Investment Opportunities in Indian Textile Industry

Submitted By: Rohit Dhall Manupreet kaur Gurupratap Singh Pankaj Goel

Indian Textile Industry

The Indian textile industry is one of the major sectors of Indian economy largely contributing towards the growth of the country's industrial sector. Textiles sector contributes to 14 per cent of industrial production, 4 per cent of National GDP and 10.63 per cent of country's export earnings. The opening up of the sector through liberalisation polices set up by the Indian Government have given the much-needed thrust to the Indian textile industry, which has now successfully become one of the largest in the world. Textile sector in India provides direct employment to over 35 million people and holds the second position after the agriculture sector in providing employment to the masses. Growing at a rapid pace, the Indian Market is being flocked by foreign investors exploring investment purposes and with an increasing trend in the demand for the textile products in the country, a number of new companies and joint ventures are being set up in the country to capture new opportunities in the market.. The vast pool of skilled and unskilled workers, availability of labor at low costs, strong base for production of raw materials characterize the textile industry in India. The increase in domestic demand and ability of the units in the industry to process small or customized orders are some of the advantages for the textile industry in India. The textile sector is highly diverse and has hand-spun and hand woven segments at one end of the spectrum, and capital-intensive, sophisticated and modern mills at the other. Textile Industry is one of the largest and oldest industries in India. It has a significant role in India as it fulfills the essential and basic need of people. Textile Industry in India stands at unique place and has maintained a sustainable growth over the years. This is a selfreliant and independent industry and has great diversification and versatility. Textile Industry in India provides great contribution for the development of economy. It is the second largest textile industry in the world after China. It provides ample employment opportunities to people belonging to all classes. After agriculture this industry provides employment to maximum number of people in India employing 35 million people. Indian Textile Industry plays vital role in country's economic development and contributes 14% to industrial production in the country. Textile Industry contributes around 4% of GDP, 9% of excise collections, 18% of employment in industrial sector, and has 16 % share in countrys export. Indian Textile Industry is valued at US $ 36 bn. The development of Indian Textile industry started in 1985. This was the year when, for the first time textile sector was considered as an important industry and a separate policy was formulated for sectors development. In the year 2000, National Textile Policy was announced.

With further development Textile Industry came out of Quota Regime of Import Restrictions under the Multi Fiber Arrangement (MFA). This development came on 1st January 2005 under the World Trade Organization (WTO) Agreement on Textiles & Clothing. Because of the elimination of quota restrictions, most of the developing countries now can develop the potential market at both domestic and international level. These countries can develop the industry expertise and can have competitive advantage through implementing new technology, more skilled labor, improved distribution channel, cost effective operation and production with greater value addition in each step of value chain. Moreover it will help for Foreign Direct Investment in industry that will create great opportunity to strengthen the sector. Some of the strengths of Indian Textile Industry are large and potential domestic & international market, large pool of skilled and cheap labor, well-established industry, promising export potential etc. There is a huge demand of Indian textile products in international market because of its versatility and it is expected that industry would grow with rapid rate in future and contribute towards economic development of the country handsomely. Close to 14% of the industrial output and 30% of the export market share is contributed directly by the Indian textile industry. Indian textile industry is also the largest industry when it comes to employment that generates jobs not just within but also in various support industries like agriculture. As per a recent survey the textile industry is going to contribute 12 million new jobs in India by 2010 itself. Indian textile industry is as old as the word textile itself. This industry holds a significant position in India by providing the most basic need of Indians. Starting from the procurement of raw materials to the final production stage of the actual textile, the Indian textile industry works on an independent basis. Indian textile industry concludes of various segments like: Woolen Textile Cotton Textiles Silk Textiles Readymade Garments Jute and Coir Hand-Crafted Textile Like Carpets Man Made Textiles Indian textile industry in a very short span had made a distinct position globally, alluring the globe towards the World of Indian textiles. This has happened mainly because: High availability of raw materials Highly skilled economical labor, an added advantage Largest producer of cotton yarn contributing 25% towards worlds cotton Availability of all kinds of fibers like silk, cotton, wool and even high quality synthetic fibers Flexibility of the readymade garment industry in terms of sizes, fabric variety, quantity, quality and cost

Textile Industry Key Facts Indian Textile Industry is one of the largest and oldest industry in India. Indian Textile Industry is highly fragmented industry; at the same time it is an independent and self-reliant industry that has shown sustainable growth over the years. Indian textile Industry is valued at US$ 36 Billion with exports of US$ 17 Billion in 2005-2006. Indian Textile Industry is second largest industry in terms of providing vast employment opportunities and employs around 35 million people in country after agriculture sector.. The Indian Textile Industry plays vital role in economic development and contributes 14% to industrial production in the country. Textile Industry contributes around 4% of GDP, 9% of excise collections, 18% of employment in industrial sector, and has 16 % share in countrys export. Industry has direct and strong linkage with rural and agriculture sector, therefore it is estimated that, one of every six households in country is directly or indirectly dependent on this industry. Industry contributes around 25% share in the world trade of cotton yarn India is evolved as a major contributor in worlds cotton sector. Indian is the worlds third-largest producer of cotton and second-largest producer of cotton yarns and textiles India is the largest exporter of yarn in the international market and has a share of 25% in world cotton yarn export market. India contributes for 12% of the worlds production of textile fibers and yarn. Indian textile industry is second largest after China, in terms of spindle-age, and has share of 23% of the worlds spindle capacity. India has around 6% of global rotor capacity. The country has the highest loom capacity, including handlooms, and has share of 61% in world loomage. Including textiles and garments, 30% of India's export comes from this sector. Indian Textile Industry is one of the largest industry that provides high exports and foreign revenue. Large and potential domestic & international market, large pool of skilled and cheap labor, well-established industry, promising export potential etc. are few strengths of Indian Textile Industry. Highly Fragmented, High dependence on cotton sector, Lower productivity, Unfavorable Labor Laws are few drawbacks of the industry from which it has to overcome. The Indian Textile industry is highly fragmented sector. Industry is fully vertically integrated across the whole value chain and interconnected with various operations. Textile Industry comprises small-scale, medium-scale, large-scale, non-integrated, spinning, weaving, finishing, and apparel-making firms and enterprises.

This is an unorganized sector and includes Handlooms, Power loom, Hosiery, and Knitting, Readymade Garments, Khadi, Carpet & Handicrafts manufacturing units. The organized Mill Sector comprises of spinning Mills, and Composite Mills where spinning, weaving, and processing activities are done The Fiber & Yarn Sector of the textile industry includes Textile Fibers, Natural Fibers such as Cotton, Jute, Silk and Wool; Synthetic / Man-Made fibers such as Polyester, Viscose, Nylon, Acrylic and Polypropylene. The Man-Made Textile Sector includes Fiber and Filament Yarn manufacturing units of Cellulosic and Non-Cellulosic origin. The Cellulosic Fiber/yarn Industry is controlled by the Ministry of Textiles, and the Non-Cellulosic Industry is controlled by the Ministry of Chemicals and Fertilizers. India is the largest producer of Jute, the 2nd largest producer of Silk, the 3rd largest producer of Cotton and Cellulosic Fiber/Yarn and 5th largest producer of Synthetic Fibers/Yarn.

Growth Trends
The Indian textile industry can be divided into a number of segments such as cotton, silk, woolen, readymade, jute and handicraft. The total cloth production registered during September 2011 was 10.2 per cent higher than that registered for September 2010. The total production of cloth during April September 2011 increased by 2.1 per cent as compared to the period April September 2010. The highest growth was observed in the power loom sector (13.2 per cent), followed by hosiery sector (9.1 per cent). The total textile exports during April-July 2011were valued at US$ 7.58 billion as against US$ 7.21 billion during the corresponding period of the previous year. The share of textile exports in total exports was 11.04 per cent during April-July 2010. Cotton textiles has registered a growth of 8.2 per cent during April-September 2010 -11, while wool, silk and man-made fibre textiles have registered a growth of 2.2 per cent while textile products including apparel have registered a growth of 3 per cent. Textiles and apparel industry exports, valued at US$ 20.02 billion, contributed about 11.5 per cent to the country's total exports in 200809. The total textiles imports into India in 200809 were valued at US$ 3.33 billion. The total foreign exchange earnings from the textile exports during the current financial year (April-July 2011) was registered at US$ 10.32 billion against US$ 7.75 billion during the corresponding period of financial year 2010-11. India has the potential to increase its textile and apparel share in the world trade from the current level of 4.5 per cent to 8 per cent and reach US$ 80 billion by the end of the year 2020. The Textile sector grew at 3-4 per cent during the last 6 decades. As per the 11th Five Year Plan (FYP), it was projected to fast-track to a growth rate of 16 per cent in value and is further expected to reach US$ 115 billion (exports US$ 55 billion and domestic market US$

60 billion) by 2012. Exports are likely to reach US$ 32 billion in 2011-12 and domestic market US$ 55 billion. The textile industry in India is at the forefront worldwide. The industry is largely dependent on exports. About 27% of the foreign exchange in India is through textiles. It is thought to be around a US$ 52 billion industry and is estimated to reach US$ 115 billion by 2012. The domestic and international markets are on their way upward. In fact, India's exports worldwide are projected to rise to 7% from the existing 4% during this time period. At present they are showing a growth rate of 15%. There are various kinds of fabrics available in the Indian market, namely cotton, silk, woolen, jute, and others that are popular overseas. These fabrics are in huge demand and heavily exported.

Assessment Market Potential in India

The overall estimate of demand and market potential in various sub-sectors, projected on the basis of past growth trends and industry expectations, is summarized in the table below. The total market is expected to increase from Euros 21.7 billion in 2008-09 to Euro 29.4 billion by 2011-12, with overall compounded annual growth of 7.89%. Assessment of Market Potential Textile Clothing & Garments Undergarments Home Textile Furnishings Accessories Total 2008-09 20,219 1,487 2.16 0.29 21,708.45 2009-10 22,342 1,673 2.48 0.34 24,017.82 2010-11 24,688 1,882 2.81 0.39 26,573.20 2011-12 27,280 2,117 3.23 0.45 29,400.68

Potential Areas of Investment:

Indian Retail Industry: A major area that is propelling the textile industry is the Indian retail market. The Indian retail industry is going through a golden phase. Apparels and textiles are the secondhighest grosser for the retail industry. With organized retail growing in India and an increase in the purchasing power of Indians, the textile industry is set to expand. This bodes well for the Indian textile Industry. The industry grew at 13% domestically and is stated to grow 57% further.

Exports: Indian-made textiles and handicrafts are exported to many countries. The US is the primary market for exports, but the overall count of countries totals 100. Readymade garments form the largest segment in exports with a 41% share. As per the records of the Textiles Ministry, India sent textiles amounting US$ 17 billion, an increase of 7% over last year. India is being considered as a textiles hub because of the easy availability of raw materials, skilled labor, and good designing capabilities. World-famous labels, such as Hugo Boss and Diesel, are also importing fabrics from India. Thus, exports benefits of this industry are enormous.

Textile Machinery: This is yet another area that offers investment potential. The government has reduced customs duties on textile machinery imported from overseas. The government has also lowered restrictions on the capital goods import prompting more imports from overseas in this field. Equipment for cotton spinning, finishing, carding, and weaving is being imported from abroad. By providing technological input along with machinery, training, and buy-back possibilities, investment in this field can be further encouraged and sales boosted.

Factors responsible for wooing the investors in Indian textile industry:

The size of the textile along with apparel market in India is quite big. Performance of this industry has been consistent right from the start of the new millennium. Availability of the skilled labor in India is comparatively cheap in relation to the same in other parts of the world.

The policies related to the Foreign Direct Investment in India are comparatively lenient and are transparent in nature among all the developing countries. There is no limit on foreign direct investment in the textile industry and hence 100% direct investment can be done by the foreign capitalists in the Indian textile industry. Foreign Investments done in the Indian Textile Industry through the automatic route offers a hassle-free way of investing. These investments are not required to be approved by the government or the apex bank of India, RBI. The foreign investors are only required to make a notification to the regional office of the apex bank only after receiving the receipt of the remittance. This notification is required to be done within thirty days from the date of receiving the remittance.

Incentives provided by the government:

To further propel the textile industry, the government of India has brought into force a number of steps: It has allowed a 100% FDI via the automatic path. It has de-reserved knitwear and readymade garments from the banner of smallscale industries. It has initiated TUFS (Technology Up gradation Fund Scheme) to upgrade and modernize the existing textile industry, which offers investment potential. Textile parks are being set up under SITP (Scheme for Integrated Textile Parks), which is stated to attract foreign investment to the extent of US$ 4.3 billion. It has also announced financial waivers to hand loom industries and is providing concessional loans for this industry.

Indian textile industry to witness growth worth of Rs 1, 58,000 crore by 2016

The technical textiles industry in India has grown to Rs 63,000 crore in 2011-12 from Rs 43,000 crore in 2007-08, which is eleven percent growth per annum. What is more, it is forecasted to grow to 158,000 crore by 2016-17 with a projected growth percentage of twenty percent growth per annum to be achieved, according to AB Joshi, Textile Commissioner, Ministry of Textiles, UNI reported.

India emerging as a major BPO Centre:

Indian textile industry with its exclusive return is projected to emerge as a most important supplier to the world. The encouraging aspects, which would promote India's emergence as a BPO centre for textiles, are as follows:

Strengths: 1. Low labor cost: The industry is mostly labor oriented and automation has taken place in a large amount process, hence availability of cheap labor forces. 2. Low cost of raw material: Cost of raw material sourcing is less in India due to the third largest producer of cotton in the world. 3. Huge Product Selection: Due to many ethnic fashion trends and cultural diversity, it provides more selection of products. 4. Rising domestic textile market: There is an enormous possible growth of industry due to rising incomes and middle class population. 5. Bulky exports: In overseas markets, India has been the established exporter of garments. 6. Government concentration: Textile industry has secure government consideration being a second largest employment generator, which can work for its support.

Establishing Textile Industry in India

The Tripura Advantage

The Location Factor Tripura is surrounded by Bangladesh on three sides. Tripura, in the past, had excellent transportation links with the erstwhile East Bengal and through it, with West Bengal. The straight-line distance between Agartala and Calcutta is only about 350 Kms (approximately the distance between Madras and Bangalore). Many large towns in Bangladesh are within 150 Kms of the towns in Tripura as can be seen from the following:

Agartala-Dhaka : 150 Km. Kailashahar-Sylhet : 90 Km. Sabroom-Chittagong : 75 Km. Sonamura-Comilla : 11 Km.

The transportation links were through rail, road and waterways. The railway network of Bangladesh runs along the states border. The economy of the State and the adjoining parts of Bangladesh has always been integral and any separation of trade, commerce and economy between the two is artificial and possibly, not maintainable. The ties between Tripura and Bangladesh are further cemented by very strong social and cultural linkages. The people till date share kinship ties and relationships through marriages. The languages and dialects spoken in different parts of the state are common with those in the neighboring districts of Bangladesh. Thus, the natural links of Tripura with Bangladesh are historical, deep-rooted and at several planes. During recent years, a number of initiatives have been taken at the level of the Government as well as the business community, aimed at re-establishing the historical links between Tripura and Bangladesh. The official trade between Tripura and Bangladesh was started during 1994-95. As many as 8 Land Custom Stations have been notified for the purpose, out of which 3 are operational at present. The Bangladesh Government has also set up a Visa Office at Agartala. The present volume of trade in about Rs 170 million per annum, but the same is expected to increase fast, with the bringing down of tariff and other barriers under SAARC initiative. The declared goal of SAARC nations to make South-east Asia a "Free Trade Area" by 2001 AD has the potential of revolutionizing the Tripura Economy, as it will put an end to the geographical isolation of Tripura. Serious initiatives have also been taken in recent years for getting a transit route through Bangladesh, to connect Tripura with the rest of India as well as to the Chittagong Port of Bangladesh. Commencement of Border trade with Bangladesh is also under active consideration. There are also suggestions to re-establish the old Rail/ Road/ Waterways links with Bangladesh.

All this augurs well for Tripura. It will effectively integrate the Tripura Economy to the rest of India as well as to the other countries in the Region. In fact, it will make Tripura the "Gateway to the North-East" and will give a great boost to the state economy. It is expected that within next few years, the Tripura Economy will be effectively integrated with Eastern India as well as other countries in the Region. This would open up a vast market for the industrial units based in Tripura.

Infrastructure - Physical & Social The Government of India has recently taken a number of initiatives to develop infrastructural facilities in Tripura and other North-eastern states. A broad-gauge Railway line is being extended upto the state capital, Agartala. Roads and Airport facilities are also being developed. Telecommunication facilities are being upgraded. As regards Power, a number of Thermal/ Hydel Power Projects in Tripura/ other North-eastern states are in an advance stage of implementation, as a result of which Tripura is expected to be Powersurplus by 1998. The power tariff is also very low in Tripura, being less than Rs. 1.00 per unit, as against about Rs. 3.00 per unit in other parts on the country. Moreover, natural gas available in the state can also be used as fuel (as substitute for electric power), which provides an alternative to the industrial units coming up in the state. As regards social infrastructure, it may be noted that the state has a vast pool of educated/ trained manpower. As mentioned earlier, the literacy rate in Tripura is quite high and the state has a good network of educational institutions, including technical institutions. The unemployment rate of educated youth, including these who are technically qualified, is quite high. This can be turned into an advantage, by suitably deploying the available manpower, to meet the industrial needs.

Incentives for Industries: State Government:

Capital Investment Subsidy to eligible industrial units @ 30% of fixed capital investment. Additional subsidy is also provided in certain cases. However, total subsidy in a particular case would be subject to a ceiling of Rs.25 lakhs. Exemption from payment of Sales Tax for a period of 5 years from the date of commencement of commercial production. 15% Price Preference to industrial units, on purchases made by State Government Departments/ Agencies.

Central Government (Existing):

Central Transport Subsidy @ 90% of transport cost of raw material brought from outside the North-eastern region as well as the finished goods sent from the Northeastern region to other parts of the country. The transport cost between Siliguri (the entry point to the North-east) and the factory site only is considered for subsidy calculations. In addition, subsidy is also available @ 90% of transport cost on movement of raw materials and @ 50% of transport cost on movement of finished goods from one state to another within the North-eastern region. Income Tax Exemption for 5 years for the new industrial units set up in the Northeastern region.

Additional Incentives under the New Industrial Policy announced by the GOI for the North-eastern Region:

Growth Centres & IIDCs to be converted into total tax free zones for next 10 years. All industrial activity in these zones would be free from income tax, excise, for a period of 10 years from the commencement of production. Similar benefits would also be extended to new industrial units or their substantial expansion in other Growth Centres or IIDCs of industrial estates/ parks/ export promotion zones set up by the states. Similar benefits will also be provided to units located outside the specified locations, if they belong to the specified industries listed in Annex A of the GOI circular. Capital Investment Subsidy (CIS) @ 15% of investment in plant and machinery, subject to a maximum ceiling of Rs 30 lakhs would by given. Eligibility conditions will be same as in case of tax benefits. Transport Subsidy Scheme will be extended for a period of another 7 years i.e. upto 31st March 2007, on same terms & conditions, as are applicable now. Interest Subsidy of 3% on working capital loans would be provided for a period of 10 years. Eligibility conditions will be same as in case of tax benefit. A comprehensive insurance scheme for industrial units to be designed, in consultation with GIC and 100% premium to be borne by GOI for 10 years.

Supportive State Administration Tripura offers an "investor-friendly" environment. It has a stable Government, which welcomes investments both domestic and foreign. It has a policy regime, which is simple and transparent, administered by efficient and responsive machinery. The state government is committed to provide all necessary support/ clearances through a "Singlewindow" approach.

Himachal Pradesh (Baddi)

Textiles Textile industry in Himachal Pradesh is mainly focusing its attention on spinning yarns. Companies such as Vardhman are also operating in in weaving and dyeing. The growth rate in the textile industry has grown at 12.78 % CAGR during 2002-2005. The handloom and carpet weaving industry have also developed as small-scale in the state. Some of the key players operating in the state are Birla Textile Mills, Winsome, Vardhman and Malwa Cotton.

Business Opportunities

There are several factors that affect evolution of an industry in a region. Some of the major factors are:

Policy proactiveness: The policy that a state government adopts towards a sector directly affects its attractiveness for further investment. For example, the State Government has given many concessions for the establishment of industries. This has prompted many industry players to establish their manufacturing facilities in the state .

Capability: Availability of good quality manpower is essential for industries to flourish. High literacy rates and good quality workforce are added assets for the state.

Factors influencing investment climate in Himachal Pradesh:

Availability and ease of use of factor inputs such as land and labour;

Availability of adequate physical and social infrastructure, such as power, telecom, urban infrastructure, water supply, hospitals, and educational institutions.

Governance and regulatory framework in terms of rules and regulations governing entry, operation, and exit of firms, stability in regulation, integrity of public services, law and order and investment facilitation.

Provision of incentives and access to credit.

Conclusion: So as a foreign Investor we see abundant opportunities in Indian Textile Market .There is large market potential in Indian textile market which attracts the foreign Investors. The environment of Indian textile market is quite favourable for foreign Investors. In India we have certain locations for establishing textile industry in Tripura, Baddi where it is very easy to manage resources. The govt of these states provide certain incentives, subsdies to industries and various tax benefits. So in a nutshell Textile sector is good option for foreign investors to invest in India.