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  • The Indian Textile Industry is the Engine for Economic Growth

Blog

14 Jun

The Indian Textile Industry is the Engine for Economic Growth

  • By admin
  • In Blog
  • 191 comments

BY AMIT MITTAL, Business Coach, Consulting & Advisory

“Indian textile industry is at a cross road and could be a possible engine of growth for Indian economy, however companies need to  gear up and develop strategy that focuses from efficiency to innovation”Amit Mittal, Business Consultant

Introduction

India is hemorrhaging.  With one of the highest debt rates in the world, a volatile rupee and enormous inequality, redistribution cannot solve the problem. India must focus on wealth creation, and it has one engine that the Policy makers appear to have forgotten. India’s Textile and Apparel industry is the country’s 2nd largest employer after agriculture, the 14 percent contributor to industry, 4 percent to GDP, 11 percent to export earnings and providing direct employment to over 45 million people. India is second largest producer of cotton in the world. It produces 23 percent of the world’s total cotton produce. Per capita consumption of cotton in North America is about 31 kgs., West Europe is 22 kgs., China is at 17 kgs., and India is about 7.5 kgs. whereas, the world’s average is 11 kgs. The growing world’s population, increase in consumption of textiles in the emerging economies will drive polyester consumption at par with cotton.

The Indian textile industry is set for strong growth, buoyed by both strong domestic consumption as well as export demand. Abundant availability of raw materials such as cotton, wool, silk and jute and skilled workforce has made India a sourcing hub. According to Ministry of Textiles, the current size of India’s textile and apparel industry is estimated at ₹ 441,800 crores in 2012. By 2020, Indian textile and apparel industry is expected to reach ₹ 1,034,000 crores with CAGR of 11%.

Growth Drivers

There are number of factors driving the textile industry growth. Organized retailing in India is currently at 5% and it is expected to grow up to 24% by the year 2020. The 40% of the demand of organized retailing comprises of apparel and textile, therefore increase in organized retailing space will exceptionally impact the apparel and textile demand.  This growth will be further supported by the higher disposable income of the people and increase in working women to 32% by 2020 compared to 26% in 2010. Urbanization is expected to grow to 40% by 2031 contributing 75% of the GDP. During the last decade the middle income group population in India has increased 4 folds.  Even the earning population (age 15-60) has grown to 60% further boosting the domestic consumption. Strengthening of the banking in India and increased usage of the credit cards thus increased the spending of the people.

The sustainable real GDP growth rate is about 8%, sustained by increasing industrial output, rising disposable income and increasing nuclear families have supported construction activities thereby driving the demand for textiles. Even automobile and packaging industry has reinforced textile growth. The hospitality industry is growing at 10% and health care industry is growing by 13% per annum. An increase in hotel rooms or increase in number of hospitals will drive the demand for work wear, technical textiles and home textile products.

The main export growth drivers for Indian apparel and textile industry are mainly related to cost, availability of raw material and China emerging as a developed economy.  There has been steady shift in textile manufacturing towards low cost Asian countries. China with 36% (year 2010) contribution is leading world textile and apparel market. China with more than $ 8 trillion GDP with the growth rate of 7.6 % is slowly moving towards developed economy. Textile industry in China is losing its focus to other high end industries due to higher manufacturing cost, compliance and pollution issues, impelling Chinese government to concentrate on less energy consuming industries leaving textile aside. Even increase in China’s per capita income has impacted the export market as country is moving towards self-consuming economy.  India is in a favorable position compared to China given the skilled and cheap labour cost, abundance of raw material and younger earning population. Apart from this, buyer would like to de-risk their sourcing by concentrating on other Asian countries. There is untapped export opportunity in other Asian and Latin American developing countries due to rising income, population and increasing organized retailing.

Challenges

But, it’s very challenging for companies to operate in current setup. Textile and garments industry is fragmented with small and/or unorganized units dominating the landscape. The primary reason for the fragmented nature of the industry is the government policy which encourages small investments across the value chain in weaving, knitting and garments. Each of these stages of the value chain requires comparatively lower capex and engages semi-skilled workforce available in regional textile manufacturing clusters. Spinning segment has seen modernization in terms of technology upgradation, but the bigger challenge remains to drastically alter the technology landscape in power loom sector and consequently improve low productivity level

Consumers, globally are increasingly more assertive in demanding improved labour and social compliance from the retailers at the expense of potential of boycotts. Thus, retailers globally are seeking reliable, sustainable and socially accountable supply chain, which has resulted in a gradual shift in retailer’s procurement strategies. Textile and apparel industry comprises of unorganized manufacturers, who due to ignorance and cost pressures are unable to deliver globally accepted quality product.

Another challenge, that textile and apparel industry is facing, is unreliable supply chain. Due to fragmented industry nature, there has been very limited business processes standardization. This has further complicated the control over the product cost lead to shrinking margins. The delivery performance is impacted by unpredictable supply chain. This leads to higher inventory levels in order to ensure timely delivery, thereby incurring huge interest burden. 

Apart from this, most of the companies have issues with organizational culture and their readiness to face the future. Besides being unorganized and fragmented, majority of the companies are family driven and lack professional approach in managing day-to-day business affairs. Even though there has been increased influx of professionals managing the businesses, stakeholders are resistant to  the much needed change.

Developed economies have been driving the exports market, but these markets are not immune from a global slowdown and recession. As we have seen in the past, slowdown in in major markets has adversely impacted business in India. There might be future changes or disruption both in domestic and international markets, potentially exposing companies in this sector to global vagaries. 

Way Forward

For companies to survive, excel and outsmart they have to gear up now. Their strategy should focus from efficiency to innovation.

Efficiency


Indian textile and apparel industry will have to move towards vertical integration to have better control over cost and supply chain. Manufacturing excellence will lead to uniform standards and improved business processes, thus helping in cross functional alignment, integrated knowledgebase, and performance measurement functions. Implementing supply chain best practices will lead to improved delivery performance through resource optimization, better planning and forecasting. A higher inventory turnover would further reduce product lead time, improve cash flow and liquidity.
For instance, one of our clients had a very complex supply chain; most of it was outsourced taking away major portion of margin in value addition. The supply chain was unreliable and encountered various quality challenges. Apart from poor warehouse management, the company had low inventory turnover ratio. Through our initiatives the warehouse was systematized by adopting 5s methodology and embracing industry best practice in supply chain. This resulted in inventory reduction by 65% and wastage drop by 6%. Few processes were realigned and few were shifted to in-house production which led to 10% improvement in raw material realization and reduced process cost by 15%.
Product diversification
Besides this, a diverse product mix will help managing product risk  and ensure better product returns. Usually textile manufacturing is focused on its core product leaving aside complementary product offerings to the market. Firms have gained by differentiating their product while applying minor changes in raw material and process used. Further, few clients have reinvented their approach to market by identifying gaps and modifying their products to suit the market needs.    
Effective organization

It is important to have an effective organization which is flexible and adaptable to ever changing environment. It is critical not only to have talented professionals but also to ensure correct alignment of roles with their skill sets. Regular interactive sessions and proper performance measurement system will reinforce organizational effectiveness. An efficient organization with reduced costs and improved margins will be sustainable in the long run.

Our clients have addressed these issues by adopting the structured framework. Initially, stakeholder’s vision and mission is communicated throughout the company. While aligning professionals to the organization’s vision, professionals are being assessed for individual capacity and capability. Then, it is critical to diagnose and align individual capability to various functions within the organization. While aligning the professional’s capability to core functions it is essential to identify and set key performance indicators (KPI) and monitor it periodically through well-defined performance measurement system (PMS).

Innovation

Innovation in product, design, brand, channels along with re-engineered business processes will help companies be ready for future growth opportunities. Once embraced, they can quickly outsmart competition.

Final Takeaway

India is third largest exporter of textile and fifth largest exporter of garments in the world. Our garment industry can easily absorb 30 to 40% of fabric produced by the local textile industry. India has an advantage of cheap and abundant labour, and a wide variety of fabrics from premium quality to better quality are all produced in India (Government of India, 2013). The Industry has been designed in clusters to ensure easy access to it. India can produce garments at a better quality that are priced competitively vis-à-vis, provided the industry adopts global best practices.

Indian textile industry is at crossroads. It could be a possible engine of growth for Indian economy, especially in the area of job creation – it has the potential of generating two million additional jobs (per year??). Jobless growth of the past decade can be transformed into one that leverages resources optimally and generates opportunities for the economy and the people. However companies need to gear up and adopt a strategy that focuses on efficiency and innovation.

admin

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