Solutions To Revive Indian Textile Industry

RECOMMENDING POSSIBLE SOLUTIONS TO REVIVE THE INDIAN TEXTILE INDUSTRY JULY 24, 2009

Submitted By: KUSHAGRA R. LADHA PGDM – FINANCE THAKUR INSTITUTE OF MANAGEMENT STUDIES & RESEARCH, MUMBAI

SIYARAM SILK MILLS LIMITED B-5, Trade World, Kamala City, Senapati Bapat Marg, Lower Parel, Mumbai-400013. Website: siyaram.com Tel No. 022-3040050 Fax No.022-30400599

PROJECT REPORT ON

RECOMMENDING POSSIBLE SOLUTIONS TO REVIVE THE INDIAN TEXTILE INDUSTRY AT

SIYARAM SILK MILLS LIMITED, MUMBAI Summer Training : 2009

Submitted to:

Mr. Shruti Jhawar Manager – MIS & Treasury Management Siyaram Silk Mills Limited, Mumbai

Submitted by: Kushagra R. Ladha Thakur Institute of Management Studies & Research, Mumbai

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ACKNOWLEDGEMENT

It gives me great pleasure to present before you, this project report, assigned to me as part of my summer training at Siyaram Silk Mills Limited.

I express my sincere gratitude towards SIYARAM SILK MILLS LIMITED, for giving me an opportunity to work on this project.

I take this opportunity to thank my respected project guide Mr. Shruti Jhawar, Manager – MIS & Treasury Management, for giving me an opportunity to undertake this project. His guidance has been invaluable to me while preparing this report. He provided me with valuable suggestions and excellent guidance about the Textile industry, which proved very helpful for me to gain theoretical knowledge as well as a clear understanding of the issues of the Indian Textile industry.

Last but not the least, I am thankful to all the staff at Siyaram Silk Mills Limited, my friends, all known and unknown individuals who have given me their constructive advise, suggestions, encouragement, co-operation and motivation to prepare this report.

- Kushagra Ladha (Thakur Institute of Management Studies & Research, Mumbai (PGDM)

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TABLE OF CONTENTS Sr. No. 1. 2. 3. 4. 5. 6. 6.1 6.2 6.2.1 6.2.2 7. 7.1 8.

Contents

Page No.

Scope and Approach to the study Executive Summary About Siyaram Silk Mills Limited (“The Company”) Case for the Project Study Introduction to the Indian Textile Industry The Industry Analysis Domestic Situation Export-Import Situation Competing countries have outperformed Indian apparel exports to major economies Industry’s import dependence has been increasing Analysis Of Cost Competitiveness Of Indian Textile And Clothing Industry Vis-À-Vis Competing Countries Swot Analysis Of The Indian Textile Industry Analysis of the Government Interventions in competing countries

5 6 9 11 13 14 14 16 17 19 20 22 24

8.1 8.2 8.3 8.4 8.5 8.6 9. 10. 10.1 10.2 11. 12. 13. 14.

Key initiatives taken by the: Chinese government Vietnamese government Turkish government Bangladeshi government Sri Lankan government Indonesian government Study of the initiatives taken by the Indian Government Analysis Of The Needs Of The Sector And Recommendations Facilitation Required From The Government Efforts Required By The Firms In The Industry Budget 2009-10 Impact on the Industry Conclusion Annexure – 1 (SWOT Analysis Of Competing Countries) Annexure – 2 (Extract Of An Article Originally Published In Textile Review, March 2009)

24 24 25 26 26 26 27 32 33 47 49 51 52 56

15.

Webliography & Bibliography

57

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1. SCOPE OF WORK & APPROACH TO THE PROJECT STUDY SCOPE OF WORK Scope of this project work is to recommend possible fiscal and non-fiscal solutions to revive the Indian Textile Industry. The Study covers Spinning, Weaving, Knitting, Processing/Finishing, Made-ups and Clothing segments of Textile and Clothing industry.

APPROACH TO THE STUDY Based on the scope of work, the approach to this project is in a logical sequence as follows: 1. Conducting an analysis of the reasons for the study i.e. having a case for the project study 2. Analysis of the Indian Textile Industry and key issues 3. Analysis of cost competitiveness of Indian textile and clothing industry vis-à-vis competing countries* 4. Analysis of the fiscal Interventions by the Governments of competing countries 5. Initiatives taken by the Indian Government 6. Recommending measures/action plans for government and firms in the industry for the revival of the Textile industry and its exports taking into account the analysis done in the previous steps.

*Competing countries means China, Vietnam, Turkey, Bangladesh and Sri Lanka

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2. EXECUTIVE SUMMARY The Textile & Clothing (T&C) industry contributes 4% to the country’s GDP, 14% to the country’s industrial production and around 12% to the country’s foreign exchange earnings. The percentage growth in production of T&C over previous period has sharply declined from 2006 to 2008 and has stagnated. This has led to low capacity utilization leading to inadequate absorption of fixed costs and consequently low profitability. Low profitability has led to the loss of most units, erosion of working capital, slowdown in Investments and lakhs of job losses. The Indian T&C market is composed of 35% exports and 65% domestic sales. US, EU27, Japan and Canada are the major importers of the Indian T&C products. The exports of the competing countries like China, Vietnam and Bangladesh to these major economies has risen significantly as compared to India. The conclusion is that, these exports have risen at the cost of Indian exports. India’s increasing dependence on fabric imports points to the urgent need to invest in fabric and processing capacities. Investments in the sector, after being subdued for a long period, have picked up since the phase-out of quotas in 2005 after several policy initiatives were taken by the Government. There is an urgent need for steps to be taken by both, the Government through policies initiatives and by the individual firms by improving their operational efficiency. After an analysis of the cost competitiveness of the Competing countries, it can be concluded that: i. India has high labour cost than its competing countries except China. Moreover, India has lower labour productivity as compared to other countries. ii. Manufacturing in India suffers from high power cost, non-availabilty and poor quality of power vis-à-vis its competing countries iii. Interest rate in India is high as compared to China but is lesser than other competing countries. iv. Corporate tax in India is higher as compared to Bangladesh, Turkey and Vietnam. v. Infrastructural/Transaction procedural costs are very high and also causes undue time delays at the ports vi. There are anomalies in the Indian Tax and Duty Structure that needs to be addressed. Major impediments to the growth of Indian T&C industry are:
Lack of cost competitiveness in majority of T&C products as compared to China, Bangladesh, Vietnam and Sri Lanka Page 6 of 57










Delay in disbursement of TUFS assistance and other assistance High working capital interest High dependence on cotton products Lack of availability of skilled labour Stringent labour laws High dependence of T&C trade on EU27 and US markets Weak textile machinery manufacturing base

Analysis of the Government interventions in the competing countries reveals that they have taken certain concrete and effective steps to increase the presence of their textile industry in the world markets. These interventions include export incentives/subsidies, concessional/lowinterest rate loans, investment in technology upgradation, reduction in taxes, setting up textile parks, allowing foreign investment in the sector, entering into trade agreements for allowing favorable trading terms, etc. The Indian Government has also taken certain steps to help the Indian T&C industry to survive. Some of the prominent steps are:  In 1999, Technology Upgradation Fund Scheme (TUFS) was launched to facilitate the modernisation and upgradation of the textiles industry.  Setting up textile parks under the Scheme for Integrated Textile Parks (SITP).  The Government also framed "The National Textile Policy 2000". This policy aims at negating the existing problems and increasing the foreign exchange earnings to the tune of US$ 50 billion by the year 2010. However, these efforts have not been effective to the extent expected and the Indian textile industry is still in the woods. The government of India needs strong and effective steps to be taken to help revive the Indian Textile Industry. The various fiscal and non-fiscal recommendations highlighted in the report are based on a thorough analysis of the sector and its difficulties. Some of them are:  Supporting captive power generation by exempting liquid fuels from customs and excise duty  increasing labour flexibility by extending labour working hours, allowing contract labour and relaxing the norms of the Industrial Disputes Act  Allowing state-level and central taxes to set off  Negotiate better trade terms with major global T&C markets  Extending full TUFS assistance for setting up Wind turbine generators  Providing Working capital loans at lesser rates and for longer periods  Diversification into other textile products apart from cotton products  Formulating a Comprehensive Fibre Policy  Setting up a Joint Working Group with representation from Government and T&C industry  encouraging FDIs/JV projects to create textile machinery manufacturing facilities in India  Reduction of customs and excise duties on various textile products Page 7 of 57

 Interest Subvention for Export Credit  Corporate Debt Restructuring  Withdrawal of MSP for Cotton These recommendations will cumulatively help revive the Indian Textile Industry if implemented in full spirit.

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3. About Siyaram’s SIYARAM SILK MILLS LIMITED (“the Company”) promoted by SIYARAM PODDAR GROUP was incorporated on 29th June, 1978 with a registered office at H-3/2, MIDC, A-Road Tarapur, Boisar, Thane - 401506, Maharashtra. Initially, company was engaged in trading activity of suiting and shirting. Over the period of time, the company has expanded, diversified and integrated its facilities substantially and presently has facilities for manufacturing and marketing of suiting, shirting, texturising, dyeing yarn and ready-made garments. VISION To be a global leader in fashion fabrics and delight the customer by creating products that offer unmatched superiority. MISSION i. To Achieve Total Customer Satisfaction ii. To Remain Globally Competitive by a. Focussed Attention in Conversion Cost b. Attaining International Productivity Levels c. Minimizing Wastage d. Leveraging Economies of Scale iii. To continue to invest in technologies to keep ourselves future ready iv. To continuously invest in Human Resource Development v. To upgrade and invest aggressively in IT Systems Siyaram Silk operates through divisions like fabrics, yarn, garments, furnishings, and exports. It offers textile brands like Siyaram’s, Mistair, J Hampstead, Oxemberg, Miniature and Featherz. The company operates five weaving plants, two yarn plants, and two readymade garment plant spread across Maharashtra and Gujarat. It has an installed capacity of 409 looms, 616 stitching machines, and 4,500 tons of yarn dyeing capacity, of which 1,500 tons were installed in FY07. Siyaram Silk has also ventured into retail, opening a few shops where all its brands will be under one roof. Siyaram Silk exports to countries in Europe, the Middle East, Africa, Australia, America, and Latin America. In FY07, the company installed 99 looms, which increased fabric-weaving capacity by 5 MMPA. In FY07, it formed two subsidiaries namely Siyaram Polycote Ltd and Oxemberg Clothing Ltd. Siyaram Silk Mills is the market leader in the Polyester Viscose (PV) segment, with a reputation of ushering in the latest fashion trends. It is one of the largest players in the market with a weaving capacity of over 25 lakh meters every month. Siyaram is one of the pioneers in the Indian fashion industry and after over 25 years in the industry, it still ranks amongst the top companies in India. Page 9 of 57

Siyaram is involved in the manufacture of synthetic yarns and specialized fabrics like Polynosic and Tencel. Equipped with the state-of-the-art weaving machines, Siyaram’s ensures that the fabric produced is flawless. Siyaram has one of the most modern processing and finishing plants in India. It is equipped with the latest world-class machinery imported from Europe. Superior quality is the hallmark of Siyaram's fabrics. Hand-in-hand goes is the Packaging Infrastructure at its plants. The well-equipped plants are a hub of activity, performing quality checks at crucial points of packaging, thus, ensuring that the entire package matches the customers' demands and expectations. The Siyaram board brings together a dynamic team of professionals who provide direction to Siyarams' executive management in a dynamic economic and business environment. The board consists of all active founders, along with external members of the board who are high achievers in business and society.

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4. CASE FOR THE PROJECT STUDY I. FINANCIAL PERFORMANCE OF SIYARAM SILK MILLS LTD. OVER PAST 10 YEARS Below table shows the annualized 10 years figures to depict the profit margins sequeezing (Rs. Crores) Particulars Mar-99 Total income 295.55 Net Worth 55.19 Borrowings 95.85 PBDITA / Total income (%) 10.04 RONW 25.57 ROCE 13.07 Source : CMIE

Mar-00

Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07 Mar-08

316.46 68.17 93.8

322.83 86.84 123.11

332.1 90.15 134.41

330.15 95.43 119.86

323.48 99.96 118.01

344.36 105.56 109.59

460.22 118.18 117.24

533.15 598.32 132.76 136.37 180.51 253.4

8.82 24.27 14.02

10.01 19.66 11.34

8.36 9.16 5.07

7.41 8.43 4.79

7.53 7.52 4.42

8.12 8.21 4.65

8.14 14.47 8.84

7.84 16 10.69

Observing the trend in the above table for 10 years, following results are achieved: a. The total income has doubled from approx. Rs. 300 Crores to 600 Crores over the 10 years period. b. Borrowings have steeply risen from Rs. 110 Crores to Rs. 254 Crores after 2005, on two accounts: i. Abolishment of Quota in 2005 ii. Borrowings for capital expansion under the TUFS assistance c. However, all the three important ratios i.e. PBDITA/Total income, RONW and ROCE have fallen drastically showing severely deteriorating profit margins. II. STEPS TAKEN BY THE COMPANY FOR SURVIVAL AND GROWTH The Company has a strong presence in Polyester Viscose based fabric products and demand for this is continuously growing. Its presence in value added dyed yarn segment is also expected to contribute to the topline. The Company to meet challenges ahead, plans to expand its activities in the field of Readymade Garments, enhance its marketing capabilities by expanding its marketing channel and targets to double the number of retail outlets, both Company owned and Franchisee outlets. The Company has been conducting R&D in specific areas such as product and quality improvement, development of new designs, products, cost control and energy Page 11 of 57

6.66 6.92 3.98

conservation. These R&D activities have resulted into development of new designs and products. In 1995, the company tied up with J Hampstead, a foreign brand, to market its fabrics in India. In 2005, it launched the brand Featherz in the readymade garments segment. Expansion: During the year 2007-08, the Company added 42 imported looms of latest technology along with other preparatory machines and accessories for manufacturing fabrics and in its new venture of Home Furnishing. In the Yarn Division, the Company has increased its yarn dyeing capacity by adding additional yarn dyeing machines along with balancing equipments to manufacture value added yarn. The company continues to further increase this capacity in the current year. In the readymade garments division, the company has installed 177 stitching machines to manufacture readymade garments, viz., shirts and trousers. In the Retail sector, the Company has opened 85 Retail outlets including Franchisees and the Company’s own outlets. It looks forward to continue this expansion after looking at the overall market conditions from time to time. The above expansion was funded by way of Term Loan from banks under the TUF Scheme of Government of India and internal accruals of the Company. On July 16, 2009, the Company has further announced plans to invest Rs 60-80 crore over the next three years to roll out 200 stores in the country and the Middle-East and to expand its fabric business in the global market. The BSE-listed company plans to open 115 outlets of J Hampstead, Oxemberg, Siyaram MSD and its flagship brand Fabric to Fashion (F2f) by 2012, Siyaram Silk Mills' Vice Chairman and Managing Director Ramesh Poddar said. Investment in Information Technology: The Company has made an overall capital commitment of approx. Rs. 10 Crores to install and implement SAP system within the organization. The system will considerably improve and upgrade the business practices followed by the Company so as to cut costs in an efficient manner. III. CASE FOR STUDY: Although the Company is taking in-house steps to survive and grow in the domestic & international market, what are the other solutions that would help improve the overall profitability of the Textile & Clothing Industry?

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5. INTRODUCTION OF THE INDIAN TEXTILE INDUSTRY Indian Textile and Clothing (T&C) industry is currently one of the largest and most important industries in the Indian economy in terms of output, foreign exchange earnings and employment. The industry contributes 4% to the country’s GDP, 14% to the country’s industrial production and around 12% to the country’s foreign exchange earnings. During 2007-08, Indian T&C exports were valued at US $22.4 billion of which Textile exports accounted for US $ 12.7 billion and Garment exports accounted for US $ 9.7 billion.

Indian T&C industry is also the second largest employment generating industry, after agriculture with direct employment of 33.17 million1 people (as of March 2006). In addition, the industry generates significant employment through forward and backward linkages; the large number of skilled and unskilled activities in the industry makes it extremely important from the perspective of inclusive growth. Ministry of Textiles has targeted a growth of 16% per annum for the Indian T&C industry to reach US $ 115 billion by the end of Eleventh Five Year Plan. It also wants to secure a 7% share in global T&C trade by the end of the Eleventh Five Year Plan. Provided the targeted growth is achieved, Indian T&C industry has potential to employ 45 million people by 2012. Further, the export earnings from this industry are estimated to increase to US $ 55 billion by 2012. However, during the period April – December, 2008 T&C exports have missed the expected growth targets on account of economic slowdown in major T&C export markets. As a result, production of T&C has also declined during the same period as against the estimated levels under the Eleventh Plan. Under these circumstances, the T&C industry is unlikely to achieve the envisioned targets unless the industry makes a strategic shift in the coming year.

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6. THE INDUSTRY ANALYSIS 6.1 DOMESTIC SITUATION

Source: CITI estimates from CSO data

It can be observed from the last column of the above table that the percentage growth in production of T&C over previous period has sharply declined from 2006 to 2008 and has stagnated. This has led to low capacity utilization leading to inadequate absorption of fixed costs and consequently low profitability. Low profitability has led to the loss of most units, erosion of working capital, slowdown in Investments and lakhs of job losses. Mr. Manoj Kumar Tibrewal, M.D of the vertically integrated textile company, Gangotri Textiles Ltd, has quoted that, “Job losses are in lakhs in the textile and clothing sector due to decline in production. This has been attributed to the slowdown in domestic demand and a decline in exports. If this condition prevails the situation will further worsen and the job losses will hit a historic high”. Below is the table illustrating the growing net losses of the 176 T&C companies that are listed on the BSE: YEAR 2006-07 2007-08 2008-09

Q1 517 422 -37

NET PROFIT (RS. CRORE) Q2 932 503 -104

Q3 701 321 -649

Source: CITI estimates from BSE listed 176 T&C Companies

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As can be seen from the above table, the net losses of these companies have risen sharply in the year 2008-09 owing to the global economic slowdown on the demand of textile and clothing. NUMBER OF MILLS REGISTERED WITH THE BOARD OF INDUSTRIAL & FINANCIAL RECONSTRUCTION (BIFR) Cases of Mills Registered with Board of Industrial & Financial Reconstruction (BIFR) statement as on 31/01/2009 Sr. No. State All Textile Cases Andhra Pradesh 53 1 Assam 5 2 Bihar 2 3 Chandigarh 1 4 Dadra Nagar Haveli 5 5 Daman & Diu 1 6 Delhi 45 7 Goa 1 8 Gujarat 122 9 Haryana 26 10 Himachal Pradesh 1 11 Jharkhand 1 12 13

Karnataka

43

14

Kerala

14

15 16 17 18 19

Madhya Pradesh Maharashtra Orissa Pondicherry Punjab

31 167 6 1 38

20

Rajasthan

45

21 22 23 24

Tamilnadu Uttar Pradesh Uttranchal West Bengal

176 40 5 38 867

Total

Source : Ministry Of Textile, Office of the Textile Commissioner, Mumbai

In total, as on 31/1/2009, there are 867 companies who have registered themselves with BIFR. As can be seen from the above table, the problem of the textile industry is all pervasive with

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companies from 24 Indian states having registered with the BIFR. And to top it all, Maharashtra state registered the second largest number of BIFR cases after Tamil Nadu. Reason wise break up of closed mills as on 30.04.2009 Reason wise % of Sr. No Reason of Closure No of Mills total 1 Financial difficulties 231 56.62 2 Lock out 14 3.43 3 Other reason 116 28.43 Strike / Labour 4 47 11.52 trouble Total 408 100.00 Source : Office of the Textile Commissioner, Mumbai Updated on 19.06.2009

Further, it can be seen that out of a total of 408 mills closed, the reason quoted for closure of 231 mills was financial difficulties and another 47 were closed due to labour trouble. Thus, there is an urgent need for steps to be taken by both, the Government through policies initiatives and by the individual firms by improving their operational efficiency. Over the last few years, Indian T&C industry had witnessed debt-funded capacity expansion, primarily driven by interest compensation under TUFS Scheme of loans at concessional interest rates.

6.2 EXPORT-IMPORT SITUATION Indian T&C market is estimated at Rs. 2.55 Trillion (2007-08) with exports accounting for 35% of the total market value. The industry has significant dependence on exports with EU27 being the largest export market, accounting for 33% of the total T&C exports by value in 2007-08. US is the second largest export market for Indian T&C products with a share of 21% by value of total T&C exports in 2007-08. Other important export markets are UAE (6%), China (5%), Bangladesh (3%) and Japan (1%).

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The recent economic slowdown has significantly impacted the major export markets of Indian T&C industry i.e. EU27, US and Canada thus, negatively impacting the Indian T&C industry.

As can be seen from the above table, there has been a sharp decline in the exports of textile & clothing to major economies like US & EU27 during the Jan – Oct 2008 period.

6.2.1 Competing countries have outperformed Indian apparel exports to major economies 1. United States

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1. EU27

2. Japan

It can be observed from the above tables, that although the total imports of the US, EU27 and Japan has declined sharply, the exports of the competing countries like China, Vietnam and Bangladesh to these major economies has risen significantly as compared to India. The conclusion is that, these exports have risen at the cost of Indian exports. All this has severely affected the financial performance of Indian T&C industry.

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6.2.2 Industry’s import dependence has been increasing 

Fabric imports (in value terms) comprised around 33% of all imports in FY 2006, an increase from 14% in FY 2002.



Rise in garment production (especially exports) has resulted in increased fabric imports to meet buyer specifications.



Woven cotton & Man-made fabrics and knitted fabric comprise around 60% of the fabric imports



Silk and Woolen another 25%



Rising fabric imports owing to, fragmentation in domestic weaving and processing facilities and use of outdated technologies, thereby impacting their ability to meet the delivery schedules and quality specifications set by the garmenting units

fabric

comprise

Therefore, increasing import dependence points to the urgent need to invest in fabric and processing capacities. Source : DGCI&S, Office of the textile Commissioner

Investments in the sector, after being subdued for a long period, have picked up since the phase-out of quotas in 2005 after several policy initiatives were taken, chief among them being de-reservation of knitting from SSI list, introduction of credit linked capital subsidy scheme and excise duty rationalization.  

Key segments such as weaving and processing have lagged behind in attracting investments. Investments under TUFS have had a positive impact on productivity as is evident from rising production without significant addition in working capacity.

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7. ANALYSIS OF COST COMPETITIVENESS OF INDIAN TEXTILE AND CLOTHING INDUSTRY VIS-À-VIS COMPETING COUNTRIES The Key drivers of Cost Competitiveness has been identified and enlisted below:

Labour Cost India has higher labour cost as compared to Bangladesh, Vietnam and Sri Lanka.

Moreover, India has lower labour productivity as compared to other countries.

Source: Werner International.com Page 20 of 57

Power Cost and Availability of Power

Power cost in India is the highest amongst the low cost countries. Further, manufacturing in India suffers from both non-availability of power and poor quality of power. Owing to power shortage in major Textile producing states, captive power generation is the only alternative to sustain production. Liquid Fuels such as furnace oil and diesel used for captive power generation attract 10% basic customs duty and 14% excise duty; with current fuel prices, captive power is more than twice as expensive as grid power. Interest rate in India is high as compared to China but is lesser than other competing countries. Corporate tax in India is higher as compared to Bangladesh, Turkey and Vietnam. Infrastructure/Transaction Costs  Documents preparation and Customs clearance take around 10-12 days for Indian companies. Single-window clearance is requirement both for reduction in cost and delivery lead times.  EXIM procedural costs in India are high as compared to other competing countries which further affects the competitive position.  Port handling charges for Indian companies are almost twice than that for Chinese companies.  Indian custom procedures require comparatively higher number of documents which further adds to the time and costs of EXIM procedures.  Inland transportation costs for Indian companies are more than three times than that for Chinese companies. Excellent connectivity by road, rail air and ports is the need of the day.  Inadequate road and rail infrastructure coupled with barriers to inter-state transport of goods add up avoidable costs for the Indian companies.

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On account of high geographical spread, Indian T&C industry involves significant interstate movement of raw material and finished goods; high inland transportation further affects the competitive position of the T&C industry.

Anomalies in the Tax and Duty Structure  VAT and CST are not adjustable: If a manufacturer while purchasing raw-materials has paid VAT and while selling collects CST, he cannot avail a credit.  Exporter does not get credit for VAT/CST paid during raw material purchase: When a manufacturer exports all his goods he does not get any credit for the VAT or CST paid at the raw material purchase stage.  Customs paid while purchase and Excise collected while sale are not adjustable: If a manufacturer imports raw material and pays customs duty on it, he is unable to adjust it against the excise that he collects while selling.  VAT on fabric is Nil: A fabric manufacturer pays VAT while buying the raw material but cannot collect the same while selling his product.  Anomaly in duty drawback rates: Duty drawback rates are not as high as effective duties as a result T&C exporters pay excessive duties. Finally, a SWOT Analysis of the Indian Textile Industry is presented as below.

7.1 SWOT ANALYSIS OF THE INDIAN TEXTILE INDUSTRY# STRENGTHS  Strong domestic textile presence across the entire value chain.  Abundant availability of raw material, both cotton and man-made.  Increasing modernization of Indian T&C manufacturing sector facilitated by the TUF Scheme. WEAKNESSES  High dependence of T&C trade on EU27 and US.  Large number of small scale units in the garment industry on account of reservation under SSI till recently thus, lacking benefits of economies of scale.  Weaving, garmenting and processing sectors of the industry are still not fully modernized.  High dependence of Indian T&C industry on Cotton as against the world T&C industry which is dominated by man-made fibre. This difference is expected to further increase with the increase in the excise duty of man-made fibre from 4% to 8% announced in Budget 2009-10.  Lack of trained manpower.  Restrictive labour laws as compared to other competing countries.  High cost of labour as compared to Bangladesh, Sri Lanka and Vietnam, coupled with low labour productivity.  High power cost and lack of availability of power.  High finance cost as compared to China. Page 22 of 57

  

High transaction costs as compared to other competing countries. Lack of any free trade agreements with the major T&C global markets resulting in high import tariffs as compared to Bangladesh, Sri Lanka and Turkey. Lack of proximity to key global markets.

OPPORTUNITIES  Favourable demographics in the domestic market; increasing young population coupled with rising income levels in the domestic market is likely to act as a key growth factor for the Indian textile Indutry.  Increasing production costs in China resulting in China becoming non-competitive.  Free Trade Agreement (FTA) with EU (under negotiation) which not only aims to eliminate tariffs and quotas, but also non-tariff barriers to trade. This FTA is expected to be implemented by end of 2009. THREATS  Removal of US and EU quotas on imports from China from December 31, 2008.  Emerging low cost garment manufacturers i.e. Bangladesh, Vietnam and Sri Lanka.  Trade defense measures been taken by certain major export markets of India. #

Refer Annexure - 1 for SWOT Analysis of Competing Countries

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8. ANALYSIS OF THE GOVERNMENT INTERVENTIONS IN COMPETING COUNTRIES 8.1 Key initiatives taken by the Chinese government  Tax Credits and Rebates  Chinese government has raised the export rebate rate for textiles and apparels thrice, from 11% at the beginning of 2008, to 15% by February 2009.  The government further raised the export rebate to 16% in May 2009, the highest level in 10 years.  1% increase in export rebate is estimated to distribute 7.6 billion Yuan (US $ 1.11 billion) to exporting companies.  Reduction in lending rates  Government is supporting T&C industry by helping them in getting low-interest loans from the state-owned banks.  Textile plan for revamping T&C industry, which focuses on  Developing new markets like Russia, Brazil, India and Africa as well as domestic market with focus on rural markets.  Investing in updated technology and developing brands  Saving energy  Providing financial support to SMEs in terms of credit guarantees

8.2 Key initiatives taken by the Vietnamese government  Reduction in taxes  Vietnamese government has announced plans to halve the value-added tax on cotton imports from 10% to 5%, and to lengthen the expiration time of VAT payment with regard to the imported equipments and out-sourcing contracts.  Export subsidies  Vietnamese government has agreed to provide support to the country’s T&C industry at a ratio of forty Vietnamese dong per one dollar in exports value i.e. exports valued at US $ 1 million would be given a support of VND 40 million from the government. In other words, exports value of US$1 million would be given support of VND 40 million from the government. This aimed to help existing enterprises retain their operations.  Vietnam T&C industry achieved an export turnover of US $ 9.1 billion in 2008; this equates to around US $ 21 million in export subsidies.

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 Reduction in lending rates  Vietnamese government has assigned the State Bank of Vietnam to grant low-interest loans to the tune of USD$ 15 million to Vietnam Textile Corporation (VTC) in order to import cotton. Other developments for the Vietnamese garment industry include:  Uniqlo to buy more Vietnamese garment  The Association of Garment Textile Embroidery and Knitting (AGTEK) of Ho Chi Minh City reported that Uniqlo under Fast Retailing in Japan planned to visit Vietnam and work with 50 good garment makers in Ho Chi Minh City in recent months in a bid to seek for more suppliers.  The visit aimed to exploit the Vietnam-Japan Economic Partnership Agreement that has generated various favorable conditions for Vietnamese textile and garment exports to Japan.  According to the AGTEK, Japanese traders are shifting partially their orders to Vietnam from China due to the presence of preferential taxation in importing the textile and garment from Vietnam.  JASTA seeking co-operation with Vitas  This February, a delegation of the Japan Association of Specialists in Textiles and Apparel (JASTA) visited Hanoi and worked with the Vietnam Textile and Apparel Association (Vitas) for the discussion of a joint agreement in developing the VietnamJapan Economic Partnership Agreement (VJEPA).  The VJEPA, effective beginning 2009, is favorable to Vietnamese textile and garment exporters when exporting to Japan, especially the zero export tax on textile and garment products from Vietnam to Japan.  Japan is the third largest exporting market of Vietnam-made textile and garment products, worth about US$800 million in 2008, after the US and EU.  At the meeting, president of Vitas, Le Quoc An, proposed the Japanese textile and garment enterprises to develop the textile and garment materials in Vietnam. His proposal included two major propositions: (i) JASTA will support its Japanese enterprises to invest into textile factories in Vietnam, especially the products of fibre, yarn, fabric and other materials; (ii) the Japanese trading companies will bring more materials to Hanoi and Ho Chi Minh City.  The Vietnamese side also requested Japanese partners to consider supporting the Vietnamese industry in the areas of human resources and fashion design.

8.3 Key interventions made by Turkish government  Reduction in lending rates  Government has reduced lending rates by 3.75% over the period of October to December 2008.

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 Protection for domestic yarn industry  Government has taken anti-dumping sanctions to protect the spun and filament yarn manufactures from Asian competition.

8.4 Key interventions made by Bangladeshi government  Incentives for the development of backward linkages  15% cash subsidy of the fabric cost is given to exporters who source fabric locally.  Incentives are extended to "deemed exporters" supplying indigenous raw materials to export-oriented industries.

8.5 Key interventions made by Sri Lankan government  Export incentive program based on maintaining revenue and employment  Sri Lanka's government is giving a 5% incentive payment in domestic currency to exporters who show 5% increase in export proceeds remitted to the country over the same quarter last year. Such exports are required to have prescribed minimum domestic value addition. The incentive payment made will be tax-free.  Depreciation of Rupee  In order to limit the slowdown in export sales, the Central Bank accepted a depreciation of the rupee which fell about 7% in 2008 against the dollar.

8.6 Key interventions made by Indonesian government  Government allocates funding for restructuring program  The Industry Ministry in Indonesia opened the registration for textile machinery restructuring program period 2009 by allocating IDR240 billion. Based on the ministry observation, at least 100 companies would be interested to join the program.  Anshari Bukhari, General Director of various industry, textile and machinery (ILMTA) at the Industry Ministry said that the priority of the program is for companies whose existing machines are over 20 years old and they have plans to purchase new machines in the period between July 1, 2008 and November 2009. "Given the global economic crisis, this is the right momentum for long-term investment," he said.  The mechanism of the program in two schemes is similar to those in previous years. The first scheme (with a funding of Rp213 billion) assists large-scale textile enterprises in the form of paying 10% of the total purchase of new machines. The rest of the funding amounted Rp27 billion in the second scheme will subsidise the interest loan of the industry's small and mid-size enterprises (SMEs). If locally made equipment is purchased, the government will subsidise 15% from the total purchasing, no more than Rp5 billion for each company.

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9. STUDY OF THE INITIATIVES TAKEN BY THE INDIAN GOVERNMENT In an effort to make Indian textile companies more competitive in the world textile market, the government has introduced a number of progressive steps. •

100 per cent FDI allowed through the automatic route.

•

De-reservation of readymade garments, hosiery and knitwear from the small-scale industries sector in end-2009.

•

Technology Mission on Cotton was launched in February 2000 to make quality raw material available at competitive prices.

•

Technology Upgradation Fund Scheme (TUFS) was launched to facilitate the modernisation and upgradation of the textiles industry in 1999. It has been given further extension till March 2010 with an increase in fund allocation from Rs. 1090 Crores in the previous year to Rs. 3140 Crores in the current year’s budget. A total of 18773 applications involving a project cost of US$ 24.91 billion have been sanctioned under TUFS upto March 31, 2008.

•

40 textile parks are being set up under the Scheme for Integrated Textile Parks (SITP) which will attract an investment of US$ 4.38 billion.

•

The Government also framed "The National Textile Policy 2000". This policy aims at negating the existing problems and increasing the foreign exchange earnings to the tune of US$ 50 billion by the year 2010. It includes rational road-maps for the development and promotion of all the sectors involved directly or indirectly with the textile industry of India. Further, the policy also envisages bringing the unorganized decentralized textile sector (which accounts for 76% of textile production) at par with the organized mill sector. Furthermore, the policy also aims at introducing modern and efficient manufacturing machineries and techniques in the Indian textile sector.

“The National Textile Policy” is discussed in detail below: The National Textile Policy was formulated keeping in mind the following objectives:  Development of the textile sector in India in order to nurture and maintain its position in the global arena as the leading manufacturer and exporter of clothing.  Maintenance of a leading position in the domestic market by doing away with import penetration.  Injecting competitive spirit by the liberalisation of stringent controls. Page 27 of 57

 Encouraging Foreign Direct Investment as well as research and development in this sector.  Stressing on the diversification of production and its upgradation taking into consideration the environmental concerns.  Development of a firm multi-fibre base along with the skill of the weavers and the craftsmen.

Such goals are set to meet the following targets:  The size of textile and apparel exports must reach a level of US $50 billion by the year 2010.  The Technology Upgradation Fund Scheme should be implemented in a strict manner.  The garments industry should be removed from the list of the small scale industry sector.  The handloom industry should be boosted and encouraged to enter into foreign ventures so as to compete globally. The National Textile Policy has also formulated rules pertaining to certain specific sectors. Some of the most important items in the agenda happens to be the availability and productivity along with the quality of the raw materials. Special care is also taken to curb the fluctuating price of raw materials. Steps have also been taken to raise silk to the international standard.

Preamble  To comprehend the purpose of textile industry that is to provide one the most basic needs of the people and promote its sustained growth to improve the quality of life.  To acknowledge textile industry as a self-reliant industry, from producing raw materials to delivery of finished products; and its major contribution to the economy of the country.  To understand its immense potentiality for creating employment opportunities in significant sectors like agriculture, industry, organized sector, decentralized sector, urban areas and rural areas, specifically for women and deprived.  To recognize the Textile Policy of 1985, which boosted the annual growth rate of cloth production by 7.13%, export of textile by 13.32% and per capita availability of fabrics by 3.6%.  To analyze the issues and problems of textile industry and the guidelines provided by the expert committee set up for this specific purpose  To give a different specification to the objectives and thrust areas of textile industry  To produce good quality cloth for fulfilling the demands of the people with reasonable prices and  To maintain a competitive global market

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Thrust areas Government of India is trying to promote textile industry by giving emphasis on several areas of textile, which are as below:  Innovative marketing strategies  Diversification of product  Enhancement of textile oriented technology  Quality awareness  Intensifying raw materials  Growth of productivity  Increase in exports  Financing arrangements  Creating employment opportunities  Human Resource Development

Efforts Government of India has set some targets to intensify and promote textile industry. To materialize these targets, efforts are being made, which are as follows:  Textile and apparel exports will reach the US $ 50 billion mark by 2010  All manufacturing segments of textile industry will come under TUFS ( Technology Upgradation Fund Scheme)  Increase the quality and productivity of cotton. The target is to increase 50% productivity and maintain the quality to international standards  Establish the Technology Mission on jute with an objective to increase cotton productivity of the country  Encourage private organization to provide financial support for the textile industry  Promote private sectors for establishing a world class textile industry  Encourage handloom industry for producing value added items  Encourage private sectors to set up a world class textile industry comprising various textile processing units in different parts of India  Regenerate functions of the TRA (Textile Research Associations) to stress on research works

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Government policy on cotton and man-made fibre One of the principal targets of the government policy is to enhance the quality and production of cotton and man-made fibre. Ministry of Agriculture, Ministry of Textiles, cotton growing states are primarily responsible for implementing this target. However, increasing the excise duty from 4% to 8% on man-made fibre (as done in Budget 2009-10) will only help in rising prices, fall in demand and ultimately, production.

Other thrust areas Information Technology Information technology plays a significant role behind the development of textile industry in India. IT (Information Technology) can promote to establish a sound commercial network for the textile industry to prosper.

Human Resource Development Effective utilization of human resource can strengthen this textile industry to a large extent. Government of India has adopted some effective policies to properly utilize the manpower of the country in favor of the textile industry.

Financing arrangement Government of India is also trying to encourage talented Indian designers and technologists to work for Indian textile industry and accordingly government is setting up venture capital fund in collaboration with financial establishments.

Apart from the above, Government has also initiated legislative Acts Some of the major acts relating to textile industry include:  Central Silk Board Act, 1948  The Textiles Committee Act, 1963  The Handlooms Act, 1985  Cotton Control Order, 1986  The Textile Undertakings Act, 1995 Government of India is trying to provide all the relevant facilities for the textile industry to utilize it's full potential and achieve the target.

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The Indian Government has further taken some measures to support the industry in the current economic slowdown. They are as follows: 1. Modernisation of Technology

  

Technology Upgradation Fund Scheme has been extended till March 2010. With Rs. 57,878 crore of disbursement as on December, 2008, TUFS has facilitated technological upgradation and expansion in the T&C industry. Additional funds of Rs.2050 crores have been sanctioned for TUFS in the current budget.

2. Raw material for Spinning Industry



Import duty on cotton fibre has been reduced to zero.

3. Sales Tax



Central Sales Tax has been reduced from 3% to 2%.

4. Excise Duty

 

CENVAT applicable to non-petroleum products has been reduced by 4%. CENVAT on cotton textiles and textile articles has been reduced from 4% to zero as a measure to stimulate the economy in the context of global economic slowdown.

5. Export Incentives



  

2% duty credit scrip under Market-Linked Focus Product Scheme for garment exports (both knitted and woven) to the U.S and EU27 from 1.4.2009 to 30.9.2009. The scrip, which is a cash substitute, can be used by exporters to pay for duties on imported inputs. Relaxations in the Duty Entitlement Pass book scheme (DEPB) without waiting for realization of export proceeds. Extension of export obligation period against advance authorisation. Reinstating interest subvention of 2% for export credit and extending it till March 2010.

6. Service tax

 

Service tax on foreign agents’ commission will be refunded upto 10% of FOB value of exports instead of 2% allowed earlier. Refund of Service Tax on output services will be available to units availing duty drawback also.

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10.

ANALYSIS OF THE NEEDS OF THE SECTOR AND RECOMMENDATIONS

A primary (first hand) survey was conducted by ICRA Management Consulting Services Limited to study the impact of Economic Slowdown on Indian Textile & Clothing Industry. Findings from the survey are as follows:  ‘Less price realisation’ was ranked as the most severe issue faced in both domestic market and the identified global markets.  ‘Payment delay’ was ranked as the second most severe issue faced in the domestic markets followed by ‘Shift of order to competing countries’ and ‘Cancellation of orders’.  In case of global markets ‘Shift of orders to competing countries because of price’ was ranked as the second most severe issue followed by ‘Order postponement’.  Majority of the domestic manufacturers ranked ‘Lack of power’ as the most severe business constraint.  ‘Shortage of skilled labour’ and ‘working capital issues’ was ranked as the second most severe business constraints by the industry.  ‘High interest rates’ and ‘delay in refund’ were also mentioned as the key business constraints impacting the industry. Analysis reveals that the Indian T&C industry is facing issues at two broad levels:  Current issues, arising because of recent economic slowdown • Decline in demand from global markets o Lack of cost competitiveness in majority of T&C products as compared to China, Bangladesh, Vietnam and Sri Lanka o High dependence of T&C trade on EU27 and US markets • Liquidity crisis o Delay in disbursement of TUFS assistance and other assistance o High working capital interest  Issues, affecting long term growth of industry • Significant dependence on Cotton products

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• Lack of skilled labour The major impediments to the growth of Indian T&C industry are:
Lack of cost competitiveness in majority of T&C products as compared to China, Bangladesh, Vietnam and Sri Lanka
Delay in disbursement of TUFS assistance and other assistance
High working capital interest
High dependence on cotton products
Lack of availability of skilled labour
Stringent labour laws
High dependence of T&C trade on EU27 and US markets Strategic interventions are required by both the Government and the industry to ensure growth of the Indian T&C industry.

10.1 FACILITATION REQUIRED FROM THE GOVERNMENT We discuss each of the major impediments in detail and recommend solutions to minimize / eradicate them:
Cost competitiveness The major factors that have caused cost disadvantage in T&C industry are: • • • • •

High power cost High labour cost Anomalies in taxes and duties High transaction cost High import tariffs by global markets

Government should take steps to reduce the cost disadvantage of T&C manufacturers which is created on account of unfavorable government policies. Page 33 of 57

 Captive power generation should be supported in the regions suffering from acute power shortage Power cost in India is on an average around 40% higher than that in the analysed competing countries. Moreover, the Indian T&C industry suffers from shortage of power for instance Tamil Nadu which accounts for around 40% of India’s spinning activity and over 25% of total T&C activities has a declared power cut of 40%. Long term steps are being taken by the government to reduce the power shortage however, the industry needs a support during this crisis period. Many T&C mills have their own captive power generation to meet their power requirement because of non-availability of quality and adequate power. However, as per industry feedback, captive power is two to three times costlier as compared to grid power. Liquid Fuels such as furnace oil and diesel used for captive power generation attract 10% basic customs duty and 14% excise duty; this coupled with high fuel prices makes the captive power costly. Government should support captive power generation in the regions of acute power shortage by allowing exemption of customs and excise duty paid for the liquid fuels that are used for captive power generation.  Government should increase labour flexibility especially for the labour intensive sectors of T&C industry Indian Garment and Made-ups industry suffers from labour cost disadvantage as compared to the key competitors i.e. Bangladesh, Vietnam and Sri Lanka. To make this industry competitive, measures should be taken by the Government to increase labour flexibility by:  Extending labour working hours  Allowing Contract labour  Government should consider routing the National Rural Employment Guarantee Programme (NREGA) through the T&C industry; in this regard, the industry can commit employment guarantee on the lines of the NREGA.  Relaxing the norms of Industrial Disputes Act, 1947 with regards the number of workers.  Anomalies in taxes and duties should be streamlined Taxes and duties charged by the State Governments and local bodies are not refunded to the T&C manufacturers and exporters. Moreover, the duty drawback rates fixed by the Ministry of Finance are not sufficient to neutralize the incidence of all the duties paid by the exporters. In addition, there is delay in disbursal of duty drawback claims to the level of 40 – 60 days which affects the cash flow of the companies. Government should take the following steps to overcome this anomaly:  Refund State level taxes and duties  Till systematic corrections in the taxation policy are implemented, central government should devise a mechanism to refund the state level taxes and duties to the T&C exporters, the incidence of which is on an average 4%* of the ex-factory price. Page 34 of 57

*Government levies an additional customs duty of 4% on imported goods to countervail the sales tax, value added tax, local taxes and other charges leviable on sale or purchase or transportation of like goods in India. Similarly a refund of 4%, equivalent to the incidence of state level taxes and duties should be provided to the T&C exporters to bring them at par with the global players.  Revise duty drawback rates and expedite the drawback claim disbursal  Government should revise duty drawback rates to completely neutralize the incidence of all duties paid.  The disbursal of duty drawback claims should be expedited.  Other interventions required from the government  Negotiate better trade terms with major global T&C markets Indian T&C trade faces comparative disadvantage on account of free market access available to Bangladesh, Sri Lanka and Turkey. Ministry of Commerce should negotiate better trade terms with the global T&C markets including Japan.  Streamline EXIM procedures to reduce the transaction costs Indian EXIM processes involve more documentary procedures as compared to that in analysed competing countries which results in comparatively higher transaction costs. Documentary procedures at the ports should be simplified to reduce the transaction costs incurred by the exporters. Efforts should be made to increase port capacity and to improve rail/road connectivity to ports.
TUFS assistance  Government should take immediate steps to clear the backlog of TUFS as well as to revise the TUFS procedures for future applications Delay in disbursement of TUFS assistance results in significant additional cost. Moreover, for future loans under TUFS the mills should be permitted to pay interest net of interest compensation to the banks; Government should arrange to remit the interest compensation amounts directly to banks concerned. Presently, the stand is that, first the companies shall pay the interest amount in full and the Government will subsequently reimburse the TUFS assistance. This has led to huge backlogs in reimbursements which has affected the liquidity of the borrowing companies. Also, it would be beneficial to extend the TUFS scheme until 2012 as it has shown effective results since its introduction.

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Working capital  Government should take measures to overcome the working capital related problems of the industry T&C manufacturers pay working capital interest at the rate of 11 – 13%. Working capital requirement of the Cotton textile industry has increased on account of hike in cotton prices. Government should make provision to provide working capital loan for cotton on terms applicable for agriculture by reducing interest rate for working capital loan to 7%. Moreover, considering the liquidity related problems of the T&C industry, the margin money for working capital loan for cotton should be reduced to 10% (from the current 25%) and the duration of such loan should be extended to 9 months.
Dependence on Cotton fibre Unlike World T&C industry, Indian T&C industry is cotton dominated with Cotton fibre accounting for 62% of total fibre consumption (2007) and cotton T&C accounting for substantially higher share of the total T&C exports of India. Measures should be taken by the Government to promote the domestic consumption of manmade fibres.  Comprehensive Fibre Policy A Comprehensive Fibre Policy should be formulated in order to  Reduce the dependence of Indian T&C industry on Cotton, which is an agricultural product  Ensure availability of raw material (especially cotton and polyester) to the domestic T&C industry at competitive prices. Till a fibre policy is formulated, Government should support the industry to reduce its dependence on cotton by the following measures:  Abolish import duty on manmade fibres and their intermediates Manmade fibres attract a 5% import duty as against cotton fibre on which the import duty has been recently reduced to zero. Moreover, polyester fibre intermediates attract a basic import duty of 5%. Import duty on polyester (and its intermediates), which is an important raw material for the T&C industry, affects its usage. Government should abolish the import duty on polyester fibre and its intermediates; this will aid reduction of polyester prices thereby increasing its share in total fibre consumption.  Policy framework should promote export of value added products rather than fibres Indian T&C industry should strive to export value added products since, this would result in more employment generation in the country. Government should consider withdrawing the

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export incentive for various fibres especially when the domestic industry is suffering from high raw material prices. In addition to above, the following measures are required to ensure sustained growth of Indian T&C industry:  Joint Working Group with representation from Government and T&C industry, should be formulated to periodically review the performance of T&C industry Joint Working Group (JWG) comprising of members from the Ministry of Textiles, the Ministry of Finance, the Ministry of Commerce and members from T&C industry associations, should be formulated to periodically review the performance of T&C industry. The Working Group should periodically review the dynamics of the T&C export markets and examine the factors affecting the competitiveness of the T&C industry. The findings of the Working Group should support the Government to make necessary policy interventions in order to ensure long term growth of the industry.  Fabric and Garment sectors of the industry should improve cost competitiveness by upgrading technology and achieving economies of scale Weaving, Processing and Garment sectors of the industry are fragmented thus, lacking economies of scale. Moreover, of the total TUFS disbursement up to December 2008, weaving industry accounted for only 7.7% and Garment industry accounted for only 5% as against 34% of Spinning industry. This indicates that the sectors have not undergone significant technology up-gradation. Fabric industry and Garment industry should undertake technology up gradation as well as achieve economies of scale to become cost competitive. The government may assist large-scale textile enterprises by paying 10% of the total purchase cost of technologically new advanced machines.  Garment industry should explore new markets to reduce trade dependence on EU27 and US Indian garment exports have significant dependence on EU27 and US; EU27 accounts for 47% share of India’s total garment export value whereas US accounts for 29%. Though India’s trade dependence on EU27 and US is in line with the World garment trade, Indian garment exports to the other leading garment importers are comparatively less. Japan which is the third largest garment importer with a share of 6.7% in world clothing imports in 2007, accounts for only 1.1% of India’s total garment export value. Similarly, Russia which is the fifth largest garment importer with a share of 4.1% in world clothing imports in 2007, accounts for only 0.6% of India's total garment export value. Efforts should be made by the industry to diversify the garment export market by developing business in these markets to reduce its trade dependence on the EU27 and US.

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Industry associations should ensure the availability of skilled labour for the industry Non-availability of trained labour is one of the primary business constraints mentioned by the industry. The initial cost of training is high which acts as a deterrent to in-house training initiatives by the industry because of high chances of loosing the trained man power. Associations should establish Skill Development centres to ensure availability of skilled labour to the industry. The Skill Development centres should run certified training courses focusing on the specific skills required by the industry. Registration of skilled workers should be done at the Skill Development centres to maintain a databank of skilled labour. Apart from this, starting new courses like Textile Manufacturing and Textile Technology at ITIs and Engineering Institutes will help gain technical knowledge.
Stringent Labour laws India ranks highest on the ‘Difficulty of Firing index’ amongst the key competing countries. India also ranks high on the ‘Rigidity of Employment index’ amongst the key competing countries. This indicates the high rigidity in labour laws in the country.

 T&C industry comes under the purview of Contract Labour Act, 1970 which prohibits contract labour for the work that is perennial in nature Contract Labour Act, 1970 prohibits contract labour for the work that is perennial in nature, incidental to and necessary for the work of the factory and is being done in most concerns through regular workmen. The Act applies to every establishment in which 20 or more workmen are employed or were employed on any day on the preceding 12 months as contract labour. Though,it does not apply to establishments where the work performed is of intermittent or seasonal nature, such an establishment will be covered by the Act if the work performed is more than 120 days and 60 days in a year respectively. Page 38 of 57

T&C industry comes under the purview of Contract Labour Act. T&C industry, especially the Export Oriented Units have to deal with highly uncertain market dynamics and thus, need the flexibility of contract labour to face stiff competition from other countries. The recent economic turmoil has made the industry more vulnerable. Competing countries like China and Bangladesh do not have such restrictions on Contract labour in Textiles.  The Factories Act, 1948 poses restrictions on the maximum working hours which further affects the competitiveness of industry The act stipulates that no adult worker shall be required or allowed to work in a factory for more than forty-eight hours in any week. Also, women workers are not to be employed in night shifts on account of safety issues. The restrictive working hours are detrimental to the T&C industry as it restricts the ability of the units to meet the peak season demand. The problem is compounded on account of restrictions on contract labour.  Indian Labour laws introduce unfair discrimination against large companies Indian Labour laws introduce unfair discrimination amongst large companies and the smaller ones and thus, are partly responsible for lack of economies of scale and poor competitiveness of Indian T&C industry. Units employing over 100 people currently fall under the purview of the Industrial Disputes Act, 1947 (IDA, 1947). The Act stipulates that employers must obtain necessary regulatory approvals for lay-offs. As a result, Indian manufacturers often setup several plants instead of a single large one. Increasing labour flexibility is the only solution.

* With the condition that T&C units provide employment to contract labourers for a fixed tenure (say 150 days) as well as provide protection of rights of these labourers in terms of health, safety, welfare, social security, etc. ^ If labour flexibility is permitted, T&C industry will be able to provide a longer employment period and higher wage rate as compared to that promised under NREGA. Page 39 of 57


High dependence of T&C trade on EU27 and US markets As discussed earlier, while discussing the export-import situation, that although the total imports of the US, EU27 and Japan has declined sharply, the exports of the competing countries like China, Vietnam and Bangladesh to these major economies has risen significantly as compared to India. The conclusion is that, these exports have risen at the cost of Indian exports. It is needed that the Indian T&C industry finds new markets for its products and reduces the high dependence on EU27 and the US markets.
TUFS need to made co-terminus with the XIth plan  Industry depends heavily on expensive imported machinery (over 70% of the demand) and incentive under TUFS is essential to offset the cost.  Declining availability of second hand machines is putting up investment requirement for an equivalent capacity, thereby making it difficult for small entrepreneurs to scale up.  Fragmentation of fabric, processing, garmenting and made-ups industry – need to provide incentive to small entrepreneurs to scale-up and integrate.  The industry has witnessed an increase in production despite modest rise in capacities, thereby indicating rising modernization and growing productivity.  In order that such improvements continue, TUFS need to be made co-terminus with the XIth plan.
Further, following are the areas that requires support from the Government, in collaboration with the industry, in order to facilitate capital investment and enable the sector to become globally competitive – o Strengthening the domestic textile machinery manufacturing base Need to bring textile machinery sector under the Ministry of Textiles to enable focus and alignment with objectives of the textile industry. India imports over 70% of its machinery requirement, as domestic capacity and technology is inadequate to meet industry’s requirement. Poor historical returns in the sector have resulted in the machinery industry lagging in R&D spend and capacity expansion. Given the massive investment needs of the industry, and also in the absence of textile machinery base, it is essential to encourage FDIs/JV projects to create machinery manufacturing facilities in India like in China. As part of these efforts, special emphasis should be laid on garment machinery industry, which is virtually non-existent in the country. Developing a vibrant textile machinery manufacturing base in India is critical as indigenously manufactured goods would help lower the capital cost for textile & clothing manufacturers, shorten lead times for equipment delivery, lower the cost of repairs & maintenance through indigenization and help develop products that meet the requirements of Indian companies. These companies could also serve as manufacturing hubs to cater to their global requirements, especially in South and South east Asia, resulting in foreign exchange for the country. Page 40 of 57

o Continuation of the Scheme for Integrated Textile Park (SITP) beyond 25 parks SITP scheme needs to be extended in its present format to cover parks beyond the stated 25 and made co-terminus with the XIth plan to enable units to benefit from common infrastructure facilities. In order to boost investments in these parks, as well as to enable units in these parks to become competitive, labour law flexibility should be introduced on a priority basis. o Attracting FDI into the sector Ministry of Textiles need to engage in selective textiles diplomacy in order to secure investments – promote FDI (textile industry has poor FDI profile), convince overseas companies / buyers to forge alliances with Indian companies, invest in fresh capacities and consortium formation. THERE ARE OTHER FISCAL & NON-FISCAL ISSUES THAT REQUIRES ATTENTION: I. FISCAL DUTIES (a) Excise Duty and Service Tax (i) Man-made Fibres Present Position: Excise duty on manmade fibre and yarn has been increased from 4% to 8% in the Budget 2009-10. Recommendation: Excise duty on all man-made fibres may be abolished. Justification: Among major textile producing countries, man-made fibre based textile products have the lowest share in our industry. Uncompetitive fibre prices in the domestic market are the primary reason for this. Manmade fibres and textiles attract an effective excise duty of 4.12% as compared to zero excise duty on cotton. Moreover, polyester intermediate MEG attracts a higher excise duty (8.24%) as compared to polyester resulting in accumulation of CENVAT credit. Removal of duties would encourage increased utilisation of man-made fibres and this will help in correcting the mismatch in the pattern of fibre consumption between the domestic and global textile industries. (ii) Accumulated Cenvat Credit Present Position: Cenvat credit continues to accumulate with T&C units. Recommendation: Refund all accumulated cenvat credit of T&C units. Rule 5 of the Cenvat Credit rules has to be amended suitably in order to facilitate refund of accumulated cenvat credit in T&C units. Justification: Since most of the textile and clothing units are in the optional route for excise duty, cenvat credit accumulated by them cannot be utilized. In the case of cotton textile products, excise duty has now been reduced to zero and for man-made fibre products to 4%. Huge cenvat credits were accumulating with manufacturers of man-made fibre products even earlier, since fibres had mandatory duty. With reduction in excise duty for textile products, the Page 41 of 57

possibility of using such credit for payment of excise duty has reduced further for man-made fibre products and the problem has also spread to producers of cotton textiles. Accumulated cenvat credit for some of the units in the textiles industry runs into crores, eroding their working capital substantially. (iii) Textile Machinery, Components and Spares Present Position: 4-8% excise duty on machinery and 8% on all components and spares. Recommendation: Reduce duty to 4% for all textile machinery, components and spares. Justification: We have a nascent textile machinery industry which is currently in a position to cater to only 30% of the machinery requirements of our textile industry. For garments, there are practically no domestic machinery supplies. For machines which are currently at 4% duty, there is an inverted duty structure, since their components and spares attract 8% duty. Stipulating a rate of 4% across the board for machines, components and spares will remove this anomaly and assist in the growth of the machinery industry. (v) Terminal Excise Duty Present position: Excise duty is collected when domestic machines are sold against EPCG licenses and subsequently refunded when funds are received from Government. Recommendation: Excise duty on machinery procured from the domestic market against EPCG licenses may be exempted. Justification: The present procedure only results in avoidable delay. (vi) Service Tax Present Position: Service Tax on many of the pre production services is taken into account while calculating drawback rates. Many post production services have been notified for refund of service tax to exporters. Recommendation: Exempt T&C industry from all service taxes Justification: Services being taken into account for drawback calculations and services notified for refund do not cover all the services. In the case of refund, even service taxes on the notified services are not always getting refunded because of procedural complications. There is delay in reimbursements even where refunds are available. Exemption is viable, feasible and therefore desirable. (b) Customs Duty (i) Man-made Fibres Present Position: Basic customs duty of 5% charged. Recommendation: Abolish customs duty on all man-made fibres. Justification: Prices of man-made fibres in India are higher than global prices, since domestic producers sell mostly at import parity prices. Abolition of customs duty would make imports more viable and will encourage domestic producers to reduce prices and thus make man-made fibre based textile products more competitive in global markets. This will help in establishing a larger base for man-made fibre textiles and clothing industry in the country. Charging customs duty on man-made fibres is an anomaly, when cotton is allowed for import at zero duty. Page 42 of 57

(iii) Textile Machinery Present Position: Basic Customs Duties ranging from 5% to 10% are applicable. Recommendation: Abolish customs duty on all machinery for textiles and clothing, except for spindles. Justification: Currently domestic textile machinery industry is able to supply machinery of contemporary technology only in the case of spindles. Until domestic industry is able to produce machinery of acceptable quality at affordable prices, customs duty on other textile machinery needs to be abolished in order to ensure proper supply of technology to the textile industry. (iv) Special Additional duty (SAD) Present Position: A special additional duty of 4 percent is charged on fibres and many other products, towards state duties levied on similar domestic products. Recommendation: Exempt fibres and all inputs for T&C industry from SAD. Justification: Though SAD is cenvatable, this facility is practically not available to T&C units, since they are in the exemption route for excise duty. (c) Corporate Tax (i) Minimum Alternate Tax Present Position: 15% of book profit is charged, even if company has not made any taxable profits. Recommendation: Provide exemption for T&C industry. Justification: Most T&C units are now making losses or negligible profits and therefore will not be able to use MAT credit entitlement. (ii) Dividend Distribution Tax Present Position: 16.995% is charged (15% tax + 10% SC+3% EC) Recommendation: Exempt T&C Industry Justification: With global recession and slowdown in domestic economy, financial position of T&C units is extremely weak and dividend distribution tax would further erode the financial position of the units. (iii) Surcharge Present Position: 10% for all Corporate Taxes Recommendation: Exempt T&C industry Justification: In the present financial position of T&C units, this exemption will help their efforts for survival.

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II. BANKING (i) Rescheduling of Term Loans Present Position: Rescheduling being allowed at discretion of banks on case-to-case basis mostly for less than one year, even when allowed. Recommendation: (a) Rescheduling of loans may be allowed for all T&C units by permitting deferment of repayment of principal amounts for 2 years on the condition that interest will continued to be paid during this period. RBI can issue necessary directions in this regard. (b) Under TUFS, extension of repayment period may be permitted beyond the currently stipulated 10 year period, in order to accommodate the rescheduling. Justification: Banks are overcautious in case-to-case examination of proposals for rescheduling. Unless a mandatory directive is given, rescheduling will only happen in very few cases and for very short periods. In the absence of rescheduling, most term loans in the T&C industry would turn into NPAs, creating serious problems both for the industry and for the banking sector. (ii) Interest Subvention for Export Credit Present Position: 2% subvention available upto 31st March 2010 (extended from Sep 30, 2009 to Mar 31, 2009 in the Budget 2009-10). Recommendation: 4% subvention to be allowed until March 2010. Justification: Interest rates in India are higher than those in most competing countries. 4% subvention had been announced in 2007 for the period upto March 31, 2009. This was withdrawn from 1st October 2008. Subsequently 2% subvention was reintroduced in the stimulus package for the period upto 31st March 2009 and later extended to 30th September 2009. The entire 4% interest subvention needs to be reinstated w.e.f. 1st October 2008 and continued upto 31st March 2010 in order to arrest the current decline in exports in the context of the global economic slowdown. (iii) Working Capital for Cotton Present Position: 3-6 Months Recommendation: 9 Months Justification: The over 40% increase in MSPs introduced for the current cotton year has pushed up domestic cotton prices and deceleration in profitability has seriously affected the ability of Indian mills to buy cotton. In this context, these facilities are necessary for mills for purchasing and stocking of cotton. This will ensure prompt cotton purchase and higher consumption and will, therefore, be helpful to farmers also. (iv) Corporate Debt Restructuring Present Position: The benefit of reduction in PLR is not fully passed on by banks to the units seeking CDR. Other benefits are also denied in most cases. Recommendation: The CDR Cell should take a liberal approach to the proposals submitted to them after assessing the technological feasibility report of the unit. They should give concessions based on the sustainable debt of the individual units and take a pragmatic approach with regard to interest rates and infusion of funds by promoters. Page 44 of 57

Justification: RBI guidelines require promoters to contribute 15% of the sacrifice made by the banks; but banks are pressurizing the promoters to bring in 20-30% of sacrifice amount as promoters’ contribution. Banks are also insisting on pledging of 30% of the share capital by the promoters. These measures adopted by the banks are extremely harsh and practically negate the benefits of CDR. (v) Delayed Government Dues Present Position: Accumulated Cenvat credit and delays in payment of TUFS assistance, refund of TED, rebate of excise on exports etc. are eating into the scarce working capital of T&C units. Recommendation: Banks may be asked to consider all delayed dues from government as receivables for assessment of working capital for T&C units. Justification: There is no uncertainty in payments due from government. The problem is only of delay. Treating such delayed payments as receivables will improve the working capital position of the units and reduce the adverse impact of the delays to some extent. III. OTHERS (i) Export Incentives for Cotton Present Position: 5% incentive under Vishesh Krishi and Gram Udyog Yojana (VKGUY) effective from 1st April 2008 to 30th June 2009. Recommendation: Withdraw the incentive w.e.f. from 1st April 2008. Justification: Cotton is a primary raw material for the textile value chain. Stock-to-use ratio for cotton in India is less than half of global standards which means that we have no exportable surplus. In this situation, there is no justification for incentivising exports. Export incentive has pushed up cotton prices in the domestic market making our cotton textiles even more uncompetitive in global markets. It also transfers the benefits of the progress made by our cotton sector to the textile industries of our competitors. (iii) Wind Turbine Generators Present Position: Allowed only within 25% limit stipulated for other expenses under TUFS. Recommendation: Permit without restriction Justification: Power shortage is a major problem in most textiles producing States. In States where wind energy is available, this can be an effective alternative. This needs to be encouraged by extending TUFS assistance to wind energy generators used by T&C industry, without restrictions. (iv) Hank Yarn Obligation Present Position: 40% of yarn production to be packed on hanks by all spinning mills, except in the case of hosiery yarn and export production. Recommendation: Abolish Hank Yarn Obligation Justification: With drastic reduction in handloom fabric production, there is a decline in demand. Hank yarn obligation forces mills to produce excess hank yarn, without any guarantee that they will be able to sell it. Mills will pack yarn on hanks to cater to available demand, for commercial reasons. Forcing mills to produce hank yarn beyond the available demand does not Page 45 of 57

help anybody and harms spinners seriously. Reduction of Hank Yarn Obligation from 50% to 40% a few years back has had no negative impact on the market. So will be the case if the obligation is abolished. (v) MSP for Cotton Present Position: More than 40% increase in MSP for cotton year 2008-09 has pushed the cotton economy to a crisis. Recommendation: Withdraw MSP for Cotton or dispose of procured cotton promptly at international prices. Justification: Unlike food items, cotton is an industrial raw material. In recent years, market prices have been providing sufficient remuneration to cotton farmers. Unreasonable increase in MSPs has created problems for everybody in the cotton economy including cotton farmers who have not been able to sell even half of the cotton at the declared MSPs. MSPs have resulted in our cotton textile products being out-priced in global markets in a situation where international markets are already in turmoil. If it is considered necessary to provide subsidies to cotton farmers, this should be from Government funds. Cross subsidy through the textile industry will be against the interest of the economy as a whole. (vi) Drawback Rates Present Position: Reduced substantially in September 2008. Recommendation: Restore pre reduction rates. Take fuel duties into account for calculation of Draw Back rates. Justification: Drawback rates and DEPB rates were reduced together in September 2008. As part of the stimulus package, DEPB rates were completely restored. For the same reason, drawback rates should also be restored in full. Restoration of DEPB Rates was not based on examination of any fresh cost data; restoration of drawback rates should also be on similar lines. Current drawback rates and other export incentives for textile exports are substantially lower when compared with what is available in our major competing countries and this is affecting our export performance significantly. Fuel duties and infrastructural disabilities also need to be taken into account while determining Draw Back rates. In the T&C industry, most exporters use Draw Back rather than DEPB. (vii) State Level Duties Present Position: Not refunded to exporters either by Central Government or by State Governments. Recommendation: May be refunded by Central Government Justification: CST, electricity duty, mandi tax, entry tax and other local as well as state level duties and taxes amount to 4-6% of FOB value of export in various textiles producing States. All taxes are admittedly refundable to exporters. Until GST is established, it is not practicable for State Governments to refund these taxes and duties because of the involvement of multiple States in textile value chain. Therefore, the only feasible alternative is that the Central Government should refund these and then reduce the amounts from the allocation to State Governments from the central pool, if necessary.

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10.2 EFFORTS REQUIRED BY THE FIRMS IN THE INDUSTRY Implementing revival plans would call for strong organization-wide capabilities. It will also be a function of structural issues impacting competitiveness in individual product segments.

Source: CITI Vision Statement report 2007-2012

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Focus on increasing competitiveness:  Control over supply chain – working closing with suppliers and customers to reduce the working capital cycle to release funds for capital investment.  Working closely with customers to understand their needs, reduce inventories and design innovation.  Offering innovative product designs to customers before they first ask for it.  Investment in Information Technology – Develop a database of designs and to store case histories of each order (design supplied, raw material supplier for manufacturing that product, price at which raw material supplied, consumption norms, duty rates, time taken for goods to reach buyer-gate, average realization on sales, cost of mfg. the order, etc.) Benefits:  Strong in-house knowledge database to ensure quick order turn-around, next time when a similar order is obtained.  Helps develop competencies in catering to needs of other buyers.  Data points such as “Cost to Supply” and “Unit realization” would also help the manufacturer to identify critical areas where costs may be reduced and productivity improved. This would be important from the perspective of keeping up with falling unit realizations in quota-free era and maintaining / increasing profit margins.  Obtaining Certifications – Okotex 100/1000, SA 8000, ISO 9000/14000 to overcome market barriers.  Buyers to focus on ‘Companies’ rather than ‘Countries’. Hence, scaling and integrating operations is important.  Increasing share of branded exports from the country and thereby individually help promote a “Made in India” brand to connote quality and global best practices.

The agenda for the industry firms should be to drive competiveness and customer acceptance through focus on strengthening supply chains, developing innovative designs, compliance with certification requirements, brand promotion and acquiring scale.

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11. BUDGET 2009-10 IMPACT ON THE INDUSTRY Comments on the Impact of Budget 2009-10 on the Sector COMMENT 1: “Continuity, stability and prosperity, with inclusive growth and equitable development” is the assumed mandate with which the Finance Minister has presented the budget for 2009-10, in order to keep-up the expectations of rising young India. From textile industry perspective, the request of the Ministry of Textiles of reviving the textile industry with initiatives of short term (such as rationalisation of fiscal duty structure), medium term (such as increasing momentum of Technology Upgradation Fund Scheme (TUFS), Scheme for Integrated Textile Parks) and long term (such as macro initiatives of improvement on infrastructure, labour and so on) seems to be partly addressed in the Budget proposals of 200910. The industry request of rationalisation of the fiscal structure is partly addressed for the cotton textiles sector, wherein optional duty payment at the 4 percent ad valorem is being restored. This restoration would enable manufacturers to avail and utilize CENVAT credit. In addition, the tax holiday benefit for Export Oriented Units (EOUs) is extended to one more year upto March 31, 2011. However, the other demands of the industry such as exemption from levy of Service tax, Customs duty under Section 3 (5) of Customs Tariff Act, tax-holiday on exports are not addressed. From medium term and long term perspective, the budget proposals in favour of the industry includes; proposals to set up two more mega handloom clusters, one each in Tamil Nadu and West Bengal, and one more powerloom mega cluster in Rajasthan, in addition to the two mega handloom clusters at Varanasi and Sibsagar and two mega powerloom clusters at Erode and Bhiwandi approved in the last budget. In addition, a major highlight of the proposals is a substantial hike in the allocation for the TUFS for the sector. Due to inadequate allocations in the past, there had been a backlog of more than one year in the disbursement of assistance under the scheme. Further, the procedural relaxation for exporter of goods, exempting Goods Transport Agents and Commission Agents from the ambit of Service tax and dispensing with Pre-audit requirements for claiming refund of Service tax on specified list of services is one of the reformatory steps and needs to be welcomed. However, on a long term, the request of the industry to lay down a plan for implementation of a comprehensive Goods and Service tax (GST) that would eliminate multiple taxes and simplify the procedures, seems lacking initiative and the same would require immediate attention and action of the FM.

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In addition to the above, the following are some of the other budget proposals impacting textile sector: Increase in the rate of excise duty from 4% to 8% on manmade fiber and yarn; Restoration of the optional levy excise duty of 8 % ad valorem beyond the fiber/ yarn stage; Increase in the rate of optional excise duty from 4% to 8 % on textile items manufactured from natural fibers other than cotton such as silk, wool, and so on. Increase in the excise duty rate of some important textile intermediates from 4% to 8%. Reduction in the basic customs duty from 15% to 10% on waste of wool and waste of cotton. To sum-up, though the budget has some positive for textile sector, but it appears that the majority of proposals are short term initiatives of rationalisation of fiscal structure, however with lack of reforms in the tax administration and policy initiatives, whether these proposals could contribute to the mandate of ‘continuity, stability and prosperity’ of textile sector in global market is doubtful. Source: http://www.moneycontrol.com/india/news/budget-sector-comment/budgetimpacttextile-sector-ey/405331 By: M Harisudhan is a senior tax professional with Ernst & Young, India.

COMMENT 2: New Delhi, 6th July, 2009 – Reacting to the Central Budget presented in Parliament by Finance Minister, Shri Pranab Mukherjee on 6th July 2009, Shri R.K. Dalmia, Chairman, CITI has welcomed the substantial increase in allocation for Technology Upgradation Fund Scheme. The allocation has been increased from Rs.1090 crore last year to Rs.3140 crore this year. Because of inadequate budget allocation, there has been a backlog of more than one year in disbursements of TUFS assistance. Shri Dalmia stated that increase in budget provision would be able to remedy this situation substantially. Reintroduction of 4% optional excise duty for cotton textile products is also a welcome step since this would allow textile companies to use cenvat credit on capital goods, dyes and chemicals, packing materials etc. Shri Dalmia also welcomed extension of 2% interest subvention on export credit from September 2009 to March 2010 but added that the industry was expecting the subvention to be restored to the original rate of 4% which has not been done. Abolition of fringe benefit tax and commodity transaction tax are also welcome features of the Budget, Shri Dalmia added. Referring to the negative proposals in the Budget, Shri Dalmia pointed out that mandatory excise duty on man-made fibres, filaments and their raw materials has been increased from 4% to 8% which would make fibres even more uncompetitive than they already are. Increase of Page 50 of 57

MAT from 10% to 15% on book profit will also have a negative impact, though very few companies in the textile sector are making profits right now. On service tax, certain services have been exempted and in the other services, the procedure for reimbursement has been simplified by introducing self-certification and certification by Chartered Accountants. Shri Dalmia hoped that this would take one irritant out for the exporters. While increased allocation for integrated textile parks and announcement of two mega parks for handlooms and powerlooms are welcome, the benefit of these measures would take a while to materialize. Shri R.K. Dalmia stated that nothing has been done in the Budget to address the important issues of power cost and working capital cost that the textile and clothing industry is facing. Shri Dalmia stated that the Budget was a missed opportunity for Government to pull the export oriented and labour intensive T&C industry out of its current crisis. The proposals are a mixed bag of certain positive steps and certain negative steps and these do not have the potential to bring the industry back to the path of growth in production as well as exports. Source : http://www.citiindia.com/budget.asp

CONCLUSION The Indian Textile Industry has shown sagging performance over a long period. Its performance is deteriorating by the day. Although Government has taken various policy initiatives to revive the industry, they have not been effective to the extent expected. There are certain core issues that require urgent attention of the government. These issues include difficulties such as power shortages, infrastructural bottlenecks, stringent labour laws, high fiscal duties/taxes, etc. The recommendations highlighted in the report are based on a thorough analysis of the sector and its difficulties. These will cumulatively help revive the Indian Textile Industry if implemented in full spirit.

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ANNEXURE – 1 SWOT ANALYSIS OF COMPETING COUNTRIES 1. TURKEY

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2. BANGLADESH

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3. CHINA

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4. VIETNAM

5. SRI LANKA

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ANNEXURE - 2

EXTRACT OF AN ARTICLE ORIGINALLY PUBLISHED IN TEXTILE REVIEW, MARCH 2009 Three Immediate Priorities for the Indian Textile Industry Why is Indian textile industry lagging behind China? Why is the Indian garment/fashion industry lagging behind Italy? We all have clear answers to these questions. They are: scale and quality. Indian textile industry and for that matter the Indian manufacturing industry has to chase the Chinese and Italian industry to achieve output and quality. Whereas, by properly utilizing the available resources and engaging in collaborations with the Indian R&D sectors, incremental innovations can be quickly achieved in the Indian textile industry. These small innovations may help the Indian textile sector to catch-up with the Chinese and Italian industry. Here it is useful to refer to a column in the widely read USA based Atlantic Monthly. James Fallows of the Atlantic Monthly in one of his famous reports from China, "China Makes the World Takes, July 2007," admires the manufacturing power of China and attributes it to its abundant manpower resource. Basically, the economy of scale in the manufacture of commodity products has given China this competitive edge. So the situation which was rosier years back in China is changing, when its competitive advantage i.e., low cost abundant labor is getting somewhat eroded due growing labor power in other low wage countries. Today, 20 million migrant workers are jobless in China who are returning back to their villages due to slump in export and loss of jobs. At the same time, high labor wage countries which are known to produce designer products such as Italy are struggling to keep their factories open. What is the best solution in this situation? Those countries that offer a balance of good quality products at competitive prices will have better opportunity. Also if emerging markets like India which could not only develop its industry base to cater to export markets but also to serve its growing middle class domestic market will be the winners in near long term. To reach this milestone, the Indian textile industry should stand on three legs which are: 1. enhancement of its scale, which is horizontal and logical diversification; 2. improvement in the quality of its products 3. innovation. The future for the Indian textiles sector rests in these legs.

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WEBLIOGRAPHY:      

www.siyaram.com www.texmin.nic.in (Ministry of Textiles) http://business.mapsofindia.com/india-industry/textile.html CMIE (Data Bank) http://www.citiindia.com/budget.asp (Confederation of Indian Textile Industry) http://www.moneycontrol.com/india/news/budget-sector-comment/budgetimpacttextile-sector-ey/405331



www.worldbank.org.in (World Bank)



www.wernerinternational.com (Management Consultants To The World Textile, Apparel &



www.cea.nic.in (Central Electricity Authority of India)

Fashion Industry)    

http://textile.2456.com/eng/epub/n_details.asp?epubiid=4&id=4041 http://www.citiindia.com/textiles_schemes.asp http://www.ibef.org/industry/textiles.aspx (Indian Brand Equity Foundation) http://www.txcindia.com/html/tufssub.htm  www.economywatch.com/business-and.../textile-industry.html

BIBLIOGRAPHY: 

Annual Report Of Siyaram Silk Mills Limited 2007-08



Textile review, March 2009 Issue



CITI Vision Statement Report 2007-2012

  

Compendium of Textile Statistics 2006, Office of Textile Commissioner Journal For Asia On Textile & Apparel (June 2009 Issue) ICRA Report, June 2009 on “Study on Impact of Economic slowdown on Indian Textile and Clothing Industry”

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