Investment In Indian Textile Industry

INTRODUCTION A textile is any kind of woven, knitted, knotted or tufted cloth, or a non-woven fabric (a cloth made of fibers that have been bonded into a fabric). Textile also refers to the yarns, threads and wools that can be spun, woven, tufted, tied and otherwise used to manufacture cloth. The Textile industry (also known in the United kingdom and Australia as the Rag Trade) is a term used for industries primarily concerned with the design or manufacture of clothing as well as the distribution and use of textiles.

India textile industry SOME FACTS India contributes to about 25% share in the world trade of cotton yarn. India, the world’s third-largest producer of cotton and second-largest producer of cotton yarns and textiles, is poised to play an increasingly important role in global cotton and textile markets The ready made garment sector is the biggest segment in the India’s textile export basket contributing over 46% of the total textile

Exports have grown at an average of 9.47% p.a over the last decade. It is a major foreign exchange earner after agriculture and it is a largest employer with a total workforce of 35 mn. It contributes 20 percent of industrial production, 9 percent of excise collections, 18 percent of employment in the industrial sector, nearly 20 percent to the countries total export earning and 4 percent to the Gross Domestic Product.

FINANCIAL YEAR-WISE BREAK-UP OF INFLOW OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA FROM AUGUST 2001 To JULY 2008 (Amount in billion) IN FLOW OF FDI IN INDIA Financial Year TOTAL ALL SECTOR  In Rs in US$

 

TEXTILE in Rs

In US $

% age of FDI In Textile in US$

2000-01

103.68

2.38

0.09

0.00

0.09

2001-02

184.86

4.03

0.24

0.01

0.13

2002-03

128.71

2.70

2.58

0.05

2.00

2003-04

100.64

2.19

0.43

0.01

0.43

2004-05

146.53

3.22

1.97

0.04

1.34

2005-06

245.84

5.54

4.15

0.09

1.70

2006-07

563.90

12.49

5.61

0.13

1.00

2007-08

986.42

24.58

7.48

0.19

0.76

April- July 2008

514.40

12.32 1.60 0.04   GRAND TOTAL 3581.03 86.14 32.43 .80   Source: Department of Industrial Policy & Promotion, Ministry of Commerce

0.31 .93

REASON BEHIND CHANGES IN FDI OVER THE YEAR IN INDIA Total FDI in all sector increase rapidly. because with adopting a new liberal policy and relaxation in norms..India able to attract more foreign investor . In 02-03 decline is represent in overall FDI investment but investment in textile had been increase, because Up to 100% FDI allowed in textile industry, with approval of the FIPB, and Companies free to set up fully-owned sourcing (liaison) offices, as well as marketing operations. After decline in 03-04,then 2005-08 we see growth of FDI in textile industry. because- 1)Large raw material base,2)Positive developments in the Textile Policy,3)Flexibility in production,4)Product development and design capabilities. The investment increase but not rapidly because 1)Technological Obsolescence 2)Fragmented industry 3) Lower Productivity and Cost Competitiveness.

ECB IN INDIA External Commercial Borrowings (ECBs) are defined to include commercial bank loans, buyers’ credit, suppliers’ credit, securitised instruments such as floating rate notes and fixed rate bonds etc ECB IN INDIA-The government is exploring options to ease norms for external commercial borrowings - to enable firms go for faster capacity building, ECBs, were governed by the Ministry of Finance, Government had issued consolidated guidelines on policies and procedures for ECBs in July, 1999. The Central Government had last revised these guidelines on 19th January, 2004. As per its directive, ECB money could be used for rupee expenditure only up to $20 million and only after RBI's permission. The $20 million restriction was later relaxed to $100 million for infrastructure companies and $50 million for other firms

ECB IN INDIA

ECB IN INDIA YEAR

ECB IN INDIA

2004

112.156661 M.US $

2005

87.969985 M.US $

2006

88.600263 M.US $

2007

141.552945 M.US $

2008

145.825745 M.US $

OVERVIEW OF ECB IN INDIA  If we see the trend of ECB in textile industry we found that, in year 04-05 there is a fall in ECB in textile industry afterwards there is a study growth in ECB. Because govt. give some relaxation to those industry that take the path of ECB.

 It is generally used for Modernization, Rupee Expenditure , Acquisition, New Project, Import of Capital Goods, Working Capital.

FII INFLOWS IN TEXTILE INDUSTRIES DURING FINANCIAL YEAR 2003-04 TO 2008-09

Amount US $ Million Financial Year (AprilMarch) 2003-04

FDI Inflow

%age Growth over Previous year

2004-05

551

(+) 71

2005-06

861

(+) 56

2006-07

779

(-) 9

2007-08

875

(+) 12

2008-09 (AprilOctober)

831

-

322

SOURCES: RBI’s Bulletin November 2008

INVESTMENT IN TEXTILE INDUSTRY

REASON OF CHANGES IN FII FROM 2003-08 03-04:This sector was performing well 04-05:Even complexity of investment procedure good inflow of FII is received 05-06India emerged second most favored invest destination after china according to unctad. 06-07: As Japanese banks were giving more rate of interest, FII goes down. 07-08:Company raised funds through FII.

Problems in the industry Fragmented industry Effect of historical government policies Technological obsolescence Indian companies need to focus on product development Competition in domestic market Need to improve the working conditions of the people. Tackle Chinese aggression over the international market

FRAGMENTED INDUSTRY In fabric, large section of the industry is in the power loom and hand loom sectors. Global buyers prefer to source their entire requirements from two to three vendors, and Indian garments find it difficult to fulfill the capacity requirements.

TECNOLOGICAL OBSOLESCENCE Large portion of the processing capacity is obsolete. While state of the art integrated textiles mills exist, majority of the capacity lies with the power loom sector. This has also resulted in low value addition in the industry

HISTORIC REGULATIONS The industry continues to be affected by several historic regulations. Eg. Absence of a viable exit option for industry players. These regulations resulted in a complex industry structure, which is currently an impediment. eg. - pre-2000, garmenting was reserved for SSI sector, which has resulted in most units being set-up with small capacities. - knitted garments continues to be reserved for SSI sector. On the other hand, in some cases the industry too has not taken full advantage of government initiative.

LOWER COST COMPETITIVENESS Labour force in India has a much lower productivity as compared to the competing countries like China, Sri Lanka etc. The Indian industry lacks adequate economies of scale and is terefore unable to compete with China, and other countries etc. Costs like indirect taxes, power and interests are relatively high

CHANGES IN TEXTILE INDUSTRY ACCORDING TO ENVIORNMENT The Multi-Fibre Agreement (MFA) National Textile Policy 2000 Export Promotion Capital Goods (EPCG) Scheme The Agreement on Textiles and Clothing (ATC) Scheme for Integrated Textile Parks (SITP) Cotton Corporation Of India Ltd. (CCI) Powerloom development and export promotion council Cotton Textile Export Promotion Council (TEXPROCIL)

National Textile Policy 2000  To deal with new challenges and opportunities in a changing global trade environment  Aims to improve the competitiveness of the Indian textile industry  Opens the country's apparel sector to large firms and allows up to 100 percent FDI in the sector

Export Promotion Capital Goods Scheme  To promote modernization of Indian industry  permits a firm importing new or Secondhand capital goods at preferential tariffs

The agreement on textile and clothing  Promises abolition of all quota restrictions in international trade in textiles and clothing by the year 2005  Provides tremendous scope for export expansion from developing countries.

Duty Entitlement Passbook Scheme (DEPS) Available to Indian export companies and traders on a preand post-export basis pre-export credit requires that the beneficiary firm has exported during the preceding 3-year period. Post-export credit is a transferable credit that exporters of finished goods can use to pay or offset customs duties on subsequent imports of any unrestricted products.

Power loom Development promotion council Exploration of overseas market. Identification of items with export potential. Market survey and up-to-date market intelligence Advice on international marketing. Display of selected product groups.

Cotton Textile Export Promotion Council (TEXPROCIL):  promotion of cotton fabrics, cotton yarn and cotton made-ups.  include market studies for individual products, circulation of trade enquiries, participation in exhibitions, fairs and seminars at home and abroad

Schemes for integrated textile parks  For Providing world class infrastructure facilities  by merging the Scheme for Apparel Parks for Exports (APE) and Textile Centre Infrastructure Development Scheme (TCIDS).  Based on public private partnership.  The Ministry of Textiles (MOT) would implement the Scheme through Special Purpose Vehicles (SPVs).

Cotton Corporation Of India Ltd. (CCI) profit-making Public Sector Undertaking under the Ministry of Textiles engaged in commercial trading of cotton undertakes Minimum Support Price Operation (MSP) on behalf of the Government of India.

Strategies for growth Setting up textile industries oriented SEZs. Like projected textile parks at Mundra (Gujarat), Visakhapatnam, Perundurai (Tamil Nadu) Starting up new courses such as Textile Manufacturing and Textile Technology at universities and engineering institutes. like National Institute of Fashion Technology (NIFT) run textile engineering pro. Liberalised labour laws, tax and other benefits of a Special Economic Zone need to be implemented Textile firms should lay emphasis on positioning and building brands to survive, command a price premium and achieve long term stability in the global markets. like Arvind Mills with the ‘Ruff and Tuff’ brand. As a de-risking strategy and as a measure of expanding the market Indian textile firms should explore new markets in Asia, Africa and the Americas. majority of global customers look for big exporters with they

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