Growth opportunity for Indian textile industry

The global textile and apparel industry will continue to grow along with growing consumption of textile and apparel products in developing countries and a gradual economic recovery of major developed markets. The growth of conventional textile products including apparel and home textiles is majorly driven by apparel segment which constitutes majority share of total demand. As the market continues to evolve, new consumption centers for apparel and home textiles are emerging.

While the apparel market is still largely dominated by EU and USA, countries like China, India and Russia are emerging as future destinations for apparel consumption. The high growth of those markets will primarily be driven by the large increase in population and increased per capita spending on apparel.

Global textile and apparel trade is expected to grow at a rate of approximately 6 per cent from the present value of $770 billion to $1,180 billion by 2020. Presently, apparel constitutes more than half of the share of the global textile and apparel trade followed by fabric and yarn. Growth in global trade will bring about investments in the countries having strong supply base for apparel and textile products. India will be one of the major gainers from investment point of view.

A continuing trend is the shift in overall trade towards Asia over the years across all categories. One of the drivers of this shift is the high growth in apparel exports from Asia during the period 2005-2012. Textile exports from Africa have also grown in recent years, even though it is still much smaller in value terms.

Asia’s share in global exports of fibre grew from 24 per cent in 2005 to 36 per cent in 2012 registering a high growth. Similar trend is seen in yarn exports wherein share of Asia has increased tremendously from 48 per cent in 2005 to 63 per cent in 2012. Asia has increased its share in exports of fabric as well from 54 per cent of total fabric exports in 2005 to 68 per cent share in 2012. Similarly, in apparel exports, Asia occupied a share of 54 per cent in 2005 and grew to cover a share of 63 per cent in 2012. The share of Europe and North America has declined in fabric and apparel exports indicating a shift of trade towards Asian countries.

While China continues to dominate the textile and apparel exports, Vietnam, Bangladesh and India have shown high growth in textile and apparel exports since 2005 with India having the brightest future considering the large base and high growth.

Along with the increase in apparel consumption and global trade in textiles and apparel, textile machinery shipments have also grown since 2005. Shipments of short staple spindles and open end rotors have shown slow growth at 2 per cent CAGR from 2005 to 2013 while global shipments of texturing spindles had a significant growth at 6 per cent CAGR during the same period. It shows a healthy growth of filament yarn.

Global shipments of weaving machinery (shuttle-less looms) have shown an impressive growth of 6 per cent CAGR. On the other hand, shipments of circular knitting machines had a slow growth at 2 per cent CAGR while electronic flatbed knitting machines have grown significantly at 16 per cent CAGR to almost touch the level of shipments of circular knitting machines in volume terms in 2013.

Following the textile and apparel trade shift, Asian countries had the major share of shipments in every segment of textile machinery in 2013, led by China and followed by India. India held a strong position after China in shipments of short staple spindles and shuttle less looms with a high share of 19 per cent and 12 per cent respectively as compared to Turkey and Indonesia. In case of open end rotors and circular knitting machines; Turkey and India occupied an equal share. Japan and India had equally strong share in the shipments of double heater draw texturing spindles. With Asia occupying major share of shipments in 2013 and India occupying second position in major segments, there are positive indications that investments will be attracted towards India in the coming years as well.

Indian textile and apparel industry plays a vital role in the economy of the country. The industry is set for strong growth steered by both domestic and export markets. The growth of domestic market is driven by changing demographics of Indian consumers and their increased spending on apparel; while the increasing competitiveness of India with respect to its major competitors is driving the growth of export market.

The current domestic textile and apparel market is estimated to be $68 billion which is expected to grow at 12 per cent CAGR to become $154 billion by 2020. Apparel constitutes the majority share of the market with value of $50 billion in 2013. Technical textile is a promising segment which is expected to grow fast at 18 per cent CAGR.

In global exports of textile and apparel in 2013, India occupied second position in textile exports with 7 per cent share but ranked sixth in apparel exports with 3.7 per cent share. Overall, India held second position with 5.2 per cent share of global exports. India has potential to increase its export share from present 5 per cent to 8 per cent by 2020.

With increasing manufacturing costs in China and issues of social compliance in Bangladesh in the recent past, global buyers are looking towards sourcing destinations with costs lower than China and reliability higher than Bangladesh. China’s bulging domestic market will also need more attention than earlier from its textile and apparel manufacturers which will decelerate their export growth. The trend of buyers diversifying their sourcing, albeit recent, is reflected in the fact that apparel exports growth of Cambodia, Vietnam and India has outgrown that of China and Bangladesh over the last two years. Even though exports from the competing countries will continue to grow, India stands to gain most in the long run with abundant availability of skilled manpower and a bigger and well integrated supply chain from fibre to finished product.

Growth in domestic market and bigger share of India in export market will lead to demand growth for complete value chain. Requirement of yarn is expected to be 2.7 times the current production by 2020. Woven fabric demand will have less growth as compared to knitted fabric requirement, which will be twice the current production volume by 2020. The demand of apparel and made ups will also become double the current production by 2020.

The total domestic and export market of India will grow at a CAGR of 12 per cent from present $108 billion to $243 billion in 2020 and investments worth $100 billion will be required for textile and apparel manufacturing in India to support this growth. Besides the capacity addition by existing players, we envisage entry of new entities, including major international players, in manufacturing of textile and apparel in India. Yarn manufacturing, weaving and processing are expected to attract approximately 75 per cent of the investments.

Growing demand of textile and apparel machinery from India
Reflecting the growing market and textile production, the textile machinery shipments to India have also shown good growth since 2005 in almost every segment. The shipments of spinning machinery have grown remarkably from 2005 to 2013 with 6 per cent CAGR in texturing spindles and open end rotors; 5 per cent CAGR in shipments of short staple spindles.

Shipments of shuttle-less looms have shown higher overall growth compared to spinning and knitting machinery. Shipments of water jet looms and rapier/projectile looms witnessed an outstanding growth of 32 per cent CAGR and 11 per cent CAGR respectively from 2005 to 2013. Knitting machinery shipments had an overall growth of 6 per cent CAGR from 2005 to 2013. Shipments of electronic flatbed knitting machines had a notable growth of 25 per cent CAGR; however, the base is very small i.e approximately one-fourth of circular knitting machines in 2013. Unlike global level, electronic flatbed knitting machines are yet to catch up circular knitting machine shipments.

As discussed in the earlier sections, demand of textile and apparel products will grow manifold by 2020. So, in order to fill the supply demand gap, additional capacity will be required in all segments of the value chain. Large capacity additions are envisaged across all the sectors. The spinning sector would be required to increase its capacity and add 27 million spindles by 2020 while weaving sector would need an addition of 83,000 looms, which will be primarily shuttle less.

Knitting sector would need to double its present capacity with an addition of 23,000 knitting machines by 2020. Processing capacity will also need to increase by 1.5 times its present capacity with additional 30,500 Mn square meters of fabric processing capacity required by 2020. Sewing sector would be needed to add 14 lakh sewing machines by 2020 to cater to the high export and domestic demand for apparel.

In light of the capacity addition and replacements required in future for all the segments of textile value chain, India will have to put emphasis on increasing its textile machinery production capacity to fill the huge supply demand gap as imports of machinery is not a sustainable solution in long term, specifically, to cater to such high demand in future. The demand of spindles is expected to be more than three times the current production by 2020 while shuttle less looms will have much higher demand i.e. more than 17 times the present supply.

Knitting sector is on-looking a gigantic increase in requirement of machinery as compared to spinning, weaving and sewing machinery by 2020. The demand of knitting machines is expected to be almost 75 times of the present demand. Sewing machinery market is expecting a demand increment similar to shuttle less looms to become 13 times the present demand by 2020. It is important to mention here that the production of industrial knitting and sewing machinery is insignificant in India presently.

In value terms, textile and apparel manufacturers would need to invest $75 billion in textile machinery in India by 2020, out of which $50 billion will be required for new machinery to cater to the additional market demand and $25billion will be required for replacing the existing machinery.

Yarn manufacturing (spun and filament), weaving and processing machinery will attract approximately 85 per cent of the overall investments in value terms, with almost equal contribution from each. With increasing scale of textile and apparel manufacturing in India, the organised mill sector is growing fast and a large part of this additional demand for machinery will be driven by the investment by organised/large mills. This will further drive the demand for modern high technology machines and offer an attractive market for leading textile machinery manufacturers globally.

Advantage India
Except spinning, majority of the textile and apparel machinery demand of India is being fulfilled through imports, especially for investments in latest technology machines by large/organised mills. With a growing market and manufacturing scenario in India, textile machinery manufacturing in India will become more attractive and beneficial. Following are some of the reasons:

India’s strong and improving manufacturing competitiveness: Over the years, India has established a strong and vertically integrated supply chain in textile and apparel manufacturing and has become one of the leading manufacturing destinations for textile and apparel in the world. India continues to be a competitive manufacturing destination for textiles as manufacturing costs in competing countries have increased. India is fairly competitive in costs of manufacturing compared to most countries. Even though Bangladesh and Pakistan have lower costs than India, it is still beneficial to manufacture in India due to bigger domestic market, better compliance adherence and political stability. India also has a large and skilled manpower base apart from several Government incentives for manufacturing textiles. With improving infrastructure and Government support, manufacturing of textile and apparel will become more competitive in India.

Higher import cost of machinery due to currency devaluation: In the last couple of years, the Indian currency has depreciated significantly with respect to US dollar while Yuan has appreciated. As almost 30 per cent of total textile and apparel machinery is imported from China, this has caused a double impact. Under such a scenario, cost of importing machinery has also increased significantly. In coming years the trend is supposed to continue.

Costs in China are rising: There is no doubt in the fact that China has been a strong manufacturing base in recent years but the production costs in China are rising at a faster rate than other developing countries. Increase in manpower cost is the major factor which will impact cost of machinery manufacturing as well. The labour wage cost index of China has almost doubled since 2002. The wages are further set to increase in coming time. In addition to it, the demographic shifts in China will limit the labour force in coming years due to ageing population. This will further increase wage rate and availability of skilled manpower for machinery production will also be an issue. In contrast, India has very favorable demographics with a young population base. 60 per cent of population in India falls in the age group of 15-59 years and 49 per cent of population is less than 25 years. More number of people would be added in the productive age group of 20 – 60 years leading to abundant availability of skilled work force. The favorable demographics and relatively lower wage cost make India as one of the favorable destinations for manufacturing machinery.

Better service and availability of spare parts: Apart from the cost advantage, manufacturing in India will give significant competitive advantage to the global machinery manufacturers in providing better service to buyers, especially in terms of spare parts.Import of spare parts has shown significant growth in value terms with 7 per cent CAGR from 2005 to 2013 directing towards rising requirement in India. Once machinery manufacturers decide to set up their unit in India, spare parts suppliers will also follow them. Even many Indian companies will also start manufacturing the machinery parts looking at the potential future demand size. Similar scenario has already been observed in automobile industry. Once spare parts availability becomes easier and quicker, it will also help in increasing market size of those machinery.

Export potential of textile machinery: Indian subcontinent is increasingly becoming dominant in textile and apparel manufacturing. India also has signed bilateral and multilateral treaties with different countries that have significant presence in textile manufacturing. As the cost of manufacturing in China is increasing, India is coming out to be the export hub for this region for different product categories including automobiles. Similar potential exist for textile machinery as well. In cost of manufacturing of spinning machinery, India is already one of the lowest if not least. Present textile machinery manufacturers are already exporting all over the world and the fresh investment in this sector will scale it up many times.

Indian Government supporting indigenous machinery Manufacturing: Government of India has recently proposed a drive in favor of indigenous manufacturing and taking several policy decisions to make its ‘Make in India’ campaign successful.

Following action points have been proposed by the expert committee in their draft ‘Vision, Strategy and Action Plan’ document prepared for Indian textile sector. All of those once implemented will motivate the textile and apparel manufacturers to purchase machinery made in India only.

Incentives under Scheme of Hire-Purchase and TUFS in specific segments should be made available only on indigenous machinery after period of 3 years.

Import of second hand machinery should not be encouraged except in case of select machinery.

Basic customs duty of complete machinery should be at least 5 per cent higher than that on raw material and components.

As per the union budget 2014-15, Indian Government has offered benefits for capital goods manufacturing in India with investment allowance at the rate of 15 per cent to a manufacturing company that invests more than Rs 25 crore in new plant and machinery.

Challenges for textile and apparel machinery manufacturing in India

While there is a huge opportunity for tapping the Indian textile machinery market, there are also a few challenges that need to be tackled in order to gain sustainable growth.

Several textile manufacturers prefer to purchase second hand machinery to replace their old/worn out machinery as it is available on lesser prices than new machinery. However, with increasing quality consciousness and increasing share of organised sector, demand of state-of-the-art new machinery is increasing looking at the long term benefits.

The vendor base for spares and technology components for modern machines is not very strong in India now. Hence, a large part of it might need to be imported from other countries till a strong vendor base is developed.

Product basket of India is very much diversified, which require different machine specification and technology. Moreover, the machinery preferred by organised sector and small and medium enterprises is very different. Different technology levels are also used for supplying to domestic and export markets. So, the overall market size gets divided into many segments, which in turn may be below economic size. However, with the ongoing consolidation process in the industry and diminishing quality gap between domestic and export markets, such segmentation will reduce significantly.

Courtesy: Wazir Advisors