Going Amiss?

India dreams of capturing 8-9 per cent of the total global trade by 2020, however looking at the present scenario, it may capture a share of only 5-6 per cent by 2020.

India is No. 2 in the global textile trade, next only to China. But the country’s share is a measly 4.5 per cent against the 45 per cent of China’s. The Indian textile and apparel industry was estimated to be worth Rs 6,25,930 crore in 2015 and is projected to grow at a CAGR of 9 per cent to reach Rs 9,35,123 crore, by 2020.

A knowledge paper from Wazir Advisors reveals that the total textile and apparel exports of India stood at $40 billion in 2015. Apparel is the largest exported category in India’s exports with a dominant share of 43 per cent. It is followed by the exports of others category, which includes home textile products, made-ups and handicrafts. Others category contributed a share of 25 per cent in the total textile and apparel exports of India. Fibre/filament category has registered the highest growth in India’s export of textile and apparel with a CAGR of 13 per cent however their exports have fallen down since 2011-12.

The report states: “EU and USA are the largest markets for Indian textile and apparel exports with shares of 19 per cent and 18 per cent respectively. The other major export markets for India are UAE, China and Bangladesh which have a share of 9 per cent, 8 per cent and 5 per cent respectively. India has a large textile manufacturing set-up and is among the very few countries with production facilities across each level of the manufacturing value chain, from fibre to finished product (garments, home textiles and technical textiles).”

The garment sector too has for long remained reserved for small scale thus seriously affecting the competitiveness of the apparel segment. Moreover there are textile centres spread across the country specialised in a single process resulting in the goods travelling long distance for value addition thus resulting in loss in efficiency and increasing the logistic cost. Need of the day is to have large integrated units or integrated textile parks which can make production more efficient.

As per the Textile Machinery Manufacturers Association (TMMA) report, the production of the textile engineering industry (TEI) recorded a decrease of 1 per cent viz. Rs 6,865 crore in 2018-19 as against Rs 6,900 crore achieved during 2017-18. The decline in production of spinning machinery was responsible for this decrease. It is expected that spinning machinery sector might increase its production during 2019-20. In weaving sector particularly, the shuttleless loom category, the growth rate was stagnant due to uncertain situation created by the unfavorable procedures under the ATUF scheme as well as adverse situation in the powerloom sector arisen because of the cash business. Synthetic filament yarn sector also recorded a marginal increase in production while the processing sector got a significant increase due to export. In fact, many of the processing machinery manufacturers did well during the first half of the fiscal gone by.

The export of textile machinery to the third-world countries increased during the year. The Association made efforts in helping the TEI to increase its exports further during the year. On the basis of the data furnished by the Directorate General of Commercial Intelligence & Statistics (DGCI&S), Kolkata, the estimated export performance during 2018-19 rose to Rs 3,665 crore as against Rs 2,939 crore achieved during 2017-18.

According to Navdeep Singh Sodhi, a Partner at Gherzi Textil Organisation, “The year 2019 was a challenging year for the global textile industry and India was not immune from international headwinds and slump in the domestic economy. India’s exports of textile and apparel declined by 4.3 per cent to $22 billion in FY2020 (April-November). Cotton yarn was a major casualty with 37 per cent decline whereby exports to China alone halved. Growth of apparel exports continued to be anemic.”

He added, “Distress in the industry and accumulation of NPAs (non-performing assets) got accentuated in 2019. The industry expressed reluctance in embarking on any major expansion projects which caused a slump in the textile machinery market, affecting both the local as well as international OEMs (original equipment manufacturers). The pessimism became evident at ITMA Barcelona.”

“The slump in global trade does not augur well for India’s textile exports till 2020. The WTO lowered its forecast for growth of merchandise exports in 2020 from 3 per cent to 2.7 per cent and that too predicated in normalisation of international trade relations. India is yet to take advantage of the shifts in apparel sourcing outside China,” said Sodhi.

Among the major challenges facing the Indian textiles industry are lack of global competitiveness (especially the downstream processing sector), fiscal policy anomalies and infrastructural issues. India has some world class companies in cotton-textiles however the same could not be said of man-made fibres (MMF) textiles. India’s exports of MMF textiles have been stagnant at $6 billion. Apparel manufacturing had been the engine of growth for textile industry in other Asian countries and whereas in India it continues to lag behind peers such as China and now Vietnam and Bangladesh.

“Exports of Indian MMF textiles during 2018-19 were $6,138.57 million against $6,024.08 million during the same period of previous year showing a growth of nearly 2 per cent,” said Ronak Rughani, Chairman of the Synthetic & Rayon Textiles Export Promotion Council (SRTEPC).

“However, during the last three quarters of 2019-20, export performance has been discouraging and is a serious concern for the Indian MMF textile segment. As per the latest available statistics exports during April-October 2019-20 in value terms were $3,427.63 million against $3611.46 million, witnessing a decline of 5.09 per cent as compared to the corresponding period of the previous year as per the data released by the DGCI&S. During the observed period, exports of MMF yarns have witnessed a decline of 15.8 per cent, exports of MMF have witnessed a decline of 8.37 per cent and MMF made-ups have witnessed a decline of 5.21 per cent. Only MMF Fabrics exports have witnessed 7.89 per cent growth during April-October 2019-20 as compared to the same period of the previous year,” added Rughani.

Said Rughani, “We are trying to extend our export promotional services to all the MMF textile clusters of the country and bring them on board under SRTEPC maximum of the companies being engaged in MMF textiles manufacturing and export. We are making constant effort to educate the MSMEs engaged in MMF textile production as to how they can export their products, be quality compliant, aware about the market opportunities, etc. The council is guiding these MSMEs right from obtaining IEC license, finding international buyer, filling GST returns, receive export realisation, etc. and providing them all round support for export. During 2020-21 it is envisioned to achieve an export target of around $6.8 billion – a growth of nearly10 per cent from the present export of $6.2 billion.”

As per Care Ratings’ report, cotton prices (S-6 & J34) during the year remained largely stable witnessing an increase of about 2-4 per cent on back of increased MSP despite weak demand after remaining range bound during domestic CS18 at about Rs 118 per kg on account of subdued demand from the spinners. Also, low and uneven rainfall along with loss of crop due to pink bollworm attacks in Maharashtra and Karnataka kept the supply in the domestic market tight during the year. Domestic cotton consumption increased only marginally by about 1 per cent YoY mainly by mills. In FY19, however, exports demand witnessed an improvement led by demand from Bangladesh, Vietnam, Pakistan and Sri Lanka. Exports to China remained strong as well.

Going forward, as per International Cotton Advisory committee (ICAC), on back of falling stockpiles in China despite marginally higher production in CS20, cotton imports are expected to witness a marginal uptick from China during the year. However, China’s cotton and cotton yarn imports from India are expected to remain under pressure as China has entered phase II of free trade agreement with Pakistan, which competes directly with Indian yarns and fibres. In July 2019, MSP for cotton – medium and long staple has been further increased by 2 per cent and 1.8 per cent for FY20 and currently stand at Rs 5,255 per quintal and Rs 5,550 per quintal respectively. However, going forward, prices are expected to remain range bound and average at about Rs 124 to 127 per kg for CS20 despite increased MSP due to higher production amidst subdued demand.

Cotton yarn production is expected to remain largely stable at current levels and increase only marginally by about 1.5 to 2.5 per cent to reach 4,200 to 4,250 million kg in FY20, on back of increased availability of cotton at lower prices and higher demand from Bangladesh and Vietnam despite subdued domestic demand. Also, 100 per cent blended and non-cotton yarn production is expected to witness a stable growth of only about 2 to 4 per cent to 1,710 to 1,740 million kg on the back of expectations of y-o-y lower crude oil as well as substitute cotton prices in the domestic market.

After remaining largely range bound in FY18, cotton yarn production in India registered a growth of about 3 per cent YoY in FY19. Cotton yarn production stood at 4,182 million kg during FY19. Overall export demand for cotton yarn remained strong during the FY19 period on account of high demand from China coupled with competitive cotton prices in the international market. However, domestic yarn demand continues to be sluggish with substitution taking place from MMF. During H1 FY20, cotton yarn prices (cotton hank yarn 40s) witnessed a marginal uptick of about 2.7 per cent y-o-y and averaged at Rs 274.7 per kg on back of increased raw material prices in the market. However, yarn demand for the Indian players remained subdued in the export market, during H1 FY20 owing to higher domestic cotton prices compared to the world cotton prices. Also, demand from China remained weak on back of free trade agreements with Pakistan, which competes directly with India’s cotton yarn.

Blended and 100 per cent non-cotton yarn demand has consistently been witnessing an upward trend in the last five years registering a CAGR growth of about 4 per cent between FY15 and FY19, with an exception of FY18, where crude oil prices witnessed a sharp increase of over 18.5 per cent on a YoY basis leading to higher feedstock PTA and MEG costs. Production stood at 1,680 million kg in FY19, a YoY growth of about 4 per cent. In FY20 (April-August), production of blended and 100 per cent non-cotton yarn stood at 710 kg, registering an increase of about 2.2 per cent YoY.

The overall domestic textiles industry is on the path of revival with the effects of goods and services tax (GST) implementation in July 2017 now fading.

In FY19, on back of higher crude oil prices (21.5 per cent higher YoY); demand for MMF witnessed marginal slowdown. Going forward, cotton yarn production is expected to remain largely stable at current levels and increase only marginally by about 1.5 to 2.5 per cent to reach 4,200 to 4,250 million kg in FY20, on back of increased availability of cotton at lower prices and higher demand from Bangladesh and Vietnam despite subdued domestic demand. Also, 100 per cent blended and non-cotton yarn production is expected to witness a stable growth of only about 2 to 4 per cent to 1,710 to 1,740 million kg on the back of expectations of y-o-y lower crude oil as well as substitute cotton prices in the domestic market.

Cotton yarn prices do not move in tandem with the cotton prices alone, i.e., the coefficient is not significant. Similarly for PSF prices, while PTA shows significant coefficient, MEG does not, therefore it can be concluded that prices alone do not determine the yarn or fibre prices and demand, inventories and supply conditions continue to have a significant impact on the prices.

Cotton yarn prices are highly volatile due to volatility in the demand (depending on price of the substitute – synthetic yarn), which is majorly impacted by exports of cotton and cotton yarn. Also, any fluctuation in crude oil impacts the prices of the substitute man-made fibres and yarn. India exports around 15 to 20 per cent of cotton and 30 to 40 per cent of cotton yarn. Therefore, even a minute change in the exports demand supply scenario significantly impacts domestic prices and thereby the margins of the yarn spinners.

Going forward, on back of falling stockpiles in China despite marginally higher production in CS20, cotton imports are expected to witness a marginal uptick from China during the year. However, China’s cotton and cotton yarn imports from India are expected to remain under pressure as China has entered phase II of free trade agreement with Pakistan, which competes directly with Indian yarns and fibres.

Cotton yarn production is expected to remain largely stable at current levels and increase only marginally by about 1.5 to 2.5 per cent to reach 4,200 to 4,250 million kg in FY20, despite high cotton prices and subdued domestic demand, on back of higher demand from Bangladesh and Vietnam. Hundred per cent blended and non-cotton yarn production is expected to witness a stable growth of about 2 to 4 per cent to 1,710 to 1,740 million kg on back of expectations of YoY lower crude oil prices as well as marginally higher prices of substitute cotton in the domestic market.

During H1 FY20, cotton yarn prices (cotton hank yarn 40s) witnessed a marginal uptick of about 2.7 per cent y-o-y and averaged at Rs 274.7 per kg on back of increased raw material prices in the market.