Myth # 1 \u2013 To grow, India needs to do what China has done:<\/b> Myth # 2 – India is competitive because Indian labour is cheap:<\/b> Myth # 3 – Indian handiwork is irreplaceable:<\/b> Myth # 4 – Compared to China and other Asian giants, the fragmented supply base of Indian manufacturers is more flexible and can competitively fulfil small orders:<\/b> Myth # 5 – India needs to focus on its core strengths \u2013 for example, India has a sustainable advantage in cotton that will maintain its competitive edge:<\/b> Perspective: India<\/b><\/p>\n\n The textile and apparel industry is of particular importance to India. The sector directly and indirectly results in the largest employment next to agriculture and retailing activity in the country. Its presence is not confined to the urban centres of industry and commerce \u2013 the textile sector is the most deep-rooted industry in rural India as well, and has been historically so.<\/p>\n\n India is one of the world\u2019s oldest major textile suppliers and once was, in fact, the largest by far, with a recorded history of global trading in textiles dating back several thousand years. We treat globalisation as a new phenomenon \u2013 the fact is that many thousands of years ago, the Egyptian civilization was trading with the Indus Valley civilization, the Chinese and the Romans had discovered each other way before US department store buyers landed in Hong Kong and Korea.<\/p>\n\n The textile sector in India started industrialising in the late-1800s and early-1900s, heralding a new era for growth. However, shortly after independence in 1947, the industry was constrained by licensing that limited mill capacity growth and other restrictions that forced companies to remain small-scale.<\/p>\n\n Later in 1962, just as India\u2019s exports had begun to grow, quota-restrictions closed the gates to free trade, nipping India\u2019s exports in the bud. For years, quotas determined where buyers could place orders, and trade was accordingly channelled and fragmented. Preferential trade arrangements placed further constraints, as both the US and the EU provided duty-free and quota-free access to some countries.<\/p>\n\n The net result is that India currently has just over 3 per cent of the global exports in textiles and clothing. However, despite its low share, India remains among the Top-10 exporters of textiles and clothing in the world.<\/p>\n\n After the removal of quotas in 2005, India was expected to grow its share of the global marketplace. However, views varied widely on whether India really had the mettle to stand-up to China \u2013 the largest exporter. Some observers and even people from within the industry expected India\u2019s share to decline in global trade.<\/p>\n\n India has actually grown its exports of textiles and apparel from US$ 13.6 billion in 2003-04 to US$ 20.5 billion in 2007-08, an annualised growth of a little over 14 per cent. During a similar period, China has grown its exports from US$ 95 billion to US$ 161 billion, with an annualised growth rate of almost 20 per cent.<\/p>\n\n Given the current market share positions, it is unrealistic to expect India to catch up with China any time soon. However, the trend clearly is towards a re-integration of India\u2019s industry with the global trade.<\/p>\n\n India\u2019s Global Textile and Clothing Trade<\/b><\/p>\n\n <\/div>\n\n Source: Government of India Trade Statistics, Third Eyesight Analysis<\/p>\n\n We also feel that past perceptions, and prejudices ignore the potential India offers as a sustainable and strategic supply base. Among the Top-5 low-labour-cost clothing suppliers<\/p>\n\n\n (China, Turkey, Mexico, India, Bangladesh), only China and India do not have preferential access to their major markets and yet compete very effectively on the basis of their inherent strengths.<\/p>\n\n The fact that India is one of the few countries in the world that offers:<\/p><\/div><\/div>\n\n A vertical industry structure, from fibre to clothing<\/p><\/li>\n A large and replenishable low-cost pool of labour <\/p><\/li> \n A multi-product capability<\/p><\/li>\n Product development skills<\/p><\/li>\n A large domestic market that can sustain the industry in the face of global competition<\/p><\/li><\/ul>\n\n The last is an important and under-weighted factor in the Indian industry\u2019s competitive strategy. Worldwide, countries that have strong sectors for textile, apparel and other lifestyle products, have very strong domestic markets and strong \u2018brand delivery\u2019 mechanisms. The focus, in these countries, is not just on production but the entire ecosystem for the industry. We believe that India should be no different.<\/p>\n\n So far, exporters and domestic-market focussed companies have had very little common ground to work on. As compared to the customers based in the western markets, the domestic market needed very small quantities per style, processes and systems were weak, with high responsiveness required from the supplier \u2013 for exporters it was an \u201cunviable\u201d market to step into. On the other hand, for domestic buyers, exporters were far too rigid in their processes, payment terms, minimum quantity requirements etc. That has started to change with the emergence and significant growth of modern retailing in India (the so-called \u201corganised retailing\u201d).<\/p>\n\n Although many people believe that modern retailing is a recent development in India, the fact is that the textiles and apparel sector has been at the forefront of its development since the 1950s-1960s, when the first chains started coming up. In about 30-years significant single-branded dealer-networks (now widely morphed into exclusive branded outlet chains and franchise networks) were built by textile and then apparel companies.<\/p>\n\n However, since the mid-1990s, there has been significant and visible development in the domestic market for textiles, apparel and other lifestyle products. Large retail chains have begun appearing, and new platforms have emerged for apparel and textile companies to grow their business domestically. The large Indian retailers\u2019 requirements have more in common with western retailers and brands (the customers for India\u2019s exporters) than ever before. This provides an opportunity for the two sectors to work more closely together.<\/p>\n\n Thus, with its long history, and these two growth engines \u2013 the export industry and the domestic market \u2013 we believe the Indian textile and apparel sector can retain its significant role in the country\u2019s economy, and create a differentiated position among global trade that is sustainable into the future. However, as the global economic growth slows, the domestic economy follows and inflationary pressures push up the cost of doing business, fresh thinking is also needed to keep the sector in growth mode.<\/p>\n\n The other urgent driver is the vision of what India\u2019s export numbers could potentially be by 2012: Rs. 2,200-2,500 billion. The number currently stands at a little over Rs. 864 billion, and to achieve the vision, exports must grow at around 25-35 per cent a year for the next 4 years, depending on how weak or stable the current year is.<\/p>\n\n India’s Textile and Apparel Exports (Rs. Billion)<\/b><\/p><\/div>\n\n Let\u2019s not debate whether this vision is achievable or not. The purpose of a vision being articulated is to drive the actions that will help in achieving it.<\/p>\n\n What is very clear is that this vision is not \u201cincremental\u201d in nature, and incremental thinking will not help in realising it.<\/p>\n\n Even if we assume a robust incremental growth rate of 15 per cent per annum, India\u2019s exports will only be able reach Rs. 1,500 billion by 2012.<\/p>\n\n If this vision is to become reality, if India\u2019s textile and apparel industry is to change from being (as described by the head of an international company) \u201cthe eternal hope\u201d to a true global leader, the industry and the institutions supporting it, including the government need to put in place a radically different course of actions.<\/p>\n\n This report is not being presented as a definitive strategy document for the Indian textile and apparel industry, or for the Government to mould its policies. However, it does attempt to present a view on historical and recent developments, the constraints that the industry cannot wish away and must, therefore, embrace, and also to highlight the factors that can create a sustainable competitive advantage for India as a leading global resource of textiles and apparel products.<\/p>\n\n A Health Check on the Indian Industry<\/b><\/p>\n\n While the All-India Index of Industrial Production registered an increase of 8.1 per cent during April-March 2007-08, as against the corresponding period of the previous year, the growth of textiles sector was slow.<\/p>\n\n Although Jute & other vegetable fibre textiles (excluding cotton) registered significant growth (33.1 per cent), the other textile sub-groups showed small growth rates. Wool, Silk & Man-made fibre textiles registered a growth of 4.2 per cent followed by Cotton Textiles (4.1 per cent) and Textile Products [including wearing apparels] (3.3 per cent) as against the corresponding period of previous year.<\/p>\n\n\n According to Ministry of Textiles, during fiscal 2007-08, spun yarn production increased by 4 per cent and cloth production increased by 3.9 per cent. The handloom sector recorded the highest growth (6.0 per cent) followed by the power loom sector (4.5 per cent).<\/p>\n\n\n The Indian textile industry is export-weighted, with almost 55 per cent of the total production being exported. The US market is the largest destination for Indian textile and apparel exports. The recessionary trend in the US and relentless ascent of the rupee led to a decline in the total trade with India in 2007, resulting in smaller orders, lower prices and deep uncertainty for apparel exporters.<\/p>\n\n Indian exporters are now trying to increase their share in EU market and diversify to other markets other than US. However, the market scenario in most major global markets is looking grim in the short term.<\/p>\n\n Though the dollar\u2019s appreciation this year should have brought a breather to exporters, the benefits of a weaker rupee has been offset by the surge in costs and the global economic slowdown. India\u2019 textile & clothing companies\u2019 margins are under severe pressure due to rising cost of raw material, fuel, real estate and more expensive credit.<\/p>\n\n In addition, many of India\u2019s competitors have recently enhanced their export incentives in the context of declining demand in the US and EU markets. For instance, China has increased VAT refund rates from 9 per cent to 13 per cent for synthetic textiles and from\n11 per cent to 13 per cent in case of others. Pakistan has introduced Research & Development assistance of 6 per cent for garments.<\/p>\n\n <\/p>\n\n Clearly, India\u2019s exports are still too weighted in favour of raw materials and intermediate products, rather than finished products, and this is a major concern if one looks at the long-term competitiveness and value-capturing capability of the industry.<\/p><\/div>\n <\/p>\n Imports have also begun to grow in India, although the numbers are still small. Import of fabrics and other products for conversion into clothing has been allowed duty-free for several years, and now imports are also growing for domestic consumption.<\/p><\/div><\/div>\n\n <\/p>\n\n Imports up to April-February 2007-08, indicate an overall increase in both, rupee terms and in US$ terms, to 3.78 per cent and 16.71 per cent respectively. Imports of Readymade Garments (RMG), Made-ups and Raw Materials increased by 36.80 per cent; 28.93 per cent and 11.75 per cent respectively, in rupee terms, over the corresponding period of the previous year.<\/p><\/div>\n
\nComparisons between the two countries are bound to happen, and surely there are some areas for India to learn from China. However, the fact is that India does not have many of the advantages that China had in the past (including a huge business portal in the shape of Hong Kong), nor can it so quickly build the advantages that China has developed over the last 15 years in terms of production capacity, infrastructure etc. India\u2019s political and administrative structure, financial systems, and internal dynamics are completely different. Some obvious internal gaps need to be filled in India\u2019s case, but sustainable competitiveness cannot be built through a copy-China strategy.<\/p><\/li>\n\n
\nIndia has low salaries and wages. But studies show that most Indian clothing factories are less productive, possibly even only half as productive as factories in India\u2019s major competitors on the global stage. Add to that inefficient factory management, expensive power, higher financial costs, and costs of bureaucracy and corruption. The true cost of business can be far higher for Indian businesses \u2013 and with the market determining the price boundaries for exporters, it\u2019s no surprise that many of them are losing money.<\/p><\/li>\n
\nWhen embroidery was automated, suppliers of embroidered goods from Delhi and its surrounding areas certainly felt the heat but they maintained a competitive edge due to embellished (sequinned \/ beaded) products that are a staple in the \u201cvalue-added segment\u201d and that flood the market whenever the \u201cIndia-look\u201d is in. However, in recent times, machinery manufacturers have developed equipment that can provide the same look. The only difference is that the beads and sequins are stuck on with adhesive rather than being stitched on. The buyer is not likely to care about the production method \u2013 after all, the quality and look produced on these machines is more consistent, and the garment is less expensive because the machines have a very high throughput.<\/p><\/li>\n\n
\nFor long, the small-scale reservation created a situation where the size of the factory was determined by an investment ceiling rather than by business economics. This base of small factories, by default, fitted into a specific competitive niche, where buyers wanting to place small orders (say, less than 2,000-3,000 pieces in a style) would mostly come to India, as most other factories around the world worked with higher \u201cminimum-order quantities\u201d. However, with retailers switching to the new mantras of quick-response, efficient supply chains and reduced inventory exposure, manufacturers in other countries are now working on much smaller orders.<\/p><\/li>\n \n
\nOne of India\u2019s great strengths is one of its greatest weaknesses. Due to its suitability to India\u2019s climate, cotton has naturally achieved a very high share of the Indian production base. However, the global market is skewed in favour of man-made fibres. Cotton accounts for just about a third of global apparel consumption (including blended fabrics where cotton is used along with other fibres). For India to remain a globally-significant player, Indian production and exports must be aligned to consumption patterns \u2013 that means a strong thrust in products made out of synthetic fibres, as well as natural fibres such as wool. Similarly, Indian manufacturers need to look at the product range that their customers wish to buy, and identify new areas into which they can enter.<\/p><\/li><\/ul>\n\n![](\"https:\/\/www.thirdeyesight.in\/wp-content\/uploads\/2008\/09\/image007.gif\")
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<\/div><\/div>\n\nIncremental\nthinking will not help to achieve the vision<\/b><\/h2>\n\n
\nSource: Ministry of Textiles, Third Eyesight Analysis![](\"https:\/\/www.thirdeyesight.in\/wp-content\/uploads\/2008\/09\/image009.png\")
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\nSource: Ministry of Textiles, Third Eyesight Analysis![](\"https:\/\/www.thirdeyesight.in\/wp-content\/uploads\/2008\/09\/image041.png\")
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