Indian Textiles performance in FY 23 - An objective analysis

 27 May 2023, Mumbai

The textile industry in India is one of the nation's oldest, having existed for many years.

The sector contributes 2% of the GDP and 7% of the total industry output. It also holds 5% of the world's textile and clothing trade and contributes 12% to export earnings.

What all you need to know

Due to its labor-intensive nature, the Indian textile sector ranks second after agriculture in terms of its contribution to employment creation, accounting for 10% of the nation's manufacturing.

In comparison to other major textile producers, India also has a competitive edge in terms of trained labor and production costs.

Snapshot

The yarn and fiber segment and the processed textiles and apparel segment make up the bulk of the Indian textile and apparel market.

The textile business is incredibly diverse, with the capital-intensive sophisticated mills sector at one end of the spectrum and the hand-spun and hand-woven textiles sector at the other. The main segment of the textiles industry is the decentralized power looms/hosiery and knitting sector.

The share splits and the market leaders

Since over 70% of the industry's output is based on cotton, as opposed to the global average, where goods made of man-made fibers account for a bigger share, the industry is therefore extremely vulnerable to changes in the cotton market.

India is the world's fourth-largest producer and exporter of garments after China, Bangladesh, and Vietnam and the world's second-largest producer and exporter of textiles after China. Nearly two-thirds of India's textile exports go to the US and the UK due to its enterprises' commitment to high quality.

Due to the technical textiles' low cost, long lifespan, and versatility, India is another important market for the sector's growth.

Seatbelts, sticky tapes, thermal protection materials, and blood absorption materials are some of the technical textile industries' main service offerings. The technical textile business is primarily driven by the healthcare and infrastructure sectors.

Recessionary pressures

The growth and demand for the textiles sector have reduced this fiscal year from epidemic highs. Exports have slowed as a result of the conflict between Russia and Ukraine, high inflation, and the potential for an impending recession in important markets like the US and Europe.

However, the sector has had strong domestic demand and new areas of expansion. Arun Roongta, the managing director of HGH India, speaks with ET Digital about industry trends, challenges, and possibilities. Market obstacles and ways to overcome

Home textile a bright spot

Despite a number of obstacles, the Indian home textile and furnishings business is still expanding. Currently, exports to Europe and the EU, which account for 80% of India's market in these sectors, are stagnant. The domestic market, meanwhile, is still expanding at a 15% annual rate.

Instead of having products customized, consumers are gravitating towards ready-to-use items like ready-made sofas, cushion covers, curtains, blinds, bed sheets, and towels. In 2022, the domestic market for home textiles and furnishings was estimated to be between $18 and $19 billion, including the unorganized sector.

Of this amount, $8.2 billion was exported, while the remaining $10 billion was used for internal consumption. Only the bed & bath category of home textiles accounted for about 40% of household spending. However, the unorganized and MSME sectors satisfy more than 95% of domestic demand.

These numbers would increase since a more inclusive definition of furnishing would also cover furniture and home décor accessories.

Island of growth

India wants to grow its economy by over 7% annually and reach a $5 trillion mark by 2025 or 2026. With a population of 1.4 billion and the fifth-largest economy in the world, it is currently one of the biggest and most rapidly developing markets in the world.

Young, aspirational customers in India are adapting to better goods, better designs, and a global way of life as their incomes rise.

The Indian market will continue to provide domestic and international firms with more prospects for business expansion as the demand for household goods grows at a 20% annual rate.

Finding the correct business partner in India's vast but very diversified market is a significant issue for both foreign and domestic companies and producers.

Indian Textile Industry Aims for Growth Amidst Challenges

Macroeconomic Factors Impact Textile Players' Performance In the second quarter of 2022-2023, the textile industry faced challenges due to macroeconomic headwinds. Indian spinners experienced a decline in revenue and margins, while the apparel segment saw flat revenue and margins amid recessionary conditions in key markets.

Inventory levels decreased as cotton stocks from the previous harvest season reduced, and volatile cotton prices made players cautious about purchasing.

Apparel Exporters Show Resilience, but Challenges Persist

Unlike cotton spinners, apparel exporters in India witnessed a 4.5% increase in revenue year on year. However, India's textile industry has faced a decline in recent years, with textile exports dropping by 18.7% in 2020, while countries like Bangladesh and Vietnam experienced a surge in exports.

Overcoming Cost Disadvantages and Setting Ambitious Targets To regain its position in the global market, India aims to achieve a 9% compound annual growth rate (CAGR) in textile exports until 2026, with a target of $65 billion in textile exports.

The Ministry of Textiles has set an even more ambitious target of $100 billion in exports over the next five years. To achieve these goals, India needs to address cost disadvantages, negotiate free trade agreements, and invest in key areas.

Strategies to Boost Exports and Increase Investments

India aims to position itself as a regional fabric hub, targeting $4 billion in fabric exports by focusing on cotton and expanding into other sub-categories. Increasing the share of man-made fiber (MMF) products in the global market can help reach a $3 billion target for MMF exports.

The growth potential of technical textiles also requires building capabilities in select sub-segments to tap into domestic demand. Achieving these targets necessitates investments of $20 to $25 billion and implementing schemes like PLI, MITRA, and RoDTEP.

Enhancing Competitiveness and Global Market Reach

To maximize efficiency and competitiveness, India must focus on cost-effectiveness, digitization, design capabilities, sustainability, and traceability. Becoming a one-stop destination for sustainable textile products manufactured through transparent value chains with high-quality standards and reduced lead times will differentiate India from competitors.

The industry and government must work together to attract investments, reduce import duties on machinery, and pursue free trade agreements. Positive Outlook for the Textile and Apparel Sector

The Indian textile and apparel sector is poised for growth, with a projected value of $350 billion by 2030. Apparel is expected to grow at a CAGR of 9.6%, reaching $45 billion, while textiles will reach a value of $55 billion with an 8.2% growth rate.

Bilateral agreements with countries like the UAE and Australia, along with upcoming agreements with the US, UK, and EU, offer opportunities for India to increase its market share.

Sum & substance

Despite challenges, the Indian textile industry is determined to revitalize itself through strategic initiatives, policy support, and collaboration with global markets.

By addressing cost disadvantages, leveraging its strengths, and implementing targeted growth strategies, India aims to regain its position as a major player in the global textile and apparel sector.

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