New policy holds hope for big textile firms

Although the potential of the domestic textile industry is considerable, the performance of the organised sector has declined consistently.

According to a report by ICRA, the decline is a consequence of the past government policy of promoting small scale and decentralised sector. However, the preference and the protection accorded to the sector are being redesigned and a new textile policy has been put in place.

It is expected that the new policy would give boost to integrated players in the organised sector, who would then be able to modernise and improve the quality of the weaving sector.

Further, these players also have an edge in exports and the favourable government policy, coupled with changes in the international textile trade environment, can result in sharp increase in the performance of integrated players in the industry.

According to industry estimates, sales and domestic consumption of India's apparel production are around Rs 1,56,000 crore and Rs 1,49,000 crore, respectively for the present year so far.

At current prices, India's private final consumption expenditure (PFCE) on clothing has increased at a five-year CAGR of 8.6 per cent to Rs 87,500 crore in the current year. However, the growth at constant prices has been lower at 5.2 per cent.

The share of clothing in domestic PFCE has remained close to 5 per cent over the last several years.

In India, clothing and apparel are produced by about 77,000 small-scale units classified as domestic manufacturers, manufacturer exporters and fabricators (sub-contractors).

The apparel sector, such as weaving and finishing, is characterised by a large number of independent, small-scale firms.

While it is not unusual for apparel manufacturing to be both relatively small scale and independent from the upstream segments of the textile supply chain, India's apparel firms tend to be smaller and more labour intensive than other major exporters.

Unlike the other segments of the textile industry, the apparel sector is relatively new, because, traditionally, most Indian garments were made at home or on a customised basis by local tailors.

The small-scale nature of India's apparel industry has been shaped directly by policies that, until 2005, restricted woven and knitted apparel firms to the small-scale industry (SSI) sector.

Only 6 per cent of the firms operate with more than 50 machines and more than 80 per cent operate with less than 20 machines.

While some firms produce extensively for either the domestic or export market, most are 'fabricators' or independent contract producers, who produce for both the markets.

Even export-oriented manufacturers are small by international standards.

The average Indian garment exporter has about 119 machines compared with to 698 in Hong Kong and 605 in China.

Due to the predominance of very small-scale fabricators in the apparel sector, most apparel are produced on a contractual basis for large manufacturers and exporters.

The fabricators specialise in low-wage, labour-intensive sewing and have the flexibility to meet small customised orders, but are much less competitive with large orders and those typically involving high levels of automation.

Indian apparel-makers are increasingly cognizant of emerging challenges and opportunities.

Some firms, including a number of largest firms in the textile business, are increasing investment in larger scale apparel enterprises, as well as in integrated operations involving a combination of spinning, weaving, finishing and apparel-making.

Apparel export firms are concentrated only around centres that are well defined in terms of proximity to transport, fabric supplies and cheap labour.

Currently, Delhi, Mumbai, Tirupur, Chennai and Bangalore account for nearly 96 per cent of the total value of apparel exports.

Delhi, the leading export centre for apparel in volume and value, leads also in design and merchandising skills, with smaller and flexible production quantities.

Chennai, on the other hand, is more geared towards large and well-established factories producing large quantities of basic products.

While Bangalore is growing in more engineered products, including tailored clothing and foundation garments, Tirupur in south India, formerly a small town, is today a stronghold of cotton knitwear with annual exports of billions of dollars.

Ludhiana, in the prosperous northern state of Punjab, originally built its strengths in woollen knitwear through exports to the former Soviet Union.