Textile & apparel: Weaving a new success story?

The textile and apparel industry holds a huge share of India’s export basket and has evolved over the last few decades. COVID-19 has disrupted the sector but it seems to be regaining lost momentum. This blog explores measures that the government can take to grow textile market share.

  • The domestic textiles and apparel industry contributes 2% to India’s GDP and 12% of the country’s export earnings, making it the sixth largest exporter of textiles and apparels in the world.
  • The industry is the second-largest employer in India after agriculture, providing direct employment to 45 million people in 2018-19 in and 60 million people in allied industries.
  •   The sector is robust, dynamic and is a huge attraction for investment due to relaxed FDI norms.
  • To grow its market share, India needs to tackle certain issues like changing global sourcing patterns, low levels of employment, infrastructure bottlenecks and tough competition.

Image credit: shutterstock

With the advent of COVID-19, the domestic textile and apparel sector witnessed a blow in terms of both domestic and overseas demand. The imposition of subsequent lockdowns created a lag in supply chains leading to cancellation and delaying of orders. However, the sector started gaining momentum back in September, 2020. 

The Government of India conducted a symposium with Export Promotion Councils and other industry stakeholders in September 2020 and identified a list of potential export products, sharing them with Indian Missions abroad for identification of potential buyers in respective countries. Various other decisions of the Ministry of Textiles, such as provision of funds under the Upgradation of Technology in Textiles SectorIntegrated Scheme for Development of Silk Industry, planning of mega parks for the industry and  provision of 100% Foreign Direct Investment under the automatic route have proved to be a boon for the sector as a whole. Due to these efforts, FDI in the textiles and apparel industry has reached up to US$ 3.45 billion during 2020 amidst a global slowdown.

As COVID-19, gripped the country, India started manufacturing PPE kits and became the second largest manufacturer of PPEs in the world in a short span of time. More than 600 companies in India are certified to produce PPEs till date .The global market worth of these companies is expected to be over US$ 92.5 billion by 2025, up from US$ 52.7 billion in 2019. Exports in the textiles and apparel industry are expected to reach US$ 300 billion by 2024-25, resulting in a tripling of Indian market share from 5% to 15%.

Issues gripping the sector

Firstly, though India is the the second largest producer of textiles and garments after China, it faces tough competition from various nations like Bangladesh, China, Viet.Nam and Sri Lanka. This is due to the price factor as all these nations provide for low-priced garment sourcing countries. Indian exports are pretty expensive compared to neighboring nations, primarily due to factor costs being high. A comparative analysis of factor costs in competing nations is depicted in Table 1.

Table 1:Factor cost comparison of India with competing countries

Cost element Unit India Bangladesh China Vietnam Cambodia Ethiopia Kenya
Labour cost* US$ per month 160-180 100-110 550-600 170-190 180-190 60-80 170-190
Power cost US$ per kwh 0.10-0.12 0.9-0.12 0.15-0.16 0.08-0.10 0.20-0.25 0.03-0.04 0.09-0.20**
Lending rate % 11-12 12-14 5-6 6-7 14-16 6.5-7.5 16-18
Water cost*** US cents per m3 16-20 20-22 55-60 50-80 70-90 30-40 150-180

Source: https://wazir.in/pdf/Wazir_Annual%20Report_Textiles_Soft%20Copy.pdf (last accessed May 7, 2021)]

Note: *Cost for semi-skilled labor; includes all benefits 

**9 cents for EPZ units 

***Water cost is based on the average tariff of the water supply companies of specific countries

Secondly, infrastructure bottlenecks remain a huge issue for Indian exports. India faces a tough challenge from Asian countries in terms of low quality infrastructure. The poor conditions of roads, highways etc create supply chain constraints thereby increasing inventory holding and inventory carrying cost. Further, access to the latest technology remains a challenge, preventing the industry from meeting global standards in the highly competitive export market. This results in disruption of trade .

Thirdly, the textiles sector in India is dominated by unorganized and small players. With the abolition of export linked subsidies due to compliance with WTO norms, these players will need urgent support to remain competitive in the export market.

Additionally, changes in international sourcing environment are posing to be a challenge for Indian apparel suppliers. Developed nations are becoming increasingly concerned about responsible production policies, ecology and environment. Hence, there is a greater demand for greener textiles in the foreign markets. As India is one of the key garment sourcing destinations in India, more and more companies are realizing the importance of corporate social responsibility (CSR) norms that have been laid down by the importers as a pre-condition for doing business with other countries. Due to the unorganized nature of the sector creating environmental effects in terms of pollution, India still has a long way to go in terms of greener textiles to sustain its exports internationally.

At the same time, employment in organized textile and apparel sector has improved marginally over the years:

Year Employment share of textiles to total manufacturing
2011-12 17.73
2012-13 18.0
2013-14 18.28
2014-15 18.20
2015-16 18.52
2016-17 18.09

Source: Ministry of Textiles, figures in %

The improvement in the employment in unorganized sector taking into account various factors like night shifts for women, safe working environment and social security schemes can help in enhancing the labor participation and thereby increase exports.

This could be also achieved through the following measures:

  1. Access to updated technology: The Ministry of Textiles has  a scheme named Upgradation of Technology in Textile Sector for updation of technology in the industry, but the funds allocated for the same have dropped from Rs 15.2 billion in FY 2015-16 to Rs 7 billion in FY 2019-20. Allocation of more funds to this scheme would improve India’s capacity to access latest technology as it would increase investments in the sector thereby increasing exports.
  2. Flexible labour laws: Karnataka Government on 20th November’ 2019, issued a notification  enabling women employees in factories to work during night hours, from 7 p.m. until 6 a.m. The employer while providing employment at night needs to comply with certain health, safety and security conditions. Such legislations in various cities like Bangalore, Mumbai, New Delhi and Tirupur, which are considered as  the hubs of textile and garment industries will significantly improve manufacturing. These manufacturers have the ability to produce the entire range of woven wear and knitwear at low costs with reasonably good quality within short notice.
  3. Skill Boosting Workshops: As most of the supply chains in the industry are unorganized and the work skills are passed from generation to generation, various industry organizations in collaboration with state governments should conduct training sessions and workshops for the artisans and karigars involved in the industry. This would help in more participation of employees in the industry, thereby increasing exports.
  • The total textile and apparel exports have dropped from US$ 36.86 billion in 2014-15 to US$ 36.63 billion in April-March in 2019. To ramp up exports, India can focus on being the low cost destination as many companies have already moved away from China. For this, it is important that domestic companies are provided support to operate at scale.
  • Lastly, various options like (a) regional subsidies (thereby not directly providing export linked subsidies directly and being WTO compliant) as well as an (b) improved physical as well as intellectual property infrastructure and (c) sustainable business options like smart stich etc. can make this sector gain comparative advantage against many other nations.
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Drishti
Drishti
6 months ago

Well articulated and interesting research insights.

Devyani
Devyani
6 months ago
Reply to  Drishti

Thank you

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