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Cotton & Textile Industry of India & Cotton & Textile Industry of India & Development prospects for the future.Development prospects for the future.

Presented By :Presented By : Mohit D. Shah Mohit D. Shah

DirectorDirector

Sept 17, 2007(Full Version)

Gill & Company Pvt Ltd.

Mumbai, India

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StructureStructure

Indian Textile Industry – at a glance

Share of cotton v/s MMF Indian raw cotton scenario “ Future Trends”

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Indian Textile IndustryIndian Textile Industry- at a glance- at a glance

Directly employs approximately 35 mn people

14% share in India’s total exports earnings 14% share in national industrial production 5.5% contribution to the GDP 4% share in the global textile trade 3% share in the global apparel market 25 % share in world trade of cotton yarn Thus making it the second largest exporter

of cotton yarn in the world after Pakistan

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On the Raw Cotton FrontOn the Raw Cotton Front

Approximately 9.5 mn hectares of area under cotton cultivation largest in the world & is approx 27% of the world area under cotton

2nd largest producer of raw cotton 2nd largest consumer of raw cotton Poised to become 2nd largest exporter of

raw cotton after USA

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Mills And Installed Capacity In Mills And Installed Capacity In Organised SectorOrganised Sector

Year 2005-06

No Of Mills 2953Spindles Installed (MN)

37.51Rotors (000) 395Shuttle Looms (000) 73Shuttle Less Looms 9788

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ReasonsReasons MFA that had governed textile trade between nations

since 1974 expired on 31st Dec 2004 Economic liberalisation in the last decade made the

industry globally competitive in terms of price and quality

Removal of fiscal distortion in excise duties in the entire supply chain of textile industry

Subsidy to industry by the Govt at 5% interest rate on capital expenditure for modernisation and expansion under Technology Upgradation Fund (TUF) for a period 10 years

Export boom for cotton yarn aided expansion of capacity

Emphasis on technology and sophisticated machinery

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SummarySummary India has a high scope of producing

quality yarn and fabric A tremendous future growth potential

lies due to : Strong raw cotton base Strong entrepreneurial class Flexibility in production of small order lots Adequate labour supply at relatively

competitive wages Cultural comfort with US and Europe Growing domestic market Buyers preference for India after China English speaking population a language

advantage India will continue to be a major and

dominant player in textiles

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Share of Cotton Share of Cotton v/s v/s

Man Made FibersMan Made Fibers

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Consumption of Textile FibersConsumption of Textile Fibers (in ‘000 Tons)(in ‘000 Tons)

Cotton Non – Cotton

Total Percentage Share

Cotton MMF

( Thousand Tons)

2001-2002 2701 1833 4534 60 40

2002-2003 2699 2003 4702 57 43

2003-2004 2652 2092 4744 56 44

2004-2005 2886 2133 5019 58 42

2005-2006 3222 2136 5358 60 40

2006-2007 3580 2341 5921 60 40

2011-2012 5914 5914 11828 50 50

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Footnote

Share of MMF & Cotton has remained around 40% & 60% in 2006-2007

However it is expected that share of MMF will increase to 50% by 2011-2012

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Reasons Reasons In absolute terms, cotton consumption will rise but its

share in the total fibre/filament basket decline Consumption of MMF will rise on account of consumer

preference due to easy-care properties, durability and lesser maintenance cost

Prices of MMF have been relatively less volatile than cotton

Infact prices of MMF (mainly polyester) have been lower than comparable cottons

Productivity of manufacturing units is higher when MMF is blended with cotton or when 100% of MMF is used

Easy and adequate availability of MMF all year round

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Summary Summary

Despite the increasing trend of MMF vis-a-vis cotton, India will still continue to be one of the largest and major consumer of raw cotton in the years to come

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Indian raw cotton scenarioIndian raw cotton scenario

Area Yield Production and Consumption Exports & Imports Cotton balance sheet

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Area Area ( in mn hectares )( in mn hectares )

0

2

4

6

8

10

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

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Reasons Reasons

Steadily rising over the last three years from 8.79 mn hectares in 2004-05 to 9.16 mn hectares in 2006-07

Will increase to 9.5 mn hectares in 2007-2008

Cotton prices have been generally remunerative for farmers in comparison to other cash crops such as rice, wheat, chilies, ground nut, soyabean and tobacco

Large portion of area, where farmers have no alternative but to plant cotton

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Yield Yield ( in kg. / hec. )( in kg. / hec. )

0

100

200

300

400

500

600

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

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Reasons Reasons Dramatic increase From 399 kgs per hectare in 2003-2004 to

521kgs per hectare in 2006-2007 Forecasted to rise to 550 kgs per hectare of lint

cotton in 2007-2008 Although still much lower compared to the world

average of 740 kgs/ hecter

Reasons for increased yields. Phenomenal spread of hybrid and Bt. Cottons Nearly 70 % under bt cotton in 2007-2008 Adoption of scientific agronomic practices by

farmers Increase in area under irrigated cotton Augmented development of good quality seeds by

private sector Development efforts by Technology Mission on

Cotton, East India Cotton Association and other NGOs

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Production & Consumption Production & Consumption ( in mn bales of 480 lbs )( in mn bales of 480 lbs )

0

5

10

15

20

25

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

production consumption

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Reasons Reasons

Production Has posted sharp increase during the last three

years From of 17.90 mn bales in 2003-2004 to 28.00 in

2006-2007 mn bales & forecasted at 31.5 mn bales 2007 – 08

Reason for sharp Favourable climatic conditions Increased area under cotton cultivation Dramatic improvement in productivity from bt

cotton Better seed management

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Consumption Also increased significantly From

16.88 mn bales in 2003 – 04 to 23.5 mn bales in 2006 – 07

Forecasted at 25.5 mn bales 2007 – 08

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Imports and Exports of Indian CottonImports and Exports of Indian Cotton

Over Last Five YearsOver Last Five Years (in mn bales of 480 lbs)(in mn bales of 480 lbs)

0

2

4

6

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Imports Exports

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ReasonsReasons New paradigm shift From being a net importer to a net exporter (second

largest in the world) Large exportable surplus to continue in the years to come India is the only Country producing all kinds of cotton for

spinning with a wide range of counts from 10s to 100s 82% of the total crop is Rollar Ginned Modernisation of Ginning & Pressing Factories / Market

Yards under TMC schemes Spinning value of Indian cotton fibre is far better because

of manual harvesting and gentle processing which minimises the damage to fibre

Geographical proximity leading to advantage in transit cost and transit time

Indian varieties well established in all major consuming markets like China, Pakistan, Bangladesh, Turkey & the Far East

Demand for imported cotton will also grow but will mainly be confined to els cottons like US pima, Egyptian an Cis

Imports currently take place with a customs duty of 10%

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Cotton Balance SheetCotton Balance Sheet ( in mn bales of 480 lbs each ) ( in mn bales of 480 lbs each )

2002-03

(Oct-Sept)

2003-04

(Oct.–Sept)

2004-05

(Oct.-Sept)

2005-06

(Oct.-Sept)

2006-07

(Oct.-Sept)

2007-08

(Oct.-Sept)

% world World

2007-08

Supply:

Opening Stock as on 1st October

3.125 1.875 1.640 5.625 4.062 3.804 56.79

Estimated Crop 10.625 13.828 18.984 18.828 21.875 24.576 20.9% 117.18

Imports 1.380 0.507 0.950 0.390 0.429 0.546 40.08

Total Availability 15.130 16.211 21.575 24.843 26.367 28.928 214.65

Demand:

Consumption :

By Mills 11.126 11.738 12.811 14.062 15.625 17.187 13.5% 127.78

Non-Mill user 1.154 0.781 1.131 1.484 1.562 1.171

Small Scale Units 0.908 1.015 1.294 1.562 1.171 1.562

Exports 0.065 10.351 0.714 3.671 4.296 4.687 11.8% 39.7

Total Off-take 13.255 14.570 15.950 20.781 22.656 24.609 167.48

Carry over as on 30th September

1.875 1.640 5.625 4.062 3.711 4.320 8.4% 51.56

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SummarySummary The cotton balance sheet reveals

The is a large carry over for last three years is declining

India has been a major exporter of cotton due large surplus

In 2007-2008 India’s % share in World production will be 20.9%, consumption13.5% , exports11.8% and ending stocks 8.4% repectively

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Future TrendsFuture Trends

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FutureTrends In Cotton Production And FutureTrends In Cotton Production And Consumption Consumption (in mn bales of 480 lbs)(in mn bales of 480 lbs)

0

5

10

15

20

25

30

35

2007-08 2008-09 2009-10 2010-11 2011-12

Production Consumption

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ReasonsReasons Production forecasted to increase from

24.2 mn bales in 2007-2008 to 32.00 mn bales in 2011-2012

Consumption forecasted to increase from 19.90 mn bales in 2007-2008 to 31.00 mn bales reducing thus wide gap between production & consumption

Momentum gained by Indian cotton sector in recent years will be maintained with continued focus on further improvement in quality and sustained increase in productivity atleast to the world average by the year 2010

In short term, i.e. in next 3 years, India is likely to have surplus cotton available for exports

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Future Trend of India in the Future Trend of India in the Global Textile & Clothing MarketGlobal Textile & Clothing Market

Current global textiles and clothing industries a $480 billion is expected to grow to about $700 billion by the year 2012

Based on 9% economy growth India’s Textile & Apparel sector in the global

textile export trade likely to grow from 4% in 2005 to 7% in 2012

India’s textile exports is likely to grow from $20 billion in 2006-07 to $50 billion in 2011-12

Increase in per capita fiber consumption in the country as disposal incomes rise in the middle class the size of the domestic market estimated to grow from $30 billion in 2006-2007 to $43billion by 2011-2012

Employment likely to grow from 35 mn in 2006 to 40 mn in 2012

Total spindles likely to increase from 37.00 mn in 2006 to 48 mn spindles in 2012

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Homework to be done & Areas of Homework to be done & Areas of concernconcern

Improvement required in the Govt labour policy High transaction & power cost Fabric/ Processing still to gear to meet

international standards Rupee appreciation against the dollar over last

two months by about 10%. Among our major competitors Sri Lanka, Bangladesh & Vietnam witnessed depreciation of their currencies and countries like China & Indonesia had negligible currency appreciation

Rising interest rates Possible rise in Inflation Competition from other emerging markets such

as Brazil, Russia, China, Pakistan & Bangladesh India’s dependence on monsoons for cotton

crop

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Thank youThank you