As the Indian economy begins to come out of the slowdown in growth, and the major industrial sectors show signs of revival, one sector that has remained bed-ridden for years now is the Indian textile and clothing sector. The continued weak financial health of this sector remains one of the big enigmas of the post-liberalisation India. Currently at about Rs 275,000 crore, the size of this sector is only second to agriculture, and has grown at a compounded annual growth rate of over 10 per cent in the last five years alone, implying an additional market opportunity of almost Rs 30,000 crore likely to be available in the next 12 months. Of this, the domestic market alone is worth almost Rs 175,000 crore — far bigger than the market size of automobiles, telecom, consumer electronics and durables, and FMCG sectors. And with India’s current young, upwardly mobile, aspirational, lifestyle-conscious demographic profile, the domestic market opportunity is likely to increase even more steadily for decades to come.
While exports continue to struggle at about $22 billion, the prospects look extremely encouraging and there is no reason why Indian textile and clothing exports will not see a major upsurge from the second half of this year itself, and see sustained growth for many years to come. With about 35 million directly employed, and almost 50 million indirectly dependent (including farmers), its employment impact on India is far greater than any other sector.
And finally, if there is any sector that has really seen pragmatic and sustained support from the government in the last four-five years, it is textiles. Much before “financial stimulus” packages came in vogue, the textile sector had had several of them including the Textile Upgradation Fund Scheme, generous duty drawback rates, and very low import duties on key production machinery.
And yet, the sector has seen an investment of just about Rs 40,000 crore or less in the last three years while it can easily absorb this quantum every year for many years to come (to put it in perspective, China exported over $160 billion worth of textiles and clothing in 2008, almost matching India’s entire exports performance).
Ironically, as it turns out, it has probably been the Indian textile sector’s obsession with exports (and the many fiscal benefits that come with it) that has led to the gross neglect of the equally promising domestic market opportunity. In most of the 1980s, 1990s and even early 2000s, the sector was beset with extremely regressive government policies. As a result, while countries like China grew rapidly despite quota restraints, and even neighbours like Sri Lanka, Pakistan, Bangladesh and Vietnam flourished, Indian textile and clothing exporters could neither compete successfully on price nor on quality across a wide range of products. While waiting for the government policy to get sorted out, many should have looked at the domestic market opportunity too. The ones that did look into the opportunity were either the traditional large textile producers or new entrepreneurs. Inexplicably, almost all the large traditional textile/industrialised companies that focused on the domestic market made fundamental strategic errors and it is no surprise that many of them such as Madura Garments (Aditya Birla Nuvo), Raymond Apparel and Arvind Brands continue to struggle financially.
So where are the domestic opportunities and why should large, diversified business houses as well as new entrepreneurs look at making major investments in the textile and clothing sector?
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From a product mix diversification perspective, the domestic market offers very promising opportunities across a wide spectrum of products (including saris) targeted towards women and children. From the market segment perspective, too many large Indian players have focused mostly on the premium end of the market without offering matching product innovation, quality of product and of shopping experience, and in-store service. The real opportunities are, as in other sectors, at the middle and mass population segments — not limited to only the top 20-25 urban centres but pan-India including rural India. The new players should not be tempted, like the major Indian textile and apparel companies have done so far, to launch multiple brands like FMCG companies do without achieving critical mass in any one of them. The original Inditex (Spain) model of mass but very efficient verticalisation is still extremely relevant for India and should be considered seriously by relatively large business groups who can make investments in the range of $250-500 million.
From the fashion retailing perspective, the most relevant models for India remain those that are centred around highly affordable, reasonable quality, fashion-for-the-masses such as H&M (Sweden), Primark (UK) and even Metersbonwe (China). For industrial uses, and as the services sector increases in size and scale, industrial uniform business models like that of Cintas and Aramark (both USA) offer great opportunity in India. And finally, as India sees major investment in agriculture, healthcare and construction, technical textile applications offer major investment opportunities.
Success in the domestic market will also offer much bigger possibilities for taking Indian textile and clothing sector exports of higher value-added, sometimes-branded, products than any fiscal support from government. Hopefully, India will see major and sustained investment in this sector in the coming years.