Description: Indian Textile Industry
Employment
15 million people
Share in India's Exports
30%
Share in National Industrial Production
20%
Share in Global Textile Trade
3%
Land under cotton cultivation
9 million hectares
Rank in world cotton output
3rd
The textile Industry in India has been a pioneer industry. India's industrialization in other fields has mainly been achieved on the back of the resources generated by the industry. However, from the early seventies to the introduction of liberalization in 1992, the industry tended to be neglected as measures taken by the Government with the apparent objective of protecting the cotton growers, the large labor force and the consumers have continuously eroded its profitability.
The recent liberalization measures have presented the industry with a golden opportunity to regain its last glory. The process has begun but a lot of work remains to be done. With the active help and encouragement from the government, it will not be long before India can recover the ground it has lost in an area it has traditionally been good at - as a world supplier of high quality textiles.
Indian Textile Industry is the second largest in the world. It has the largest cotton acreage of 9 million hectares and is the third largest producer of this fiber. It ranks fourth in terms of staple fiber production and sixth among filament yarn production. The country accounts for about one fourth of global trade in cotton yarn.
For the Indian Economy, the textile industry accounts for 20% of its industrial production employing over 15 million people. 30% of India's export basket consists of textiles and garments, making it the largest contributors. Inspite of high capital and power cost, Indian textile and garment sectors strength lies in availability of cotton, lower labor costs, well-educated supervisory staff, and abundant technical and managerial skills. Very few countries are endowed with such resources. Today, globalization has brought opportunities for India textile industry. At the same time it is exposed to threats, particularly from cheap imported fabrics. Thus, industry has to fight for its share in international textile trade. Even if it is assumed that WTO will mean better distribution of the world trade, in no way it will be free for all, and only the fittest will survive. The WTO benefits for India will not be any different than for the other developing countries. Indian Textile Industry should not only rely on its strengths, but should also endeavor to remove its weakness. The industry has the potential and a great challenge ahead.
Why cotton yarn
At a broad level, the industry is divided into natural and manmade fibres. The natural fibre segment consists of cotton, silk, woolen, jute and other natural fibres. Manmade fibres consist of Cellulose fibre and Synthetic fibre segments. Cotton is the most important segment, accounting for around 60% of the domestic fibre consumption and exports. Approximately, filament yarn accounted for 22%, whereas cotton yarn contributed 58% to the total yarn production in the country. The Indian textile industry has a healthy spinning sector, consisting mainly of medium and large-scale units, which form part of the mill sector. Weaving and fabric-processing activity is mostly undertaken by small scale units operating in the handloom and power loom segments. Cotton being a seasonal crop, is subject to vagaries of nature leading to fluctuating demand-supply balance. Cotton prices in India are a function of supply, the relative price of man-made fibres and consumption patterns.
The value chain
COTTON YARN
Textile units
Micronaire value (cotton) is the unit is micrograms per inch. The average weight of one inch length of fibre, expressed in micrograms (0.000001 gram).
Cotton yarn is a product of substantial length and relatively small cross-section consisting of cotton fibres and/or filaments with or without twist.
The yarn count expresses the thickness of the yarn, and is useful for calculating the quantity of yarns for a known length of fabric. The yarn count number indicates the length of yarn in relation to the weight.
In India, Cotton yarn cone/ hank weights are expressed in units of kg or in Metric Tonnes.
Cotton Yarn: Understanding the market
Market:
• Value estimated around Rs.20, 000 crs.
• Growing at 8% CAGR
• Export of yarn on the rise since 1995-96
Characteristics:
• Yarn graded and priced on the basis of counts – finer count, superior quality, expensive
• Seasonal sales – prices rise prior to festive season (September – December)
• Industry capital intensive; cost Rs. 20,000/spindle
• 20% of exports to quota countries and 80% of exports to non-quota countries
• Indian Yarn globally price competitive (raw material and cheap labor)
• Major Export Market: East Asia (Korea), Europe
Demand Drivers
• Rise in population and disposable income
• Change in fashions and styles – fuelling demand for fabrics and thereon for yarn
• Suitability of cotton fabrics for tropical climate
• International trend towards natural fibers
• Raw Cotton prices: Fall in price could lead to more yarn exports
• International demand/supply scenario
• Performance of user segments – Weaving, Hosiery, etc.
Yarn Type
Usage
Coarse Count
(<17’s)
Cheap Fabrics; Industrial Garments
Medium Count
(20 – 40’s)
Shirting, Knitting, Other textiles
Fine Count
(>40’s)
Premium shirting, sophisticated fabrics
Production
Year
PRODUCTION (In million kgs)
1994-95
1695.68
1995-96
1894.22
1996-97
2147.94
1997-98
2213.27
1998-99
2022.10
1999-2000
2203.70
2000-01
2266.87
2001-02
2211.88
2002-03
2177.16
2003-04
2121.05
Source: Office of the textile commissioner
Count wise production of cotton yarn: -
Count
93-94
94-95
95-96
96-97
97-98
98-99
99-00
00-01 (April-Nov.)
1-10s
278
282
310
479
503
450
509
352
11-20s
385
389
415
511
508
489
504
315
21-30s
314
321
391
405
427
396
455
327
31-40s
494
470
490
515
542
468
524
375
41-60s
144
145
153
136
144
131
131
94
61-80s
45
46
95
60
52
49
44
33
81s- and above
37
43
40
42
37
39
37
26
Total
1697
1696
1894
2148
2213
2022
2204
1522
Source: Ministry of textiles, Annual Report 2000-01
Export - Import scenario
India’s export during 2002-03 was Rs 375,656.62 (in lacs). This is about 1.46% of India’s total export. In 2002-03, our export was Rs 4,418.49 (in lacs), which equals 0.0149%. Even in earlier year India was a net exporter of Cotton yarn. India is the world’s largest exporter of cotton yarn, it enjoys a market share of 25%.
WTO – post quota regime
Textiles is now going through fundamental change under a 10-year schedule agreed in the Uruguay Round. The system of import quotas that has dominated the trade since the early 1960s is being phased out.
Multi Fibre Arrangement (MFA) 1974-1994
Up to the end of the Uruguay Round, textile and clothing quotas were negotiated bilaterally and governed by the rules of the Multifibre Arrangement (MFA). This provided for the application of selective quantitative restrictions when surges in imports of particular products caused, or threatened to cause, serious damage to the industry of the importing country. The Multifibre Arrangement was a major departure from the basic GATT rules and particularly the principle of non-discrimination. On 1 January 1995 it was replaced by the WTO Agreement on Textiles and Clothing, which sets out a transitional process for the ultimate removal of these quotas.
The WTO Agreement on Textiles and Clothing (ATC) 1995-2004
The ATC is a transitional instrument, built on the following key elements:
The product coverage, listed in the Annex to the ATC, covers all products that were subject to MFA or MFA-type quotas in at least one importing country.
The integration process is laid down in ATC and stipulates how Members shall integrate the products listed in the Annex into the rules of GATT 1994 over the 10-year period. This process is to be carried out progressively in three stages (3 years, 4 years, 3 years) with all products standing integrated at the end of the 10-year period. On 1.1.05, the agreement will terminate.
Integration Stage
% of members’ total imports
Beginning Date
I
>16%
1.1.95
II
>17%
1.1.98
III
>18%
1.1.02
IV
Remaining 49%
1.1.05
Source: www.wto.org
There is no stipulation that the products integrated should be the ones on which quotas actually operated before the establishment of the ATC. Though there is a constraint that such products should include yarn, fabrics, made-ups and garments in each case, there is no stipulation of any proportion for these products.
The programme for liberalizing the existing restrictions is for enlarging the bilateral quotas carried over from the former MFA on 1 January 1995 until such time as the products are integrated into GATT, at which time the quotas terminate. Quotas will be eliminated either when the products concerned are integrated into GATT at one of the stages or at the end of the transition on 1 January 2005.
ATC also contains quantitative restrictions other than those under the MFA. Members that had such restrictions in place, which could not be justified under a GATT provision, were required either to bring them into conformity with GATT rules or phase them out within the ten-year transitional period, according to a plan to be submitted by the restraining Member to the Textiles Monitoring Body. There is no obligation to eliminate restrictions that are permitted under GATT rules.
A key aspect of the ATC is a special transitional safeguard mechanism intended to protect Members against damaging surges in imports during the transition period from products which have not yet been integrated into GATT and which are not already under quota. This clause is based on a two-tiered approach - first, the importing Member must determine that total imports of a specific product are causing serious damage, or actual threat thereof, to its domestic industry and second, it must then decide to which individual Member(s) this serious damage can be attributed. Specific criteria and procedures are set out for each step. The importing Member must then seek consultations with the exporting Member(s). Such safeguard measures may be applied on a selective, country-by-country basis by mutual agreement or, if agreement is not reached through the consultation process within 60 days, by unilateral action.
ATC also contains rules and procedures concerning circumvention of the quotas through transshipment, re-routing, false declaration of origin, or falsification of official documents. These require, inter alias, consultation and full cooperation in the investigation of such practices by Members concerned. When sufficient evidence is available, possible recourse might include the denial of entry of goods. There is also a provision whereby all Members should establish, consistent with their domestic laws and procedures, the necessary legal provisions and/or administrative procedures to address and take action against circumvention.
Administration of restrictions during the transition period will remain with the exporting Members and any changes in practices, rules or procedures shall be subject to consultations with a view to reaching mutually acceptable solutions.
Provisions relating to the commitments undertaken in all areas of the Uruguay Round as they relate to textiles and clothing require that all Members “shall take such actions as may be necessary” to abide by these rules and disciplines so as to achieve improved market access, to ensure the application of fair and equitable trading conditions and to avoid discrimination against textiles and clothing imports. If an exporting Member is found not to be complying with its obligations, the Dispute Settlement Body or the Council for Trade in Goods may authorize an adjustment to the quota growth for that country which is otherwise an automatic growth.
The Textiles Monitoring Body
It has been established to supervise the implementation of the ATC and to examine all measures taken under it, to ensure that they are in conformity with the rules. It is a quasi-judicial, standing body.
Istanbul Declaration
While many developing countries are awaiting the momentous occasion eagerly, doubts have been expressed by some others, so much as to force them into seeking an extension of the integration period beyond the year 2004 for a period at least three years. In an unprecedented move, some of the Industry Associations have signed the Istanbul Declaration, which calls on the WTO to convene an emergency meeting by July 1st 2004 to reassess the proposed quota phase out.
The main arguments furnished by these Associations are:
The world trade scenario has undergone a change since the quota phase out was agreed to in 1995.
Quota phase out is not expected to benefit textile producers worldwide as envisaged but only a select few.
Reasonable transformation of global production and sourcing patterns has been irrevocably altered after China’s admission to WTO.
End Use Consumption
Technological up gradation has transformed this sector. Processed fabrics are available as bleached, printed, piecedyed, yarn dyed, embroidery and knitted fabrics. In a wide range (less than 100 gsm to over 200 gsm). Last year 60% of Indian cotton fabrics were exported in the processed form. 390 million sq. meters of printed fabric (worth US $ 187 million), 141 million sq. meters of piece dyed fabric (worth US $ 138 million), and 192 million sq. meters of yarn dyed fabric (worth US $ 188 million) were exported to countries like USA, UK, Italy, Germany and Hong Kong.
India manufactures fabrics in a wide range of finishes (from simple to sophisticated), in varying widths (30" to 118"), and designs (enhanced by a potent combination of traditional art and contemporary sensibility). In the form of shirtings, poplin, dress materials, jacquard fabric, satins, voiles (with cotton blend) etc.
Cotton textile industry that encompasses 1543 spinning units, more than 281 composite mills, and 1.72 million registered looms. Simply put, the textile industry is the backbone of India's economy. Textile in India has been a pioneer industry for almost 150 years.
Knitted Fabrics: India exports a variety of knitted fabrics - plain, pique, fleece, terry, interlock, ribs, blends etc., as grey and processed, in tubular and regular form, worth US $ 63 million (Total Quantity : 96 million sq. meters).
Industrial Fabrics: India has an increasing presence in the rapidly expanding world trade of technical textiles. India has emerged as a newfound source for the supply of interlining, geo textiles, non -woven and industrial fabrics with specific applications in spheres like filtration, clothing, protection and packaging industries.
The textile industry occupies a position of prime national importance accounting for over one third of India's total exports. Textiles has the distinction of being the highest foreign exchange earner for the country. India exported around 2 billion sq. meters of cotton fabrics valued at about US $ 1094 million in the year 2000. Cotton fabrics constitute about 32% of India's export of total cotton textiles valued at US $ 3646 million. No wonder that Indian cotton fabrics find favour with designers and garment converters in 185 countries across five continents.
Role of government
Despite the thrust given by the Textile Policy of 1985 to the spinning sector, resulting in considerable modernization, 80 percent capacity utilization, and a 20 percent share of global cotton yarn exports, cotton spinning still suffers the problems of over-capacity and of obsolete spindleage. This policy will continue the effort to modernize and upgrade technology to ternational levels, and take the following steps, in cotton spinning sector:
in
- Encourage the spinning sector to continue to modernize;
- Liberalize and encourage export of cotton yarn; and
- Review from time to time the hank yarn obligation while ensuring supply of adequate quantity of yarn to the handloom sector.
Industry Structure
The cotton yarn spinning industry is highly disintegrated. About 600 organisations contribute 50% of the total sales volume. The Heilfindhal Index, which is an indicator of market concentration, is less than unity. This implies a completely dis integrated market. The highest market share enjoyed by a single organisation is less than 2%.
