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Textile Industry

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AMITY INTERNATIONAL BUSINESS SCHOOL

Topic:-

INDIAN TEXTILE INDUSTRY

Submitted to: Submitted by:

Mr. L. Raghvan Mitesh Kumar Bizoara C-49

Sumeet Rattan C-62

Abhinav Gupta C-72

Table of Contents

EXECUTIVE SUMMARY 2

Market Highlights And Best Prospects 3

Market Profile 3

INDUSTRY OVERVIEW 4

Textile Industry 4

Status of the Textile Machinery Industry 5

Indian Textile Industry 5

Latest news in textile sector 6

Swot Analysis Of Indian Textile Industry 8

IMPORTS & EXPORTS 11

Import Policy 11

Trends in Domestic Consumption 11

Exports To The Major Markets 12

Export to U.S. 13

Export to EU 13

IMPLICATIONS ON INDIAN EXPORTS (OPTIMISTIC SCENARIO) 14

IMPLICATIONS ON INDIAN EXPORTS (PESSIMISTIC SCENARIO) 15

AGREEMENT ON TEXTILE & CLOTHING 16

Impact on World 17

MULTIFIBRE ARRANGEMENT (MFA) 1974-1994 18

Measures That Are Taken Post Mfa Scenario. 18

The new Textile Policy 2000 (NTxP-2000) 18

DEPB issues 18

Technology Up gradation Fund Scheme: 18

Liberalization of FDI Policy: 19

Export Promotion Capital Goods (EPCG) Scheme: 19

Advance Licensing Scheme: 19

Duty Exemption Pass Book (DEPB) Scheme: 19

Duty Drawback Scheme: 19

Targets Achieved By The Textile Industry Post Mfa 20

EFFECT OF FOREIGN TRADE POLICY IN TEXTILE INDUSTRY 21

RECOMMENDATIONS 25

References: 25

ANNEXTURE 26

EXECUTIVE SUMMARY

For India to become a major player in world trade, an all encompassing, and comprehensive view needs to be taken for the overall development of the country’s foreign trade. While increase in exports is of vital importance, a facilitation import is also required to stimulate the economy. Coherence and consistency among trade and other economic policies is important for maximizing the contribution of such policies to development.

Trade is not an end in itself, but a means to economic growth and national development. The primary purpose is not the mere earning of foreign exchange, but the stimulation of greater economic activity. The Foreign Trade Policy takes an integrated view of the overall development of India’s foreign trade. The foreign trade policy sets the core objectives, identifies key strategies and also addresses, spells out focus initiatives, outline export incentives and also addresses issues concerning institutional support.

India's textile sector is the country's second largest industry, after agriculture. It provides direct employment to about 35 million people. It is also India's largest foreign export earner, accounting for 35 per cent of the gross export earnings in trade.

Trade restrictions had hitherto kept the textile industry from soaring to the heights it is capable of. But all that changed from January 1, 2005. Quota-based restrictions for textile exports to the United States and European nations were lifted on January 1. The Indian textile industry now has the opportunity to realize its full potential and the sector is already eyeing an export target of $50 billion by 2010.

But with quotas having been removed and globalization in full swing, the market is now exposed to global competition. Indian manufacturers and exporters now have to compete with the global players and also face emerging tariff and non-tariff barriers. Yet with its speed of operation, skill, quality of products and low-cost labour, the industry is gearing up to reap rich rewards in the new era.

For the past two years, the market has been in a recession. As a result, market players have become very cost conscious and price sensitive. However, the future looks bright used textile machinery. This market segment is likely to grow faster than the broader market. The major factors that are likely to produce growth for this sector include:

1. A worldwide increase in demand for Indian textiles and garments.

2. The lowering of customs duties on imported textile machinery.

3. Reduced government restrictions on the import of the used capital goods.

4. The reduced cost of the used equipment which makes textile manufacturing operations more viable.

Market Highlights and Best Prospects

Market Profile

The Indian textile industry is the second largest in the world--second only to China. Indian textiles also account for 38 percent of the country's total exports and is, therefore, a very important industry. To sustain this growth, it is imperatives that the textile industry produce goods of high quality at reasonable prices. This means that the industry must continuously modernize its machinery. Therefore, the textile machinery industry sector has an integral role to play in the growth of India's textile exports.

Industry analysts note that textile prices are increasingly competitive worldwide as more and more developing countries enter the global textile trade. To maintain, if not increase, its global market share, the Indian textile industry must procure modern, low-cost, textile machinery so that it can produce high quality textiles and garments for export at competitive prices. It is in this context that the market for used textile machinery is viewed as very promising. Used textile machinery permits India to incorporate new technology at low cost.

Here are a few important facts about India's textile:

1. There are approximately 1200 medium to large scale textile mills in India. Twenty percent of these mills are located in Coimbatore (Tamilnadu).

2. India has 34 million cotton textile spindles for manufacturing cotton yarn. Cotton yarns account for 70 percent of India's textile exports. (China has 40 million cotton

spindles.)

3. Of the Indian textile yarn exports, almost 80 percent come from coarser yarns (counts below 40s). Consequently, there is a need to upgrade the technology.

4. For the past two years, there has been a significant slow-down in the cotton spinning segment, mainly due to the spiraling price of cotton.

5. The domestic knitting industry is characterized by small scale units which lack adequate facilities for dyeing, processing and finishing.

The industry is concentrated in Tirupur (Tamilnadu) and Ludhiana (Punjab). Tirupur produces 60 percent of the country's total knitwear exports. Knitted garments account for almost 32 percent of all exported garments. The major players include Nahar Spinning, Arun Processors and Jersey India.

INDUSTRY OVERVIEW

Textile Industry

The textile industry occupies a unique place in our country. One of the earliest to come into existence in India, it accounts for 14% of the total Industrial production, contributes to nearly 30% of the total exports and is the second largest employment generator after agriculture.

Textile Industry is providing one of the most basic needs of people and the holds importance; maintaining sustained growth for improving quality of life. It has a unique position as a self-reliant industry, from the production of raw materials to the delivery of finished products, with substantial value-addition at each stage of processing; it is a major contribution to the country's economy.

Its vast potential for creation of employment opportunities in the agricultural, industrial, organised and decentralised sectors & rural and urban areas, particularly for women and the disadvantaged is noteworthy.

Although the development of textile sector was earlier taking place in terms of general policies, in recognition of the importance of this sector, for the first time a separate Policy Statement was made in 1985 in regard to development of textile sector. The textile policy of 2000 aims at achieving the target of textile and apparel exports of US $ 50 billion by 2010 of which the share of garments will be US $ 25 billion. The main markets for Indian textiles and apparels are USA, UAE, UK, Germany, France, Italy, Russia, Canada, Bangladesh and Japan.

The main objective of the textile policy 2000 is to provide cloth of acceptable quality at reasonable prices for the vast majority of the population of the country, to increasingly contribute to the provision of sustainable employment and the economic growth of the nation; and to compete with confidence for an increasing share of the global market.

Developing countries with both textile and clothing capacity may be able to prosper in the new competitive environment after the textile quota regime of quantitative import restrictions under the multi-fibre arrangement (MFA) came to an end on 1st January, 2005 under the World Trade Organisation (WTO) Agreement on Textiles and Clothing.

As a result, the textile industry in developed countries will face intensified competition in both their export and domestic markets. However, the migration of textile capacity will be influenced by objective competitive factors and will be hampered by the presence of distorting domestic measures and weak domestic infrastructure in several developing and least developed countries.

The elimination of quota restriction will open the way for the most competitive developing countries to develop stronger clusters of textile expertise, enabling them to handle all stages of the production chain from growing natural fibres to producing finished clothing, The OECD paper says that while low wages can still give developing countries a competitive edge in world markets, time factors now play a far more crucial role in determining international competitiveness. Countries that aspire to maintain an export-led strategy in textiles and clothing need to complement their cluster of expertise in manufacturing by developing their expertise in the higher value-added service segments of the supply chain such as design, sourcing or retail distribution. To pursue these avenues, national suppliers need to place greater emphasis on education and training of services-related skills and to encourage the establishment of joint structures where domestic suppliers can share market knowledge and offer more integrated solutions to prospective buyers.

The textile industry is undergoing a major reorientation towards non-clothing applications of textiles, known as technical textiles, which are growing roughly at twice rate of textiles for clothing applications and now account for more than half of total textile production. The processes involved in producing technical textiles require expensive equipments and skilled workers and are, for the moment, concentrated in developed countries. Technical textiles have many applications including bed sheets; filtration and abrasive materials; furniture and healthcare upholstery; thermal protection and blood-absorbing materials; seatbelts; adhesive tape, and multiple other specialized products and applications. India must take adequate measures for capturing its market by promoting research and development in this sector.

Status of the Textile Machinery Industry

Approximately 120 companies manufacture the complete range of textile machinery. Gross receipts for the Industry in 1997 were nearly USD 700 million. The industry employs about 150,000 workers directly and an equal number indirectly. The demand for textile machinery is mainly from end user in the cotton textiles, manmade fibers and wool units textile sectors. The industry's major problems are:

1. Inadequate design and engineering capability.

2. The high cost of raw material and components.

3. The high cost of finance.

4. Demand constraints.

5. Competition from foreign countries as a result of the lowering of import duties on textile machinery.

6. The high quality of imported textile equipment.

Indian Textile Industry

The textile industry is the largest industry of modern India. It accounts for over 20 percent of industrial production and is closely linked with the agricultural and rural economy. It is the single largest employer in the industrial sector employing about 38 million people. If employment in allied sectors like ginning, agriculture, pressing, cotton trade, jute, etc. are added then the total employment is estimated at 93 million. The net foreign exchange earnings in this sector are one of the highest and, together with carpet and handicrafts, account for over 37 percent of total export earnings at over US $ 10 billion. Textiles, alone, account for about 25 percent of India’s total forex earnings.

India’s textile industry since its beginning continues to be predominantly cotton based with about 65 percent of fabric consumption in the country being accounted for by cotton. The industry is highly localised in Ahmedabad and Bombay in the western part of the country though other centres exist including Kanpur, Calcutta, Indore, Coimbatore, and Sholapur.

The structure of the textile industry is extremely complex with the modern, sophisticated and highly mechanised mill sector on the one hand and the handspinning and handweaving (handloom) sector on the other. Between the two falls the small-scale powerloom sector. The latter two are together known as the decentralised sector. Over the years, the government has granted a whole range of concessions to the non-mill sector as a result of which the share of the decentralised sector has increased considerably in the total production. Of the two sub-sectors of the decentralised sector, the powerloom sector has shown the faster rate of growth. In the production of fabrics the decentralised sector accounts for roughly 94 percent while the mill sector has a share of only 6 percent.

Being an agro-based industry the production of raw material varies from year to year depending on weather and rainfall conditions. Accordingly the price fluctuates too.

Latest news in textile sector

1. Ministry of finance has added 165 new textile products under duty drawback schedule. The new products included wool tops, cotton yarn, acrylic yarn, viscose yarn, various blended yarn/fabrics, fishing nets etc. Further, the existing entries in the drawback schedule relating to garments have been expanded to create separate entries of garments made up of (1) cotton; (2) man made fibre blend and (3) MMF. Separate rates have been prescribed for these categories of garments on the basis of composition of textiles.

2. After the phasing out of quota regime under the multi-fibre pact, India can envisage its textile sector becoming $100b industry by 2010. This will include exports of $50b. The proposed targets would be achieved provided reforms are initiated in textile sector and local manufacturers adopt measures to improve their competitiveness. A 5-pronged strategy aiming to attract FDI by making reforms in local market, replacement of existing indirect taxes with a single nationwide VAT, liberalization of contract norms for textile and garments units, elimination of restrictions that cause poor operational and organizational performance of manufacturers, was suggested.

3. The Union Minister Shankarsinh Vaghela said that the Board for Industrial and Financial Reconstruction (BIFR) had approved rehabilitation schemes for sick NTC mills at a cost of Rs 3,900 crore. Of the 66 mills, 65 unviable mills have been closed after implementing voluntary retirement scheme (VRS) to all employees. According to him, the government has already constituted assets sale committees comprising representatives of Central and state governments, operative agency, BIFR, NTC and the concerned NTC subsidiary to effect sale of assets through open tender system.

4. Proposals for modernization of NTC mills have been made to the consultative committee members, including formation of a committee of experts to improve management of these mills. Even the present status of jute industry was under the scanner of the consultative committee.

5. The Government had announced change from the value-based drawback rate hitherto followed to a weight-based structure for textile exports that will discourage raw material exports and also curtail the scope for misusing the drawback claims by boosting invoice value of exports.

6. NCDEX launched its silk contract (raw silk and cocoon) on Thursday, January 20,2005.. With this launch, the total number of products offered by NCDEX goes up to 27.The launch of the silk contract will offer the entire suite of fibres to the entire value chain ranging from farmers to textile mills. With the objective of protecting the interests of the those affected but WTO agreements and globalisation process, Government of India jointly with NCDEX has adopted a policy of encouraging future contracts of silk. The Ministry of Textiles and the Central Silk Board (CSB) had decided to introduce futures trading in mulberry cocoons and raw silk on NCDEX. The basic purpose is to mitigate the risk associated with the changing prices through an efficient price discovery mechanism. Futures trading on the NCDEX will provide an alternative trading avenue for farmers, weavers and traders and help them make a better price discovery for their produce. It will also help them to reduce risks associated with price volatility through hedging CDEX. The basic purpose is to mitigate the risk associated with the changing prices through an efficient price discovery mechanism. Futures trading on the NCDEX will provide an alternative trading avenue for farmers, weavers and traders and help them make a better price discovery for their produce. It will also help them to reduce risks associated with price volatility through hedging

Swot Analysis of Indian Textile Industry

STRENGTH

 India has natural advantages which can be capitalized on strong raw material base - cotton, man-made fibres, jute, silk; large production capacity (spinning - 21% of world capacity and weaving - 33% of world capacity but of low technology); vast pool of skilled manpower; entrepreneurship; flexibility in production process; and long experience with US/EU (European Union).

 The skilled manpower available in India has been relatively low-cost in an industry where labour contributes the largest component of manufacturing cost in textiles "India has a cost advantage of 40% over the US and 30% over 'garment conversion centers' such as Mexico due to lower labour cost.

 It is the second largest employer after the agriculture sector in both rural and urban areas. India has a large pool of skilled low-cost textile workers, experienced in technology skills.

 It is perhaps the only industry in the Indian industrial arena which is self-reliant and complete in value chain, i.e., from raw material to the highest value added products, i.e., garments made-ups.

 India has a proven advantage in raw material availability as the world's third largest producer of cotton, second largest exporter of cotton textiles among low cost countries, and fourth largest exporter of synthetic yarn and fabric. India produces all varieties of cotton. The industry has high levels of operational efficiencies in spinning and weaving: around 96% for spinning and 85-90% for weaving.

 Design Skills – A skilled workforce are needed for the successful manufacture of these garments. The focus on value-addition will also automatically ensure development and growth of upstream segments of the textile value chain. With the establishment of training institutions such as NIFT, many high-quality designers, who are able to create modern designs and interact with buyers, are emerging. This is a distinctive strength that Indian companies have not yet exploited.

 Textiles account for 14 per cent of India’s industrial production and around 27 per cent of its export earnings. From growing its own raw material (cotton, jute, silk and wool) to providing value added products to consumers (fabrics and garments), the textile industry covers a wide range of economic activities, including employment generation in both organized and unorganized sectors.

 India accounts for 15% of world’s total cotton crop production and records largest producer of silk.

 Almost all sectors of the textile industry have shown significant achievement. The sector has shown a 3.66 per cent CAGR over the last five years.

 Lower labour costs: Due to cheaper labour available in India as compared to European countries, the big brands have started outsourcing garments from Indian companies. Thus, the growth potential expands post 2004.

Indian clothing industry is internationally cost competitive as cost of labour in India is cheap with 6% of labor cost followed by 5% of Indonesia compared to other countries . A comparative analysis of India and other countries with respect to labour cost as a percentage of total manufacturing cost of apparel/garment making is given below:

Source: CII Accenture report “Textile Industry: Road To Growth”, November 2005

WEAKNESS

 There are constraints relating to fragmented industry, constraints of processing, quality of cotton, concerns over power cost, labour reforms and other infrastructural constraints and bottlenecks. E.g., cost of power was Rs. 8 per garment in India whereas in China it was only Rs. 2 per garment.

Lack of quality manpower

• A recent study by the Textiles Committee noted that a mere 6% of the workforce in the Indian apparel industry has received formal institutional training. At the supervisory level, only 2% of the workforce is trained.

• Over the years, India has enjoyed cost-effective labor. But changing technology now requires changes in the labor-force profile as well.

Technological constraints

Technology poses the most serious challenge to India's attempt to increase its exports. The total number of shuttleless looms as a percentage of total looms in India in 2003 was 9.5% as against 94.8% in the US and 95.2% in Austria, according to the Indian Ministry of Textiles. India's number of shuttleless looms as a percentage of total looms is the second-lowest, next only to Pakistan with 7.6%.

OPPORTUNITIS WITH THE INDIAN EXPORT MARKET:

 It's a free world: Post 2004, the Multi Fiber Arrangement (MFA) has been phased out. This will enable Indian companies to export their products in any quantity to any country as against a specific quota provided for export

 The industry expects investment of Rs.1, 40,000 crore in this sector in the post-MFA phase.

 Duty on textile machinery reduced from 20% to 10%.

 Duties on polyester and nylon chips, textile fibres, yarns and intermediates, fabrics, and garments to be reduced from 20% to 15%.

 Allocation of Rs 4.35 bn for Technological Upgradation Fund (TUF) and a 10% capital subsidy scheme to be introduced for the textile-processing sector.

 Huge potential: The government has set an ambitious textile export target of US$ 50 bn by 2010 as compared to US$ 11 bn currently. Considering the huge potential in the European and the US markets, it seems possible.

With the lowering of tariff barriers, removal of quantitative restrictions and the phase out of MFA regime, the textile industry is poised to enter an era of fierce competition, not only in exports but in the domestic market as well.

THREATS

 The levels of investment in Indian apparel sector are very low. The average investment in a machine in an Indian factory was $29,760 compared to $2.5 million in Hong Kong and nearly $1 million in China. This reflects the smaller size of the Indian firm, which has an average of 119 machines compared to 698 in Hong Kong and 605 in China. Investment per machine is very low in India at $250 compared to $3510 and $1500 in Hong Kong and China. This is due to Indian firms having a much higher proportion of manual machines, and even the power-based machines are not as sophisticated.

 The rush of garment exports in the quota-free regime has not yet happened in the Indian textiles sector. That is because the normal product and export cycle of garments is around 60 days.

IMPORTS & EXPORTS

Import Policy

Cotton imports were liberalized in 1991, when the import monopoly of the Cotton Corporation of India was terminated and imports were placed on Open General License, allowing unrestricted imports by private traders. The import duty was originally set at zero, but little import trade occurred until the late 1990s, when world prices declined and India faced domestic supply shortfalls . The import duty was raised to 5.5 percent in 2000 and to 10 percent in 2002 but remains low relative to tariffs imposed on most other agricultural products. Export-oriented textile units, which are exempt from the import duty, account for most, if not all, of India’s cotton imports.

Trends in Domestic Consumption

Domestic fiber demand has accelerated along with stronger growth in the Indian economy. Major reforms in domestic and trade policies during 1991-93 have led to faster growth in per capita incomes in India, helping boost annual growth in fiber consumption to 4.9 percent since 1990. Relatively rapid growth in consumption of manmade fibers, particularly since 1990, has also been an important trend in Indian fiber demand. During 1990-2001, per capita demand for manmade and blended fabrics grew 6.8 percent annually, compared with negligible growth in demand for 100- percent cotton fabrics. As a result of this rapid growth, manmade and blended fabrics now account for the bulk of household cloth purchases. Between 2003 and 2005, the share of manmade and blended products in household cloth purchases rose from about 38 percent to 54 percent. The fastest growth has been in use of 100 percent manmade, as opposed to blended, fabrics. However, despite the rapid growth in use of manmade fibers, cotton continues to account for a relatively large share of total consumption in India, compared with other developing countries, as well as with developed and transition economies.

Demand for manmade and blended textile products in India is strong in both urban and rural households due to their durability and ease in maintenance (washability, fewer wrinkles, etc.), compared with 100-percent cotton textiles, factors very important in the Indian tropical and subtropical weather. Demand is, however, strongest in rural households, which account for about 78 percent of India’s population. As of 2002, the share of manmade and blended products in household cloth purchases was 61 percent in rural areas and 54 percent in urban areas. In rural households, where average incomes are about half those in urban areas, and in urban low-income households, manmade fabrics are preferred because of their durability, as well as their generally low cost.

Exports To The Major Markets

In the first two months of the current calendar, not only did India post an export growth of over 42%, but others such as Bangladesh, Sri Lanka and Pakistan also made merry by achieving export growth of 31%, 30% and 29% respectively. However, China recorded a growth of mere 16% India’s apparel exports in 2006 amounted to euro 728mn showing an increase of over 42% from Euro 512mn in corresponding period last year. Knitted Apparel worth Euro 319mn was exported by India, while woven Apparel exports amounted to Euro 409mn registering a growth of 51% over Euro 271mn in the corresponding period last year. However, the EU Apparel import market expanded by 20% as Knitted apparel Imports into the EU increased over 22% while market size of woven apparel grew by just over 19% from Euro 4.8bn to Euro 5.7bn

EXPORT OF TEXTILES ( in US$ mn)

Item 2004-05(Apr to Nov) 2005-06(Apr to Nov) Percent Variation

Ready made Garments 3519 4185.18 18.93

Cotton Textiles 2222.94 2311.20 3.97

Total 5741.94 6496.38

Source: CII Accenture report “Textile Industry: Road To Growth”, November 2005

Apparently in the first seven months of 2005, China’s textile and clothing exports were valued at US$ 61.5bn, up 21.4%. Within this total textile exports were valued at US$ 22.8bn, up 22.8% year on year and garments at US$ 38.7bn, up 20.5%. In terms of textile and clothing exports to the US during the first half of 2005 other winners than China include India ( 29.98% by US$ 531.57mn), Bangladesh (21.48%, US$ 195.75mn ), Pakistan (10.92% by US$ 130.13mn), Sri Lanka (16.26% by US$ 113.63mn), Indonesia (13.77% by US$ 173.2mn ). India has all the ingredients for the development and growth of a vibrant textiles industry and the Industry has progressed despite multiple constraints and bottlenecks. In the global context, India offers comparative advantage in textiles and apparel sector with excellent raw material base, skilled manpower and cost competitiveness. It accounts for the quarter of the country’s exports at US$ 14bn in the fiscal 2004-05 and the size of the current Textile Industry is estimated to be about US$ 40bn dollars, US trade data shows that exports to the US during the period Jan to Sept 2005 grew by 25.17% . The revaluation of Chinese Yuan by around 2.05% has helped India in becoming price competitor. Vis-а-vis. China in some items like girl’s skirts, women’s/girl’s shorts and blouses, and men’s shirts etc.

Budgetary concessions, rationalization of duty structure and assistance under technology up-gradation fund scheme started paying dividends in the textile sector. A moderate turnaround in the performance of the sector has now become visible in increased production. In the year 2005-06 up to November, production of fabrics registered a growth of 9% over the previous year 2004-05 being 45,378mn square meters.

Losers for Apparel and Textile Exports to the US include HongKong (by 25.94%, by US$ 410.80mn), Mexico (4.24%by US$ 161.37mn), South Korea (23.87% by US$ 283.17mn), Russia (71.92% by US$ 124.2mn), Taiwan(20.7 % by US$ 193.9mn), Canada (7.17% by US$ 113.46mn

Post quota winners to Europe: In the first five months of 2005 included Iran at 40%, Bangladesh at 27.27%, Russia 24.175 and India at 17.57%. Losers include Syria by 17.86% , Pakistan by 8%, Indonesia by 7.48%.Turkey by 4.08 %.

Export to U.S.

2003

2004 Nov 2004 Nov 2005 % Change Nov-04 Sep-05 Oct-05 Nov 2005 %Change % Chare

China 11608.828 14558.077 13498.024 21,017.306 55.71 14427.576 21242.448 21788.100 22077.359 53.02 24.79

India 3211.522 3633.273 3373.699 4263.470 26.37 3604.191 4341.773 4404.766 4523.044 25.49 5.08

Indonesia 2375.702 2375.702 2440.769 2866.193 17.43 2597.191 2929.252 2986.748 3045.613 17.27 3.42

Pakistan 2215.209 2546.069 2367.729 2690.210 13.62 2534.076 2768.018 2808.938 2868.550 13.2 3.22

Bangladesh 1939.362 2065.546 1919.812 2260.621 17.75 2026.822 2358.400 2372.781 2406.354 18.73 2.7

Sri Lanka 1493.023 1585.193 1440.179 1537.884 6.78 1556.394 1707.872 1689.044 1682.8998 8.13 1.89

Latest US textile and apparel import figures(million US $)

Source: Office of Textiles and Apparel, US Department Of Commerce.

Export to EU

Import value Jan-Sep 2004 Import value Jan-Sep 2005 % Change

World Total 52,586,902 54,540,605 3.7

China 11,336,109 16,415,467 44.8

India 3,443,484 3,995,128 16

Bangladesh 2,988,099 2,733,538 -8.5

Pakistan 1,740,062 1,522,740 -12.5

Indonesia 1,349,857 116,983 -17.3

Sri Lanka 633,876 594,614 -6.2

Latest EU textile and apparel import figures(‘000 euros)

Source: European commission

IMPLICATIONS ON INDIAN EXPORTS (OPTIMISTIC SCENARIO)

 At the beginning of 2005, China introduced an export tax on a number of textile products. The tax was increased in May and partly abolished in June after the United States and the EU sought new restrictions on exports of textiles and clothing from China, their most important single supplier. The legal basis for these new restrictions was Paragraph 242 of the Report of the Working Party for the Accession of China to the WTO. The new quotas apply until the end of 2007 for the EU and until the end of 2008 for the United States. Imports from all other (WTO ) suppliers remained free of quantitative restrictions in the EU and US markets.

 The US and the EU account for around 62% of exports

 Exports to US increased by 25% ..in value terms ---- 5.4bn

 Exports to EU increased by 19% ..in value terms ---- 5.9bn

 Market shares before and after quota elimination, textiles, EU from 9%-11%

 Market shares before and after quota elimination, clothing, EU from 6%-9%

 Market shares before and after quota elimination, textiles, USA from 5%-5%

 Market shares before and after quota elimination, clothing, USA from 4%-15%

Yarn

+ Garment exports of Bangladesh increase leading to increase in consumption of Indian fabric and yarn

+ Exports of Far-East & ASEAN increase further

+ Rationalization in duties of MMF leading to increase in processing of fibres in India

Fabric/Made-ups

+ Garmenting dereserved leading to entry of large textile players ensuring efficient sourcing and increase in the margins

+ Increase in investment for processing

+ Improvement in SAPTA trade

Garments

+ Garmenting and Knitting de-reserved to allow the units to grow bigger to be able to service large orders and large clients

+ Labor laws in India become industry friendly

+ Garment parks come up in key regions giving a boost to exports

+ Successful Quota Phase-out without exports getting restricted by QRs

IMPLICATIONS ON INDIAN EXPORTS (PESSIMISTIC SCENARIO)

 India has been pressurizing the WTO for faster implementation of integration by large textile importers such as the US and EU. The Ministry of Commerce explicitly states that integration is a key issue for India in multilateral trade negotiations. Market access for Indian textiles has not increased significantly and compounding the problem is anti-dumping actions, transitional safeguards and rules of origin4 that nullify the little market access resulting from implementation of the ATC (Ministry of Commerce, 1999).

 There has been a growth of regional trade in clothing amongst developed countries such as the US and EU, most of it being free of quota restraints5. Exporters from developing countries such as India find that their export markets to the EU and US being subject to quotas are protected and isolated from these other non-quota suppliers who receive some form of preferential treatment.

 The impending integration of textiles into the WTO in end 2004 which frees trade in textiles and garments requires industrial up gradation via technological up gradation and assembly-line automated production that generates scale economies along with flexibility as well as product quality and the compression of delivery lead times. The participation in such a changed market environment is easier for the organized segment of the industry than the unorganized who have a poorer capacity to make a rapid and flexible response to the changing economic situation and this was an obstacle for the organized segments to get policy changed in their favour.

 The prospect promoted by the Agreement on Textiles and Clothing (ATC) agreement of making trade in textiles restriction-free by end 2004 calls for changes in domestic policy. Up to now the policy was supported by an administrative and incentive structure built around the internal allocation of quotas. All these arrangements which include special quotas for small/young firms, extra quotas for firms shipping to non-quota markets so as to encourage trade diversification, and secure long term access to existing firms.

Yarn

- Change works to the advantage for S. Korea/ASEAN/Far-East

- Demand for packages increases

- EEC other garment supply countries invest in back-end processes

Fabric/Made-ups

- Environmental Clause impacts

- Investment in processing does not happen

- Blends and synthetic fabrics dominate reducing advantage of Indian cotton

Garments

- Social clause impact leading to ban on some categories, etc.

- SSA is a reality impacting exports of garments from India to USA and EU

- FTA becomes a reality

- Other projectionist measures come up

AGREEMENT ON TEXTILE & CLOTHING

 Till 1995, textiles and clothing were outside the purview of multilateral agreements

 Exports to many developed countries subject to quantitative restrictions

 Brought under multilateral discipline replacing the erstwhile multi fibre agreement

 Special treatment to LDCS

 Transition period safeguards

 Ten year schedule included in the agreement to phase out QRs in four stages

Stage I: on 1.1.95., Products accounting or not less than 16%

Stage II: on 1.1.98, an additional 17%

Stage III: on 1.1.2002, an additional 18%

Stage IV: on 1.1.2005, balance 49%

 Integrated Products To Include Products From Each Segment, Namely, Tops And Yarn, Fabrics, Made Up Textile Products And Clothing

 However, no meaningful integration of products of India’s interest. All items back-loaded to the last year of phase out schedule (2005)

 Transitional safeguards, anti dumping measures, discriminatory rules of origin nullifies impact.

The ATC is a transitional instrument, built on the following key elements:

(a) The product coverage, basically encompassing yarns, fabrics, made-up textile products and clothing;

(b) A programme for the progressive integration of these textile and clothing products into GATT 1994 rules;

(c) A liberalization process to progressively enlarge existing quotas (until they are removed) by increasing annual growth rates at each stage;

(d) A special safeguard mechanism to deal with new cases of serious damage or threat thereof to domestic producers during the transition period;

(e) Establishment of a Textiles Monitoring Body (“TMB”) to supervise the implementation of the Agreement and ensure that the rules are faithfully followed;

(f) Other provisions, including rules on circumvention of the quotas, their administration, treatment of non-MFA restrictions, and commitments undertaken elsewhere under the WTO’s agreements and procedures affecting this sector.

Impact on World

The Agreement on Textiles and Clothing (ATC), as part of the WTO umbrella, took full effect from January 1, 2005, when there will be no quota restrictions for export of any product. The ATC will give Indian companies quota-free access into major markets. Under its impact, the companies, which are now dependent on quota, will be badly affected. Indian companies and some political parties have taken into account the impact of ATC and the fact that import restrictions in India will affect market access in the domestic markets. An extremely important area to be protected is cotton imports. Cotton yarn is an important export. In a globalised market, this sector, which contributes to about 32 per cent of the total exports, will look to capture bigger markets.

For this, many yarn manufacturers may move towards importing the superior Egyptian cotton. This will mean that the cotton farmer may not find enough buyers which in turn, might become a political issue. So, like the silk import issue, cotton imports are also likely to become an important arena for a political battle between the farmer and the importing industry lobbies.

The Government is said to have decided to support three main areas for exports: readymade garments, cotton yarn and man-made textiles which have contributed most to the exports. In the garment sector, close to 60 per cent of dispatches abroad is accounted for by quota exports. Again, there is a heavy product and fiber concentration (cotton RMGs).

MULTIFIBRE 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.

Measures That Are Taken Post MFA Scenario.

The new Textile Policy 2000 (NTxP-2000)

IT has been announced to provide the policy direction for orderly and sustained development and growth of the textile industry. One of the main aims of the policy is to achieve an enhanced target of textiles and apparel exports from the present level of US $ 11.2 billion to US $ 50 billion by 2010.

DEPB issues

The Ministry of Textiles is making all out efforts to increase exports and maintain a cutting edge, in spite of the recent slow down in exports.Further, the Ministry has been able to get many DEPB issues resolved. DEPB rates have been agreed for blended textile items. Most of the embroidered products have been included. Drawback rates have been revised in many textile items on the intervention of the Ministry. The Government has allowed the import of specified textile machinery items at a reduced rate of 5% duty, restored the facility of importing items like trimmings/embellishments without a licence. All in all, it is our continued resolve to combat the adverse effects so that textile exports do not suffer in the short term and they stay on course for attaining sustainable competitiveness in the international markets.

Technology Up gradation Fund Scheme:

In view of the urgent need for stepping up the process of modernization and technology up gradation of the textile industry in India, Ministry of Textiles launched a Technology Up gradation Fund Scheme (TUFS) for the textile and jute industry for a five years time frame from 01.04.1999 to 31.03.2004. The scheme has since been extended till 31.03.2007. The scheme provides 5% interest reimbursement in respect of loans availed there under from the concerned financial institutions for investments in benchmarked technology for the sectors of the Indian textile industries specified there under. An additional option has been given to power loom units for 20% capital subsidy under Credit Linked Capital Subsidy (CLCS-TUFS) up to a cost of Rs. 100 lakh in eligible machinery with facility to obtain credit from a credit network that includes all co-operative banks and other genuine non banking financial companies (NBFC) recognized by the Reserve Bank of India.

Liberalization of FDI Policy:

Government has allowed foreign equity participation up to 100%, through automatic route, in the textile sector with the only exception in knitwear/knitting sector.

Export Promotion Capital Goods (EPCG) Scheme:

The scheme facilitates import of capital goods at 5% concessional rate of duty with appropriate export obligation. Import of second hand capital goods without any restriction on age is also allowed under the new Foreign Trade Policy as announced on August 31, 2004.

Advance Licensing Scheme:

With a view to facilitating exports and to access duty free inputs under the scheme, standard input-output norms for about 300 textiles and clothing export products have been prescribed and this scheme remained under operation.

Duty Exemption Pass Book (DEPB) Scheme:

DEPB credit rates have been prescribed for 83 textiles and clothing products. The DEPB credit rates were reduced by 45% across the board in all textile items on 23.09.2004. While addressing the concerns of certain segments of the trade, the DEPB credit rates were again revised on 30.12.2004 by announcing changes to the extent of 60% reduction in respect of cotton textile items, 30% reduction in blended textile and woolen items and 22.5% reduction in man-made textile and silk items in place of 45% reduction effected earlier.

Duty Drawback Scheme:

The exporters are allowed refund of the excise and import duty suffered on inputs of the export products under the Scheme. Department of Revenue announced revision in All Industry Rates of Duty Drawback (AIR of DBK) on 18.01.2005 and the changes made effective from 19.01.2005. There has been substantial reduction in AIR of DBK in almost all textile export products except certain items of silk and wool sectors. In the revised Drawback Schedule, 165 new entries of textile products have been created in addition to earlier 101 entries. The revised rates have been prescribed on the basis of weight of the export product instead of earlier system based on fob value of the product. Besides, in respect of apparel items, the drawback rates have also been given on the basis of composition of textiles.

Targets Achieved By The Textile Industry Post MFA

The biggest change post MFA is that large textile firms within India are buying small-scale garment manufacturers to shore up their production facilities, Already, the Gujarat-based Super Spinning Mills Ltd has moved in to acquire two sick textile mills in Madurai to increase the company's yarn production capacity and to cater to the United States export market.

In the quota free market China, with its vast supply of labour significant upstream capacity in textiles manufacturing, efficient garment factories, and well developed logistics infrastructure, has achieved enormous gains in exports in just first few months of quota free trade. A new positive development is that in the US market, the growth in India’s exports, especially in garments has overtaken that of China. The quantitative restrictions applied on Chinese textile and clothing products by US government have played a role in curtailing the growth of Chinese exports and accelerating growth of India. However, these restrictions came into force only from January 2006, whereas India’s exports registered significantly higher growth rates in the US market compared to China, right from November 2005 onwards and the trend is continued in Jan-Feb 2006.It is apparent that export opportunities for our textile and clothing industry in USA and EU and other markets are poised for a significant growth in the coming months.

EFFECT OF FOREIGN TRADE POLICY IN TEXTILE INDUSTRY

Textiles and clothing constitute the single largest group of commodities in the country’s export basket accounting for almost one-third of India’s total exports. Textile exports increased from US $ 9.56 billion in 1996-97 to US $ 12.10 billion in 2000-2001 with an annual growth rate of 6.08%. The ready-made garment sector is amongst the largest segment in India’s textile export basket contributing about 41% of the total textile exports. The following measures are planned to increase textile exports.

1. ASSISTANCE TO STATES FOR INFRASTRUCTURE DEVELOPMENT OF EXPORTS (ASIDE)

The State Governments shall be encouraged to participate in promoting exports from their respective States. For this purpose, Department of Commerce has formulated a scheme called ASIDE.

The States shall utilise this amount for developing infrastructure such as roads connecting production centers with the ports, setting up of Inland Container Depots and Container Freight Stations, creation of new State level export promotion industrial parks/zones…etc.

EFFECT: ASIDE will help develop proper infrastructure which is the key required to the textile industry. This will help Indian textile industry to be at par with the china, a market leader in textile industry.

2. MARKET ACCESS INITIATIVE (MAI )

The Market Access Initiative (MAI) scheme is intended to provide financial assistance for medium term export promotion efforts with a sharp focus on a country and product. The financial assistance is available for Export Promotion Councils, Industry and Trade Associations and other eligible entities as may be notified from time to time.

A whole range of activities can be funded under the MAI scheme. These include market studies, setting up of showroom/ warehouse, sales promotion campaigns, international departmental stores, publicity campaigns, brand promotion… etc.

EFFECT: MAI scheme would help in promoting the textile industry in the international markets. This would result in creating greater awareness about the Indian textile industry in the International markets.

3. MARKET DEVELOPMENT ASSISTANCE (MDA)

The Marketing Development Assistance (MDA) Scheme is intended to provide financial assistance for a range of export promotion activities implemented by export promotion councils, industry and trade associations on a regular basis every year.

Assistance under MDA is available for exporters with annual export turnover upto Rs 10 crores. These include participation in Trade Fairs and Buyer Seller meets abroad or in India, export promotion seminars etc.

EFFECT: MDA scheme would help small exporter to participate in international trade fairs. This will give small exporter an exposure to the new things and would help the exporter to understand markets better and serve them effectively.

4. MEETING LEGAL EXPENSES FOR TRADE RELATED MATTERS

Financial assistance would be provided to deserving exporters on the recommendation of Export Promotion Councils for meeting the cost of legal expenses relating to trade related matters.

EFFECT: This scheme would help the small exporter boost their morale and motivate them to move ahead and at the same time it would reduce the burden on the small exporter.

5. TOWNS OF EXPORT EXCELLENCE

The Towns of Export Excellence in the Handloom, Handicraft, Agriculture and Fisheries sector, the threshold limit would be Rs 250crores. Common service providers in these areas shall be entitled for the facility of the EPCG scheme. The recognized associations of units will be able to access the funds under the Market Access Initiative scheme for creating focused technological services. Further such areas will receive priority for assistance for rectifying identified critical infrastructure gaps from the ASIDE scheme.

EFFECT: This scheme would help the areas as the whole which has extreme potential for exports but lacks proper utilization of its capacity. This scheme will help the potential areas realize its actual potential and benefit from it.

6. BRAND PROMOTION AND QUALITY

The Central Government aims to encourage manufacturers and exporters to attain internationally accepted standards of quality for their products. The Central Government will extend support and assistance to Trade and Industry to launch a nationwide programme on quality awareness and to promote the concept of total quality management.

Test Houses: The Central Government will assist in the modernisation and upgradation of test houses and laboratories in order to bring them at par with international standards.

EFFECT: This scheme would help the exporter/textile manufactures to keep updated about the international quality standards. This will help India to grow its exports in textile industry.

7. DUTY EXEMPTION & REMISSION SCHEMES

Duty exemption schemes enable duty free import of inputs required for export production. Duty Exemption Scheme consists of

(a) Advance Authorisation Scheme and

(b) Duty Free Import Authorisation Scheme (DFIA).

A Duty Remission Scheme enables post export replenishment/ remission of duty on inputs used in the export product. Duty remission schemes consist of :

(a) DFRC (Duty Free Replenishment Certificate),

(b) DEPB (Duty Entitlement Passbook Scheme) and

(c) DBK (Duty Drawback Scheme).

EFFECT: These schemes would help the textile manufacture to purchase the inputs at cheaper prices and it will lead to manufacturing of the finished goods at cheaper prices. This will help the Indian products to be more attractive vis-а-vis competitors.

8. EXPORT PROMOTION CAPITAL GOODS SCHEME (EPCG Scheme)

The scheme allows import of capital goods for pre production, production and post production (including CKD/SKD thereof as well as computer software systems) at 5% Customs duty shall be allowed subject to a fulfillment of an export obligation equivalent to 6 times the duty saved over a period of 8 years from the date of issue of Authorisation provided the landed CIF value of such imported Capital Goods under the Scheme does not exceed Rs 25 lac and the total investment in plant and machinery after such imports does not exceed the SSI limit. The capital goods shall include spares (including refurbished/reconditioned spares), tools, jigs, fixtures, dies and moulds. EPCG Authorisation may also be issued for import of components of such capital goods required for assembly or manufacturer of capital goods by the Authorisation holder.

EFFECT: This scheme would help the exporter to import capital goods at cheaper prices and it will help the exporter to produce goods of superior quality and quote competitive prices in the international market.

9. DUTY FREE IMPORT & EXPORT OF SAMPLES

EFFECT: This would help the textile exporter to import the sample at no duty. This would lead to reduce the burden on the small exporters.

10. EXPORT ORIENTED UNITS (EOUs)/ SPECIAL ECONOMIC ZONES

• Units in SEZ would be permitted to undertake hedging of commodity price risks, provided such transactions are undertaken by the units on stand-alone basis. This will impart security to the returns of the unit.

• It has also been decided to permit external commercial borrowings (ECBs) for a tenure of less than three years in SEZs. The detailed guidelines will be worked out by the RBl. This will provide opportunities for accessing working capital loan for these units at internationally competitive rates

EFFECT: EOUs will help the textile industry to get cost advantage and it will able to market its products in the international markets at competitive prices.

RECOMMENDATIONS

1. Simplification in the procedure: The complex process of availing the promotion schemes must be simplified. Many of the exporters are not comfortable with process. So, the procedure to avail licenses and availing of the schemes must be simple and quick.

Bringing down of transaction cost through procedural simplification would now make Indian textile products and yarn more competitive vis-а-vis China and Pakistan in the South-East Asian market.

2. Development of Unorganized Sector: Special emphasis must be given in developing the units in the backward areas by giving them proper training and guidelines in increasing their productivity.

3. Soft Loans: Soft loans to the small scale industry to import required inputs, this will help the firm in upgrading its units and increase its productivity.

4. Reduce Custom duty: The government must charge less customs duty from the upcoming textile units to import raw material. So that, exporters can offers competitive prices in the International Market.

REFERENCES

1. http://dgft.delhi.nic.in

2. http://planningcommission.nic.in/data/stat/statistics1.pdf

3. http://dgftcom.nic.in/exim/2000/bulletin/apr01.htm

4. http://dgftcom.nic.in/exim/2000/highlights06.pdf

5. http://dgftcom.nic.in/exim/2000/policy/plcontents06.htm

6. http://www.blonnet.com/2003/03/12/stories/2003031202310400.htm

7. http://www.ieport.com/2006-2007/speech.htm

8. http://www.vuw.ac.nz/~caplabtb/india_china.html

9. http://www.aepcindia.com/exim/resolution.asp

10. http://www.aepcindia.com/exim/salient.asp

11. http://www.thehindubusinessline.com/2002/04/02/stories/2002040201570200.htm

12. http://www.ficci.com/studies/ficc-textile.pdf

13. http://www.domainb.com/industry/textiles/20041229_multi_fibre_agreement.html

14. www.sebi.gov.in/dp/gokuldasfinal.pdf

ANNEXURE

THE HISTORY OF INTERNATIONAL TRADE IN TEXTILES AND CLOTHING

Date Action take

1957: January Five-year agreement reached with Japan on limiting overall textile exports to United States.

1958: November United Kingdom signs "voluntary" limitation on cotton T&C products with Hong Kong after threatening imposition at lower than prevailing volume levels.

1959: September United Kingdom signs similar restraint agreements with India and Pakistan.

1960: November GATT Contracting Parties recognise the problem of "market disruption", even if it is just threatened; serves as "excuse" for establishing future NTBs.

1961: July The Short Term Arrangement (STA) is agreed upon.

1962: February The Long Term Arrangement (LTA) is agreed upon to commence on October 1, 1962, and last for five years.

1966: June The United Kingdom implements a global quota scheme in violation of the LTA. (The LTA provides only for product-specific restraints.)

1967: April Agreement is reached to extend the LTA for three years.

1969–71 The United States negotiates VERs with Asian suppliers on wool and man-made fibres.

1970: October Agreement is reached to extend the LTA for three years. (It was later extended an additional three months to fill the gap until the MFA came into effect.)

1973: December It is agreed that the MFA will begin on January 1, 1974, and last for four years.

1977: July–December The European Economic Community and the United States negotiate bilateral agreements with developing countries prior to agreeing to extension of the MFA.

1977: December The MFA is extended for four years.

1981: December The MFA is renewed for five years. The United States, under pressure from increased imports resulting from dollar appreciation, negotiates tough quotas.

1986: July The MFA is extended for five years, to conclude with Uruguay Round.

1991: July The MFA is extended pending the outcome of the Uruguay Round negotiations.

1993: December The Uruguay Round (UR) draft final act provides for a 10-year phase-out of all MFA and other quotas on textiles in ATC. MFA extended until UR comes into force.

1995: January 1 1st ATC tranche liberalized by importing countries – 16% of 1990 import volume.

1998: January 1 2nd ATC tranche liberalized by importing countries – 17% of 1990 import volume.

2002: January 1 3rd ATC tranche liberalized by importing countries – 18% of 1990 import volume.

2005: January 1 4th ATC tranche liberalized by importing countries – 49% of 1990 import volume.

Exports of textiles and clothing from developing countries have long faced restrictive blocks to their exports called quotas. Brought in force as a temporary relief measure in favour of the domestic textile manufacturers in the developed countries, it has been in force for 40 years now. In 1962, a Long Term Agreement (LTA) regarding international trade in cotton textiles was signed. It replaced the one-year Short Term Agreement that existed at the time. LTA underwent several renewals and was subsequently replaced by the Multi Fibre Agreement (MFA) in 1974, which was expanded to cover exports of synthetic fibres and woolen products, besides cotton.

Recent Update Of Indian Textile Industry

Stringent labour laws affect exports of textiles & leather

March 12, 2007

India’s labour-intensive exports like Textiles, Garments, Handicrafts and Leather & Leather Products are growing slower than the knowledge and technology-intensive exports, according to an analysis done by FICCI. FICCI’s analysis shows that exports of textiles and leather & leather products grew at an average rate of less than 8% per annum for the last five years.

And, in case of Handicrafts, the growth rate has been in fact negative for the same period. Expressing concern over this trend, FICCI’s President Mr Habil F Khorakiwala told the Board of Trade “The issue needs to be considered seriously and to generate more employment in the manufacturing sector there is a need to scale-up the export growth rate of such labour-intensive products”.

According to FICCI, the robust growth shown by total exports of India and knowledge/technology-intensive exports is not reflected in the growth of exports in these labour-intensive sectors.

“Even for the current period i.e. April-October 2006 labour-intensive sectors like leather & leather products, gems and jewellery, sports goods, textiles and handicrafts, slower or negative export growth rate was witnessed” Mr Khorakiwala further said.

Not only the growth rate, even the share of these products in our total exports has declined significantly over a period of time, observed FICCI. The share of textiles, a handicraft and leather product was around 28% in 2001-02 which has come down to 18% by 2005-06.

Mr Khorakiwala emphasised the need for providing additional stimulus for exports of these labour-intensive sectors and also to address some policy issues like reforming labour laws, SSI Dereservation, High transaction cost and Infrastructure bottlenecks.

FICCI pointed-out that stringent domestic labour laws are affecting the exports of sectors like textiles and leather and in order to tap the full export potential of these sectors, there is a need to introduce labour flexibility in these sectors .

FICCI further said that States should provide infrastructure support like power etc for these sectors at competitive prices.

For instance, FICCI observed that recently a group of textiles mills decided to invest in Andhra Pradesh which has assured them of a dedicated line from the main grid and power supply at a special rate for 5 years (the rate offered by Andhra Pradesh is around Rs 2.5 per unit compared to Rs 4.2 per unit in Tamil Nadu).

Further, proper connectivity of textile and leather clusters with ports and airports, will reduce the cost of domestic transportation, which at times is higher than the cost of transportation to international destination. FICCI feels that cheaper export credit for these labour-intensive sectors would also help in increasing their exports.

IPO rush in textile cos before TUFS expires

Textiles sector is jacking up their capital raising plans ahead of expiration of government sponsored Technology Upgradation Fund (TUF) in March 2007. Six textile companies have mobilised over Rs 400 crore by tapping the market in 2007 till date and some more initial public offerings (IPOs) from the sector are in the offing. Under the TUF, the textiles firm receives the required finance at the subsidised interest rate of 5% from the special fund created by the government.

Some of the companies which have already approached the capital market in recent times are House of Pearl Fashions, Hanung Toys, Technocraft Industries, Mudra Lifestyle, Indus Fila, Abhishek Mills, Evinix Accessories and Vijayeshwari Textiles.

All these companies had stated in their issue prospectus that the proceeds raised through the issue of equity will be used for new capacity expansion as well for the integration plans.

The removal of textile quota restrictions imposed by the European Union (EU) and the US as per the WTO agreement has seen an increase in the export sales of domestic textile firms. With the availability of incentives for export promotions in domestic market and huge opportunities for growth lying ahead in the export market, many small- and mid-sized textile companies are rushing to the primary market to raise funds to finance their expansion facilities.

Fasiha Shaikh, textile analyst, Angel Broking, said, “The removal of quota restrictions and the domestic retail boom has definitely contributed to the growth of the domestic textile firms in a great way. This in turn has resulted in companies tapping the capital market for raising funds for capacity expansion.”

The other major factor which is seeing a spurt in the textile firms coming up with their IPOs is that the subsidy enjoyed under the TUFS is expiring in March 2007 and these firms want to take advantage of the present opportunities before the deadline expires.

Experts feel the government may extend TUFS for another one or two years to boost textile exports before the Chinese textile firms come out of quota restriction.

GHCL gets home textiles edge with US buyouts

In a bid to strength its market share in the US market, Sanjay Dalmia's GHCL Ltd has acquired US-based Best Manufacturing Group (BMG) for $ 35 million through its international subsidiary GHCL Inc. The acquisition cost is being funded by existing lenders of Dan River, a company it acquired earlier, and not through current cash flows of GHCL Ltd.

BMG, with annual turnover of $160 million is the leading manufacturer and distributors of home textiles and certain related items for the hospitality and healthcare sector In the US.

After consolidating in upstream textile business, GHCL is likely to make a major acquisition in the textile retail business, sources close to the company said. The deal size is expected to be more than $100 million. The company has already started discussion with some of the potential companies and expects to close the deal in the first quarter of next fiscal.

"The BMG acquisition proves GHCL's growing acceptability of the strategy being put in place even in the most competitive home textile marker



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