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| Arvind Singhal: Textiles - The next hot sector | | What is needed at this time is only a more positive perception about the potential and the future of this sector |
| Arvind Singhal / New Delhi Sep 09, 2010, 00:27 IST |
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For a sector on which the industrial foundation of the Tata Group was laid in 1869 (through acquisition and re-establishment as Alexandra Cotton Mill and then commissioning of its first greenfield industrial venture — the Empress Mill in 1874) and one to which the origins of many other leading business groups of India can be traced (Birla, Shriram, Mafatlal, Singhania, Piramal, Wadia, Lalbhai and Ambani among others), it is ironical and unfortunate that India’s textiles (including apparel) sector could not participate so much in the country’s growth story of the last 20 years or so. In fact, the sector has slowly but steadily lost a lot of sheen in these last two decades. Its share in India’s GDP and its contribution to the country’s export basket have been steadily declining.
The contrast with China could not be starker, though. China’s “manufacture for export”-led strategy had textiles (including apparel) as one of the major constituents. In 1990, China’s textile and apparel exports were already about $16 billion, while India was at about $4.6 billion. India continued to adopt an inexplicably antediluvian and extraordinarily regressive industrial policy when it came to textiles with across-the-board reservation of complete links in the entire value chain for small scale industries such as knit fabric and garment manufacturing, and a highly distorted duty structure that favoured small, independent business entities rather than create large-scale, integrated businesses. By the time the textiles sector saw some pragmatism in its policy framework (around 2005), China’s exports had already leaped to $104 billion, while India struggled at about $15 billion. More depressingly, the textiles sector was so enervated by the government’s shocking apathy to its relevance and development (which, even today, remains the largest direct and indirect employer in the country after agriculture) that even countries like Pakistan, Bangladesh, Sri Lanka and now Vietnam stole a march over India. In 2010, China will export more than $175 billion worth of textile and apparel products (nearly the same as the entire exports of India), while India will be lucky to cross even $24 billion!
Fortunately for India and India’s textile (and apparel) businesses, the coming decade should turn out to be the most promising and their best ever. A number of factors are steadily turning in favour of creating the right opportunity for seeing an unprecedented resurgence in the fortunes of this sector, making it one of the hottest for years to come, and one in which several billion and multi-billion dollar businesses (and fortunes) will be made. China’s textiles export juggernaut is likely to slow down as its domestic demand shoots up from the current $135 billion to as much as about $450 billion by 2020, and as its costs increase or currency appreciates. Bangladesh, which kept its wage costs absurdly low for years, is now being forced to let them rise to more acceptable levels. Sri Lanka has just lost its Generalised System of Preferences (GSP) status to the EU, while Pakistan’s risk perception (and recent flooding) puts more question marks on its future strength (largely in home textiles). India’s own domestic demand is rising rapidly with its economic growth and favourable demographics. It could rise from the current $50 billion or so to about $140 billion by 2020. Overall, India’s textiles sector could grow from its current $70-billion size to as much as $220 billion by 2020 with almost $80 billion coming from exports.
While there are already many successful business groups — such as Vardhman, Arvind and Raymond — that are reflecting this optimism through their recent financial results, several new stars have emerged in recent years. The most notable of them include Alok Industries (which has already become India’s largest textiles business with consolidated revenues in excess of Rs 6,500 crore), SKNL, Bombay Rayon, Welspun, Trident/Abhishek and Mandhana to name a few that are poised to hit the $1 billion revenue mark in the next few years. While many of them have achieved this growth through very high debt, they should be able to sustain that. Fortunately, the current textile ministry and bureaucracy are also fully cognizant of India’s opportunity and supportive of its growth. What is needed at this time is only a more positive perception about the potential and the future of this sector.
arvind.singhal@technopak.com
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