Textiles play pivotal role in spinning India story
7 Dec 2014 10:40 PM GMT
The Indian economy is rated fourth in the world, on a purchasing power parity basis, after the United States, the European Union and China. For the fiscal year 2014-2015, the forecast for real GDP growth rate in India is estimated at 5.1 per cent to 5.5 per cent by the National Council of Applied Economic Research. According to the Technopak Report 2014, for almost two decades textile and apparel industry has been a major contributor to India’s GDP and provides employment to over 45 million people. India’s GDP in 2013 was estimated at $1.823 trillion and 5.2 per cent of this came from the textile and apparel industry.
The industry has also been crucial as far as industrial production and earning of foreign exchange through exports is concerned. Availability of abundant raw material like cotton, silk, wool and jute blended with India’s competitiveness in skilled labour have provided unique advantages to its textile and apparel industry, whose domestic market has been bigger than the export market and had reached $59 billion in 2013, while export market is $ 36 billion. The Indian apparel retail sector is highly fragmented and only 19 per cent of sales in India is estimated to be from the organized sector. These numbers are in contrast with that of the United States and Europe where over 80 per cent of the apparel sales are from organized fashion retailers.
Developed countries like USA, countries of the European Union and Japan have emerged as consuming countries, while developing countries like India, China and Bangladesh are producing countries with cheap labour that is one of the most important factors driving their production advantage. According to the Technopak report 2014, the expected slower annual GDP growth (CAGR 2013 to 2018 is 2.4 per cent) in the advanced economies is directly impacting the consumption of textile and apparel, hence reducing its demand. On the other hand, the expected higher annual GDP growth (CAGR 2013 to 2018 is 5.4 per cent) of the developing countries has led to an increase in purchasing power of consumers, favouring the growth in textile and apparel consumption in these countries.
India is one of the largest exporters of textiles and apparel, and also has a vertically-integrated supply chain while being known for producing a wide range of textiles and apparel products. In India’s exports of textiles and apparel, 60 per cent contribution comes from apparel, and 40 per cent from textiles. Based on the information on domestic market size, imports and exports numbers for apparel, it is estimated that the total apparel production in India for the year 2013 will be in the range of 17 billion to 20 billion pieces. According to the Technopak report 2014, India has been one of the key players in the textile and apparel industry.
In 2013, the estimated textile and apparel industry of India was worth $95 billion and this figure includes both exports as well as domestic consumption. India’s textile and apparel industry together is expected to grow at a CAGR of 9 per cent to reach a market size of $226 billion by the end of 2023. India’s apparel industry is also estimated to grow at a CAGR of 9 per cent to reach a market size of $101 billion by the end of 2023.
The size of the Indian textile and apparel industry, including both domestic market and exports, was $70 billion in the year 2009 and has grown at a CAGR of 8 per cent in between 2009 and 2013. The export market is expected to grow from $36 billion in the year 2013 to $85 billion by the end of 2023. It is expected that the domestic market would also grow owing to increase in spending from middle class. Domestic textile (including home textiles and technical textiles) and apparel market would grow at CAGR of 9 per cent from $59 billion in 2013 to $141 billion by 2023.
Though organized retail contributed only 17 per cent of the total apparel market in 2010 and is estimated to contribute 25 per cent of the total apparel market by 2015, its share is poised to grow sharply over the coming years and contribute to approximately 40 per cent share of the total apparel market by 2020.
The Indian apparel market being highly unorganized has independent retail stores as major retailers. But it has been observed that organized retailing in India has been growing at a fast pace. An increasing number of international brands are establishing their presence in India with organized systems of working, extremely fast supply chain and product turnaround time. Hence, to be competitive, there is a need for the Indian brands and retailers to follow a value chain that is fast, organized and transparent with the ability to deliver right goods at the right time and place, in right quantity at the right operating cost.
The need for today is an integrated supply chain with an established coordination with all its intermediaries, which can help the retailer by providing convenience in ordering and receiving of merchandise and conversion and reducing its inventory carrying cost by supplying merchandise just in time when needed. As the industry is highly fragmented, it offers opportunities for merger and acquisitions and inorganic growth going forward. This has caused the apparel manufacturers to focus on providing end-to-end solutions besides just manufacturing for the brands /retailers. Hence, manufacturers are moving towards integrated set-ups by entering into strategic partnership (like mergers, acquisition and joint ventures) with manufacturers of yarn and textiles, logistics providers, with an aim to provide responsive and efficient supply chain.
Meanwhile, the textile fashion market appears to be right and bright for the Oswal Group, whose “Monte Carlo Fashions Limited” recently announced an initial public offering of 5.4 million shares from December 3 to 5 December, 2014 at face value of Rs 10 each for cash at a price band of Rs 630 to Rs 645 per Equity Share. Jawaharlal Oswal, Chairman of Oswal Group, said this offering is targeting the Indian Apparel market which is worth $41 billion of which the organized market is worth Rs 13 billion itself and market growth at nine per cent per annum. With consumer annual disposable income growing at 12 per cent yearly since 2006-07, it is one of the key factors driving the Indian Apparel market. The group is seeking to seize the market opportunity by continuing to allocate significant resources towards the Monte Carlo brand.
Unlike the developed markets of the west, menswear is the predominant segment in India (and is larger than the women’s wear segment) at an estimated $17,271 million in 2013 with expected CAGR growth of 9 per cent to reach $39,575 million in 2023. The market remains dominated by the popular product categories such as shirts and trousers. However, western wear categories such as denim, active-wear and t-shirts are the fastest-growing categories in this segment. Men’s denim market is expected to grow at 14 per cent per year.
The womenswear market in India contributes 38 per cent to the Indian apparel market, largely dominated by unorganized players. However, with increasing preference for branded apparel, regional brands and international brands have expanded their geographical presence. The womenswear market is expected to grow from $15,493 million in 2013 at a CAGR of 10 per cent to reach $38,915 million in 2023.
The growth in the market captures two essential preference shifts — from non-branded apparel to branded apparel, and increasing share of western wear to ethnic wear categories. Women’s denim market is also demonstrating an encouraging growth at a CAGR of 15 per cent. Women’s t-shirts and tops categories are also growing owing to increasing participation of women in the workforce and a generic inclination towards western wear categories. Similarly, women’s tops and shirts market is currently estimated at $282 million and is expected to grow at a CAGR of 12 per cent to $76 million by 2023. The women’s t-shirts market of $107 million is also witnessing growth in tandem with the growth of all other casualwear categories and is estimated to grow at a CAGR of 155 to reach $436 million by 2023.
The kids apparel market is also big contributor to fashion market, contributing about 20 per cent to the total market and is the fastest-growing segment in the Indian market and it is expected to grow at a CAGR of 10.50 per cent to reach $22,369 million in 2023. Within this, boys segment contributes 52 per cent to the kids apparel market and the remaining by the girls segment. The $4,253 million boyswear market in 2013 is poised to grow at a CAGR of 10 per cent to reach $11,156 million by 2023. Denim is the fastest-growing category in boyswear segment with an expected CAGR of 15 per cent and this is expected to reach $355 million by 2023 from its current value of $91 million.
Designer kids apparel is also emerging as a promising opportunity in the premium and luxury categories. The $3,969 million girlswear segment is poised to grow at a CAGR of 11 per cent to reach $11,213 million by 2023 and, like the boyswear segment, this segment is also dominated by school uniform with a market size of $1,198 million and a projected CAGR of 11 per cent, a growth rate higher than growth rate of boys school uniform. The higher expected growth rate of girls school uniform market is attributed to the increasing awareness of girls education in semi-urban and rural areas.
Synthetic textiles need Govt push
Synthetic Fibre producers in India have urged the Union government to remove bias and anomalies against the man-made fibre (MMF) industry and bring down high excise duty on the industry as par with cotton fibre and yarn for growth of the Indian textile industry and for achieving a larger share of the global market. India is the second largest producer of man-made fibres in the world with presence of large plants having state-of-the art technology. MMF textiles constitute almost two-third of the domestic textile market. However, India’s share in global exports of value-added textiles of manmade fibres is miniscule at around 3 per cent. This has resulted in India’s textile exports not growing beyond $40 billion — out of which only 27 per cent comes from man-made fibres.
In contrast, China has given a big push to synthetic textiles and this has helped it in becoming the largest textile exporter of the world. Almost 80 per cent of China’s textile exports consist of synthetics. A major anomaly in excise duty structure is affecting growth of the Indian textile industry and preventing it from achieving a larger share of the global market. It is this bias against man-made fibre and yarn that has left India far behind China in terms of investment, scale of manufacturing and exports.
According to letters submitted to the finance, textiles and commerce & industry ministries by the Association of Synthetic Fibre Industry in the runup to the Union Budget of 2015, the high excise duty on man-made fibre and yarn (in contrast to cotton and cotton yarn that are free of excise duty) has become a roadblock for the growth of the textile industry. Industry veterans and experts are also of the same view that a peculiar excise duty structure is holding up the Indian textile industry from achieving its potential. In contrast, major textile exporters like China, Thailand, Indonesia and Bangladesh tax cotton and synthetic fibres as well as yarn uniformly.
“The excise duty imposed on man-made fibre and yarn in India is 12 per cent, while cotton yarn and fibre are exempted from excise duty burden, leading to excessive bias against man-made fibres and yarn. This affects the textile industry in two ways. In the domestic market, poor consumers suffer as the least expensive polyester shirt or a saree made of synthetic fibre and bought at Rs.100 or Rs.150 suffers a huge excise duty burden of 12 per cent. In contract, no excise duty is paid on the cotton fibre and yarn used to produce expensive cotton shirts bought by rich consumers at prices ranging above Rs.1,000.
Therefore, only the poor pay more tax on textiles in the domestic market, while the rich are favoured with no excise duty on the premium cotton worn by them!” said S. C. Kapoor, Director-General, Association of Synthetic Fibre Industry (ASFI). “From a cotton-centric export focus, India can shift to a synthetics-boosted push for rapid growth in textile industry once the excise duty anomaly is corrected. With this, the Indian textile industry can aim at growing to $650 billion and earning foreign exchange to the tune of $300 billion by 2025. For this purpose, textile fiber availability has to grow rapidly from current level of 10 billion per annum, comprising 6 billion kg of cotton and 4 billion kg of man-made fibres. At least 25 billion kg of fibre needs to be produced annually in the country to meet the 2025 goal and give a big thrust of Prime Minister Narendra Modi’s ‘Make in India’ initiative,” Kapoor said.
“Cotton fibre and yarn production faces limitations due to availability of land, water and right climatic conditions for cultivation. Water-scarcity is also a well-known phenomenon across India. In order to make synthetic textiles cheaper for the masses who use it most, excise duty on man-made fibre and yarn like polyester and acrylic should be scrapped altogether or halved to 6 per cent as the first step. As we move towards goods & service tax (GST), we are now presented with a good opportunity to put synthetic fibre and yarn at par with cotton and correct the long-standing anomaly in duty structure. A uniform duty structure of bringing the entire textile chain under 6 per cent excise duty will yield additional revenue of Rs.10,000 crore to the exchequer.
The industry has also been crucial as far as industrial production and earning of foreign exchange through exports is concerned. Availability of abundant raw material like cotton, silk, wool and jute blended with India’s competitiveness in skilled labour have provided unique advantages to its textile and apparel industry, whose domestic market has been bigger than the export market and had reached $59 billion in 2013, while export market is $ 36 billion. The Indian apparel retail sector is highly fragmented and only 19 per cent of sales in India is estimated to be from the organized sector. These numbers are in contrast with that of the United States and Europe where over 80 per cent of the apparel sales are from organized fashion retailers.
Developed countries like USA, countries of the European Union and Japan have emerged as consuming countries, while developing countries like India, China and Bangladesh are producing countries with cheap labour that is one of the most important factors driving their production advantage. According to the Technopak report 2014, the expected slower annual GDP growth (CAGR 2013 to 2018 is 2.4 per cent) in the advanced economies is directly impacting the consumption of textile and apparel, hence reducing its demand. On the other hand, the expected higher annual GDP growth (CAGR 2013 to 2018 is 5.4 per cent) of the developing countries has led to an increase in purchasing power of consumers, favouring the growth in textile and apparel consumption in these countries.
India is one of the largest exporters of textiles and apparel, and also has a vertically-integrated supply chain while being known for producing a wide range of textiles and apparel products. In India’s exports of textiles and apparel, 60 per cent contribution comes from apparel, and 40 per cent from textiles. Based on the information on domestic market size, imports and exports numbers for apparel, it is estimated that the total apparel production in India for the year 2013 will be in the range of 17 billion to 20 billion pieces. According to the Technopak report 2014, India has been one of the key players in the textile and apparel industry.
In 2013, the estimated textile and apparel industry of India was worth $95 billion and this figure includes both exports as well as domestic consumption. India’s textile and apparel industry together is expected to grow at a CAGR of 9 per cent to reach a market size of $226 billion by the end of 2023. India’s apparel industry is also estimated to grow at a CAGR of 9 per cent to reach a market size of $101 billion by the end of 2023.
The size of the Indian textile and apparel industry, including both domestic market and exports, was $70 billion in the year 2009 and has grown at a CAGR of 8 per cent in between 2009 and 2013. The export market is expected to grow from $36 billion in the year 2013 to $85 billion by the end of 2023. It is expected that the domestic market would also grow owing to increase in spending from middle class. Domestic textile (including home textiles and technical textiles) and apparel market would grow at CAGR of 9 per cent from $59 billion in 2013 to $141 billion by 2023.
Though organized retail contributed only 17 per cent of the total apparel market in 2010 and is estimated to contribute 25 per cent of the total apparel market by 2015, its share is poised to grow sharply over the coming years and contribute to approximately 40 per cent share of the total apparel market by 2020.
The Indian apparel market being highly unorganized has independent retail stores as major retailers. But it has been observed that organized retailing in India has been growing at a fast pace. An increasing number of international brands are establishing their presence in India with organized systems of working, extremely fast supply chain and product turnaround time. Hence, to be competitive, there is a need for the Indian brands and retailers to follow a value chain that is fast, organized and transparent with the ability to deliver right goods at the right time and place, in right quantity at the right operating cost.
The need for today is an integrated supply chain with an established coordination with all its intermediaries, which can help the retailer by providing convenience in ordering and receiving of merchandise and conversion and reducing its inventory carrying cost by supplying merchandise just in time when needed. As the industry is highly fragmented, it offers opportunities for merger and acquisitions and inorganic growth going forward. This has caused the apparel manufacturers to focus on providing end-to-end solutions besides just manufacturing for the brands /retailers. Hence, manufacturers are moving towards integrated set-ups by entering into strategic partnership (like mergers, acquisition and joint ventures) with manufacturers of yarn and textiles, logistics providers, with an aim to provide responsive and efficient supply chain.
Meanwhile, the textile fashion market appears to be right and bright for the Oswal Group, whose “Monte Carlo Fashions Limited” recently announced an initial public offering of 5.4 million shares from December 3 to 5 December, 2014 at face value of Rs 10 each for cash at a price band of Rs 630 to Rs 645 per Equity Share. Jawaharlal Oswal, Chairman of Oswal Group, said this offering is targeting the Indian Apparel market which is worth $41 billion of which the organized market is worth Rs 13 billion itself and market growth at nine per cent per annum. With consumer annual disposable income growing at 12 per cent yearly since 2006-07, it is one of the key factors driving the Indian Apparel market. The group is seeking to seize the market opportunity by continuing to allocate significant resources towards the Monte Carlo brand.
Unlike the developed markets of the west, menswear is the predominant segment in India (and is larger than the women’s wear segment) at an estimated $17,271 million in 2013 with expected CAGR growth of 9 per cent to reach $39,575 million in 2023. The market remains dominated by the popular product categories such as shirts and trousers. However, western wear categories such as denim, active-wear and t-shirts are the fastest-growing categories in this segment. Men’s denim market is expected to grow at 14 per cent per year.
The womenswear market in India contributes 38 per cent to the Indian apparel market, largely dominated by unorganized players. However, with increasing preference for branded apparel, regional brands and international brands have expanded their geographical presence. The womenswear market is expected to grow from $15,493 million in 2013 at a CAGR of 10 per cent to reach $38,915 million in 2023.
The growth in the market captures two essential preference shifts — from non-branded apparel to branded apparel, and increasing share of western wear to ethnic wear categories. Women’s denim market is also demonstrating an encouraging growth at a CAGR of 15 per cent. Women’s t-shirts and tops categories are also growing owing to increasing participation of women in the workforce and a generic inclination towards western wear categories. Similarly, women’s tops and shirts market is currently estimated at $282 million and is expected to grow at a CAGR of 12 per cent to $76 million by 2023. The women’s t-shirts market of $107 million is also witnessing growth in tandem with the growth of all other casualwear categories and is estimated to grow at a CAGR of 155 to reach $436 million by 2023.
The kids apparel market is also big contributor to fashion market, contributing about 20 per cent to the total market and is the fastest-growing segment in the Indian market and it is expected to grow at a CAGR of 10.50 per cent to reach $22,369 million in 2023. Within this, boys segment contributes 52 per cent to the kids apparel market and the remaining by the girls segment. The $4,253 million boyswear market in 2013 is poised to grow at a CAGR of 10 per cent to reach $11,156 million by 2023. Denim is the fastest-growing category in boyswear segment with an expected CAGR of 15 per cent and this is expected to reach $355 million by 2023 from its current value of $91 million.
Designer kids apparel is also emerging as a promising opportunity in the premium and luxury categories. The $3,969 million girlswear segment is poised to grow at a CAGR of 11 per cent to reach $11,213 million by 2023 and, like the boyswear segment, this segment is also dominated by school uniform with a market size of $1,198 million and a projected CAGR of 11 per cent, a growth rate higher than growth rate of boys school uniform. The higher expected growth rate of girls school uniform market is attributed to the increasing awareness of girls education in semi-urban and rural areas.
Synthetic textiles need Govt push
Synthetic Fibre producers in India have urged the Union government to remove bias and anomalies against the man-made fibre (MMF) industry and bring down high excise duty on the industry as par with cotton fibre and yarn for growth of the Indian textile industry and for achieving a larger share of the global market. India is the second largest producer of man-made fibres in the world with presence of large plants having state-of-the art technology. MMF textiles constitute almost two-third of the domestic textile market. However, India’s share in global exports of value-added textiles of manmade fibres is miniscule at around 3 per cent. This has resulted in India’s textile exports not growing beyond $40 billion — out of which only 27 per cent comes from man-made fibres.
In contrast, China has given a big push to synthetic textiles and this has helped it in becoming the largest textile exporter of the world. Almost 80 per cent of China’s textile exports consist of synthetics. A major anomaly in excise duty structure is affecting growth of the Indian textile industry and preventing it from achieving a larger share of the global market. It is this bias against man-made fibre and yarn that has left India far behind China in terms of investment, scale of manufacturing and exports.
According to letters submitted to the finance, textiles and commerce & industry ministries by the Association of Synthetic Fibre Industry in the runup to the Union Budget of 2015, the high excise duty on man-made fibre and yarn (in contrast to cotton and cotton yarn that are free of excise duty) has become a roadblock for the growth of the textile industry. Industry veterans and experts are also of the same view that a peculiar excise duty structure is holding up the Indian textile industry from achieving its potential. In contrast, major textile exporters like China, Thailand, Indonesia and Bangladesh tax cotton and synthetic fibres as well as yarn uniformly.
“The excise duty imposed on man-made fibre and yarn in India is 12 per cent, while cotton yarn and fibre are exempted from excise duty burden, leading to excessive bias against man-made fibres and yarn. This affects the textile industry in two ways. In the domestic market, poor consumers suffer as the least expensive polyester shirt or a saree made of synthetic fibre and bought at Rs.100 or Rs.150 suffers a huge excise duty burden of 12 per cent. In contract, no excise duty is paid on the cotton fibre and yarn used to produce expensive cotton shirts bought by rich consumers at prices ranging above Rs.1,000.
Therefore, only the poor pay more tax on textiles in the domestic market, while the rich are favoured with no excise duty on the premium cotton worn by them!” said S. C. Kapoor, Director-General, Association of Synthetic Fibre Industry (ASFI). “From a cotton-centric export focus, India can shift to a synthetics-boosted push for rapid growth in textile industry once the excise duty anomaly is corrected. With this, the Indian textile industry can aim at growing to $650 billion and earning foreign exchange to the tune of $300 billion by 2025. For this purpose, textile fiber availability has to grow rapidly from current level of 10 billion per annum, comprising 6 billion kg of cotton and 4 billion kg of man-made fibres. At least 25 billion kg of fibre needs to be produced annually in the country to meet the 2025 goal and give a big thrust of Prime Minister Narendra Modi’s ‘Make in India’ initiative,” Kapoor said.
“Cotton fibre and yarn production faces limitations due to availability of land, water and right climatic conditions for cultivation. Water-scarcity is also a well-known phenomenon across India. In order to make synthetic textiles cheaper for the masses who use it most, excise duty on man-made fibre and yarn like polyester and acrylic should be scrapped altogether or halved to 6 per cent as the first step. As we move towards goods & service tax (GST), we are now presented with a good opportunity to put synthetic fibre and yarn at par with cotton and correct the long-standing anomaly in duty structure. A uniform duty structure of bringing the entire textile chain under 6 per cent excise duty will yield additional revenue of Rs.10,000 crore to the exchequer.
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