The Textiles and Clothing Industry has the potential to grow significantly and contribute to the Government’s ambitious target of achieving a USD 5 trillion economy by 2024-25. Though the domestic demand is further likely to accelerate, the stagnancy in exports is a concern.
The performance on the export front, having about a quarter share in present overall demand, will significantly influence the development path of the industry. The present article explores the growth potential, challenges, and opportunities in the Textile and Clothing Industry at the present stage of the macro-economic and dynamic international trade environment.
Textiles and Clothing Industry
The Textiles and Clothing Industry contributes about 10% to industrial production, about 12.5% to the export earnings and about 2% to GDP is a key manufacturing segment of the Indian Industry. It is positioned uniquely, linking cotton farmers at one end and as a provider of vast direct and indirect employment in the manufacturing value chain spanning from spinning, weaving, and processing to finished garments and clothing.
The National Household Survey 2017 to assess the market for the Textiles and Clothing Industry carried out by the Textiles Committee estimates overall market size of USD 163.70 billion. Domestic household demand, in terms of value, has been increasing at a 7.7% Compound Annual Growth Rate (CAGR) in the last five years. The share of household, non-household and exports in this overall market size in 2017 was USD 89.88 bn (55%), USD 39.96 bn (24.4%), and, about USD 40 bn (20.7%), respectively.
Textiles and Clothing Industry – Macro Perspective
The immense contribution made by wage good industry like T&C in accelerating the economic growth of nations is well documented in economic literature. In the initial stage of economic development, in the absence of more productive avenues due to manifold reasons.
The textiles and Clothing Industry is found to be playing a catalytic role in shifting surplus labor from the agriculture sector to more productive industrial activities. In this transformation process, the T&C industry is mainly driven by export demand as domestic demand is usually limited.
The industry has been instrumental in accelerating the growth process of many countries along with creating a large pool of industrial workforce, creating a culture for more advanced manufacturing and other economic activities. One of the main reasons for this ubiquitous characteristic of the textile industry is the high proportion of wage component in the overall value of output.
The wage fund so generated releases significant income in the hands of the workforce to create demand for goods and services and accelerate the cycle of economic activities in associated areas.
Key Growth Drivers in Textiles and Clothing Industry
The role of exports in accelerating GDP, and the relation of textile and clothing exports with GDP growth rate and per capita income level of selected economies like South Korea, Hong Kong, China, and Vietnam confirms the positive contribution made by exports in general and T&C exports in particular. China and Korea, both were able to achieve higher economic growth by promoting exports.
China’s exports grew by 20% CAGR during 2000-2010. During the same period, China’s GDP grew by 11% CAGR. South Korea’s exports grew by 14% CAGR during 1980-1990 and during the same period, its GDP grew by 10% CAGR. In the case of these two countries, T&C exports and GDP growth rate recorded the highest growth in the identical time span.
China’s textile exports grew by 15% CAGR during 2000-10 while China’s GDP grew by 11% CAGR in this period. Similarly, Korea’s textile and clothing exports grew by 10% CAGR in 1980-1990, which was the period when Korea achieved the highest economic growth of 10% CAGR.
Growth Potential of Textiles and Clothing Industry
India is well poised to gain from world trade in Textiles and Clothing Industry. A part of the gain may come from the relocation of the textile industry especially cloth manufacturing outside China in sync with China’s increasing per capita income (USD 9,771 in 2018). The growth experience of Japan, Korea, and Hong Kong show that with rising per capita income, it is quite possible that about USD 120-140 bn or more textile and clothing exports may shift out of China to other competing nations including India. Also, the increasing practice of reducing sourcing bases. by global retailers/buying houses may also benefit to integrated suppliers mainly in Asia chiefly outside China.
Another way to assess the growth potential of the Textiles and Clothing Industry is by way of its correlation with fiber consumption. India’s textile fiber consumption has recorded a growth rate of about 5% CAGR during 1990-2017, 2000-2010, and 2010-2017. China’s fiber consumption has shown a growth rate of about 7-8% CAGR during 1990-2017.
The determined efforts can see textile fiber consumption growth in India by 7% CAGR in the next 12-15 years to reach about 32 mn tons from about 12 mn tons presently. This scenario corresponds to achieving about a 10% share. in the world trade of Textiles and Clothing Industry by 2032. In such a scenario, the market size of the textile industry grow from about USD 120-130 bn at present to USD 350 bn by 2030-32 and would be able to create about 90 lacs to 1.1 crore jobs directly.
Area of Concern – Textiles and Clothing Industry
Some of the areas, which need immediate attention are mentioned below:
- Cotton Continues To Be Fiber of Privilege Especially in Wearable Segments – Despite the fact that cotton share in world fiber consumption is reducing with a varied use of manmade fibers, the importing trends of Textiles and Clothing Industry products in the USA clearly show that cotton textiles account for about 40 per cent-45% of imports, even in blended textile/clothing products for the wearable segment, cotton has a significant presence. The experience of other developed countries and newly industrialized countries is also not likely to be very different from the USA and as such cotton will continue to be the product of choice in the wearable category and its demand would not recede in the coming years.
- On the export front, the relatively higher tariff rates faced by Indian exporters in most major markets vis exports from competing exports from Bangladesh, Vietnam, and similarly positioned countries calls for further cost competitiveness, if the same is not addressed by trade policy measures. The challenge in this direction is to further simplify the ease of doing business and to remove disadvantages on account of input factors including logistics.
- The export performance of textile and clothing products in major importing markets especially with which India has preferential trade arrangements reveals discouraging performance. A partial explanation of such a scenario may lie in absence of competitive manufacturing capacities capable of delivering world-class quality at desired scale and speed. Other contributing factors are tariff or non-tariff barriers placed by importing countries. The range of challenges for achieving cost competitiveness in the Man Made Fiber (MMF) downstream industry is also varied. The growth of MMF in India is a must to increase global share in Textiles and Clothing Industry exports.
Initiatives to Realize Growth Potential
The majority of the Textiles and Clothing Industry units are Small and Medium Enterprises. Ministry of Textiles presently provides support to Textiles and Clothing Industry under different schemes: for technology up-gradation, infrastructure, R&D, Technical Textiles, and Capacity Building. Briefly, the areas of concern are as follows:
- Technology Up-gradation Fund Scheme (TUF) – a credit liked subsidy scheme was introduced in 1999 to catalyze capital investments for technology up-gradation and modernization of the textile industry. The present scheme is known as Amended TUFS (ATUFS) which was launched: in January 2016. More than USD 50 bn worth. projects have been sanctioned in the last 18-20. years under this scheme, which has also brought some desirable results in some segments chiefly spinning, weaving, and fabric processing. Still, the modernization of weaving and processing segments continues to be an area of concern.
- Fabric Sector – The high productivity shuttle looms population in China was about 8.35 lacs against India’s 72,000 only in 2017, which greatly explained the weak global competitiveness in terms of quality, scale, and price of the fabric segment of India’s textile value chain.
- Infrastructure and Logistics – The Scheme for Integrated Textile Parks (SITP) was launched in 2005 to neutralize the weakness of fragmentation in the various sub-sectors of the textiles value chain, and the non-availability of quality infrastructure. This again continues to be an area of concern.
- Cotton Sector – The Technology Mission of Cotton (TMC) by 2012 achieved a reduction in trash content in Indian cotton from high levels of 4-8% during the pre-TMC period to 1.5-3% post-modernization under Mini Mission-IV of TMC. Cotton fiber production, productivity, and quality need focused attention.
- Environmental Concerns – The major challenges faced by textile processing are the availability of water, effluent treatment, and disposal of treated water and solid effluents. These concerns need to be factored in and addressed for sustainable growth.
- The high growth potential of Technical Textiles remains to be tapped.
- Low FDI in Textiles and Clothing Industry
- Lack of commensurate growth in the textile machinery sector in India
Looking Forward to Textiles and Clothing Industry
The next 15 years can prove to be transformative for the Indian textile industry. An invigorated textiles and clothing industry is best suited and can give the Indian economy the necessary impetus to shift to more value-added industrial activities and achieve a higher per capita income level.
India needs to work with an approach of holistic development of the complete textile value chain acknowledging its integration with the global value chain at each stage. It is established that global cost competitiveness is the key to attracting Textiles and Clothing Industry manufacturing in India. Some of the prominent reasons for the high-cost structure, which inhibited growth in the past and still persists need to be addressed on priority.
Therefore, focusing on the global cost competitiveness of each segment to benefit from the Textiles and Clothing Industry manufacturing relocation wave taking place in Asia due to economic fundamentals and regional integration, is a must. Achieving a 10-15% share in the world textiles and clothing trade and thereby channelizing trickle-down impact towards the rural sector through cotton connection and shifting of the disguised unemployed workforce in agriculture and allied sectors towards more productive usages in industrial activities should be the utmost priority.