When we talk of denim, India has the unique advantage of being present in every link of the entire value chain of the fabric. Denim manufacturing in India has been growing at a healthy CAGR of 10 per cent over the last decade, and the trend is expected to continue thanks to a swelling domestic market and slowdown of major competing economies such as China.
Notwithstanding some of the best names in denim production with state-of-the-art sustainable technologies that can roll out nearly 1.3 billion metres per annum and are leading global suppliers of denim, Indian manufacturers are far from happy. Their share in the global trade pegged at $64.1 billion by 2020 is barely 5 per cent. Their goal of achieving a 55:45 domestic consumption vs export ratio is slipping by in the face of dwindling exports and emerging apparel hubs such as Bangladesh, Sri Lanka and Vietnam.
Denim exports have dropped by 12 per cent from $355 million for 2014-2015 to $312 million in 2015-16 for the first time in last several years, says Atul Kumar Singh, director-Technology and Business Development, Ashima group, a major denim fabric and garment producer, citing Union commerce ministry figures. Significantly, high value cotton denim has dropped more (about 16 per cent), although low value product like polyester weft denim has remained steady.
The data shows an overall decline in exports for the 16th consecutive month. Exports of textiles and clothing during 2015-2016 reached $35.44 billion, slightly lower than $35.96 billion during 2014-2015, declining by around 1.46 per cent. Exports of cotton textiles (denim included) declined by 6 per cent due to a decline in exports of cotton yarn and fabrics, points out Texprocil chairman RK Dalmia, sounding warning bells for the domestic industry to tighten their belts.
Nevertheless, denim is the only segment in the textiles industry that has the potential to grow manifold, more so in exports. According to the Denim Manufacturers Association (DMA), the installed capacity of denim fabric production stands at about 1.2 billion meters per annum, and utilisation levels are pegged at 80-85 per cent. The 'Make in India' initiative is targeted at bridging this gap while catapulting the country into becoming a textile export powerhouse.
The disturbing trend, however, is that increasingly the focus of world trade in denim is shifting from cloth to garments. Caught in the climate change web, consumer markets in the Western world prefer to shift apparel production bases to developing countries which are not only close to fabric production regions, but also have cheap labour and less stringent laws against polluters. It is here that India is taking a beating. In 2015, it was the fourth largest exporter of denim fabrics and cotton trailing China, Hong Kong and Turkey in that order. Ironically, half of India's exports were directed towards Bangladesh, which was the world's biggest importer, followed by China, Hong Kong and Vietnam.
Furthermore, Bangladesh's earnings by converting fabric into apparel has far outpaced that of its neighbours. This because garment manufacturing accounts for 80 per cent of its forex earnings and state policies is formulated to facilitate its growth. According to Sandeep Agarwal, an industry expert considered an authority on the Bangladesh denim industry, the country's denim export earnings could be ten times that of India.
Countries like Bangladesh, Pakistan and Sri Lanka are outpacing India as they have excellent largescale denim stitching and washing plants. All denim mills in Bangladesh and Pakistan are vertically integrated into garment manufacturing. They are increasing their capacity very fast.
Sameer Kulkarni, manager-Business Development, Suryalakshmi Cotton Mills Ltd (SCML), says that in India there are few converters of fabric to garment. And they are mainly scattered in hubs around Delhi, Mumbai and Kolkata. "We want to have more converters in centralised locations." Some mills like Arvind, Raymonds, Ashima, Suryalaxmi, Malwa and soon have gone into denim garment manufacturing/washing, but these plants consume just a fraction of their production capacities. The garment manufacturing remains small in volume compared to their production capacities.
For instance, SCML's denim division accounts for 53 per cent of its total revenue, and its only garment-making facility near Hyderabad that is dedicated to jeans for men and women contributes 8 per cent to its total earnings which are likely to cross ₹750 crore in 2015-16.
Moreover, denim mills need to vertically integrate into largescale garment manufacturing, and offer a full garment package solution to the customer (read, importer). But not all denim mills are willing to go in for such forward integration in the backdrop of stringent labour laws that do not give them the flexibility of hire and fire in the manner that one sees in countries such as Bangladesh, China, Pakistan and Sri Lanka, says Singh.
Besides seeking relaxation on labour issues (Chapter V-B of the Industrial Disputes Act, 1947), the DMA is seeking relaxation in working hours and inclusion of women in night-shifts. The thorny clause for mill owners is that any entity employing more than 5,000 workers would need prior approval of government before laying off workers. With delayed or no approvals coming by, it is a predicament no mill owner wants to get bogged down with, says an industry insider requesting confidentiality.
Incidentally, SCML has a collective manpower of 4,600. However, Kulkarni says that it is not just a matter of having cheap labour. "We need cheap labour and skilled labour like in Bangladesh," he says, pointing to the dearth of skilled manpower for garment units.
It is more about how we can have more skilled labour and avail of government schemes in line with the Prime Minister's vision of 'Make in India' and 'Skill India', he avers.
In keeping with this vision, the government launched the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) under which the Textile Sector Skill Council (TSC) was tasked to impart training to 13,600 workers and a sum of ₹13.6 crore was sanctioned for it. By September 2015, 121 out of 169 textile mills affiliated to TSC were engaged in training the workers, who were each entitled to get ₹10,000 on successful completion of the programme. The DMA also joined the initiative and worked closely with the TSC in this regard.
Meanwhile, in addition to the apparel-approach of global clients, denim mills are also facing the heat from scores of small manufacturers who have mushroomed across the country over the last few years and are pushing the fabric through traders. Thus, the need for skilled labour (garment-makers) becomes even more acute. And, with nearly one-third of the population being young and taking to jeans as all-day performance wear, the potential and chorus for fabric converters and garments will only get shriller.
Even as they cry hoarse seeking a favourable atmosphere for forward vertical integration, denim makers like SCML are exploring new markets and tie-ups for product innovations to keep up with the changing global fashion trends. For example, it has tied up with fibre-maker Invista to produce high-stretch denim in response to the growing popularity of activewear, says Paritosh Agarwal, MD, SCML, adding that they are also working closely with an Italian fashion brand to develop new products.
According to him, it is important to attend international shows and exhibitions far and near to feel the pulse of the market and pick up global trends to stay ahead in the race.
India being the second largest producer of cotton in the world, for big Indian denim makers, their strength for the moment lies in fabric manufacturing. Even as they go in for making new blended denim fabric, their identity is compromised unlike the world's largest denim-maker ISKO that has its whole range of product-mixes finding mention in the hang tag of the garment made from their fabric.
According to Kulkarni, the idea of co-branding is good: "It is a good marketing tool." He, however, explains that Indian denim-makers are not big enough to match ISKO's stature. Names like Arvind do come to his mind, but "again it is not exclusively making denim."
Indian denim manufacturers accept this, and take it in their stride. Singh candidly acknowledges: "Our strength is only fabric manufacturing. But fabric is only an intermediate product. It has to be converted into a garment before it can be sold to a customer. Unfortunately, the fabric loses its identity the moment it is converted into a garment. Hence, in order to have an India-made denim brand that DMA is striving for, India needs to offer stitched and washed garments to the world rather than an intermediate product that is fabric. We cannot succeed in this endeavour unless we offer a garment package to the customer."