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India Textile Industry Overview and Best Textile Stocks 2022

Editor, TRANSFIN.
Jan 10, 2022 4:25 AM 5 min read
Editorial

A lot is happening in India’s textile industry.

Global demand is booming. Importers are eager to reduce reliance on China, and India is the next best option for many. GoI, sensing a change in the winds, is suddenly saying it is open to expediting free trade agreements (FTAs) to help the sector get a leg up over competitors in Bangladesh and Vietnam. The registration process for the PLI scheme for textiles began on January 1st.

Indeed, in H12021, textile exports touched ₹1.77Lcr ($23.82bn), or 52.6% higher YoY and 13.7% above pre-pandemic levels in 2019.

Evidently, a lot of commotion - and a lot of promise. No wonder, then, that many textile shares have rallied over the past year.

The Indian Textile Industry - An Overview

India’s textile industry is big. In fact, after agriculture, it is the biggest employer, with over 45 million people. It contributes c. 2-3% to India’s GDP, 7% to industrial output, and 12% to export earnings.

India has been renowned for its textile talent for millenia. Archaeological evidence suggests that cotton spinning and weaving were known even during the days of the Harappan civilisation. And up until the twilight days of the Mughal Empire, the domestic textile industry was world-renowned, especially the hubs of Dhaka, Varanasi and Malwa.

Two centuries of British exploitation changed all of this. The colonial powers engaged in brutal price-fixing and monopolising of the textile trade from the subcontinent, enforcing their will via strict statutes, sky-high taxes, and an iron fist. Moreover, the invention of the flying shuttle and the power loom empowered British mills (most notably in Lancashire) to mass-produce machine-made textiles, driving the manual and labour-intensive Indian textile establishments further out of business.

FYI: Indian textiles were also among the most powerful symbols of anti-colonial resistance - mainly via the Swadeshi movement and the popularity of hand-spun khadi cloth.

Post-independence, the Union Government made it a priority to reinvigorate the domestic textile sector. The All India Handloom Board was set up in 1952 and the National Institute of Design came up a decade later. While hand-woven textiles remained all-powerful, industrialised processes soon spread throughout the industry, especially in Mumbai and Ahmedabad.

 

Why Has the Textile Sector Always Been a Big Deal in India?

Mainly because of (1) high self-sufficiency when it comes to raw materials (India is among the largest producers of cotton, silk, wool, jute, and synthetic yarns as well), (2) well-developed value chains (that date back generations and are a part and parcel of heritage in many cities), (3) easy availability of cheap labour, and (4) ample domestic demand.

Then there’s the nature of the industry itself, which is uniquely…well, “Indian”. The sector has always been overwhelmingly decentralised, dominated by rural hand-weaving knitters (a legacy of the sector’s close links to agriculture) and small-scale manufacturers (the bulk of them being family-run enterprises).

FYI: India accounts for 95% of the world's handwoven fabrics.

 

What’s Driving Indian Textiles?

First and foremost, improving global demand as coronavirus lockdown restrictions ease from 2020-levels.

But this uptick is also buoyed by the next big factor - like most manufacturing industries, the textile and apparel (T&A) supply chain is investing heavily to reduce reliance on China, which is the world’s largest textile market. This shift was necessitated by the US-China trade war, the COVID-19 pandemic, and increasingly confrontational Beijing-Washington ties.

In fact, only last month the White House announced a slew of sanctions banning imports from the Xinjiang province in Western China over reports of forced labour and genocide in the region. To put that in context: Xinjiang accounts for about 20% of the global cotton market.

Given the volatility and flux in the market, importers are now embracing a so-called “China+1” approach. India, with its legacy textile industry and massive cotton production, is an obvious choice. Consequently, cotton exports have surged at a CAGR of 34% in the FY19-21 period, placing India at a better position vis-a-vis Bangladesh, Vietnam and Cambodia (countries that have now also become reliant on Indian cotton following the Xinjiang ban).

There are also GoI policies. The Rebate of State & Central Taxes and Levies (RoSCTL) scheme for textile exporters, MITRA Parks, the Amended Technology Upgradation Fund Scheme (ATUFS), and the PLI scheme are some of the initiatives announced or reviewed over the past year geared towards modernising and expanding the textile sector.

Then there’s the possibility of FTAs being inked in 2022. The lack of new FTAs (and India abandoning RCEP) in recent years has led to domestic textile players losing ground to competitors in Bangladesh and Vietnam. Currency, trade deals with the UAE, UK, EU, Australia, Canada, Israel, and the Gulf Cooperation Council (GCC) are in the works. Last month, Commerce Minister Piyush Goyal suggested new deals may be finalised this year. Should this actually be the case, it is likely to bode well for the textile sector.

 

What’s Ailing Indian Textiles?

Among the main headaches are fluctuating input costs. The average price of cotton was ₹37,000 ($498) a candy (which is = 355 kg) in September 2020, which rose to ₹70,000 ($942) in December 2021. Raw material price fluctuations are naturally accompanied by calls for fiscal interventions via subsidies or temporary bans on cotton exports - that are more sensitive subjects now after the WTO-sugar subsidy developments.

Many cotton companies were also unhappy about GoI’s decision to hike the GST rate on some textile fabrics from 5% to 12% (last week, this hike was deferred, but any rate increase in the near-term may affect margins).

India Textile Industry Overview and Best Textile Stocks 2022There are also several third-party and indirect factors, like high crude oil prices, steep freight costs, elevated prices of dyeing chemicals etc. Moreover, the FTA promise is as good as its execution: GoI has a record of brandishing its commitment to free trade while consistently missing the FTA train.

Moreover, technological upgradation is paramount. Two-thirds of the global textile trade is  commanded by man-made and technical textiles, segments where India isn't exactly in an enviable position (also why the recent PLI scheme is for man-made and technical textiles only).

And while we’re on the topic, it’s important to remember that the textile industry in India is old, evolved and important, but it still needs modernisation. Case in point: buttons. Indian manufacturers typically take 90-120 days to ship an order of 20,000-30,000 buttons. In Bangladesh and Vietnam, the same order takes only 14-21 days.

That said, with pandemic-induced duress passing, demand slated to surge, the right GoI policies and intentions in place, and favourable geopolitical conditions at play, the Indian textile sector is likely to see some sunny days in the near-term.

FIN.
 

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