255 270 255 255 -5.5% 0.0%

Exports 206 155 799 986 1,445 1,275 46.6% -11.8%

Closing Stock 357 1,224 952 808 731 918 -9.5% 25.6%

After a period (mid-2004 to late-2006) of strong consumption, Indias cotton consumption growth slowed downsignificantly from early 2007 because of weak export demand for cotton yarn and textiles. Significantly, cottonconsumption declined 5.1% (yoy) in August 2008, and 5.8% (yoy) in September 2008. Indias cotton consumptionis expected to stagnate in CY2009 primarily because of worsening demand prospects in the domestic andexport markets. Significantly, the global financial crisis has adversely affected the demand for all textile fibres,including cotton and synthetic fibres. This trend is likely to continue in CY2009 with an expected stagnation in

cotton consumption. The available monthly estimates for cotton consumption shows a gradual slowdown in thegrowth of cotton consumption caused by declining export sales and shrinking profit margins, and slowdown indomestic production of T&C.


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Monthly Domestic Cotton Consumption (SSI and non-SSI)

mkg

World cotton production has followed global cotton mill use, with production increasing from 6.6 mt in 1951 to 27mt in CY2005 (beginning August 1), before declining slightly in following seasons. Production stagnated ataround 20 mt between CY1995 and CY2004, before jumping to 27.1 mt in CY2005. The stagnation in productionwas primarily because of declining cotton prices, and increased substitution of cotton with synthetic fibres.

World Textile Fibre Production

Thousand tonnes

Cotton yields in many countries are benefiting from the higher penetration of Bt. Cotton; and expanded use ofexisting techniques, such as integrated pest management, better water management, minimum tillage, croprotations and improved use of fertilisers. After a 5.5% decline in cotton production during CY2006, world cottonproduction increased 4.3% in CY2007 to 26.64 mt mainly because of higher output in China and India, whichoffset lower production in US and Pakistan. However, world production is expected to have declined 1.5% inCY2008 to 26.23 mt due to a decline in acreage. Production is expected to have declined in China, US,Pakistan, and Turkey. India is the only major producing country where production has increased to a record of5.35 mt in CY2008. As global cotton mill use is expected to have exceeded global production in CY2008, stocksare expected to have declined from 12.52 mt at end-CY2007 to 12.25 mt at end-CY2008. Cotton consumption isexpected to have increased at a slower rate of 0.8% in CY2008, compared with a growth of 5.7% in CY2007.


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The main reasons for the slow-down in consumption growth include a decline in the rate of global economicgrowth, an increase in international cotton prices, lower growth in T&C imports by major countries (US andJapan) and regions (European Union or EU), and the fact that cotton has lost some of its price competitivenessvis--vis polyester in major markets since early-2007.

World cotton production is forecast to decline 6.4% in CY2009 mainly because of a decline in area and yields.The projected decline in world production in CY2009 is driven by an expected 30% decline in US production to2.95 mt. Global cotton consumption is projected to decline 6.8% in CY2009 due to sharply lower global economicgrowth. Cotton mill use is expected to decrease in Turkey, the US, EU, Mexico, Thailand, Russia, Taiwan, andKorea. However, cotton mill use is expected to continue to increase in China, Bangladesh, Indonesia, andVietnam.

World Cotton Consumption

Source: USDA

Mt Growth

CY 2004 2005 2006 2007 2008 2009 2008 2009 2004-08

China 6.74 8.11 9.47 10.45 10.78 10.23 3.1% -5.1% 11.3%

India 2.94 3.22 3.64 3.94 3.98 3.81 1.1% -4.4% 6.6%

Pakistan 2.10 2.29 2.51 2.73 2.71 2.57 -0.8% -4.8% 5.7%

Turkey 1.31 1.55 1.50 1.59 1.35 1.09 -15.1% -19.4% -0.3%

US 1.41 1.48 1.26 1.13 1.09 0.94 -3.6% -13.7% -7.6%

Brazil 0.84 0.91 0.94 0.96 0.97 0.93 0.6% -4.5% 4.4%

Bangladesh 0.38 0.41 0.48 0.54 0.60 0.62 10.8% 3.6% 12.2%Indonesia 0.48 0.48 0.48 0.48 0.50 0.48 2.2% -3.3% -0.2%

Others 4.96 4.96 4.69 4.68 4.45 4.18 -4.9% -6.1% -3.8%

Total 21.15 23.40 24.98 26.50 26.42 24.85 -0.3% -5.9% 4.4%

Cotton consumption is still expected to exceed production, resulting in a further decline in world cotton stocksto 11.92 mt by end-CY2009.

World Cotton Demand and Supply

Volume(mt) Growth

CY 2004 2005 2006 2007 2008 2009 2007 2008 2009

Opening Stock 10.48 8.74 11.67 12.24 12.52 12.25 4.9% 2.3% -2.2%

Production 20.96 27.01 25.53 26.64 26.23 24.55 4.3% -1.5% -6.4%

Consumption 21.74 23.71 25.05 26.49 26.70 24.88 5.7% 0.8% -6.8%

Exports 7.24 7.77 9.75 8.11 8.34 7.30 -16.8% 2.8% -12.5%

Closing Stock 8.78 11.67 12.24 12.52 12.25 11.92 2.3% -2.2% -2.7%


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International trade is a major component of the cotton market with exports accounting for around 30-40% ofworld production. However, the export-to-production ratio has exhibited a declining trend since the mid-1970s,when it reached a peak of nearly 50%. The major source of world cotton exports remains the US, with its shareof world exports increasing from 26% during the 1990s to 35% in CY2008. Cotton exports from India have also

increased during the past few years. Although China remains the largest cotton producer, domestic demand hasexceeded supply during the last few years, resulting in a substantial increase in imports. The other majorimporter is Pakistan, where a decline in production during recent years has resulted in an increase in imports.From being largely self-reliant, Indias cotton imports had increased from 5 mkg in CY1998 to 429 mkg inCY2002, primarily because of a decline in domestic production. However, the sharp increase in cotton productionsubsequently has resulted in India becoming a net exporter during CY2006-09.

World Cotton Trade

Source: USDA

Volume (mt) Growth

CY 2004 2005 2006 2007 2008 2009 2008 2009 2004-08

Exports 7.23 7.62 9.70 8.06 8.43 7.14 4.6% -15.2% 4.9%

US 3.00 3.14 3.82 2.83 2.97 2.67 4.9% -10.3% 2.8%

India 0.15 0.14 0.75 0.99 1.61 1.09 62.1% -32.4% 165.6%

Uzbekistan 0.67 0.86 1.05 0.98 0.96 0.83 -2.2% -13.6% 5.3%

Brazil 0.21 0.34 0.43 0.28 0.49 0.52 71.6% 7.6% 35.5%

Australia 0.47 0.44 0.63 0.46 0.27 0.21 -42.7% -22.1% -14.4%

Imports 7.41 7.28 9.66 8.14 8.28 7.14 1.7% -13.8% 4.7%

China 1.92 1.39 4.20 2.31 2.51 1.96 8.9% -21.9% 29.8%Pakistan 0.39 0.38 0.35 0.50 0.85 0.65 69.2% -23.1% 34.9%

Bangladesh 0.37 0.40 0.48 0.54 0.61 0.62 12.9% 1.8% 11.8%

Turkey 0.52 0.74 0.74 0.87 0.71 0.57 -18.3% -20.4% 7.6%

Indonesia 0.47 0.48 0.48 0.48 0.50 0.48 4.5% -4.3% 0.6%

India grows a wide range of cotton, from short staple to extra-long staple, and has the largest area under cottoncultivation in the world. However, only 36% of the cotton growing area in India is under irrigation, resulting in lowand varying yields, and wide fluctuations in annual production. Cotton is produced in three zonesNorthernZone comprising Punjab, Haryana and Rajasthan; Central Zone comprising Maharashtra, Madhya Pradesh(MP) and Gujarat; and Southern Zone comprising Andhra Pradesh (AP), Karnataka and Tamil Nadu (TN).Traditionally, yields had been higher in the Northern states of Punjab and Haryana because of higher irrigatedarea (nearly 100%), as compared with 34% in Gujarat (the largest cotton producing state). However, yields inthis region declined during the late 1990s because of adverse weather and pest infestations, as well as a lackof suitable high-yielding, short duration, and pest-resistant varieties. However, yields have improved during thelast few years, because of availability and increased planting of higher yielding, short-duration hybrid varieties.Yields in southern states have shown an increase in recent years because of planting of hybrid varieties.


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fuokl

Production and Yield of Cotton in Major States

Production (mkg) Yield (kg per hectare)

CY 2002 2006 2007 2008 2009 2002 2006 2007 2008 2009Andhra Pradesh 2.68 3.20 3.60 4.60 5.80 455 544 612 782 986

Gujarat 3.25 8.90 10.30 11.20 11.00 553 1,513 1,751 1,904 1,870

Haryana 0.55 1.30 1.50 1.60 1.50 94 221 255 272 255

Karnataka 0.70 0.65 0.60 0.80 1.00 119 111 102 136 170

Madhya Pradesh 2.00 1.80 1.90 2.10 2.00 340 306 323 357 340

Maharashtra 3.43 3.60 5.00 6.20 6.20 582 612 850 1,054 1,054

Punjab 0.93 2.00 2.40 2.20 2.00 157 340 408 374 340

Rajasthan 0.70 1.10 0.90 0.90 0.80 119 187 153 153 136

Tamil Nadu 0.50 0.55 0.50 0.50 0.50 85 94 85 85 85

Others 0.08 0.10 0.10 0.20 0.20 13 17 17 34 34

Loose Lint 1.00 1.20 1.20 1.20 1.20

Total 2,686 4,148 4,760 5,355 5,474 308 478 521 560 591

Growth of planted area under genetically modified (GM) cottonBt. Cottonis also estimated to have resultedin improved yields. Bt. Cotton is estimated to result in higher boll weight, increased yield, superior fibre quality,

and reduced usage of pesticides. India commercialised Bt cotton for the first time in 2002. Only a mere 32,000ha was cultivated with Bt cotton in 2002. Since then, overall coverage under Bt. Cotton is expected to haveincreased to 7.4 mha in CY2009, with coverage of 80%. However, Bt. Cotton seems to have had a larger effecton yields in the Central region, and in the central western states of Maharashtra and Gujarat.

India ranks among one of the worlds largest producers of manmade fibres (MMF). The industry had shown highgrowth rate of over 14% during the 1990s. However, growth had slowed down during FY2005-06. The decline inproduction of MMF and manmade filament yarns (MMFYs) during FY2006 was mainly on account of increasingproduction of cotton. However, production of MMF and MMFY has increased at a high rate during FY2007 andFY2008 because of lower excise duty on products, reduced customs duty on raw materials, and high growth inexports. Capacity additions in some segments of MMFs and MMFYs has also resulted in higher production.

Production of MMFs

Volume (million kg) Growth

FY 2004 2005 2006 2007 2008 2009 2008 3-year 2009(6M) (6M)

Viscose (VSF) 221 248 229 247 280 121 13.4% 4.1% -12.3%

Polyester (PSF) 613 644 628 792 880 389 11.1% 10.9% -13.5%

Acrylic (ASF) 117 128 108 97 81 42 -16.4% -14.0% 10.1%

Polypropylene (PPSF) 3 3 3 4 3 2 -2.6% 6.0% 1.7%

Total 953 1,023 968 1,139 1,244 554 9.2% 6.8% -11.8%


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Indias spinning industry is considered one of the most modern and internationally competitive segment ofIndias textile industry. Indias spun yarn production increased at a 5-year compounded average growth rate(CAGR) of 5.4% to 4 mt in FY2008. Because of increased cotton production during 2004-07, spun yarn productionincreased 9.7% during FY2007, as compared with around 7.8% during FY2006. However, spun yarn productiongrowth moderated to 5% in FY2008 primarily because of lower growth in demand.

Indias Spun Yarn Production

FY, mkg

During H1FY2009, spun yarn production declined 0.5% (yoy) to 1.99 mt primarily because of a decline in cottonand synthetic spun yarn production, attributable to lower demand growth. Yoy production growth has beennegative since July 2008, with the decline accelerating in each successive month.

Monthly Spun Yarn Production and Growth

The spun cotton yarn industry processes raw cotton from gins into yarns of various counts (degree of fineness)through a series of operations like fibre opening, cleaning, carding, combing, drafting, roving and ring spinning.The number of spindles and the count at which the spinning line machines are balanced define the capacity ofthe spinning unit. This capacity tends to go down as one shifts from coarse yarn to fine yarn production, and theproductivity is separately defined for each count in terms of production grams/spindle/shift of eight hours. Thespun yarn industry is almost entirely dominated by the non-SSI sector, which accounts for around 90% of thespun yarn production. The minimum economic size for a unit is 25,000 spindles, which calls for an investmentof Rs. 500-600 million.


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Number of Mills and Spun Yarn Production

FY No. of mills Installed Spun Yarn Production

Spinning Composite Total Spindles Rotors Looms Cotton Blended 100% Total(million) (000s) (000s) NC

1992 846 271 1,117 27.82 113 169 1,450 234 122 1,806

2002 1,579 281 1,860 35.75 409 123 2,212 609 280 3,101

2003 1,599 276 1,875 36.10 379 119 2,177 585 320 3,081

2004 1,564 223 1,787 34.02 383 88 2,121 589 342 3,052

2005 1,566 223 1,789 34.24 385 86 2,272 585 366 3,224

2006 1,570 210 1,780 34.14 395 73 2,521 588 366 3,475

2007 1,608 200 1,808 35.61 448 69 2,824 635 355 3,8132008 1,597 176 1,773 35.86 464 55 2,948 677 378 4,003

2009 1,625 177 1,802 36.47 474 57 1,475 338 180 1,993(Sep.)

Yarn output by the composite mills has declined steadily, as has their share of spinning capacity. Capacityutilisation in the cotton yarn spinning sector has increased in recent years, with higher rates for the decentralisedsector.

India also ranks among the worlds largest producers of MMFYs. After a decline in production in FY2005, theproduction of MMFY increased during FY2006-08. PFY is by far the most popular synthetic fibre/yarn in India,accounting for 94% of consumption in FY2008.

Production of MMFYs

Volume (million kg) Growth

FY 2004 2005 2006 2007 2008 2009 2008 3-year 2009(6M) (6M)

Viscose (VFY) 53 54 53 54 51 21 -5.4% -1.6% -20.3%

Polyester (PFY) 1,013 1,004 1,076 1,271 1,420 650 11.7% 12.3% -7.0%

Nylon (NFY) 31 35 37 32 28 14 -14.4% -7.9% 5.3%

Polypropylene (PPFY) 21 16 14 13 11 7 -21.4% -13.6% 28.4%

Total 1,118 1,109 1,179 1,370 1,509 692 10.1% 10.8% -7.0%

During the period FY1996-2000, the production of PFY increased at high rate of 24% per annum. The growth ratefor polyester staple fibre (PSF)used for blending with cotton and viscose yamwas 20% over the sameperiod. However, in the recent past, the production and consumption of PFY and PSF has slowed down significantly.


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Yearly Growth in MMF and MMFY Production

After a significant increase in FY2007-08, production of both MMFs and MMFYs declined in H1FY2009. Productionof MMFs declined 11.8% (yoy) in H1FY2009, with a sharp decline in Q2FY2009. Similarly, production of MMFYsdeclined 7% (yoy) in H1FY2009, compared with a growth of 10.1% in FY2008. Production of MMFs declined22% (yoy) in Q2FY2009, compared with a decline of 1% (yoy) in Q1FY2009. Production of MMFYs declined18% (yoy) in Q2FY2009, compared with an increase of 4.2% (yoy) in Q1FY2009.

Growth in MMF and MMFY ProductionMajor Products

yoy

The recent decline in production has been because of higher product prices, higher production and availability ofcotton, and deceleration in domestic and export demand growth. Amongst the various items, production of PSFhas shown a significant decline inspite of some capacity addition coming in. VFY production has been impacted

by decline in demand and rising crude prices.

There exists significantly high competition in the MMF and MMFY industry. As of March 2008, there were 106units in operation, comprising 32 in MMF/staple fibres, and 74 in MMFY. The installed capacity was 1.66 mtpain MMF, and 2.10 mtpa in MMFY. The extent of competition has increased significantly post commissioning ofcapacities in the second half of the 1990s as new players entered. The following table provides details oninstalled capacity and capacity utilisation.


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MMF and MMFYInstalled Capacities and Capacity Utilisation

Installed Capacity (mkg per annum) Capacity Utilisation (%)

FY 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008MMF 1,101 1,189 1,191 1,663 1,659 86.6 86.0 81.3 68.5 75.0

Viscose 305 337 338 346 355 72.3 73.7 67.7 71.4 78.9

Polyester 650 700 700 1,157 1,143 94.3 92.1 89.8 68.4 77.0

Acrylic 138 145 145 152 153 85.1 88.0 74.4 64.1 53.1

Polypropylene 8 8 8 9 9 34.3 36.0 38.5 40.5 39.4

MMFY 1,228 1,337 1,374 2,053 2,101 91.0 82.9 85.8 66.7 71.8

Viscose 75 78 80 80 80 70.7 68.6 66.6 67.7 64.1

Nylon 1,112 1,217 1,253 1,924 1,972 91.1 82.4 85.8 66.1 72.0

Polyester 24 24 24 32 32 129.1 147.5 153.5 100.8 86.3

Polypropylene 17 17 17 18 18 119.8 93.8 78.1 75.8 59.6

Fabrics

Approximately 62% of Indias fabric production comprises of cotton or cotton blends, with their share increasingduring FY2005-08, primarily because of higher cotton availability.

Indias fabric production has increased at a 5-year CAGR of 5.9% to 56,031 million square metres (msm) inFY2008. However, production growth has declined sharply from 9.3% in FY2006 to 4.9% in FY2008. DuringH1FY2009, fabric production declined 0.1% (yoy) to 27,484 msm, primarily because of lower output by thehandloom and decentralised powerloom sector.

The role of the organised sector in fabric production has diminished over the years with its contribution droppingfrom 70% in the 1950s to 3-4% at present. This has mainly been on account of policy restrictions relating tolabour laws (which were applicable for a firm having more than 10 employees, current employee limit is 1,000)and the fiscal advantages enjoyed by the small-scale and powerloom sectors. Changes in textile policy fromphysical controls toward market-oriented incentives have also prompted changes in the types of units producingfabrics. The share of handloom sector in cloth production has declined 21-22% during the mid-1990s to 12.4%in FY2008. By comparison, the share of powerloom sector increased from 55-56% in the mid-1990s to 62% inFY2008. Currently, the mills mainly cater to higher priced segments and exports while the decentralised powerloomunits cater to the masses and the rural sector.

The mill sector has the advantage of maintaining/controlling its quality at each stage of production. The decentralisedsector is the largest segment of the Indian fabrics industry in terms of employment, income and exports, andaccounted for 95% of Indias fabric production. Powerlooms dominate the Indian manmade fabrics sector, as thehank yarn obligation (HYO) 1 does not obstruct the flow of manmade yarn to powerlooms.

1 HYO requires spinning units to either process about a quarter of theirdeliveries in the form of a yarn used by handlooms or to transfer the obligation to other firms.


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Sector- and Fabric-wise Production

Production (msm) Growth

2004 2005 2006 2007 2008 2009 2008 3-year 2009(H1) (H1)

Cotton 18,040 20,655 23,873 26,238 27,205 13,371 3.7% 9.6% -1.3%

Mills 969 1,072 1,192 1,305 1,249 626 -4.3% 5.2% 0.5%

Handloom 4,519 4,792 5,236 5,717 6,076 2,894 6.3% 8.2% -3.8%

Powerloom 6,370 7,361 8,821 9,647 9,932 4,717 3.0% 10.5% -5.2%

Hosiery 6,182 7,430 8,624 9,569 9,948 5,134 4.0% 10.2% 3.8%

Blended 6,068 6,032 6,298 6,882 6,888 3,630 0.1% 4.5% 6.3%

Mills 253 243 252 330 422 256 27.9% 20.2% 26.1%Handloom 117 146 145 99 123 46 24.2% -5.6% -16.4%

Powerloom 4,688 4,526 4,632 5,025 4,918 2,636 -2.1% 2.8% 8.7%

Hosiery 1,010 1,117 1,269 1,428 1,425 692 -0.2% 8.5% -5.5%

100% NC 17,613 17,998 18,637 19,545 21,175 10,102 8.3% 5.6% -0.5%

Mills 212 211 212 111 110 46 -0.9% -19.5% -14.8%

Handloom 857 784 727 720 748 364 3.9% -1.6% -0.8%

Powerloom 15,889 16,438 17,173 18,207 19,886 9,469 9.2% 6.6% -0.6%

Hosiery 655 565 525 507 431 223 -15.0% -8.6% 6.7%

Total 41,721 44,685 48,808 52,665 55,268 27,103 4.9% 7.3% -0.1%

Mills 1,434 1,526 1,656 1,746 1,781 928 2.0% 5.3% 5.5%

Handloom 5,493 5,722 6,108 6,536 6,947 3,304 6.3% 6.7% -3.6%

Powerloom 26,947 28,325 30,626 32,879 34,736 16,822 5.6% 7.0% -0.6%

Hosiery 7,847 9,112 10,418 11,504 11,804 6,049 2.6% 9.0% 2.8%

Khadi, Wool, Silk 662 693 769 724 763 381 5.4% 3.3% 0.0%

Total 42,383 45,378 49,577 53,389 56,031 27,484 4.9% 7.3% -0.1%

As can be seen from the above table, production growth has moderated significantly during FY2008 and H1FY2009.While the slowdown in FY2008 was primarily because of higher domestic prices, and the rupee appreciationwhich resulted in a sharp slowdown in exports; the decline in FY2009 is due to dampening of domestic demanddue to continued higher prices; and a sharp slowdown in export demand. The index of industrial production (IIP)for cotton textiles declined 1% (yoy) in 8MFY2009 (April-November 2008), compared with increases of 4.3% inFY2008, and 14.8% during FY2007. The IIP for wool, silk, and man-made fibre textiles also declined 2.8% (yoy)in 8MFY2009, compared with increases of 4.8% in FY2008, and 7.8% in FY2007.


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Monthly Growth in IIP for Textile Products

yoy

Annual Growth in IIP for Textile Products

FY

Apparel

Indias total manufacturing output of wearing apparel is estimated to have increased at a 5-year CAGR of 14.7%to Rs. 193.90 billion in FY2007. The unorganised sector accounted for around 61% of output, a share that hasremained stable over the past few years. At current prices, Indias private final consumption expenditure (PFCE)on clothing has increased at a 5-year CAGR of 6.7% to Rs. 935.86 billion in FY2007. However, growth atconstant prices has been lower at 4.6%. The share of clothing in domestic PFCE has declined from 5.7% duringFY1987-97 to 4.6% during FY1998-2007.


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Domestic PFCE on Clothing and Share of Total PFCE

At current prices

The apparel industry is concentrated primarily in 8 clusters, i.e., Tirupur, Ludhiana, Bangalore, National CapitalRegion or NCR (Delhi/Noida/Gurgaon), Mumbai, Kolkata, Jaipur, and Indore. While Tirupur, Ludhiana and Kolkataare major centres for knitwear; Bangalore, NCR, Mumbai, Jaipur, and Indore are major centres for woven garments.The apparel sector, like weaving and finishing, is characterised by a large number of independent, small-scalefirms. While it is not unusual for apparel manufacturing to be both relatively small-scale and independent fromthe upstream segments of the textile supply chain, Indias apparel firms tend to be smaller and more labourintensive than other major exporters. Unlike the other segments of the textile industry, the apparel sector isrelatively new because, traditionally, most Indian garments were made in the home or on a custom basis bylocal tailors. The small-scale nature of Indias apparel industry has been shaped directly by policies that, untilremoved in 2000 and 2005, restricted woven and knitted apparel firms to the SSI sector. In 1999, the apparel

sector was made up of about 58,000 firms, of which about 48,000 produced woven products and 10,000 producedknitted products. Only 6% of firms operate with more than 50 machines, and more than 80% operate with lessthan 20 machines. While some firms produce exclusively for either the domestic or export market, most arefabricators, or independent contract producers, that produce for both markets. Even export-oriented manufacturersare small by international standards.

The average Indian garment exporter has about 119 machines, compared with 698 in Hong Kong and 605 inChina. Because of the predominance of very small-scale fabricators in the apparel sector, most apparel isproduced on a contractual basis for large manufacturers/ exporters. The fabricators specialise in low-wage,labour-intensive sewing and have the flexibility to meet small custom orders but are much less competitive withlarge orders and those typically involving high levels of automation. Indian apparel producers are increasinglycognisant of emerging challenges and opportunities. Some firms, including a number of the largest firms in thetextile business, are increasing investment in larger scale apparel enterprises, as well as in integrated operations

involving some combination of spinning, weaving, finishing, and apparel making.Apparel export firms are concentrated only around centres that are well-defined in terms of proximity to transport,fabric supplies and cheap labour. Currently, Delhi, Mumbai, Tirupur, Chennai and Bangalore account for nearly96% of the total value of apparel exports. Delhi, the leading export centre for apparel in volume and value, leadsalso in design and merchandising skills, with smaller and flexible production quantities. Chennai, on the otherhand, is more geared towards large and well-established factories producing large quantities of basic products,while Bangalore is growing in more engineered products including tailored clothing and foundation garments.Tirupur in south India, formerly a small town, is a stronghold of cotton knitwear. Ludhiana, in the prosperousnorthern state of Punjab, originally built its strengths in woollen knitwear through exports into the former SovietUnion.


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KEY ISSUES F ACING THE P LAYERS

Low Degree of Modernisation

Although India accounts for around 39% of the estimated 5.22 million looms installed worldwide in 2005-06,India has only around 45,000 shuttle-less looms. Shuttle-less looms have been developed to overcome theinherent problems created by the dynamics of the picking mechanism on the conventional Fly Shuttle Loomsand make use of entirely different methods of weft insertion. Compared with conventional shuttle looms, shuttle-less looms result in higher output and production of superior quality fabric.

The share of shuttle-less looms in the Indian textiles industry is only 2-3% as against a world average of 16.9%,thereby indicating a low degree of modernisation in the Indian weaving industry. The small-scale sector, which isthe predominant sector in the Indian weaving industry, can invest limited funds in modernisation and thus, theIndian weaving sector has remained as one using antiquated machinery.

Degree of Modernisation

2005, Share of Shuttle-less looms

The low levels of shuttle-less looms are much below those of several developed and developing countries, whichhave seen a high replacement rate of old looms with modern shuttle-less looms; more than 60% of looms inTaiwan, Korea and the US are shuttle-less. However, Indian and global manufacturers installation of shuttle-lesslooms is increasing. Although worldwide shipments of shuttle-less looms declined 16% in 2005 to 53,500 units,they increased to 66,600 units in 2006, and 68,200 units in 2007. Indias purchases of shuttle-less loomsincreased 127% in 2005 to 4,900 units, and increased sharply to 31,000 units in 2006. However, they declinedto 2,000 in 2007. Investments in shuttle-less looms dropped significantly in China from 46,500 in 2004 to 32,600in 2005, but increased to 42,200 in 2006, and 46,200 in 2007.

Although the Indian spinning sector is relatively more modernised, around 60% of installed spindles are morethan 10 years old and open-end (OE) rotors account for only 1% of total installed spindles. Even in the apparelsector, India has much lower investment in special purpose machines, which perform specific functions and addvalue to the product. Very few export establishments have invested in cutting machines or finishing machines.By comparison, China and other Asian countries have made significant investments in special purpose machinesthat provide higher quality and productivity, thereby ensuring high throughput as well as realising high unit value.


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Although the investments for modernisation are large, fiscal incentives announced by the GoI in last few budgetsalong-with soft interest regime in the Technology Upgradation Fund Scheme (TUFS) 1 scheme has provided thefillip to the Indian industry in improving its ability to compete more effectively in the present quota-free globalenvironment. TUFS provides soft loans to the textile companies so as to improve their productivity. TUFS hasnow been extended beyond March 31, 2007 subject to necessary modifications. The TUFS has been extendedupto March 2012, and shall continue to provide a reimbursement of five percentage points on the interestcharged by the lending agency on a project of technology up gradation in conformity with the Scheme. However,for the spinning machinery the reimbursement will be four percentage points. The scheme will continue toprovide cover for foreign exchange rate fluctuation not exceeding 5%. Although TUFS has been extended tillMarch 2012, there has been a significant decline in disbursements, from Rs. 266.05 billion in FY2007 to Rs.68.54 billion in FY2008. The decline has been primarily because of the sharp decline in applications received,partly attributable to worsening demand prospects.

With the target of extracting most benefits from quota deregulation, many companies have announced plansto increase their capacities and enter more profitable stages of T&C value chain. The TUFS has facilitatedtechnological up gradation and expansion in the T&C industry. The following table provides the disbursementsunder TUFS, which further indicates the increasing investment in general in the textile sector and specificallyin increasing the extent of modernisation in the textile sector.

2 TUFS is a scheme by the Government of India (GoI) launched in April 1999 for a period of 5 years, subsequentlyextended by 3 years to cover sanctions up to March 31, 2007. TUFS comprises no cap on funding, softer interest ratesfor modernisation in cotton ginning, pressing and spinning; silk reeling and twisting; synthetic filament yarn texturising,crimping and twisting; manufacture of viscose filament yarn/ viscose staple fibre; weaving, knitting including non-wovens and technical textiles; garments/madeups; and jute industry.

Progress under TUFS

Applications Received Applications Sanctioned Applications Disbursed

FY No. Cost of No. Cost of Amount No. AmountProject Project

2000 407 57.71 309 50.74 24.21 179 7.46

2001 719 62.96 616 43.80 20.9 494 18.63

2002 472 19.00 444 13.20 6.30 401 8.04

2003 494 18.35 456 14.38 8.39 411 9.31

2004 867 33.56 884 32.89 13.41 814 8.56

2005 986 79.41 986 73.49 29.90 801 17.57

2006 1,086 161.94 1,078 150.32 67.76 993 39.62

2007 12,336 610.63 12,589 662.33 290.73 13,168 266.05

2008 2,408 212.54 2,260 199.17 80.58 2,207 68.54

2009 (6M) 936 65.18 949 65.09 51.27 940 35.99

Total 20,711 1,321.29 20,571 1,305.41 593.45 20,408 479.78Under TUFS, the spinning segment has attracted the largest amount of applications and disbursements. This isexpected to accelerate the modernisation and technological up gradation process through expansion of capacityand the replacement of the obsolete spindles. Spindles are required to be replaced within ten years of the installationso as to maintain optimum production. In the weaving segment, the mill sector is increasingly installing shuttle-less looms, and disbursements under TUFS aggregated Rs. 40.38 billion up to September 2008.


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Segment-wise Disbursements under TUFS

Rs. Million, up to September 30, 2008

Non-SSI SSI TotalFY No. Amount No. Amount No. Amount

Composite Upgradation 541 92.40 144 0.65 685 93.05

Spinning 1,979 158.39 301 2.52 2,280 160.91

Processing of fibres, yarns, fabrics,garments & made-ups 699 38.79 903 4.80 1,602 43.59

Weaving 726 34.45 2,509 5.93 3,235 40.38

Garment Manufacturing 387 18.85 1,071 6.05 1,458 24.90

Synthetic filament yarn texturing,cramping & twisting 330 11.45 1,325 3.01 1,655 14.45

Knitting 160 7.05 1,236 5.68 1,396 12.73

Made-up Manufg. 51 4.33 625 0.89 676 5.22

Fabric Embroidery 302 7.97 5,678 9.95 5,980 17.92

Viscose Yarn Manufg. 50 7.07 45 0.23 95 7.29

Jute Industry 36 2.50 5 0.01 41 2.50

Technical Textiles 77 5.46 95 0.38 172 5.84

Cotton Ginning & Pressing 437 44.20 277 1.89 714 46.09

Independent Weaving 6 0.34 127 0.24 133 0.58

Non wovens 51 0.88 62 0.38 113 1.26

Silk Reeling 21 0.80 77 0.19 98 0.99

Wool Scouring & Combing 6 0.29 38 0.14 44 0.44

Others 20 1.53 11 0.08 31 1.62

Total 5,879 436.75 14,529 43.02 20,408 479.77

The extent of improvement in the level of modernisation would be the key determinant of long-term performanceof the largest sector of Indian industry and its exports. For strong growth of textiles and apparel exports postWTO accession, the share of MMF based T&C exports would have to be significantly increased in order toaddress larger portion of world T&C market.

Problems Facing Domestic Cotton Yarn Industry

Given the emphasis on exports, cotton yarn spinners operating in the domestic environment face a difficultsituation. The sector is besieged by many problems some of which are as follows:


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Hank Yarn Obligation (HYO)

The HYO obligation was initiated in 1974 as a measure to ensure adequate yarn at a competitive price for thehandloom weavers. Under the HYO, over 25% of the production for domestic sales has to be sold in the hank

form for the handloom sector at a significant discount to the prevailing yarn prices thereby constraining profitability.The HYO is an implicit subsidy given to the handloom sector at the expense of yarn producers. However, theyarn producers have suffered as they are forced to produce a fixed proportion of their yarn of below 40s count,which fetches them lower margins. More importantly, the obligation prevents the yarn producers from upgradingtheir product portfolio. This affects subsequent processing stages like fabric and garments. The HYO thus alsoadversely affects competitiveness of the T&C sectors. However, in view of adequate supply of hank yarn for theconsumption of handloom sector, the Government reduced the HYO from 50% to 40% of the total yarn packedfor civil consumption during each quarter, with effect from January 1, 2003. As a result, domestic deliveries ofhank yarn have declined in the last five years.

Domestic Deliveries of Hank Yarn

FY

Compiled by IMaCS

Competition with Exporters

Exporters enjoying Government incentives provide stiff competition to players catering only to the domesticmarket. With the differential treatment continuing for a long time, players catering solely to the domestic industryhave not been able to modernise their operations because of paucity of funds, and thus use older technology.Although Indian export-yarn prices are generally 15-20% higher than domestic prices, it entails higher costs asthe manufacture of export-quality yarns require higher precision in trash removal and combing. Additionally,higher premiums have to be paid for purer cotton. However, the price of Indian cotton has generally been lowerthan the international prices, and works out cheaper even after these premiums. The years 1997-98 and 2000-01 have been aberrations in the sense that these two years witnessed high domestic cotton prices and decliningexport yarn prices.

Since the T&C sector is relatively labour intensive, labour cost assume great significance in production costs.Although India compares very favourably across the developing countries in terms of low labour costs, lowwages are not the only factor of competitiveness. High wage levels reflect higher levels of skill, productivity andautomation which in turn, are important factors of export competitiveness. Studies on the Indian garment industryhave indicated export oriented firms pay higher wages to their labour than the domestic market oriented firms.The higher wages are attributable to the higher skills of designers, pattern makers and craftsmen, as well as tobetter-trained cutters and tailors employed by exporting firms.


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Excess Capacity and Closures

As of end-September 2008, around 380 mills (including 61 composite mills and 319 spinning mills) with acapacity of 7.11 million spindles and 32,252 looms were lying closed. These mills had an employee strength of

0.25 million. Of these, around 307 mills (capacity of 6.02 million spindles and 31,000 looms) have been closedfor more than 5 years. However, the number of closed mills has declined from around 483 units at end-March2006. A significant portion of the dormant non-viable and obsolete capacity gets reactivated during periods ofbuoyant market conditions and destabilises the established market by undercutting prices. No scheme existsto scrap these redundant capacities.

Competition with Small Scale Sector

Hitherto, the small scale sector enjoyed excise duty exemption. However, the Union Budget for FY2002 hasremoved this small-scale sector preference in the yarn industry.

Labour Laws

Indias T&C sector is currently hampered with restrictive labour laws. While infrastructure bottlenecks have kept

Indias T&C industry small and fragmented, archaic and restrictive labour regulations have prevented manufacturersin achieving economies of scale, and realising their full potential. Strict labour laws in India make it virtuallyimpossible for companies to shed labour. It also introduces unfair discrimination against large companies whoare forced to comply with the labour laws relating to minimum wages, social security, contractual obligations,nature of terminations, internal transfers/job rotation, right to leaves and regulations regarding working hoursetc., while the smaller ones (like powerlooms) manage to evade compliance with such regulations. This providesa competitive edge to powerlooms compared to organised mills, and has led to decline of mills and proliferationof powerlooms in India, with all its attendant adverse implications for competitiveness of the T&C sector chain.Units employing over 100 people currently fall under the purview of the Industrial Disputes Act, 1947 (IDA, 1947).The Act stipulates that employers must obtain necessary regulatory approvals for lay-offs. This proves to be ahindrance especially for medium sized enterprises. As a result, Indian manufacturers often set up several plantsinstead of a single large one. This, however, limits their flexibility to meet seasonal variations in demand. Theyalso lose out on economies of scale and investment. The export oriented units (EOUs) also face difficulty ingetting approvals for using contract labour. The exports business is seasonal and contractual in nature. Excesslabour during lean periods or during initial stages of developing an export market, when order uncertainty is high,can lead to financial difficulties.

Policy Reforms

In November 2000, the Government of India came out with a new textile policy (refer following figure) that outlinesthe direction of policy reforms to be followed in the near term. The steps outlined in the policy are geared mainlytowards removing the bias in policy towards the small-scale sector and promoting modernisation.


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The Union Budget for 2003-04 announced the following steps:

Reduction in excise duty on PFY from 32% to 24%. However, a 1% national calamity contingent duty onPFY was imposed.

Reduction in excise duty on all spun and other filament yarns from 16% to 12%, on all knitted cottonfabrics and garments from 12% to 8%; on all woven fabrics and other knitted fabrics from 12% to 10%; ongarments from 12% to 10%.

Withdrawal of excise exemption on all knitted and unprocessed woven fabrics

Completion of CENVAT chain and removal of deemed credit

Excise exemption to hand-processed fabrics to be provided only if no power or steam is used in anyprocess

No change with regard to existing excise exemptions on handloom fabrics, silk, khadi and polyvastra.

Reduction in basic customs duty on paraxylene (PX) from 10% to 5%; on apparel grade raw wool from 15%to 5%; on a large number of textile machinery and their parts from 25% to 5%.

For strengthening the power loom sector, the following measures were announced: (a) TUFS to covermodernisation of powerlooms as well; (b) to create a better working environment and increase productivityof the units, a new powerloom workshed scheme was announced. Further, to improve infrastructure at thepowerloom clusters, a Textile Sector Infrastructure Development Scheme was announced; (c) all powerloomworkers are to be covered under the special insurance scheme entailing insurance cover against death,accident and disability.

The Union Budget for 2004-05 also carried forward the exercise of reforms and announced the following steps:

Modification of CENVAT: The CENVAT Scheme was made optional. Levy of excise duty on pure cotton,wool and silk, whether it is fibre, yarn, fabric or garment was made optional.

Blended textiles and pure non-cotton (polyester, viscose, acrylic and nylon) to have a different tax regime.However, excise duty on MMF and MMFY only (including texturised yarns) continued to be mandatory.

Every manufacturer, whether it be handloom or powerloom or composite mill, will have the option to choosebetween two routes. One will be the exemption route and the other will be the CENVAT route. Under theexemption route, no excise duty will be payable at any stage (except on MMF and MMFY). Under theCENVAT route, credit can be taken for all excise duties paid at earlier stages. For the pure cotton sector,the uniform rate was fixed at 4% on yarn, fabrics, garments and made-ups. For the blended textiles sectorand pure non-cotton sector, the uniform rate was 8%.

The additional excise duty of 15% on textiles was also abolished.

Reduction in customs duty on capital imports for textile and garment making machinery from 20% to 5%.

Part imported for manufacture of such machines to attract a customs duty also of 5%. Customs duty onspecified machinery for silk textile industry was also reduced from 10% to 5%.

The Union Budget for 2005-06 announced the following major steps:

Continuation of TUFS with enhanced allocation of Rs 4.35 billion with additional benefits of 10% capitalsubsidy for the textile processing sector.

Knitwear sector to be removed from the list of products that are reserved for small scale sector.

Customs duty on textile machinery reduced from 20% to 10%; on fibres, yarns, intermediates, fabrics andgarments reduced from 20% to 15%. A countervailing duty of 4% was levied on all goods to compensate forstate level taxes, mainly VAT of 4%.


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Reduction in excise duty on polyester partially oriented yarn/polyester filament yarn from 24% to 16%.

Polyester Texturisers to come under optional CENVAT scheme of 8% in lieu of 24% duty earlier (on

PFY).The Union Budget for 2006-07 has announced various measures impacting the industry:

Customs duty on specified textile machinery, and parts for manufacture of such machinery, to be reducedfrom 15% to 10%.

Customs duty on textiles fabrics and garments to be reduced from 15% to 12.5%. There is, however, nochange in specific component of customs duty.

Additional duty of customs of 4% against the sales tax paid on domestic purchases

Allocation for TUFS to be increased from Rs.4.35 billion to Rs.5.35 billion.

The Scheme for Integrated Textiles Parks (SITP) was launched in October 2005 for creating 25 textileparks. For these parks, a fund of Rs.1.89 billion was proposed.

Proposed launch of Jute Technology Mission in 2006-07. A National Jute Board is proposed to be established.

Additional 100 clusters proposed to be covered under the scheme of handloom cluster development. Yarndepots have been proposed to be established in different parts of the country to ensure uninterruptedsupply of yarn to weavers and proposed to launch a handloom mark. A scheme similar to TUFS proposedto be introduced for the handloom sector to provide interest subsidy on term loans.

For effective cluster development, it has been proposed to constitute an Empowered Group of Ministerswho will lay down the policy for cluster development and oversee their implementation.

Customs duty on manmade fibres, filaments yarns and spun yarns to be reduced from 15% to 10%.

Customs duty on DMT, PTA, MEG and Caprolactam reduced from 15% to 10%Customs duty on Paraxylene has been reduced from 5% to 2%

In July 2006, the Government reduced excise duty on various textile intermediates. Duty on paraxylene, DMT,PTA, polyester chips and ACN was reduced from 16% to 12%. Duty on MEG was also reduced from 16% to12%. The reduction in excise duty on major raw materials is expected to resolve the issue of inverted dutystructure faced by the synthetic textile producers. Earlier in the Union Budget for 2006-07, duties on MMFs andMMFYs was reduced from 16% to 8%, while leaving the duty on intermediate chemicals intact at 16%. Thiscreated accumulation of unutilised CENVAT credit by the yarn and fibre manufacturers since they could claimcredit for excise duty paid on raw materials only to the tune of excise duty applicable on final products. However,there was no modification in excise duty rate on caprolactam (at 16%), a major input for NFY. As a result,producers of NFY, which attracted 8% excise duty, continued to face the issue of unutilised credit.

The Union Budget for 2007-08 announced various measures impacting the industry:

TUFS to continue during the 11 th Five Year Plan (2007-12). Provision for TUFS increased from Rs. 5.35billion in 2006-07 to Rs. 9.11 billion in 2007-08.

Budgetary allocation under Scheme for Integrated Textile Parks (SITP) increased from Rs. 1.89 billion to4.25 billion.

Customs duty on DMT, PTA, MEG, polyester staple fibres and tow, polyester filament yarns and polyesterchips to be reduced from 10% to 7.5%.

Peak rate of customs duty reduced from 12.5% to 10%.


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Determinants of Demand

Region Wise Purchases of Textiles

Rs. billion

North South East West Central Total

2004 344.04 329.69 315.59 241.43 107.19 1,337.93

Cotton 78.09 98.56 151.81 62.00 20.30 410.76

Silk 12.35 40.18 15.25 5.79 2.48 76.05

Wool 16.28 4.30 16.22 4.99 3.49 45.29

Manmade/blended 237.32 186.65 132.31 168.65 80.92 805.84

2005 370.26 354.18 334.52 260.28 115.84 1,435.07

Cotton 80.92 102.12 157.30 64.24 21.03 425.61

Silk 13.27 43.16 16.38 6.22 2.66 81.69

Wool 15.78 4.17 15.72 4.84 3.39 43.90

Manmade/blended 260.30 204.72 145.12 184.98 88.76 883.87

2006 411.21 384.97 356.26 281.81 121.59 1,555.84

Cotton 85.31 105.89 162.55 68.41 21.96 444.11Silk 15.50 44.22 17.64 6.60 2.96 86.92

Wool 17.60 4.83 13.08 4.31 2.97 42.78

Manmade/blended 292.81 230.03 162.99 202.49 93.70 982.02

3-year CAGR 8.7% 8.1% 2.6% 6.0% 7.9% 6.5%

Cotton 3.9% 3.0% 3.5% 1.5% 4.2% 3.2%

Silk 7.0% 10.0% 9.2% 13.9% 20.8% 9.9%

Wool 4.4% -1.4% 0.1% -3.4% -12.4% 0.0%

Manmade/blended 10.7% 10.8% 1.4% 7.7% 9.5% 8.2%


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In volume terms, Indias textile purchases increased 5.1% in 2006 to around 24.03 billion metres. Purchasesincreased at a 3-year CAGR of 4.7%. While purchases of cotton textiles increased at a 3-year CAGR of 3.6%to 9.29 billion metres in 2006, purchases of MMF increased at a higher rate of 6.3% to 14.49 billion metres.

Region Wise Purchases of TextilesMillion metres

North South East West Central Total

2004 5,395 4,706 5,531 4,195 1,957 21,784

Cotton 1,679 2,024 3,207 1,324 458 8,692

Silk 26 65 33 11 9 144

Wool 37 6 36 11 10 100

Manmade/blended 3,653 2,611 2,255 2,849 1,480 12,848

2005 5,673 4,934 5,773 4,416 2,063 22,859

Cotton 1,734 2,090 3,312 1,368 473 8,977

Silk 27 67 34 12 9 149

Wool 35 6 34 11 10 96

Manmade/blended 3,877 2,771 2,393 3,025 1,571 13,637

2006 5,976 5,189 6,051 4,652 2,162 24,030

Cotton 1,782 2,165 3,420 1,432 490 9,289

Silk 31 67 36 12 8 154

Wool 39 7 28 10 9 93

Manmade/blended 4,124 2,950 2,567 3,198 1,655 14,494

3-year CAGR 4.6% 4.5% 4.4% 5.0% 5.5% 4.7%

Cotton 4.8% 4.5% 2.7% 3.1% 3.1% 3.6%

Silk 4.7% 0.5% 6.3% 6.3% 17.0% 3.7%

Wool 1.8% -8.0% -7.2% -8.4% -11.5% -4.6%

Manmade/blended 4.5% 4.7% 7.0% 5.9% 6.4% 5.5%

Average prices for all textile items increased 3.1% in 2006 to Rs. 64.75/metre or m, as compared with anincrease of 2.2% in 2005. While prices in urban areas increased 2.6% to Rs. 87.41/m in 2006, prices in ruralareas increased 3.7% to Rs. 52.41/m. The growth in prices has been driven by increase in MMF textiles. Bycomparison, prices of cotton textiles have increased at a slower rate.


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Average Price of Textile Purchases

Rs./m

North South East West Central Total2004 63.77 70.06 57.06 57.55 54.77 61.42

Cotton 46.51 48.70 47.34 46.83 44.32 47.26

Silk 475.00 618.15 462.12 526.36 275.56 528.13

Wool 440.00 716.67 450.56 453.64 349.00 452.90

Manmade/blended 64.97 71.49 58.67 59.20 54.68 62.72

2005 65.27 71.78 57.95 58.94 56.15 62.78

Cotton 46.66 48.86 47.49 46.96 44.47 47.41

Silk 491.30 644.22 481.82 518.50 295.56 548.27

Wool 450.91 695.33 462.47 439.55 338.60 457.28

Manmade/blended 67.14 73.88 60.64 61.15 56.50 64.81

2006 68.81 74.19 58.88 60.58 56.24 64.75

Cotton 47.87 48.91 47.53 47.77 44.81 47.81

Silk 500.00 660.00 490.00 550.08 370.38 564.44

Wool 451.28 689.57 467.11 430.70 330.00 460.03

Manmade/blended 71.00 77.98 63.49 63.32 56.62 67.753-year CAGR 4.0% 3.5% -1.7% 1.0% 2.2% 1.8%

Cotton -0.9% -1.5% 0.8% -1.6% 1.1% -0.4%

Silk 2.1% 9.5% 2.8% 7.1% 3.3% 5.9%

Wool 2.6% 7.2% 7.8% 5.4% -1.0% 4.8%

Manmade/blended 5.9% 5.8% -5.3% 1.8% 2.9% 2.6%

Overall, MMF accounted for 60% of household consumption in 2006, as compared with 45% in 1993, and 58%in 1998. Regional preferences for textiles vary with cotton having a high share in consumption in the Eastern

region, and a low share in Central and Northern regions. Because of extreme climatic conditions, wool has ahigher share in consumption in North and East India, than in other parts of the country. Silk has a higher sharein the Southern region.


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Region Wise Share of Textiles Purchases

Volume terms

North South East West Central Total2004 100% 100% 100% 100% 100% 100%

Cotton 31.1% 43.0% 58.0% 31.6% 23.4% 39.9%

Silk 0.5% 1.4% 0.6% 0.3% 0.5% 0.7%

Wool 0.7% 0.1% 0.7% 0.3% 0.5% 0.5%

Manmade/blended 67.7% 55.5% 40.8% 67.9% 75.6% 59.0%

2005 100% 100% 100% 100% 100% 100%

Cotton 30.6% 44.4% 59.9% 32.6% 24.2% 41.2%

Silk 0.5% 1.4% 0.6% 0.3% 0.5% 0.7%

Wool 0.6% 0.1% 0.6% 0.3% 0.5% 0.4%

Manmade/blended 68.3% 58.9% 43.3% 72.1% 80.3% 62.6%

2006 100% 100% 100% 100% 100% 100%

Cotton 29.8% 41.7% 56.5% 30.8% 22.7% 38.7%

Silk 0.5% 1.3% 0.6% 0.3% 0.4% 0.6%

Wool 0.7% 0.1% 0.5% 0.2% 0.4% 0.4%

Manmade/blended 69.0% 56.9% 42.4% 68.7% 76.5% 60.3%

As compared with cotton, demand for MMF/blended textile products in India is strong in both urban and ruralhouseholds due to their durability and ease in maintenance (washability, fewer wrinkles, etc.), compared with100% cotton textiles. Demand for MMF is especially strong in rural households, which account for around72% of Indias population. During 2006, the share of MMF/blends in total textile purchases was 64% in ruralareas, and 54% in urban areas. Over the last three years, the share of MMF/blends has increased in bothrural and urban areas. In rural areas, where incomes are lower, MMF textiles are preferred because of theirdurability.


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Purchase of Textiles

Volume (million metres) Value (Rs. million)

Urban Rural Total Urban Rural Total2004 7,684 14,100 21,784 635.44 702.49 1,337.93

Cotton 3,446 5,246 8,692 221.04 189.72 410.76

Silk 105 39 144 53.59 22.45 76.05

Wool 51 49 100 29.42 15.88 45.29

Manmade/blended 4,082 8,766 12,848 331.39 474.44 805.84

2005 8,056 14,803 22,859 686.71 748.37 1,435.07

Cotton 3,568 5,409 8,977 230.92 194.69 425.61

Silk 109 40 149 58.81 22.88 81.69

Wool 48 48 96 27.59 16.31 43.90

Manmade/blended 4,331 9,306 13,637 369.39 514.49 883.87

2006 8,467 15,563 24,030 740.12 815.72 1,555.84

Cotton 3,703 5,586 9,289 241.57 202.54 444.11

Silk 113 41 154 63.29 23.64 86.92

Wool 46 47 93 26.68 16.10 42.78

3-year CAGR 4.4% 4.8% 4.7% 7.0% 6.0% 6.5%Cotton 3.3% 3.8% 3.6% 5.0% 1.2% 3.2%

Silk 3.8% 3.5% 3.7% 8.6% 13.4% 9.9%

Wool -6.3% -2.7% -4.6% 1.4% -2.2% 0.0%

Manmade/blended 5.4% 5.5% 5.5% 8.5% 8.0% 8.2%

The per capita household consumption is presented in the following table. As the following table highlights, theper capita consumption of MMF has increased significantly over the period 1993-2006.

Per Capita Household Consumption

metres

Consumption (metres) Growth (%)

1993 1998 2003 2004 2005 2006 1993- 1998- 2004-98 03 06

Cotton 7.60 6.39 7.86 8.04 8.16 8.31 -3.4 4.2 1.9

Pure Silk 0.17 0.26 0.13 0.13 0.14 0.14 8.9 -13.0 2.0

Woollen 0.17 0.13 0.10 0.09 0.09 0.08 -5.2 -5.0 -6.2

Man-made/blended 6.53 9.42 11.62 11.88 12.40 12.96 7.6 4.3 3.7

Total 14.47 16.20 19.71 20.15 20.79 21.49 2.3 4.0 2.9


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Sarees account for the largest share of Indian household textile consumption, accounting for around 34.4% oftotal purchases by value in 2006. Woven Readymade garments follow sarees and account for around 28% of thetotal consumption.

Consumption of Apparel and Household Textiles and Share2006Volume Value

Million mtrs. Share Rs. million Share

Sarees 8,923 37.1% 534,598 34.4%

Shirting 1,644 6.8% 97,562 6.3%

Lungi/Dhoti 883 3.7% 33,512 2.2%

Suiting 548 2.3% 106,676 6.9%

Ladies Dress Material 1,666 6.9% 81,583 5.2%

Others 760 3.2% 42,739 2.7%

Textiles/Garments in Piecelength 14,425 60.0% 896,671 57.6%

Shirts 895 3.7% 86,246 5.5%

Suits 0 0.0% 8,073 0.5%

Trousers 358 1.5% 82,836 5.3%

Salwar and/or Kameez-Females 1,510 6.3% 88,997 5.7%

Kurta and/or Pyjama-Males 224 0.9% 12,434 0.8%

Frock/Skirt/Middi 492 2.0% 38,198 2.5%

Jeans 212 0.9% 33,635 2.2%

Children Suits/Uniform 358 1.5% 41,999 2.7%

Others 1,297 5.4% 46,975 3.0%

Woven Readymade Garments 5,345 22.2% 439,395 28.2%

Sweater 369 1.5% 47,300 3.0%

T-Shirts 335 1.4% 22,878 1.5%

Others 2,035 8.5% 64,039 4.1%

Knitted Readymade Garments 2,740 11.4% 134,217 8.6%

Bed Sheet/Cover/Chaddar 615 2.6% 42,950 2.8%

Blanket/Rajai 89 0.4% 12,468 0.8%

Towel/Napkin 615 2.6% 15,923 1.0%

Others 201 0.8% 14,212 0.9%

Woven Household 1,521 6.3% 85,553 5.5%

Total 24,030 100.0% 1,555,835 100%


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Menswear accounts for the largest share of the readymade garment (RMG) segment. Branded RMG account for25% of the share of total RMG segment. The consumption of various apparel and household textile items involume terms have increased at a rate of 5.9% over 1998-2006.

Consumption of Apparel and Household TextilesVolumesConsumption (million metres) Growth(%)

1993 1998 2004 2006 1993-98 1998-06

Sarees 4,410 4,665 7,948 8,923 1.1 8.4

Shirting 1,368 1,603 1,471 1,644 3.2 0.3

Suiting 420 542 551 548 5.2 0.1

Dress Material 1,105 1,508 1,546 1,666 6.4 1.3

Bed Sheet 338 478 497 615 7.2 3.2

Towel 237 287 508 615 3.9 10.0

Readymade Garments 2,082 2,692 4,736 5,345 5.3 9.0

Knitwear 931 1,221 2,422 2,740 5.6 10.6

Other Textiles 1,957 2,210 2,098 1,934 2.5 -1.7

Total 12,848 15,206 21,778 24,030 3.4 5.9

The consumption of various apparel and household textile items in value terms increased significantly during the1990s. However, since then the growth in value terms had been significantly slower till about 2002-03. However,consumption in value terms has grown at an annual rate of 6.5% during 2004-06.

Consumption of Apparel and Household TextilesValue

Consumption (Rs. million) Growth(%)1993 1998 2004 2006 1993-98 1998-06

Sarees 187,274 272,342 435,395 534,598 7.8 8.8

Shirting 62,755 86,861 85,297 97,562 6.7 1.5

Suiting 53,997 91,053 97,170 106,676 11.0 2.0

Dress Material 38,352 69,544 73,791 81,583 12.6 2.0

Bed Sheet 15,477 29,250 32,624 42,950 13.6 4.9

Towel 3,613 7,191 12,025 15,923 14.8 10.4

Readymade Garments 96,046 190,002 399,126 439,395 14.6 11.0

Knitwear 25,342 50,218 108,686 134,217 14.7 13.1

Other Textiles 51,441 77,272 93,818 102,931 8.5 3.6

Total 534,297 873,733 1,337,932 1,555,835 10.3 7.5

As the following figure highlights, the per capita consumption of textiles increases with increase in per capitaincomesfrom Rs. 572 per annum in the lowest income groups to Rs. 2,355 per annum in the highestincome groups. The figures also illustrate the fact that per capita cotton consumption is inversely related withper capita income, with cotton accounting for a higher share of total consumption in the lowest incomegroups.


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Textile Consumption by Different Income Groups

Rs. per annum; per capita income in Rs. per annum

In terms of usage of various fabrics, cotton is primarily used in sarees, mens dress material, some items ofreadymade garments, and woven household garments. By comparison, around 39% of MMF/blended consumptionis in sarees, followed by suiting (9.8%), shirting (9%), females salwar and/or kameez (7.1%), ladies dressmaterial (6%), and trousers (5.6%).

Fabric wise Consumption of Apparel and Household Textiles2006

Rs. million

Cotton Silk Wool MMF/Blended Total

Sarees 72,470 81,192 0 380,935 534,598Shirting 9,247 11 0 88,304 97,562Lungi/Dhoti 21,335 45 0 12,132 33,512

Suiting 4,708 0 5,848 96,120 106,676Ladies Dress Material 19,658 2,997 0 58,929 81,583Others 14,939 543 7,850 19,402 42,739Textiles/Garments in Piecelength 142,357 84,787 13,698 655,823 896,671Shirts 30,817 235 34 55,161 86,246Suits 157 101 1,722 6,094 8,073Trousers 27,686 0 45 55,105 82,836Salwar and/or Kameez-Females 18,551 537 0 69,910 88,997Kurta and/or Pyjama-Males 6,228 324 0 5,882 12,434Frock/Skirt/Middi 9,102 56 0 29,040 38,198Jeans 33,635 0 0 0 33,635Children Suits/Uniform 11,473 34 78 30,415 41,999Others 28,536 850 1,196 16,393 46,975Woven Readymade Garments 166,186 2,136 3,075 267,998 439,395Sweater 3,321 0 13,631 30,348 47,300T-Shirts 15,442 0 0 7,436 22,878Others 45,891 0 7,000 11,148 64,039Knitted Readymade Garments 64,654 0 20,631 48,932 134,217Bed Sheet/Cover/Chaddar 39,360 0 0 3,589 42,950Blanket/Rajai 7,514 0 4,954 0 12,468Towel/Napkin 15,923 0 0 0 15,923Others 8,118 0 425 5,669 14,212Woven Household 70,916 0 5,379 9,259 85,553

Total 444,113 86,924 42,782 982,011 1,555,835


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E XPORTS

Overview

The past two decades have witnessed a significant growth in the exports of textile goods from India. Exports oftextiles and textile products have increased from Rs. 42.43 billion (US$3.27 billion) in FY1988 to Rs. 890.86billion (US$22.14 billion) in FY2008. Exports have increased at a 3-year CAGR of 16.4% in US$ terms, and12.2% in rupee terms. However, after registering strong growth during FY2006, export growth has slowed downsince FY2007 mainly because of the rupee appreciation (during 2007), higher competition from China, globaleconomic slowdown, and uncertain consumer spending prospects in major markets.

Indias Exports of Textiles and Textile Products

Value Growth

FY 1998 2004 2005 2006 2007 2008 2009 2007 2008 3-year 2009

(6M) (6M)

US$ million 9,797 13,495 14,026 17,516 19,141 22,138 10,518 9.3% 15.7% 16.4% 7.2%

Readymade Garments 3,876 6,231 6,561 8,618 8,885 9,692 4,958 3.1% 9.1% 13.9% 4.9%

Cotton, yarn, fabrics, made-ups etc 3,264 3,395 3,450 3,945 4,215 4,652 2,312 6.9% 10.4% 10.5% 6.1%

Manmade textiles & made-ups etc 823 1,821 2,051 2,040 2,399 3,177 1,802 17.6% 32.4% 15.7% 21.8%

Natural Silk textiles 176 379 405 428 437 383 176 2.0% -12.3% -1.8% -6.8%

Wool & woollen manufactures 110 58 70 85 85 93 54 -0.2% 9.0% 10.0% 28.1%

Coir & coir manufactures 69 78 106 133 146 160 78 9.3% 9.9% 14.9% 2.1%

Jute manufactures 187 242 276 296 260 326 179 -12.2% 25.4% 5.7% 11.7%

Handicrafts 526 500 377 462 438 508 157 -5.3% 16.2% 10.4% -40.4%

Carpets 546 586 636 853 927 943 415 8.8% 1.7% 14.0% -7.1%

Cotton Raw (incl. waste) 221 205 94 656 1,349 2,203 387 105.6% 63.3% 186.1% 54.5%

Rs. million 364,121 620,120 630,227 775,476 866,799 890,860 449,308 11.8% 2.8% 12.2% 12.0%

Readymade Garments 144,057 286,344 294,812 381,537 402,372 390,010 211,795 5.5% -3.1% 9.8% 9.6%

Cotton, yarn, fabrics, made-ups etc 121,316 155,999 155,019 174,649 190,894 187,206 98,744 9.3% -1.9% 6.5% 10.9%

Manmade textiles & made-ups etc 30,579 83,688 92,143 90,299 108,634 127,850 76,985 20.3% 17.7% 11.5% 27.3%

Natural Silk textiles 6,557 17,400 18,183 18,952 19,769 15,409 7,534 4.3% -22.1% -5.4% -2.6%

Wool & woollen manufactures 4,079 2,678 3,136 3,776 3,855 3,736 2,286 2.1% -3.1% 6.0% 33.9%

Coir & coir manufactures 2,549 3,574 4,743 5,904 6,603 6,449 3,348 11.8% -2.3% 10.8% 6.7%

Jute manufactures 6,944 11,140 12,413 13,116 11,784 13,129 7,656 -10.2% 11.4% 1.9% 16.7%

Handicrafts 19,544 22,961 16,958 20,453 19,819 20,462 6,709 -3.1% 3.2% 6.5% -37.7%

Carpets 20,277 26,912 28,596 37,746 41,991 37,955 17,723 11.2% -9.6% 9.9% -2.9%

Cotton Raw (incl. waste) 8,219 9,424 4,226 29,044 61,078 88,654 16,528 110.3% 45.1% 175.8% 61.4%


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Indias Exports of Textiles and Textile Products

Value Growth

Ch. FY 2004 2005 2006 2007 2008 2007 2008 3-year

US$ million 13,480 14,319 17,851 19,439 22,423 8.9% 15.3% 16.1%

50 Silk 341 367 392 387 346 -1.4% -10.5% -1.9%

51 Wool 57 71 81 87 115 7.6% 32.2% 17.4%

52 Cotton 2,466 2,263 2,984 3,921 5,148 31.4% 31.3% 31.5%

53 Others fibres, yarn 136 172 157 149 201 -5.5% 34.9% 5.3%

54 Manmade Filaments 869 994 917 1,027 1,355 12.0% 31.9% 10.9%

55 Manmade Staple Fibres 721 794 823 1,048 1,374 27.4% 31.1% 20.1%

56 Wadding, felt, nonwovens;special yarns, etc 58 55 86 94 133 8.5% 42.0% 34.4%

57 Carpets & other textile floorcoverings 734 827 1,121 1,207 1,260 7.6% 4.4% 15.1%

58 Special woven fabrics,embroidery, etc 111 114 153 166 225 8.7% 35.7% 25.3%

59 Impregnated, coated, etctextile fabrics; industrial textiles 67 70 79 83 99 5.6% 18.6% 12.2%

60 Knitted or crocheted fabrics 52 44 50 76 90 53.6% 18.5% 26.9%

61 Apparel & clothingaccessories, knitted or crocheted 2,702 2,641 3,191 3,615 4,276 13.3% 18.3% 17.4%

62 Apparel & clothing accessories,not knitted or crocheted 3,541 3,933 5,436 5,280 5,423 -2.9% 2.7% 11.3%

63 Other Textiles 1,625 1,974 2,381 2,300 2,379 -3.4% 3.5% 6.4%

Rs. Million 619,424 643,373 790,332 880,314 902,330 11.4% 2.5% 11.9%

50 Silk 15,662 16,480 17,374 17,531 13,939 0.9% -20.5

Documents

The Indian Textiles and Clothing Industry-200901