February 2012

Indian Apparel Industry

Apparels

Dressing the world over

Domestic Demand & Export Diversification will be the key to success

The Indian apparel industry is estimated to be worth Rs. 1,876 billion in FY11 and is expected to grow at a CAGR of 8.7 per cent till FY16. The growth would primarily be driven by the surge in demand for readymade apparels in rural areas, rising income levels and youth population and increasing preference for branded apparels.

The domestic apparel industry constitutes of five segments menswear, womenswear, Kidswear, unisex and uniforms. Menswear is the largest segment whereas uniforms and womenswear are the fastest growing segments. Apparel manufacturing is the least capital intensive section of the textile value chain and is therefore characterized by low entry barriers. At the same time, it is highly labour intensive and requires skilled, unskilled and semi-skilled labourers.

Indian apparel industry is highly fragmented in nature. Due to the low entry barriers, numerous players have entered the industry. Reservation of the sector for SSI units upto FY04, quota restrictions on exports to US and EU upto CY04 and stringent labor laws led the industry to a highly fragmented structure. It forms the most fragmented part of the Indian textile industry.

Indias apparel exports grew at a CAGR of 6 per cent from INR 382 billion in FY06 to INR 511 billion in FY11. The growth in exports can be attributed to shifting of the apparel manufacturing base from the developed countries like the US and the EU to the low cost countries like China, Vietnam, India, Bangladesh and many others. Multi Fibre Agreement phase-out at the end of 2004 also helped India to increase its exports.

To remain competitive in the international market, Indian apparel industry needs to build up a strong weaving and processing link so as to provide support to the apparel manufacturers and also set up large units for reaping the benefits of economies of scale.

Apparel industrys profitability is mainly influenced by the raw material and input prices. Domestic players enjoy better margins as against the exporters. The raw material prices for apparel players have been on rise in the recent past due to the soaring cotton and crude oil prices. The players have

February 2012

Indian Apparel Industry

been unable to pass on the rise in cost to the consumers due to the stiff competition and limited pricing power. Therefore, the margins of the apparel manufacturers are expected to remain subdued over the medium term.

The government has announced various schemes to encourage the investments in the textile industry like National Textile Policy (NTP), Scheme for Integrated Textile Parks (SITP), Technology Up gradation Fund Scheme (TUFS), Export Promotion Capital Goods (EPCG), Duty Entitlement Pass Book Scheme (DEPB) etc. The government has also allowed 100% FDI in the textile sector through automatic route and upto 51% FDI in the retail trade of single brand products (with prior government approval).

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