RESEARCH PROPOSAL FOR INDIAN TEXTILE PRODUCTS PROMOTION IN WESTERN EUROPE INTRODUCTION India is a traditional textile -producing country

with textiles in general, and cotton in particular, being major industries for the country. India is among the worlds top producers of yarns and fabrics, and the export quality of its products is ever increasing. Textile Industry is one of the largest and oldest industries in India. Textile Industry in India is a self-reliant and independent industry and has great diversification and versatility. The textile industry can be broadly classified into two categories, the organized mill sector and the unorganized decentralized sector. The organized sector of the textile industry represents the mills. It could be a spinning mill or a composite mill. Composite mill is one where the spinning, weaving and processing facilities are carried out under one roof. The decentralized sector is engaged mainly in the weaving activity, which makes it heavily dependent on the organized sector for their yarn requirements. This decentralized sector is comprised of the three major segments viz., power loom, handloom and hosiery. In addition to the above, there are readymade garments, khadi as well as carpet manufacturing units in the decentralized sector. The Indian Textile Industry has an overwhelming presence in the economic life of the country. It is the second largest textile industry in the world after China. Apart from providing one of the basic necessities of life i.e. cloth, the textile industry contributes about 14% to the country's industrial output and about 17% to export earnings. After agriculture this industry provides employment to maximum number of people in India employing 35 million people. Besides, another 50 million people are engaged in allied activities. India is the largest producer of Jute, the 2nd largest producer of Silk, the 3rd largest producer of Cotton and Cellulosic Fiber / Yarn and 5th largest producer of Synthetic Fibers/Yarn. Textile Industry contributes around 4% of GDP, 9% of excise collections, 18% of employment in industrial sector, and has 16 % share in the countrys export. The Industry contributes around 25% share in the world trade of cotton yarn. India is the largest exporter of yarn in the international market and has a share of 25% in world cotton yarn export market. India contributes for 12% of the worlds
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production of textile fibers and yarn. Indian textile industry is second largest after China, in terms of spindle age, and has share of 23% of the worlds spindle capacity. India has around 6% of global rotor capacity. The country has the highest loom capacity, including handlooms, and has a share of 61% in world loom age. The Apparel Industry is one of largest foreign revenue contributor and holds 12% of the countrys total export. CURRENT TREND The Indian Textile Industry is one of the largest industry that provides high exports and foreign revenue. Textiles exports, which were growing at a moderate pace till 2004-05, registered a sharp growth of 21.77 per cent in 2005-06 to touch US$ 17 billion from US4 14 billion in 200405, due to the scrapping of quotas. The growth has continued with total exports increasing to US$ 19.62 billion in 2006-07. Currently India has a 3.5-4 per cent share in world export of textiles and 3 per cent in clothing exports. While Europe continues to be India's major export market with 22 per cent share in textiles and 43 per cent in apparel, the US is the single largest buyer of Indian textiles and apparel with 10 per cent and 32.6 per cent share respectively. Other significant countries in the export list include the UAE, Saudi Arabia, Canada, Bangladesh, China, Turkey and Japan. Readymade garments (RMG) are the largest export segment, accounting for 45 per cent of total textile exports and 8.2 per cent of India's total exports. This segment has benefitted significantly with the termination of the Multi-Fibre Arrangement (MFA) in January 2005. Readymade garments exports from India are expected to touch US$ 14.5 billion by 2009-10 with a cumulative annual growth of 18 to 20 per cent, according to Apparel Export Promotion Council. Another segment in which India has excelled in the export market is carpets. Exports of carpets have increased from US$ 654.32 million in 2004-05 to US$ 930.69 million in 2006-07, showing a growth rate of 42.23 per cent. During April-October 2007, carpet exports totaled US$ 404.74 million. This makes India the world leader in carpet exports with 36 per cent of the global market share. MARKET ANALYSIS OF INDIA'S POSITION IN WESTERN EUROPE Following the elimination of quotas, there has been a marginal shift in the trade pattern in the EU; the share of extra-EU trade in total trade has been growing, as also the share of developing
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countries of Asia. In the EU market, in 2007, growth in imports from China was 14% as compared to the 3.7% growth in imports from India. Even imports from other Asian countries such as Vietnam (11%), Sri Lanka and Pakistan (around 7% each) have also been impressive. In the first quarter of 2008 (January-March), import growth in EU market was around 12%. However, the role of developing economies from Asia in catering to this level of import growth has come down during this period. Except the imports from Sri Lanka and Vietnam (which grew at 13% and 7% respectively), and Bangladesh with a marginal growth of 0.6%, growth in imports from other countries, including that of China and India were negative (-0.7 and 1%, respectively). Other Asian countries such as Pakistan and Indonesia witnessed greater level of negative growth during this period. In some product groups, India has improved its market share in EU market, while in others it has lost its market share to some other competitors. In mens and boys garments segment, India has improved its market share under HS codes such as 6205 and 6105; in babies garments segment, India has improved its market share under HS codes such as 6111 and 6209; in home textiles segment, India has improved its market share under HS code 6305; in made-ups, India has improved its market share under HS code 6214. Indias position and market share is unchanged in product sub groups such as mens and boys garments (falling under HS codes 6201, 6107, 6203), womens and girls' garments (falling under HS codes 6202, 6108, 6102), home textiles (falling under HS codes 6302, 6303), technical textiles (falling under HS codes 5911, 6116), and woven fabrics (falling under HS codes 5208,5209, 5515). Indias position has been captured by China under HS codes 6206 (womens and girls' garments), 6306 (technical textiles) by Bangladesh, and 6307 (made-up's) by Turkey. IMPACT OF RUPEE APPRECIATION ON EXPORTS One of the recent challenges faced by the Indian textiles and garments sector was the sudden appreciation of Indian Rupee vis--vis US dollar in 2007-08. This has slowed down the growth momentum of textiles and clothing industry in India. Though, the growth trends in US dollar terms is not very much affected during the period April-February 2007, in Rupee terms, exports witnessed negative growth rate with regard to both textiles (-0.6%) and clothing (-4.8%). High

export intensity of readymade garments and silk textiles has affected the export price realization and profitability in these subsectors. While appreciation of Indian Rupee adversely impacted the export price realization of Indian exporters, the competitiveness of Indian textiles and clothing in international markets have been gradually eroded with depreciation of competitor currencies vis--vis US dollar. The currencies of Sri Lanka and Pakistan have been depreciating over the years strengthening the price competitiveness of their exporters. However, in recent months, since April 2008 onwards, Indian Rupee has been depreciating against US dollar, which may have positive impact on textile exports. COMPETETIVE THREATS FROM OTHER DEVELOPING COUNTRIES In the year 2007, USAs import of textile and clothing from China had grown at 16%, while the overall import growth in USA decelerated to around 3%. USAs textile and clothing imports from India have grown a mere 0.6% in 2007, as compared to the impressive import growth of 35% from Vietnam, 13.3% from Cambodia, 10.1% from Nicaragua, 8% from Indonesia, 7.8% from Egypt, and 6.3% from Bangladesh. During the period January-May 2008 , there has been a negative growth (-2.8%) of overall import of textiles and clothing by USA, mainly contributed by a negative import growth (-2.7%) of textiles and clothing from China. Though imports from India had grown at 2.3% during this period, there has been a threat of competition from other developing countries such as Vietnam (27%), Peru (6.5%), El Salvador, (6.7%), and Bangladesh (6.3%). This indicates the level of competition and threats from other developing countries. With regard to EU, it may be said that there has been a marginal shift in the trade pattern following the elimination of quotas; while the share of intra-EU trade has reduced from 56% in 2005 to 54% in January-March 2008, the share of extra EU trade has increased from 44% in 2005 to 46% in January-March 2008. The share of developing countries of Asia has been increasing in extra-EU trade, since the removal of quota, led by increasing exports by China. During the first quarter (January March) of 2008, import growth by EU has increased by around 12%. While EU member countries have catered to most of the import requirements, the role of developing Asian economies declined during this period. Except the imports from Sri Lanka and Vietnam, which grew at 13% and 7% respectively, and Bangladesh a marginal growth of 0.6%, growth in
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imports from other countries including that of China and India were negative. Import growth from China, during the period January March 2008, was 0.7%, and that of India was -1%. Other Asian countries such as Pakistan (-11%) and Indonesia (-5%) witnessed greater level of negative growth during this period. INCREASING CAPACITY EXPANSION IN ASIA According to International Textile Machinery Manufacturers Federation (ITMF), the general expansion of global textile machinery shipments, which is being observed in the last four years, have continued in 2007 also. Shipments of short staple spindles, open-end rotors and texturing spindles were up in 2007. In the segment of weaving, more number of shuttle-less looms have been shipped in 2007 compared to the previous year. Shipments of electronic flat knitting machinery increased to 21,800, a new record level. Except the circular knitting machinery, all segments of weaving machinery witnessed expansion. Even though India had shown capacity expansion in some segments of textile machinery compared to China, which showed increasing capacity expansion in segments such as short staple spindles (47%), long staple spindles (52%), open end rotors (51%), single heater draw-texturing spindles (44%), shuttle-less looms and circular and flat knitting machinery (large) (68% each), the capacity expansion in India is minimal. Thus, India needs to improve further to be more competitive as a global player. ENVIRONMENTAL ISSUES The rising ecological and social awareness has resulted in increasing demands from the buyers room the Indian textile and clothing industry to follow international labor and environmental regulations. In US and EU markets, there have been consumer outrage on issues such as polluting dyes, deployment of child labor and unhealthy working conditions. Increasing awareness on such issues lead the buyers to limit their sourcing from countries or companies known to be not complying to such regulations. Indias main destinations being the US and EU, players in the textile and clothing industry need to pay more attention on such issues and work towards compliance to sustain in these markets.

FRAGMENTED INDUSTRY The textile and clothing industry in India is a fragmented one with large number of players, which hampers its ability to emerge as a world-class supplier. Also very few players have integrated their operations. One of the reasons for Chinas supreme position in global textile and clothing industry is its integrated production and consolidated supply chain facilities. The global buyers prefer to buy from a few large vendors at competitive cost. The disintegrated nature of textile and clothing value chain in India hampers the chances of securing such large orders as also achieving the economies of scale. There are also challenges associated with productivity, non availability of adequate resources to invest in high technology. COST COMPETETIVENESS With regard to cost of production, India fares well in labour cost advantage in the textile sector; however, the cost of power and capital in Indian textile sector is greater than many other countries. Labour cost in Indian clothing industry has grown since 2000. As of 2007, the cost of labour in India is higher than the cost of labour in Asian competitor countries. Although, the labour cost in coastal China is expected to be higher (US $ 0.85 per hour) than the national average, the labour mobility would moderate the increase in labour cost in the coastal region. The labour costs of Bangladesh, Pakistan and Vietnam are far below than the labour cost in India, posing competitive threat to the Indian clothing industry. RISING INPUT PRICES There has been a continuous increase in input prices in the textile value chain leading to cost escalation in production. For example, raw cotton prices in the month of July 2007 was around Rs. 55.57 per kg., which has increased to Rs. 65.10 per kg in May 2008. Prices of cotton lint, which was prevailing around Rs. 15000 per candy in June 2007 has moved up to Rs. 24,600 in June 2008. Similarly, the price of viscose staple fibre, which prevailed around Rs. 108.24 per kg in July 2007 has increased to Rs. 119.59 per kg in May 2008. The prices of yarn have also increased in the last one year, but not proportionately with the increase in prices of fibres, affecting the margins of spinning units. The price of hank yarn has increased from Rs. 102.34 per kg in July 2007 to Rs. 108.38 per kg in May 2008. Polyester cotton blended yarn has increased
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from Rs. 127.38 per kg in July 2007 to Rs. 129.13 per kg in May 2008.The cost of energy has also gone up significantly due to spike in global crude prices. Industry sources contend that there has been no corresponding increase in unit price realization of final products, squeezing the margins. SKEWED FIBRE MIX IN INDIA At present, in India, the fibre mix of textile industry is skewed towards cotton; about 75% of yarn production in India is cotton based. On the other hand the fibre mix in the world is estimated to be 60% of man-made fibres and 40% of cotton. Cotton fibre production had grown at 16% in 2006-07 over the year 2005-06 from 4.1 million tonnes to 4.8 million tonnes. SOCIAL ISSUES Internationally, there are increasing awareness about social issues such as preventing the usage of child labour in textile value chain, especially in the developing countries. Sourcing firms are undertaking surprise checks in the manufacturing premises and tighten the vigilance level to prevent violation of such social standards in future. Some of the buyers have established systematic tracking of hand-work orders including subcontractors in the value chain either through credible third-parties (such as civil society organizations, NGOs) or directly. The buyers are also seeking from the vendors to submit a plan giving extensive details about every subcontracted facility, as also the internal monitoring protocols to implement the vendor code of conduct. Wherever possible, the importers demand production to be undertaken in-house at the vendors facilities so that monitoring is easier. INDIA- RETAL SOUCRING HUB Given the abundant supply of fibre, strong production base and availability of skilled labour the Indian textile industry is poised to become a hub for the global retailers. Following the abolition of quotas, many global players are setting up their sourcing and buying offices in India. India is being viewed as alternate sourcing base for China by these firms. It is estimated that the market size of retail sourcing from India is around US $ 25 billion, which may reach US $ 40 billion by 2011. Both Wal-Mart and Marks & Spencers have identified India as a fastest growing retail market. Also with the increasing fashion trends, India would emerge as a global hub for textiles.
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TECHNOLOGY UPGRADATION Technology would play a lead role in the weaving and processing, which would improve the quality and productivity levels. The economies of scale operating under hi-tech processing would enable operating expenses to be lower with minimal fabric defects. Further, upgradation / modernization in textile industry would help ensure economies of scale and quality improvement. The industry needs to undertake innovations and product development and strategies that would enhance efficiency in production, supply chain and product distribution. However, at present, the Indian textile industry is having technological obsolescence and subscale operations. Indian textile industry should turn into hi-tech mode to reap the benefits of scale operations and quality. The Technology Upgradation Fund Scheme (TUFS) has a major role in strengthening the technology upgradation effort of the Indian textile and clothing industry. SUMMARY To effectively tackle the situation India needs to invest in research and development to develop new products, reduce transaction costs, reduce per unit costs, and finally, improve its raw material base. India needs to move from the lower-end markets to middle level value-for-money markets and export high value-added products of international standard. Thus the industry should diversify in design to ensure quality output and technological advancement. The weakest links in the entire chain are the power looms and the processing houses. The latter especially are very important because they are responsible for the highest value addition in the manufacturing line. A power loom co-operative structure could be

evolved for pooling of common services and functions such as quality testing, marketing, short-term financing, etc. Further, because of the geographical proximity enjoyed, a cluster approach can be adopted. The government also needs to make policy changes like deserving the small-scale sector so that it can achieve economies of scale and adopt a synergistic approach.

 Handlooms by their very nature can adopt a strategy of "niche marketing. In this respect, export promotion, common credit and marketing facilities and more significantly publicity are important areas for co-operation. Here too, a co-operative structure would be useful though government agencies should be involved because of their outreach. Newer and more innovative forms of involvement are required where decentralization should be a key element. India has made little attempt to forge partnerships in equity, technology and distribution in overseas markets. The newer nuances of global apparel trade demand joint control of brand positioning, distributing and quality assurance systems. The Indian textile industry has recognized the need for a cradle-to-grave approach when tackling environmental issues i.e. eco prescription should be applied right from the stage of cultivation to spinning to weaving to chemical processing to packaging. especially there is great scope for private -public partnerships. A great deal of work has been done by Indian trade and industry to comply with ecological and environmental regulations, and so Indian garments can adopt an appropriate label signifying a distinct quality. Efficiency and output of handloom and power loom sectors also needs to be increased. The clothing sector needs the support of high quality and cost-effective cloth processing facilities. Modernization of mills is a must. Human resource is another area of focus. The workforce must be trained and oriented towards high productivity. The business environment of the future will be intensely competitive. Countries will want their own interests to be safeguarded. As tariffs tumble, non-tariff barriers will be adopted. New consumer demands and expectations coupled with new techniques in the market will add a new dimension. E-commerce will unleash new possibilities. This will demand a new mindset to eliminate wastes, delays, and avoidable transaction costs. Effective entrepreneur-friendly institutional support will need to be extended by the Government, business and umbrella organizations.
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