How to increase exports of garments from India

The garment industry is very competitive, and countries are being able to export only if they are competitive, writes Saon Ray.

W hile India is among the top 10 garment exporters in the world, it has been steadily losing its share. In 2018, its share in world exports of garments stood at 3.3 per cent against 6 per cent in 2013. The global trade in textile was worth $104 billion in 2005 and $251 in 2018. The leading exporters of garments include China, EU, Bangladesh, Vietnam, India, Turkey, Hong Kong, Indonesia, Cambodia and the US. At the same time, countries like Bangladesh and Vietnam have increased their share in the world market. We provide some answers as to why this may be happening based on a survey of five garment clusters in India.

The textile and clothing industry is a diverse and heterogeneous industry, which covers a great number of activities, from the transformation of raw materials to fibres, yarns, and fabrics. These in turn, enter into a production of a number of products including clothing. The maximum value addition to textiles is done by the garment sector, which is the last stage of the textile value chain. The clothing sector covers made-up products that are articles of apparel and clothing and accessories.

Garment production is organised into clusters with units scattered all over the country. The clusters are categorised into two: type of garment (i.e. knitted or woven), and variety of product (men, women, kids wear).

AEPC [1] in 2009 estimated that 95 per cent of the production is in the top 19 clusters, whose annual production is 8,900 million pieces. Of this, 6,800 million pieces fulfill domestic demand and 2100 million pieces are exported. The total number of garment units in these 19 clusters is 33,371. The clusters are specialised in terms of type of garments (either woven or knitted), and the variety of the products (men, women or children).

Estimates by Technopak, in 2018 put the number of firms engaged in the garment sector at 100,000 with 70 per cent of the units being small in size. The number of pieces produced per day is about 58,17,0000. Twenty seven per cent of this was exported, according to Technopak.

The process of manufacturing a garment comprises of several steps: cutting, stitching, embroidery, fixing of accessories, dyeing etc.The domestic market is a category with products of a lower quality than those exported. The segment can be subdivided into items that are branded and sold through organized retail and those that are not branded.

A survey of apparel manufacturers in India was conducted to understand the nature of competition to India from products manufactured in the other South Asian countries. Tirupur, Kolkata, Ludhiana, and Bangalore emerge as the leading centres, while the combined sales of the NCR region make it one of the top business centres for apparel products. About 127 firms were interviewed with approximately 25 respondents in each cluster. The survey of these clusters of the apparel industry of India was conducted over a span of 30 days in September to October 2010. Majority of the firms surveyed were small.

The five clusters chosen for the survey were Tiruppur, Kolkata, Ludhiana, and Bengaluru. Some details of each cluster are presented below:

• Kolkata: This cluster is the oldest knitting cluster of India catering primarily to the domestic market with limited exports to the Middle East. The production consists mainly of traditional items like undergarments and kids wear. It is the birthplace of hosiery industry of India and the principal hub for interlock fabric. Additionally, it is the only centre for production of work wear. This cluster has a turnover of Rs 12,200 crore.
• Bengaluru: It is one of the oldest and the most organised apparel hub of India with a turnover of more than Rs 50,000 crore. It contributes extensively towards domestic market as well as exports. Its main strength lies in its close proximity to the sources of raw material, rendering to its strong supply chain link. The production is organised on a unique model of outsourcing operations on FOB basis and consists of mainly cotton based menswear and daily wear garments.
• Tiruppur: Tiruppur is the leading export hub of India for knitted garments. It is well integrated with units specialising in different activities like fabricating, dyeing, knitting, etc. The local availability of raw material and skilled labour force are the biggest strengths of the cluster. Production is concentrated in menswear, kids wear and undergarments.
• Ludhiana: This cluster has a rich heritage in production of a wide variety of winter wear garments using a range of raw materials. Total annual production of the cluster is 14 lakh pieces and the turnover is estimated to be Rs 7,000 crore. Majority of the goods are meant for domestic consumption with exports estimated as only 20 percent. The products manufactured include sweaters, cardigans, jackets, mufflers, t-shirts and polo shirts, and gloves.
• Delhi: Around 70 per cent of production in this cluster is of fashionable ladies wear like blouses, tops, skirts, dresses, etc. Apart from this, several units are also engaged in manufacturing shorts, skirts, frocks, etc. for children and trousers and shirts for men. The Okhla cluster has an annual turnover of approximately Rs 800 crore with an annual production of 3.20 crore pieces. A large share of products manufactured in the cluster is exported to EU and USA with buying houses playing a crucial role in sourcing the products.

Findings from the survey

The survey reveals that competitiveness of the Indian garments lies in its designing capabilities, and the technology employed in production. Countries like Bangladesh manufacture basic products with negligible value addition while India specialises in delivering creative and designer apparel. Firms that are exporting only, face very little competition from the South Asian countries. The South Asian countries were outperformed by Vietnam, Indonesia and Cambodia in terms of exports, product diversity and non-cost related factors. The key factors for global buyers are firm capability, cost, quality, lead time and reliability. Access to inputs, full package services, social and environmental compliances are also important.

Most firms typically outsource a large part of their production to ‘job workers’ and the only employees they report are administrative personnel who are not production workers. Again due the practice of outsourcing by firms, investment in plant and machinery is low for typically small firms. Some of the respondents have said that only stitching is done in house while the rest of the activities are outsourced.

As far as the domestic market is concerned, the competition is not coming from South Asia but mainly from other countries such as China, Cambodia, Vietnam, etc. Moreover, most of the competition faced by the firms in the domestic segment is coming from other firms in the domestic segment. This implies that the domestic market in itself is highly competitive and does not face any significant competition from South Asian products.

Problems faced by firms

The narrow fiber base in the country is a constraint since only cotton and viscose are used. This limits the manufacturer’s capacity to produce and supply all round the year. Hence most of the Indian manufacturers are targeting only the summer season and producing for a very small period of the year. Access to cheap credit is also another factor, especially for small firms. The other constraints faced by the firms include the rising cost of energy production is high in all states. However, the main constraint in the context of garment manufacturing in India is the time taken for export final products and import raw materials and accessories.

What needs to be done to boost exports?

The garment industry is very competitive, and countries are being able to export only if they are competitive. Due to the complex industrial structure prevalent in India, the scope for improving competitiveness is limited as there are constraints to the use of labour as well as the availability of land. However, there is still scope for improving the competitiveness of the firm if the time taken to transport goods is minimised. This is particularly important for items such as garments where the difference in capabilities of production is not much between firms and the margins are very low.

In order to boost exports, the firms interviewed said the following things:

• Improvement of the road, rail and air network such that companies can streamline their input procurement process and supply to buyers and retailers.
• Streamlining transportation policies that will help release of products and goods by custom and clearance agencies quicker.
• Import of fabrics should be made simpler and a single window affair.
• Lower interest rates, easier bank loans for investment for company expansions or new machinery procurements.

References

• AEPC Study (2009) Indian Apparel Ckusters: An Assessment, AEPC.
• Ray, S. (2019) What explains India’s poor performance in garment exports: evidence from five clusters? ICRIER Working Paper 376.
• Techopak (2018) Study on “Garment Sector to understand their requirement for capacity building”

[1] Based on AEPC (2009)

The article is authored by Saon Ray, who is Senior Fellow with the Indian Council for Research on International Economic Relations (ICRIER).