Fdi in Textile

8/2/2019 Fdi in Textile

http://slidepdf.com/reader/full/fdi-in-textile 1/31



2

INTRODUCTION

The Indian textile industry has a significant presence in the economy as well as in

the international textile economy. Its contribution to the Indian economy is

manifested in terms of its contribution to the industrial production, employmentgeneration and foreign exchange earnings. It contributes 20 percent of industrial

production, 9 percent of excise collections, 18 percent of employment in the

industrial sector, nearly 20 percent to the countrys total export earning and 4

percent to the Gross Domestic Product.

In human history, past and present can never ignore the importance of textile in a

civilization decisively affecting its destinies, effectively changing its social

scenario. A brief but thoroughly researched feature on Indian textile culture.

HISTORY OF TEXTILE INDUSTRY

India has been well known for her textile goods since very ancient times. The

traditional textile industry of India was virtually decayed during the colonial

regime. However, the modern textile industry took birth in India in the early

nineteenth century when the first textile mill in the country was established at fort

gloster near Calcutta in 1818. The cotton textile industry, however, made its real

beginning in Bombay, in 1850s. The first cotton textile mill of Bombay wasestablished in 1854 by a Parsi cotton merchant then engaged in overseas and

internal trade. Indeed, the vast majority of the early mills were the handiwork of

Parsi merchants engaged in yarn and cloth trade at home and Chinese and African

markets.

The first cotton mill in Ahmedabad, which was eventually to emerge as a rival

centre to Bombay, was established in 1861. The spread of the textile industry to

Ahmedabad was largely due to the Gujarati trading class.

The cotton textile industry made rapid progress in the second half of the nineteenth

century and by the end of the century there were 178 cotton textile mills; but

during the year 1900 the cotton textile industry was in bad state due to the great

famine and a number of mills of Bombay and Ahmedabad were to be closed down

for long periods.



3

The two world War and the Swadeshi movement provided great stimulus to the

Indian cotton textile industry. However, during the period 1922 to 1937 the

industry was in doldrums and during this period a number of the Bombay mills

changed hands. The second World War, during which textile import from Japan

completely stopped, however, brought about an unprecedented growth of thisindustry. The number of mills increased from 178 with 4.05 lakh looms in 1901 to

249 mills with 13.35 lakh looms in 1921 and further to 396 mills with over 20 lakh

looms in 1941. By 1945 there were 417 mills employing 5.10 lakh workers.

The cotton textile industry is rightly described as a Swadeshi industry because it

was developed with indigenous entrepreneurship and capital and in the pre-

independence era the Swadeshi movement stimulated demand for Indian textile in

the country.

The partition of the country at the time of independence affected the cotton textile

industry also. The Indian union got 409 out of the 423 textiles mills of the

undivided India. 14 mills and 22 per cent of the land under cotton cultivation went

to Pakistan. Some mills were closed down for some time. For a number of years

since independence, Indian mills had to import cotton from Pakistan and other

countries.

After independence, the cotton textile industry made rapid strides under the Plans.

Between 1951 and 1982 the total number of spindles doubled from 11 million to

22 million. It increased further to well over 26 million by 1989-90.



4

TEXTILE INDUSTRY IN INDIA

The Indian Textile Industry is growing at 20% and accounts for 4% of Indias

GDP. It contributes 14% to the Industrial Production and employs about 35 million

people. It accounts for 21% of India Gross Export Earning. Foreign direct

Investment (FDI) inflows worth 681.59 million have been received by the industry

between Aug. 91 and May 06, accounting for 1.29% of Total FDI inflows in the

country.

Textile constitutes the single largest industry in India. The segment of the

industry during the year 2000-01 has been positive. The production of cotton

declined from 156 lakh bales in 1999-2000 to 1.40 lakh bales during 2000-01.

Production of man-made fibre increased from 835 million kgs in 1999-2000 to 904

million kgs during the year 2000-01 registering a growth of 8.26%. The production

of spun yarn increased to 3160 million kgs during 2000-01 from 3046 million kgsduring 1999-2000 registering a growth of 3.7%. The production of man-made

filament yarn registered a growth of 2.91% during the year 1999-2000 increasing

from 894 million kgs to 920 million kgs. The production of fabric registered a

growth of 2.7% during the year 1999-2000 increasing from 39,208 million sq mtrs

to 40,256 million sq mtrs. The production of mill sector declined by 2.6% while

production of handloom, powerloom and hosiery sector increased by 2%, 2.7% and

5.1% respectively. The exports of textiles and garments increased from Rs. 455048

million to Rs. 552424 million, registering a growth of 21%. Growth in the textileindustry in the year 2003-2004 was Rs. 1609 billion. And during 2004-05

production of fabrics touched a peak of 45,378 million squre meters. In the year

2005-06 up to November, production of fabrics registered a further growth of 9

percent over the corresponding period of the previous year.

STRUCTURE OF INDIAS TEXTILE INDUSTRY

The textile sector in India is one of the worlds largest. The textile industry today isdivided into three segments:

1. Cotton Textiles

2. Synthetic Textiles

3. Other like Wool, Jute, Silk etc.



5

All segments have their own place but even today cotton textiles continue to

dominate with 73% share. The structure of cotton textile industry is very complex

with co-existence of oldest technologies of hand spinning and hand weaving with

the most sophisticated automatic spindles and loom. The structure of the textile

industry is extremely complex with the modern, sophisticated and highlymechanized mill sector on the one hand and hand spinning and hand weaving

(handloom sector) on the other in between falls the decentralized small scale power

loom sector.

Unlike other major textile-producing countries, India‘s textile industry is

comprised mostly of small-scale, nonintegrated spinning, weaving, finishing, and

apparel-making enterprises. This unique industry structure is primarily a legacy of

government policies that have promoted labor-intensive, small-scale operationsand discriminated against larger scale firms:

♦ Composite Mills.

Relatively large-scale mills that integrate spinning, weaving and, sometimes, fabric

finishing are common in other major textile-producing countries. In India,

however, these types of mills now account for about only 3 percent of output in the

textile sector. About 276 composite mills are now operating in India, most owned

by the public sector and many deemed financially sick. In 2003-2004 composite

mills that produced 1434 m.sq mts of cloth. Most of these mills are located in

Gujarat and Maharashtra.

♦ Spinning.

Spinning is the process of converting cotton or manmade fiber into yarn to be used

for weaving and knitting. This mills chiefly located in North India. Spinning sector

is technology intensive and productivity is affected by the quality of cotton and the

cleaning process used during ginning. Largely due to deregulation beginning in the

mid-1980s, spinning is the most consolidated and technically efficient sector in

Indias textile industry. Average plant size remains small, however, and technology

outdated, relative to other major producers. In 2002/03, Indias spinning sector

consisted of about 1,146 small-scale independent firms and 1,599 larger scale

independent units.



6

♦ Weaving and Knitting.

The weaving and knits sector lies at the heart of the industry. In 2004-05, of the

total production from the weaving sector, about 46 percent was cotton cloth, 41

percent was 100% non-cotton including khadi, wool and silk and 13 percent was

blended cloth. Three distinctive technologies are used in the sector handlooms,power looms and knitting machines. Weaving and knitting converts cotton,

manmade, or blended yarns into woven or knitted fabrics. India‘s weaving and

knitting sector remains highly fragmented, small-scale, and labour-intensive. This

sector consists of about 3.9 million handlooms, 380,000 power loom enter-prices

that operate about 1.7 million looms, and just 137,000 looms in the various

composite mills. Power looms are small firms, with an average loom capacity of

four to five owned by independent entrepreneurs or weavers. Modern shuttle less

looms account for less than 1 percent of loom capacity.

♦ Fabric Finishing.

Fabric finishing (also referred to as processing), which includes dyeing, printing,

and other cloth preparation prior to the manufacture of clothing, is also dominated

by a large number of independent, small-scale enterprises. Overall, about 2,300

processors are operating in India, including about 2,100 independent units and 200

units that are integrated with spinning, weaving, or knitting units.

♦ Clothing.

Apparel is produced by about 77,000 small-scale units classified as domestic

manufacturers, manufacturer exporters, and fabricators (subcontractors).



7

GOVERNMENT REGULATIONS AND SUPPORTGovernment Initiatives

The textile industry, being one of the most significant sectors in the Indianeconomy, has

been a key focus area for the Government of India. A number of policies have beenput inplace to make the industry more competitive.

The Technology Upgradation Fund Scheme (TUFS)Recognising that technology is the key to being competitive in the global market,the Government of India established the Technology Upgradation Fund Scheme(TUFS) to enable firms to access low-interest loans for technology upgradation.Under this scheme, the Government reimburses 5 per cent of the interest ratescharged by the banks and financial institutions, thereby ensuring credit availability

for upgradation of the technology at global rates. Under the TUF Scheme,launched on April 1, 1999, loans amounting to Rs. 149 billion have been disbursedto 6,739 applicants. In consonance with the industry, the TUF Scheme has beencontinued during the Eleventh Plan (2007-2012). Allocation for TUF has beenraised from Rs.5.35 billion in 2006-07, to Rs.9.11 billion in 2007-08. Handloomswill now be covered under the TUF scheme.

Integrated Textile Parks SchemeManufacturing is a thrust area for the government, as Indian industry and the

government see foreign companies more as partners in building domesticmanufacturing capabilities rather than a threat to Indian businesses. Following thisthrough, the Central Government as well as various States has executed Schemessuch as, Schemes for Integrated Textile and Apparel Parks. Under the Scheme forIntegrated Textiles Parks (SITP), 26 parks have been approved so far out of 30sanctioned. The Budget provision for these parks has been increased from Rs.1.89billion in 2006-07 to Rs.4.25 billion in 2007-08.

Scheme for HandloomsFor Handlooms a cluster approach for the development of the handloom sector was

introduced in 2005-06 and 120 clusters were selected. 273 new yarn depots areopened up till now and the Handloom Mark was launched. The Governmentproposes to take up additional 100-150 clusters in 2007-08.



8

Health Insurance SchemeThe Health Insurance Scheme has so far covered 3,00,000 weavers and will beextended to more weavers. The scheme will also be enlarged to include ancillaryworkers. The Corporate Catalyst India A report on Indian Textiles Industry

Government proposed to enhance the allocation for the sector from Rs.2.41 billionin 2006-07 to Rs.3.21 billion next year.

The Textile Manufacturing Process



9

Percentage Growth in Textiles

Vision for Indian textile and clothing industry 2007-2012

Indian textile and clothing industry has embarked on a vision of capturingmarket worth USD 110 bn by FY 2012 - total of domestic householdconsumption and exports, from USD 52 bn in FY 2006

The domestic household market potential is estimated to be USD60 bn and FOB value of exports at USD 50 bn by FY 2012

The above growth would translate into value of production of the industry(including non household consumption) to increase at 16% p.a. from USD27 bn in FY 2005 to around USD 76 bn in FY2012

The principal drivers of growth would be-

5.7% p.a. growth in world trade in textiles and clothing from USD479 bn in CY 2005 to around USD 700 bn in CY 2012 (USD 677bn in CY 2011)

India's share in the export market to increase from current 4% to

around 7% by FY 2012 Share of clothing in India's export basket to increase to 60% by FY

2012 from 48% in FY 2006 Domestic household market growth to be driven by increase in

penetration of organized retail, favorable demographics and risingconsumption & income levels



10

Domestic non-clothing consumption growth would be driven byrising usage of technical textiles, spurred by industrial growth, andincreased activity in construction of residential and commercialproperties thereby driving demand for furnishing items

In order to achieve the above growth, the production output of the industrywould need to almost double by FY 2012 from current levels. The highergrowth in value would result from manufacturing of more value addedproducts and rise in usage of technical textiles

Need to increase the output would call for investments to the tune of Rs.1,94,000 Cr. (USD 43 bn) during FY2007-2012

Consequently the industry could potentially generate additional employmentfor 14 million people of various classes and skill. Direct employmentopportunities for 6 million jobs are envisaged, with 4.4 million in the apparelsector. Indirect employments of 8 million are expected through the alliedsectors.

Employment generation in the Textile and Clothing industry during FY20072012 will be more than 14 million jobs.

The cotton and manmade fiber mills in IndiaThe first Indian modernized successful mill was established in 1854 at Bombay

by KGN Daber. Truly speaking this mill only laid the foundation stone of moderncotton industry in India. Since 1854 the number of cotton mill has been rapidlyincreasing. India‘s five year plans proved a boom to cotton Industry. During theplanning period this industry not only made remarkable development but alsoestablished mile stone in international markets Table No. 2 shows the cotton andmanmade fiber mill in India from the period 2002 to 2010. There in an increasingtrend of No. of spinning mill at the end of Nov. 2010, there were 1,947 mills in thecountry (1763 spining mills and 184 composite mills) There were 552 closed millsby the end of Nov. 2010.



11

Cotton and Man Made fiber mills and closure position



12

MAJOR PLAYERS IN TEXTILE INDUSTRY

Arvind Mills Ltd.Arvind Mills Limited is the flagship company of the US$550 million Lalbhai

Group. It is engaged in the production of the widest range of textiles. It is theworld‘s largest exporter of denim and Asia‘s largest denim producer. Rankingamong the top denim manufactures of the world, 120 million metres of denim rollout every year from Arvind plants and is stitched into leading international denimbrands in more than 70 countries. The company is also in the garment and mens‘

shirting business under the brand names of ‗Newport‘, ‗Flying Machines‘, ‗Lee‘,

‗Arrow‘.

Raymond Ltd.Incorporated in 1925, the Raymond Group is a US$ 300 million plus conglomeratehaving businesses in textiles, readymade garments, engineering files & tools,prophylactics and toiletries. The group is the leader in textiles, apparel, files andtools in India and enjoys a pronounced position in the international market.Raymond Textile produces pure wool, wool blended and polyester viscose fabricsand blankets along with furnishing fabrics. The denim division produces highquality ring denims. Raymond believes in excellence, quality and leadership.

Alok IndustriesEstablished in 1986 as a private limited company, Alok Textiles began as fabrictraders and suppliers to the garment industry. Beginning with texturising of yarn,the company steadily expanded into weaving, knitting, processing, home textilesand readymade garments. In 1993, it became a public limited company. In less

than two decades, it has grown to become a diversified manufacturer of world-class apparel fabrics selling directly to garment manufacturers and exporters.



13

Aditya Birla Nuvo Ltd.Aditya Birla Nuvo Ltd. is Aditya Birla group‘s most diversified conglomerate.Earlier it was known as Indian Rayon Ltd. (IRIL), it was rechristened as AdityaBirla Nuvo in 2005. It is the second largest producer of viscose filament yarn inIndia. It is also the largest branded apparel company in India. It is a diversifiedcompany and operates a wide range of businesses. Its focus areas are viscosefilament yarn, carbon black, branded apparels, textiles and insulators. It has alsomade forays into insurance, software and Business Process Outsourcing (BPO).

Century TextilesCentury Textiles & Industries was incorporated in 1897. Till 1951, it had only oneindustrial unit —Cotton Textile Mills. It has Asia‘s largest composite 100 per centcotton textile mill. Century has diversified into other businesses as well. Atpresent, Century is not only the trend setter in cotton textiles, but also a presence inyarn, denim, viscose filament rayon yarn, tyre cords, caustic soda, sulfuric acid,salt, cement and pulp & paper.

Welspun IndiaBeginning with a small texturising unit in 1985, the group has significantlyexpanded and diversified its business. It now has interests in terry towels, LSAWpipes, pipe coating, cotton yarns, PFY, bathrobes and buttons. The group has tieswith 12 out of top 20 retailers in the world namely Wal-Mart, K-Mart, JC Pennyand Target to name a few. LSAW pipe clientele includes names such as Shell,Gazprom, ExxonMobil, etc.

Himatsingka Seide Ltd.The company commenced its operations on 15 February 1985. It manufacturesnatural silk fabrics under a 100 per cent export oriented unit scheme. The companyundertook to set up a composite silk mill with an annual capacity of 750,000



14

square meters for producing natural silk fabrics. It produces a wide range of regular and fancy 100 per cent silk and silk blended yarns. Its weaving division -Himatsingka Seide, offers yarn dyed decorative, bridal and fashion fabrics. Theentire operation of winding, doubling, twisting, dyeing, weaving and finishing isintegrated under one roof.

Bombay DyeingBombay Dyeing is one of India‘s largest producers of textiles. The company is one

of the largest and oldest textile companies in the country. It manufactures cottonand blended textiles. Product mix comprises suitings, shirtings, sarees, towels and

bed linen. The company was formed on 23 August 1879 by Nowrosjee Wadia, adye works near Mahim. This was the mill, which first started dyeing of yarn inIndia. Bombay Dyeing Mfg. Co. Ltd. was set up in 1895. Nowrosjee Wadia &Sons become the managing agents in 1898.

Export Indian economy. It is also one of the largest contributing sectors of India's exportsworldwide. The Vision Statement for the textiles industry for the 11th Five YearPlan (2007-12), inter-alia, envisages India securing a 7% share in the globaltextiles trade by 2012. At current prices the Indian textiles industry is pegged atUS$ 55 billion, 64% of which services domestic demand. The textiles industryaccounts for 14% of industrial production, which is 4% of GDP; employs 35million people and accounts for nearly 12% share of the country's total exportsbasket.

i)Exports of textiles and clothing products from India have increased steadily overthe last few years, particularly after 2004 when textiles exports quota werediscontinued.ii) India's Textiles & Clothing (T&C) export registered robust growth of 25% in

2005-06, recording a growth of US$ 3.5 billion over 2004-05 in value termsthereby reaching a level of US$ 17.52 billion and the growth continued in 2006-07



15

with T& exports of US$19.15 billion recording a increase of 9.28% over previousyear and reached USD22.15 billion in 2007-08 denoting an increase of 15.7% butdeclined by over 5% in 2008-09 with exports of USD 20.94 billion. During 2009-10, the exports of T&C increased by over 5.60% and reached the level of USD22.42 billion. Thus exports of T&C have denoted an increase of 60.14% in the lastfive years (2004-05 to 2009-10). Indian T&C exports is facing various constraintsof infrastructure, high power and transaction cost, incidence of state level cess andduties, lack of state-of-the-art technology etc. The details of India's textiles exportsitem-wise during the last three years and current financial year for the period Apr-September'10iii) Readymade Garments account for almost 45% of the total textile exports.

Apparel and cotton textiles products together contribute nearly 70% of the totaltextiles exports.iv) The exports basket consists of a wide range of items comprising readymade

garments, cotton textiles, handloom textiles, man-made fibre textiles, wool andwoolen goods, silk, jute and handicrafts including carpets.v) India's textiles products, including handlooms and handicrafts, are exported to

more than a hundred countries. However, the USA and the EU, account for abouttwo-third of India's textiles exports. The other major export destinations areCanada, U.A.E., Japan, Saudi Arabia, Republic of Korea, Bangladesh,Turkey, etc.vi) The export of textiles and clothing aggregated to US$ 22.42 billion in 2009-

10. The Government fixed the target for 2010-11 at US$ 25.48 billion. So farduring the period April- September'10, exports of T&C have been achieved at USD11.26 billion



16

Investment in textile

Investment is the key for Indian textiles to make rapid strides. The VisionStatement prepared by the Indian Cotton Mills federation has projected that theindustry has the potential to reach a size of $85 billion by 2010 from the currentlevel of $ 36 billion. Further, the vision statement has estimated that textileexports could touch $40 billion by 2010 from $ 11 billion in 2002. In theprocess, Indias share in the global textile and clothing trade is expected todouble from three percent in 2002 to six percent by 2010.

To reach these these ambitious target, it is estimated that new investment to thetune of Rs.1, 40,000 crores will be needed in the next five years. After analysingthe capacity and technology levels in various segments of textile Industry andthe need for modernisation, funds required for various segments have beenbelow.



17

INDIAS MAJOR COMPETITIORS IN THE WORLD

To understand Indias position among other textile producing the industrycontributes 9% of GDP and 35% of foreign exchange earning, Indias share inglobal exports is only 3% compared to Chinas 13.75% percent. In addition toChina, other developing countries are emerging as serious competitive threats toIndia. Looking at export shares, Korea (6%) and Taiwan (5.5%) are ahead of India,while Turkey (2.9%) has already caught up and others like Thailand (2.3%) and

Indonesia (2%) are not much further behind. The reason for this development is thefact that India lags behind these countries in investment levels, technology, qualityand logistics. If India were competitive in some key segments it could serve as abasis for building a modern industry, but there is no evidence of such signs, exceptto some extent in the spinning industry.



18

India’s Competitive Position in Stages of Textile Manufacture

PROBLEM FACED BY THE TEXTILE INDUSTRY IN INDIA

The cotton textile industry is reeling under manifold problems. The majorproblems are the following:

♦ Sickness: Sickness is widespread in the cotton textile industry. After the engineering

industry, the cotton textile industry has the highest incidence of sickness. Asmany as 125 sick units have been taken over by the Central Government.Sickness is caused by various reasons like the problems mentioned below.

♦ Obsolescence:

The plant and machinery and technology employed by a number of units areobsolete. The need today is to make the industry technologically up-to-daterather than expand capacity as such. This need was foreseen quite sometimeback and schemes for modernization of textile industry had been introduced.The soft loan scheme was introduced a few years back and some units were ableto take advantage of the scheme and modernise their equipment. However, theproblem has not been fully tackled and it is of utmost importance that the wholeindustry is technologically updated. Not many companies would be able to findresources internally and will have to depend on financial institutions and othersources.



19

♦ Government Regulations: Government regulations like the obligation to produced controlled cloth areagainst the interest of the industry. During the last two decades the excessiveregulations exercised by the government on the mill sector has promotedinefficiency in both production and management. This has also resulted in acolossal waste of raw materials and productive facilities. For example, the millsare not allowed to use filament yarn in warp in order to protect the interest of artsilk and powerloom sector which use this yarn to cater to the affluent section of society.

♦ Low Yield and Fluctuation of Cotton Output:

The cotton yield per hectare of land is very low in India. This results in high costand price. Further, being largely dependent on the climatic factors, the total raw

cotton production is subject to wide fluctuation causing serious problems for the

mills in respect of the supply of this vital raw material.

♦ Competition from Man-made Fibres:

One of the serious challenges facing the cotton textile industry is the competition

from the man-made fibres and synthetics. These textures are gradually replacing

cotton textiles. This substitution has in fact been supported by a number of peopleon the ground that it is not possible to increase substantially the raw cotton

production without affecting other crops particularly food crops.

♦ Competition from other Countries:

In the international market, India has been facing severe competition from other

countries like Taiwan, South Korea, China and Japan. The high cost of production

of the Indian industry is a serious adverse factor.

♦ Labour Problems:

The cotton textile industry is frequently plagued by labour problems. The very long

strike of the textile workers of Bombay caused losses amounting to millions of

rupees not only to the workers and industry but also to the nation in terms of excise

and other taxes and exports.



20

♦ Accumulation of Stock:

At times the industry faces the problems of very low off take of stocks resulting in

accumulation of huge stocks. The situation leads to price cuts and the like leading

to loss or low profits.

♦ Miscellaneous:

The industry faces a number of other problems like power cuts, infrastructural

problems, lack of finance, exorbitant rise in raw material prices and production

costs etc.

ChallengesThe Indian textile industry faces a host of constraints:• Fragmented structure with the dominance of the small scale sector

• High power costs • Rising interest rates and transaction costs • Unfriendly labour laws • Logistical disadvantages in terms of shipping costs and time pose serious threatsto itsgrowth• Foreign investments are not coming in as the overall factors influencing the

industry arenot investment friendly

India government to promote textile industry growth:The India government is sensitive to the needs of textile industry and will continue

to provide the textile industry a conducive policy environment to facilitate its

growth, augment R&D efforts, and encourage innovation with a view to enhance

productivity.

The Government supports up-gradation of technology, manufacturing processes

and the development of human resources for this industry and towards this end, theUnion Budget 2010-11 took several initiatives.

The Minister said that the Government has included a significant increase in funds

allocated to Cotton Technology Mission and to the integrated textile parks, and

extension of the interest subvention of 2 per cent until March 31, 2011 for exports



21

covering handicrafts, carpets and handlooms segments of this industry.

The textile industry is also being supported with an extensive skill development

program to train 3 million persons over a 5 year period, by leveraging the strength

of existing institutions under the textile ministry.

The Indian textile industry accounts for about 14 per cent of India's total industrial

production and contributes to nearly 15 per cent of total exports, which amounted

to US dollar 50 billion in the year 2009-10. It provides direct employment to about

35 million people and another 56 million are engaged in allied activities.



22

Foreign Direct Investment

Foreign direct investment (FDI) is a measure of foreign ownership of productive

assets, such as factories, mines and land. Increasing foreign investment can be used

as one measure of growing economic globalization. Maps below show net inflows

of foreign direct investment as a percentage of gross domestic product (GDP). The

largest flows of foreign investment occur between the industrialized countries

(North America, North West Europe and Japan). But flows to non-industrialized

countries are increasing.

Foreign Direct Investment in India

Starting from a baseline of less than $1 billion in 1990, a recent UNCTAD surveyprojected India as the second most important FDI destination (after China) fortransnational corporations during 2010 – 2012. As per the data, the sectors whichattracted higher inflows were services, telecommunication, construction activitiesand computer software and hardware. Mauritius, Singapore, the US and the UKwere among the leading sources of FDI.

FDI in 2010 was $24.2 billion, a significant decrease from both 2008 and2009. Foreign direct investment in August 2010 dipped by about 60% to aprox.$34 billion, the lowest in 2010 fiscal, industry department data released showed. In

the first two months of 2010 – 11 fiscal, FDI inflow into India was at an all-timehigh of $7.78 billion up 77% from $4.4 billion during the corresponding period inthe previous year.



23

The world‘s largest retailer WalMart has termed India‘s decision to allow 51% FDIin multi- brand retail as a ―first important step‖ and said it will study the finer details of the new policy to determine the impact on its ability to do business inIndia.However this decision of the government is currently under suspension dueto opposition from multiple political quarters.

The Indian authorities believe that the technical textile sector is another potentialarea for foreign investment due to the rapid growth of the demand for industrialand technical textiles in the nation. The sector is targeting US$ 6 billion foreigndirect investment (FDI) by 2015 to be invested in textiles machinery, fabric andgarment manufacturing, as well as technical textiles. The expected growth of Indian textiles industries will be worth about $220 billion by in the year 2020.

The investment scenario is becoming rise day by day, India is a growing source of supply of textiles and apparel to the world market, the exports are growing rapidly

as more and more buyers around the world turn to India as an alternative to China.India has enormous opportunities to expand their share in Textiles and Apparelindustries. International scenario does indicate favorable business atmosphere inIndia, FDI Inflows to Textiles industry in India enhanced the growth of the sector.India has been known for its textiles all over the world. The Indian textile industrycontributes about 14 % to industrial production, 3 % to the country's GrossDomestic Product (GDP) and 27 % to the country's total foreign exchange. TheIndian textiles market is expected to grow at the rate of 12% per year. The marketvalue is US$ 22-25 billion which is expected to grow to US$ 35-37 billion by theyear 2011. The Indian authorities believe that the technical textile sector is another

potential area for foreign investment due to the rapid growth of the demand forindustrial and technical textiles in the nation. The sector is targeting US$ 6 billionforeign direct investment (FDI) by 2015 to be invested in textiles machinery, fabricand garment manufacturing, as well as technical textiles. The expected growth of Indian textiles industries will be worth about $220 billion by in the year 2020.Foreign Direct Investment has grown faster over the recent years. Higher flows of Foreign Direct Investment over the world always reflect a better economicenvironment in the presence of economic reforms and investment-orientedpolicies. Foreign direct investment is that investment, which is made to serve the

business interests of the investor in a company, which is in a different nationdistinct from the investor's country of origin the development of economicglobalization, foreign direct investment (FDI) is increasingly being recognized asan important factor in the economic development of countries. Foreign DirectInvestment refers to long term participation by one country into another country. Itusually involves participation in management, joint-venture, transfer of technologyand expertise. Direct investment excludes investment through purchase of shares.



24

Each and every country over the globe is stepping forward to change the climatefor attracting more investment.

The opportunity in Indian textiles and apparel industries are very large. India has acomplete supply chain from a vast raw material supply to high quality finished

products. Labour costs are among the lowest in the world. Indian firms offerexperience, entrepreneurship and design skills which Chinese firms find hard tomatch. This is also highly adaptable, smaller firms offer the flexibility needed forsmaller orders while vast firms have the capacity to service the world's biggestbuyers. Government policies are changed and Indian economy opens up to theoutside world, foreign investment opportunities are being transformed.

Opportunities for FDI in Indian Textiles Industries

India has enormous opportunities to expand their share in Textiles and Apparelsegment. International scenario does indicate conducive business atmosphere inIndia, India should have progressed is relatively lesser than neighboring countries.Structurally, fragmented weaving, processing and garmenting sectors need furtherstrengthening in terms of technology modernization and human resource training.India has to encourage a lot of local as well FDI in this sector so that the pace of progress could be maintained. The government understands it responsibilities. Thestake holders have to redouble their efforts so that our share in World TextileTrade increases significantly.

The world market for textile products are driven by changing consumer lifestyles,transforming fashion and style trends, new and innovative fabric/fiberdevelopments, and shifting consumer preferences towards sophisticated textileproducts. The intimate apparel market is driven mainly by style, and fashion withequal importance accorded to comfort, and novelty. The industry is marked by new



25

fabric developments, and innovations in prettier, and more comfortable garmentdesigns. Purchases are widespread, and purchase decisions are typically based onfeel-good factors, instincts, style, fitting and necessity.

Government fund in Indian Textile Industry

The investment circumstance in Indian textile industry was changed after the 2003-2004 budgets. The recommendations made in that budget included the reforms thatare required to be made in the financial policy of the Indian textile Industry forattracting investments. The policy matters associated with restructuring of debt forfinancial viability of this industrial sector are also being addressed in this budget.A fund was set up in accordance with the recommendations of the budget with aninitial principal amount of Rs. 3000 crores; this fund was setup for restructuring of the textile sector.

FDI Inflows to Textiles

FDI inflows to Textiles industry in India enhanced the growth of the sector. Indiahas been known for its textiles allover the world. The Indian textiles industry is ahighly established sector. The advantages of the Indian Textile industries are fullyequipped manufacturing units, vast multi-fiber raw material base, advanceddesigning capabilities, highly skilled and effective human resources. India hasgood scope of becoming the global textile and apparel sourcing center.

Reasons for attracting FDI in Indian Textile Industries

The size of the Indian textile industry is huge.

Performance of this industry has been consistent from the beginning to till.

Availability of the ski lied labor in India is comparatively cheap in othercountries.

The India's FDI policies are flexible among all the developing countries.

There is no limit on foreign direct investment in the textile industries. 100 % foreign direct investment permitted in textile industries.

FDI is permitted via usual route and offering a trouble-free way of investment.

These investments are not required to be approved by the government or theapex bank of India.

The foreign investors are only required to make a notification to the regional



26

office of the apex bank only after receiving the receipt of the remittance

The development of Textile Industry in India the textile ministry has formeda special cell for attracting FDI in this sector.

Government Initiatives in FDI

Foreign Direct Investments (FDI) up to 100% is allowed in this sectorthrough the automatic route by the Reserve Bank of India.

The governments provide quality cotton raw materials at reasonable price tothe manufacturers.

The governments facilitate the technological advancement in the textileindustries; the Technology Up-gradation Fund Scheme (TU FS) was set upby government.

The Scheme for Integrated Textile Park (SITP) is set up to provide worldstandard infrastructure facilities.

FDI & FTCs in India Aug 1991 to Mar 2010 Rs in billion

Year



27

Statement on FDI inflows in textiles from April 2000 to August 2010

The Ministry of Textiles has launched a special cell for attracting FDI in textileindustries. The main objective of this cell is attracting FDI to India. This cell helpsthe willing foreign companies to find out viable partners meant for floating a jointventure company in order to produce textile products.

To help foreign companies find partners intending to float a joint Venturecompany to produce textile products.

FDI special cell acts as a negotiator between the foreign investors anddifferent organizations for setting up and structuring the textile industry.

The cell offers both advisory support and assistance.

It also mediator between the foreign investor and the different organizationsfor setting up the textile industry. The specialized helps that are given by thiscell involve advisory support along with assistance.

FDI cell monitors as well as maintains the data related with the totalproduction of the textile sector.

They also collect the stratified data of production by both domestic industryas well as the industry set up by the foreign investor.

At the time of operation of the textile industry set by the foreign investorface certain problems these problems are solved by the FDI cell.

A textile industry set up with the help of a foreign investor might probablylead to some problems in the future. These problems are also solved by theFDI cell.

FDI cell maintains data with total production of the textile sector.

Indian textiles is making headway in a positive direction and attracting global

investors. Recently, investments in Indian textile sector by biggies overseas have

increased. In a decade, the sector has embarked foreign direct investments around

US$817.26 million. The industry has taken initiatives to work hand in fashion



28

accessory with Indian players, grounds the view Indian Textile industry is proving

itself a sector to be chance upon.

The growth drivers that boosted India's textile production and demand, by pointing

up the increase in GDP per capita at around 8.5% for the past 4 to 5 years whichhas significantly increased the disposable income of the Indian middle class. The

increased number of working women, young age workforce and the greater use of

credit cards has led to the increased purchase of textiles and clothing items, the

growing penetration of organized retail to more than 10% in 201 0 and 20% by

2020 would facilitate accessibility and increase purchase of textiles and clothing

products.

Advantages of FDI in Indian Textile IndustriesForeign direct investment provides a major source of capital which brings with itup-to-date technology. It is difficult to generate this capital through domesticsavings and it is still difficult to import the necessary technology from abroad,since the transfer of technology. Over a long period of ti me FDI creates manyexternalities in the form of benefits available to the whole economy. One of theadvantages of foreign direct investment is that it helps in the economicdevelopment of the particular country where the investment is being made. This isespecially applicable for the economically developing countries. The foreign direct

investment has helped several countries when they have faced economic hardships.Foreign direct investment could be provided in form of technology. Else, themoney that comes in a country through the foreign direct investment can beutilized to buy or import technology from other countries. This is an indirect wayin which foreign direct investment plays an important part of economicdevelopment. Consistent economic growth, de-regulation, liberal investment rules,and operational flexibility are all the factors that help to increase the inflow of Foreign Direct Investment. Main advantages of FDI is Expansion in Informationand communication technologies, Improvement in logistics necessarily allows

production to be close to markets while taking advantage of the specificcharacteristic of individual production locations.

Indian Textile sector has its own inherent strengths owing to large and fast growingdomestic demand for quality fabric and apparels, own cotton production,comparatively low cost of labour and presence in the entire spectrum of the valuechain, the industry is characterized by its typical issues concerning the investors.



29

These factors have been responsible for extremely low level of FDI in the IndianTextile Industry during last decade. FDI in Indian textile sector had been hardly1.8% of the total FDI, although the country is the 2nd largest textile economy. Thisalso needs to be understood in the light of FDI in textile sector of China crossing8% of the total FDI in China."

The major Challenges of Indian Textile Industries

a) Advancement from Low cost-low value producer to High value-high volumesupplier.b) Moving up the value chain through Branding, Creating own local brands aswell as acquisition of existing, Brands for application to Indian marketsc) Technology up-gradationd) Seizing the opportunities in Technical Textiles.

The Investors ready to chance on the Textile companies which are balanced forexploiting the fabric / apparel demand of exploding middle class and those whohave potential as well as capability to quickly move up the value chain in terms of quality fabric/apparels and high returns on investments through Branding. Theinvestors are willing to fund the acquisitions of even middle level brands overseasfor their extension to fast growing Indian markets in urban, semi-urban areas aswell as for agri-based rural clusters with large purchasing power. The investorshowever are guided by their assessment of the quality and experience of the

management to take up these challenges.The fastest growing areas among technical textiles are the products for agriculture,medicine, automobiles, aviation and sportswear, and this sector has large untappedpotential and the units with requisite technical tie-ups have ability to attract largeinvestments. Indian textile industry would continue to grow at a moderate rate, theMinistry of Textiles proposes to allocate US$ 785.2 million for the modernizationof the textile industry, our exports of garments are showing marginal increase andnon-apparel textiles are registering reasonable growth. India can sustain therebound in exports will depend significantly on the economic developments inWest Europe and the US.

The government has been taking several steps like development of technology,design and textile parks, besides improving labour conditions, for attracting FDIand optimum utilization of foreign funds. The government allows 100% FDI in thetextiles sector under the automatic route and diversify of textiles exports andreduce dependence on the US and European markets, the government is promoting



30

an export regime to cover other areas in the East and South East Asia. The policyenvisages not only search for new markets but also attracting FDI. The sector,which was hit-hard by the global economic crisis, has witnessed a slowdown inexports as well as the domestic market. Foreign investment and collaboration inIndia's textile and apparel industry has increased significantly in recent years. Theincrease is attributable partly to the derestriction of foreign direct investment andpartly to the fact that domestic demand for textiles and apparel in India is large andoptimistic. It also stems from recognition that the sector has strong exportpotential. FDI in the textile and apparel sector has been modest in past years, FDIinflows in this sector have roughly doubled every year since 2003 Rs. 838 in 2003,Rs. l, 785, in 2004 and Rs 3, 462 in 2005.

Foreign companies have been motivated to enter into collaborations with Indianfirms by the increasing gains that can be made by producing brands in India and

selling them into the Indian market. Indian companies have been motivated by thescope for gaining technical and marketing expertise from foreign partners. Indianfirms are attracted in particular to companies whose brands enjoy considerablepopularity in their home markets as those brands can be manufactured morecheaply in their Indian plants. In the year 2006 the Indian government started toopen up the retail sector by allowing FDI of up to 51 % of the equity with priorgovernment approval in the retail trade of "single brand" items. Many textile firmswill continue to pursue franchising rather than investing in their own outlets as itoffers a cheaper and faster way of expanding retail networks and increasing thespread of product distribution.

ConclusionThe investment scenario is becoming rise day by day, but a problem in this smoothroad is the constant appreciation of the Indian currency with respect to US Dollar.The textile sector is losing much of its profitability as because the large quanta of textile product produced by it are basically export-oriented. The Indian textilessourcing market is expected to grow at the rate of 12% per year. The market valueis US$ 2225 billion which is expected to grow to US$ 35-37 billion by the year

2011. The Indian authorities believe that the technical textile sector is anotherpotential area for foreign investment due to the rapid growth of the demand forindustrial and technical textiles in India. The sector is targeting US$ 6 billionforeign direct · investment (FDI) by 2015 to be invested in textiles machinery,fabric and garment manufacturing, as well as technical textiles. The expectedgrowth of Indian textiles industries will be worth about $220 billion by in the year2020. Promotional efforts to attract foreign direct investment have become the



important point of competition among developed and developing countries. Thiscompetition is also maintained when countries are adopting economic integrationat another level. FDI is very important for development of economies in allcountries.

Documents

Fdi in Textile