The Great Leap Forward

Entrepreneurs in textile and apparel have to play a major role in this and we need top quality entrepreneurs to drive this sector like we had in the information technology (IT) industry.

Golden era of Indian textiles

Despite challenges, the textile industry is all set to enter its golden era, powered by the confluence of global undercurrents and the new government's determination to make India a manufacturing hub. "The golden era has already begun," Alok Industries MD Dilip Jiwrajka wrote in the January 2014 issue of the Indian Textile Journal.

"By 2025, the Indian domestic apparel consumption is expected to touch US$ 200 billion, surpassing that of several large consumers like Japan, Brazil and Russia," predict industry reports. "The market in 2025 will be more than four times of its 2012 value of US$ 45 billion, adding US$ 155 billion in process making it one of the most attractive destinations for brands and retailers. On the manufacturing side, focus on domestic market over the next decade can bring unparalleled growth"

A vision and strategy document submitted by an expert committee to the textiles ministry says there is no reason why India cannot achieve 20 per cent growth in exports over the next decade. Combined with a 12 per cent growth in the domestic market, the industry can achieve a production level of $350 billion by 2024-25 from the current level of about $100 billion for the domestic market. "With a 20 per cent CAGR in exports, India would be exporting about US$ 300 billion of textile and apparel by 2024-25. India should by then have a market share of 20 per cent of the global textile and apparel trade from the present level of 5 per cent," the committee predicted. This will help the industry provide employment to an additional 35 million people.

This will be a golden era for the country, not just for an industry as it will provide jobs for millions of Indians over the next decade. All the more reason for all stakeholders to join hands and make the best of this lifetime opportunity provided by the global economy.

'Make in India' is welcome, what next?

Industry leaders are enthusiastic about the 'Make in India' initiative and awaiting the government's next steps. "This is really a good initiative as this will offer a huge opportunity for the industry to make India truly, globally competitive," says Sardana of Aditya Birla's Grasim. "This will create employment opportunities for young people entering the workforce. The employment generated by the manufacturing sector will have a multiplier effect on the service sector."

Sardana adds: "But to make this happen, it should be backed by support from the government."

Vasudeva of Indorama is optimistic. "I am a strong believer in a glorious future that beckons our country. In order to achieve that future, a strong resurgence of manufacturing activity is necessary. The 'Make in India' policy is a focused initiative that is bound to propel the Indian manufacturing scenario and business landscape," he says.

And as this is being written, everyone is waiting with bated breath.

But the way things stand now: the total size of the Indian textile and apparel industry in 2013 was around US$ 101 billion and is expected to reach US$ 200 billion by 2020, considering modest growth of around 10 per cent CAGR. Some industry experts feel that this growth can be much higher. Yet, even this modest growth can create ripples in the textile value chain.

There are some pertinent questions which have been analysed in this context:

    •  Why 'Make in India' now?

    •  Why is textile and apparel important for 'Make in India' and Indian manufacturing?

    •  How competitive is our textile and apparel industry?

    •  What are the challenges we face?

    •  How to 'Make it Happen'?

Manufacturing to drive growth

The call to 'Make in India' comes against a backdrop of declining share of manufacturing as a percentage of India's gross domestic product (GDP). Services became the fastest growing sector of the economy after India liberalised in 1991, contributing to more than 50 per cent of the GDP. The boom in services, however, did not reflect in job creation as services have a limited role in job creation compared to the manufacturing sector.

The share of manufacturing as a percentage of GDP fell from 15.4 per cent in 2001 to 12.9 per cent in 2014 because of slowdown and policy paralysis. "With agricultural contribution constituting only 13 per cent of India's GDP and services growth saturating at nearly 8 per cent, it is imperative that manufacturing revival takes place at the earliest to push growth to 9 per cent and higher," industrialist Harsh Pati Singhania recently wrote in a newspaper.

In fact, the share of manufacturing in India's GDP compares to 34 per cent in China, 31 per cent in South Korea and 23 per cent in Germany. It is clear that the manufacturing industry must grow rapidly to drive growth for the country because the manufacturing sector has the potential to create more jobs and at all levels, specially for the rural economy.

"Economic activities have been shifting from west to east and China has capitalised on this shift very effectively," says Shalendra Vasudeva, VP Marketing, Indorama Industries. "For our country, manufacturing should be the next big wave and as articulated in the national vision, we need to move the share of manufacturing to 25 per cent of GDP from the current 15 per cent."

India is projected to have the youngest workforce in the world until 2050, while the rest of the world, including China, will be ageing. When the number of people in working age increases, the number of people outside the working age (the very young and retired) tends to decrease. More workers with fewer dependents will translate to higher savings and investment, leading to a virtuous saving-to-growth cycle. However, this assumes that the rising number of youth in India is skilled and gets productive work.

The demographic dividend will become a liability if they don't get jobs. However, at present, a majority of the youth entering the job market have only secondary education. Manufacturing and construction are, therefore, considered to be the two sectors where they can be trained and absorbed.

The time is right for a bold push in manufacturing. India's economic indicators are looking up. The forex reserves are at a high, covering nearly seven months of imports, while the current account deficit is low. Moreover, oil prices are at the lowest level in five years and expected to soften further. And thankfully, inflation is down and the rupee has been range-bound and seems well-prepared to withstand global monetary shocks.

Why textiles and apparel?

Among all manufacturing industries, textile and apparel offer the biggest employment potential for the young generation of India. It is one of the biggest manufacturing industries in the world, and is a basic need for mankind. The Strategy Plan published by the ministry of textiles in 2014 succinctly summarises the textile industry's preeminent role in the Indian economy.

The textiles sector provides direct employment to over 35 million people in India, holding the position of the second largest employer after agriculture. Thus, the growth and all-round development of this industry has a direct bearing on the nation's economic strength."

Ajay Sardana, vice-president, Pulp & Fibre Business, Aditya Birla Group, agrees, and feels that the 'Make in India' drive will not only help the country become globally competitive, but also help create new jobs for the youth entering the workforce. Let us take a simple example to show the textile industry's unmatched potential to create jobs. Maruti Suzuki (India's leading automobile manufacturer) with a turnover of around `43,000 crore, has around 9,000 employees. Shahi Exports (India's leading garment manufacturer) with a turnover of around `4,000 crore, employs about 70,000 people. This indicates that for an equivalent sales turnover, a garment manufacturing company has the potential to employ 70 times more people than an automobile manufacturer.

The International Trade Division, in a recent update, said that "the ministry of textiles remained conscious of the fact that textile export is not just an end in itself but a means of providing employment to millions of people in the country." India needs to create an additional 85 million new jobs by 2020. The Indian textile industry accounts for about 14 per cent of the country's industrial production, which is 4 per cent of GDP and accounts for nearly 11 per cent of exports, according to figures quoted in the Strategy Plan (2012-2017) published in February 2014. Exports grew from $21.22 billion in 2008-09 to $22.41 billion in 2009-10 and touched a high of $22.47 billion in 2010. Exports climbed by 20.05 per cent to touch $33.31 billion in 2011-12, the Strategy Plan said.

Textiles and clothing accounted for a global trade of $708 billion in 2012, according to the World Trade Organisation (WTO). India overtook Germany and Italy in 2014 to emerge as the world's second largest exporter. India's exported textiles valued at $40 billion in 2013, securing the second place and a distant second to China which exported textiles worth $274 billion. Readymade garments are the largest contributor to India's exports with a share of 39 per cent, followed by cotton and man-made textiles with 34 per cent and 17 per cent, respectively.

Golden opportunity to become manufacturing hub

Modern manufacturing began with the Industrial Revolution in England. It moved to the US in the 1900s and Japan in the 1950s, followed by South Korea and Taiwan and, after the 1980s, China, "supported by abundant labour, massive infrastructure push and a devalued currency," notes the JM Financial report. Each country "lost out to the competition on account of rising costs, falling innovation and change in labour aspirations on rising incomes - an opportunity for India."

According to global consulting firm McKinsey, "India's manufacturers have a golden chance to emerge from the shadow of the country's services sector and seize more of the global market. McKinsey analysis finds that rising demand in India, together with the multinationals' desire to diversify their production to include low-cost plants in countries other than China, could together help India's manufacturing sector to grow six-fold by 2025, to $1 trillion, while creating up to 90 million domestic jobs."

India has been ranked the fourth most competitive manufacturing destination in the world by Deloitte's Global Manufacturing Competitiveness Index, which predicts that the country would move up to the second rank next to China by 2018. The factors that power India's competitiveness include its plentiful and low-cost labour force, the large and growing domestic market, the rupee's falling value against the dollar which contrasts with the rise in yuan and the free trade agreements signed in recent years.

That $100 billion export market

"China is slowly moving out of global textile trade," points out S. Jayaraman, India country head for Lenzing. "It is no longer a factory for the world, especially for textiles. This is a huge opportunity for South Asia - especially India. We have the infrastructure, expertise and the manpower to absorb this fallout."

China accounts for a massive 40 per cent share of the global trade in textiles. Analysts predict that China's share will diminish over the next 15 years. Several factors will contribute to the downtrend, the most important being the rise in China's domestic demand which will overtake its export demand. Another factor is the shift from traditional sectors to innovation-driven industries and the services sector. China's shrinking labour pool and rising wages is another factor. "The vacuum created by slowdown in Chinese exports is estimated to be US$ 100 billion plus by 2025.

China's loss of share in global trade will throw up opportunities for other exporting nations like India, Bangladesh, Pakistan, Vietnam, etc," says an analysis by management consultant Wazir in its report titled 'The Road to 2025'. Herein, the advantage of a huge domestic market and the availability of raw materials give India a competitive advantage, but it has to go a long way in improving infrastructure.

A study prepared by Gherzi for India's Cotton Textiles Export Promotion Council (Texprocil), which benchmarked India's production costs with those of other countries like Bangladesh, China and Pakistan, found that India's manufacturing competitiveness has improved over the last decade. "The gap between India and other competing textile countries, especially Chinese, has narrowed. However, the potential could be maximised only when adequate power becomes available in key textile producing states such as Tamil Nadu," it said.

The domestic market scenario

India's per capita spend on apparel at $36 is one-third of China's. The Chinese domestic demand has been growing at 15 per cent compared to India's 12 per cent. India's domestic apparel market was estimated at $45 billion in 2012 vis-a-vis $150 billion in China. Rising incomes, changing lifestyles and rapid urbanisation in India is fuelling the growth of organised retail and branded wear. It is expected that the share of organised retail in India will grow to 15 per cent of the overall retail market by 2025, up from 8 per cent at present.

Apparel, on the other hand, would account for about 29 per cent of organised retail. Apparel, as of now, accounts for 69 per cent of India's textile market. India had one of the lowest per capita spends on apparel at $36 in 2012, which is expected to rise to $138 by 2025, registering a CAGR of 11 per cent, as per industry estimates.

Indian companies have a 7 per cent share of the global home textiles market too. "Superior quality makes companies in India a leader in the US and UK, contributing to two-third of the exports," says an India Brand Equity Foundation (IBEF) study. Meanwhile, the infrastructure and healthcare industries are fuelling the growth of the technical textiles industry which is estimated to grow at a CAGR of 20 per cent during 2012-2017 to achieve $36 billion sales in 2017, according to the IBEF study published in March 2014.

No discussion on the industry, however, will be complete without referring to the handloom sector which represents the richness and diversity of Indian culture. The household-based handloom sector produces a variety of goods like hand-printed and embroidered fabrics with ethnic traditions that are unique to different regions of the country. Use of eco-friendly dyes and colours give these products a unique standing in the global market. Products of the handloom sector are exported to US, UK, Germany and Japan. In fact, retail giants like Wal-Mart and Ikea stock Indian handloom products.

Convergence of advantages

The textile industry in India enjoys huge advantages that include raw material availability and friendly government policies that provide subsidised finance and infrastructural support.

India is the world's second largest producer of cotton and polyester and the number one producer of jute. India's total production of fibre and filaments is estimated at 11 million tonnes a year. Abundant availability of human resources - labour as well as management - is another advantage that gives India a competitive edge.

The surge in demand - domestic as well as export - is fuelling investment in the Indian industry. The last four years have seen `35 billion investment in the Indian industry, with cotton textiles segment accounting for 75 per cent, according to the IBEF study.

The Indian government has been supporting the industry through a host of initiatives. These include:

   •  Technology Upgradation Fund Scheme (TUFS) which has invested more than `40 billion for the modernisation of the industry by providing loans at subsidised rates.

  • The National Textile Policy offers diverse schemes aimed at raising productivity and encouraging the industry to modernise and diversify into new products.

  •  Foreign Direct Investment up to 100 per cent through the automatic route.

  •   40 projects proposed under the Scheme for Integrated Textiles Parks (SITP) to build new infrastructure.

Special Economic Zones are also providing infrastructural support to the textile sector. These include Mahindra City in Tamil Nadu, Surat Apparel Park in Gujarat, Brandix India Apparel City in Andhra Pradesh, and Karnataka Industrial Areas Development Board in Karnataka.

The industry has produced successful companies with a global footprint and reputation. A select few are listed below. A closer look at the performance of these companies reveals that all of them had double digit revenue growth over last few years, in spite of various challenges.

Challenges to achieving full potential

India's exceptional advantages and the expanding global market will boost the industry. But India will have to proactively work on various challenges to realise its full potential. Infrastructure tops the challenges. The textile industry in many states is facing shortage and erratic power supply which translates to low productivity and higher manufacturing costs. Power cost is second only to raw material cost in manufacturing. The roads are pathetic, which means more hours to reach ports. On top of it, the turnaround time in ports is a lot higher than in many neighbouring countries that compete with India.

Moreover, government policies since Independence have resulted in a fragmented industry in many sectors like fabrics. Woven apparels were reserved for the small-scale sector until 2001 and knitwear till 2005. This has led to higher cycle times in the garment sector which is largely unorganised. Adoption of modern technology too has to be speeded up. Disbursements under TUFS have been skewed, resulting in unequal development of various segments of the industry. Skilled manpower and labour productivity are other areas of concern when we consider the projected growth over next decade.

India's labour laws are a big drawback, especially in the garment sector where large seasonal orders require use of contract workers. Units employing 100 people cannot lay off workers under the Industrial Disputes Act enacted in 1956. The textiles ministry's vision document for 2024-25 admits that "there is an immediate need to review labour laws to make them investor and labour friendly." Industry is awaiting the labour reforms promised by the new government.

It is tough to set up a unit in India

"Setting up a manufacturing unit in India is an uphill task," regrets Indorama's Vasudeva. "Indorama Industries, which set up the first facility to produce spandex in India experienced this. It did involve a long and tedious process for land acquisition, securing an overabundance of clearances and approvals from regulatory authorities at the central, provincial and local levels. We are again at a similar task, in advanced stage of planning of expanding our capacity."

To encourage manufacturing, we need more clarity in regulations, more consistency, greater transparency and swiftness in decision-making at all levels, he urges. "Three broad areas that should be addressed are regulatory hurdles, cumbersome business environment, infrastructure bottlenecks and developing talent, not necessarily in this order," he sums up.

India faces tough competition from ASEAN countries in setting up manufacturing units to cater to the markets that China is vacating. "Most ASEAN countries have better infrastructure and supply chain identified compared to India. Hence, the landscape is changing rapidly in their favour compared to India," cautions Vasudeva.

Will 'Make in India' make a difference?

Is India at an inflexion point in textile manufacturing? Will the 'Make in India' policy propel textile manufacturing to make India the next China?

Not likely, argue textile and clothing industry leaders, unless the government comes up with a textile-specific 'Make in India' programme to facilitate, accelerate and incentivise manufacturing. As of now, 'Make in India' is a broad policy of industry-friendly steps like one-window clearance. These are basic hygiene measures that will help ease investment projects in the pipeline. But they are not enough to encourage entrepreneurs to come up with new, ambitious projects.

India has a history of squandering golden opportunities. The end of quotas under the multi-fibre agreement (MFA) in 2005 presented a big opportunity, but the lumbering elephant failed to make the most of it.

"Textile machinery majors from Europe set up their plants in China a decade ago," points out R. Bachkaniwala, managing director of Himson Textile Engineering. "We could have attracted them, but we missed the bus. I doubt if they will set up manufacturing plants in India now." He says India's policy that allows import of secondhand machinery discourages companies to set up shop in India. Labour reforms and conducive and stable policies can help India catch up with China, he says. But there is a lack of unanimity in the industry on the elements that will constitute a 'Make in India' textile policy.

None of the textile majors are planning new manufacturing units because of the 'Make in India' policy. They are all alive to the opportunities and planning expansion of existing capacities that were planned before the Prime Minister announced the 'Make in India' policy. The Aditya Birla group is setting up a greenfield VSF plant in Vilayat in Gujarat. Indorama, meanwhile, is expanding its spandex manufacturing capacity.

Some of the steps to "Make it Happen"

There have been various reports and discussions in the past as well on what needs to be done. The challenge actually lies in executing them. Here's a list of some which are of immediate importance for the growth of this industry:

    •  Efficiency and productivity focus at business level and company level

    •  Labour reforms

    • Investment in human capital (skill development) at all levels

    •  Attracting investments in all the sectors of the value chain

    •   Developing 'Brand India'

    • Reducing logistics costs through infrastructure development

    •  Supply chain efficiency

    •   Investment into innovation and R&D

    •   Developing new mega clusters

References:

1. Make in India, JM Financial Institutional Securities Ltd., October 2014.

2. Strategic Plan (2012-2017), Ministry of Textiles, February 2014.

3. Textiles and Apparel, India Brand Equity Foundation, March 2014.

4. The Road to 2025, Wazir Management Consultants