Blog

Future of Garment Industry in India after COVID-19

December 6, 2020December 6, 2020 EIRI Teamgarment industry, impact of covid 19 on garment industry, textile industry future growth

The garment or textile industry in India is the second largest one that provides jobs for many people. It has a direct impact in India’s economy improvement which will increase in the future markets. On the other hand, the textile industries also face several challenges due to several factors. A recent study reveals that Indian textile sectors will take economy to new height in the future markets. Moreover, it will shape the economy effectively with high success rates. The textile industries have large diversified segments which enable businesses to choose a wide range of products accordingly.

What are the strengths of garment industries?

There are several factors which determine the success of garment industries in India. Some of them include cheap labour costs, skilled manpower, availability of raw materials, product development, and diversification. Growing economy is also another factor that contributes more to the growth of garment industries in India. Another thing is that the potential local and international markets make textile sectors to perform well with high success rates. Apart from that, new innovations and technologies also transformed the garment industries that made them to improve their productivity levels.

Challenges faced by textile industries in India

Nowadays, domestic garment manufacturing units face huge challenges that affect their growth levels to a great extent. The first fact is that the rising demands that many industries are not able to achieve them. Shortage of skilled labour force is another factor that is lowering the production significantly. Transportation costs, high taxes, and lack of machinery items are some other factors that impact the Indian economy. However, the economy is dating back to normalcy due to the initiatives taken by Indian government. Businesses and supply chains are also focusing on manufacturing other products compared to traditional ones.

Indian textile industry

The Textile Sector in India ranks next to Agriculture. Textile is one of India’s oldest industries and has a formidable presence in the national economy in as much as it contributes to about 14 per cent of manufacturing value-addition, accounts for around one-third of our gross export earnings and provides gainful employment to millions of people. 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. This paper deals with structure, growth and size of the Indian textile industry, role of textile industry in economy, key advantages of the industry, textile industry export and global scenario and strength, weakness, opportunities and treats of the Indian textile industry.

Size of Textile Industry in India

The textile industry in India covers a wide gamut of activities ranging from production of raw material like cotton, jute, silk and wool to providing high value-added products such as fabrics and garments to consumers.
The industry uses a wide variety of fibres ranging from natural fibres like cotton, jute, silk and wool to man made fibres like polyester, viscose, acrylic and multiple blends of such fibres and filament yarn.
The textile industry plays a significant role in Indian economy by providing direct employment to an estimated 35 million people, by contributing 4 per cent of GDP and accounting for 35 per cent of gross export earnings. The textile sector contributes 14 per cent of the value-addition in the manufacturing sector.
Textile exports during the period of April-February 2003-2004 amounted to $11,698.5 million as against $11,142.2 million during the same period in the previous year, showing an increase of around 5 per cent.
Estimates say that the textile sector might achieve about 15 to 18 per cent growth this year following dismantling of MFA.

Growth of textile industries in India

Textile industries are growing faster in India and expected to improve further in upcoming years. In fact, the future has a positive outlook and earned a unique place in the economy due to government policies. The technical textiles are also increasing in India over recent years to fulfil the expectations of certain sectors. They include agriculture, automobiles, healthcare, roads and highways that can develop India’s economy. Besides that, Indian markets opened the door for corporate firms to plan their operations with low investments. Furthermore, the reforms introduced by Indian government will allow industries to market their products in markets with ease that can reach more customers.

The key advantages

India is the third largest producer of cotton with the largest area under cotton cultivation in the world. It has an edge in low cost cotton sourcing compared to other countries.
Average wage rates in India are 50-60 per cent lower than that in developed countries, thus enabling India to benefit from global outsourcing trends in labour intensive businesses such as garments and home textiles.
Design and fashion capabilities are key strengths that will enable Indian players to strengthen their relationships with global retailers and score over their Chinese competitors.
Production facilities are available across the textile value chain, from spinning to garments manufacturing. The industry is investing in technology and increasing its capacities which should prove a major asset in the years to come.
Large Indian players such as Arvind Mills, Welspun India, Alok Industries and Raymonds have established themselves as ‘quality producers’ in the global market. This recognition would further enable India to leverage its position among global retailers.
India has gathered experience in terms of working with global brands and this should benefit Indian vendors.

Golden Era of Indian textile industry $650 billion opportunity by 2025

India has become a dream market for most marketers across many product segments. In textiles and apparel specifically, domestic consumption has grown at over 13 per cent per annum over the last five years and crossed the $60 billion level, fuelled by the demographic advantages of India’s population, increasing urbanisation, growing disposable income and higher marked penetration of organized retail. India’s export of textiles and apparel has also grown at over 11 per cent in the last five years and currently stands at $40 billion – a success but a long way from where China’s industry stands today (just 10 per cent), and nowhere near its potential.

Traditionally Indian textile and apparel manufacturing industries have been cotton focused. Even today, cotton has more than a 60 per cent share compared to 40 per cent share globally. But this scenario is changing fast. Manufacturers, as well as brands, are increasingly looking towards other fibre options, mainly polyester. With the increase in the ‘Value Retailing’ format in the domestic market and rising demand for synthetic fibre-based products from global brands and retailers, demand for polyester is set to grow.

Impact of COVID-19 on Garment Industry

The widespread impact of the covid-19 which has left no sectors unturned and is expected to decelerate the growth projection of the textile and apparel industry in India, which was once projected to grow at a CAGR of ~12% to reach USD 220 billion (INR 16,637 billion) by 2025-26(as per the data released by the Ministry of Textiles). Due the outbreak of the pandemic, it is expected that the domestic market is seen shrinking by around 28%-30% to USD 61 billion (INR 4,163 billion) led by the decline in the sales mostly in the Q1 for the current financial year ending 20-21.

According to the data released by the Confederation of Indian Textile Industry (CITI), the recovery for the domestic market is expected to be quite steep post pandemic with domestic market estimated to reach USD 120 billion (INR 9,074 billion) by 2024. Apparel retail is even projected to contract by ~USD 27 billion (INR 2,042 billion) in FY 2020-21 as compared to Pre Covid-19 projections for the same period against the ~USD 20 billion (INR 1,512 billion) from the base of FY 2019-20.

The measures taken by the Central Government to combat the impact of the Covid-19 including the INR 3,000 billion collateral free automatic loan for businesses, including the MSME is expected to rejuvenate the critical sectors of the economy and provide the benefit to ~4.5 million small businesses including many small Textile and Apparel units as well. With the extension granted by the Government and RBI, pertaining to 6 months moratorium for interests and for 4 years repayment period including one-year postponement for MSME segments for Covid-19 loans, would provide the much-needed upliftment to the textile industry. Against the backdrop of further impact that the low margin capital-intensive textile industry could face because of the pandemic, the Confederation of Indian Textile Industry (CITI) has approached RBI for one-time loan restructuring, citing a 25-30% drop in the overall demand in FY21. It remains to be seen how RBI would respond to the proposed plea from the CITI for the loan restructuring at a time when the Indian Banking sector is already reeling under the stressed bad loan due to Covid-19 induced stress.