TIED UP IN KNOTS

IN­DIA’S TEX­TILE SEC­TOR CAN BE­COME A MA­JOR JOB CRE­ATOR, BUT STILL REEL­ING FROM THE IM­PACT OF DE­MON­ETI­SA­TION AND GST, IT MAY BE SPI­RALLING TOWARDS DIS­AS­TER

India Today - - INSIDE - BY M.G. ARUN

Reel­ing from the im­pact of de­mon­eti­sa­tion and GST, the tex­tile in­dus­try awaits a res­cue act

Arif An­sari, 55, is ex­tremely vo­cal as we me­an­der through the nar­row, shabby by­lanes of Bhi­wandi, a town 40 kilo­me­tres north of Mum­bai, to his pow­er­loom fac­tory at Waja Mo­halla. This is the older part of Bhi­wandi, in­fa­mous for the com­mu­nal ri­ots of 1970, 1984 and 1992. Much has changed since then. The area has been largely peace­ful, but not so the lot of tex­tile man­u­fac­tur­ers. “Bhi­wandi is fac­ing ne­glect. The present gen­er­a­tion is los­ing in­ter­est in the pow­er­loom busi­ness, which is Bhi­wandi’s only in­dus­try, and tak­ing up other jobs,” says An­sari, as we pull up at his fac­tory, where 40 pow­er­looms of the older gen­er­a­tion nois­ily weave fab­rics that will find their way to Mum­bai and other mar­kets in In­dia. “Most loom-own­ers here lead a hand-to-mouth ex­is­tence,” says An­sari, a third-gen­er­a­tion en­tre­pre­neur, as he dis­plays his fab­rics, mostly cur­tains and bed­sheets. “It will not be long be­fore the ‘Manch­ester of Asia’ will be re­mem­bered only in his­tory books.”

An­sari has rea­sons to be sour. Bhi­wandi, where the first pow­er­loom was in­stalled in 1934 and which shot into promi­nence af­ter the de­cline of tex­tile mills in Bom­bay in the early 1980s, has around 500,000 pow­er­looms. They pro­duce some 1,000 mil­lion me­tres of cloth ev­ery month—half the fab­ric made in In­dia. The looms em­ploy 1 mil­lion peo­ple and pro­duce fab­ric

THE CEN­TRAL FUND TO HELP TEX­TILE UNITS UP­GRADE TECH­NOL­OGY HAS NOT HELPED MUCH OW­ING TO CUM­BER­SOME PRO­CE­DURES

worth Rs 24,000 crore ev­ery year. How­ever 90 per cent of th­ese units rely on cheaper, out­dated tech­nolo­gies that can’t com­pete with the pro­duc­tion of modern plants. A modern loom costs Rs 30-35 lakh. Cash-strapped fac­tory own­ers im­port Chi­nese looms that cost as lit­tle as Rs 25,000 for a used ma­chine and Rs 3 lakh for a new one.

To many, the Union tex­tile min­istry’s Amended Tech­nol­ogy Upgra­da­tion Funds Scheme (ATUFS) has not helped much as get­ting grants is a cum­ber­some process. Low vol­umes and the ab­sence of a mar­ket­place have also hit Bhi­wandi’s man­u­fac­tur­ers. Then, the de­mon­eti­sa­tion ex­per­i­ment in 2016 brought the looms to a halt for months as work­ers’ salaries could not be paid. “We are at the mercy of traders in Mum­bai,” says Sharadram Se­j­pal, a loom owner. “While we earn 2-3 per cent mar­gins on the fab­rics we sell to traders in Mum­bai, they ex­tract 20-25 per cent profit.” Ac­cord­ing to Manoj Shah, owner of Optimum Silk Mills, a modern unit on the out­skirts of Bhi­wandi, In­dian fab­rics can hardly com­pete glob­ally since prod­ucts from China, Bangladesh and Viet­nam are 30-40 per cent cheaper.

LOOM­ING CRI­SIS

In­dia’s weav­ing and knit­ting sec­tor, of which pow­er­looms are a part, re­mains highly frag­mented, of small scale and labour­in­ten­sive. The sec­tor has about 3.9 mil­lion hand­looms and 1.7 mil­lion pow­er­looms, ac­cord­ing to In­dia Brand Eq­uity Foun­da­tion (IBEF), a trust un­der the Union com­merce min­istry tasked with pro­mot­ing In­dian brands over­seas. Modern shut­tle-less looms ac­count for less than 1 per cent of loom ca­pac­ity.

The woes of pow­er­loom own­ers in Bhi­wandi are symp­to­matic of the larger malaise in the Rs 8.9 lakh crore In­dian tex­tile sec­tor, which em­ploys 65 mil­lion, di­rectly or in­di­rectly. The sec­tor has been side­lined in the global mar­ket, with out­dated trends and tech­nolo­gies leav­ing man­u­fac­tur­ers in no shape to com­pete with China. An un­in­te­grated ap­proach has not helped ei­ther—the looms where cot­ton or syn­thetic yarns are made into cloth, the print­ing and dye­ing units, and the apparel busi­ness, where cloth is turned into gar­ments, are scat­tered at dif­fer­ent places, mak­ing lo­gis­tics cum­ber­some and rais­ing the cost of pro­duc­tion. In com­par­i­son, coun­tries like China are

fo­cus­ing on tex­tile clusters to cut down costs and im­prove move­ment of goods across the sup­ply chain. Com­pos­ite mills, which in­te­grate spin­ning, weav­ing and fab­ric fin­ish­ing, are com­mon in the ma­jor tex­tile-pro­duc­ing coun­tries, but in In­dia, they ac­count for only around 3 per cent of the out­put. Most of In­dia’s 276 com­pos­ite mills are owned by the public sec­tor, with many deemed ‘sick’. For an in­dus­try that con­trib­utes 6 per cent to na­tional GDP, the tex­tile sec­tor is still hemmed in by low pro­duc­tiv­ity, out­dated ma­chin­ery and a dis­torted duty struc­ture that en­cour­ages im­ports of high-value apparel in­stead of raw cloth that could have been con­verted into value-added gar­ments for the in­ter­na­tional mar­ket.

Gar­ments or the apparel busi­ness is a seg­ment where In­dia has huge un­tapped po­ten­tial. Ac­cord­ing to es­ti­mates, apparel is pro­duced by about 77,000 small-scale units. One of the big­gest chal­lenges is the threat of im­ports from neigh­bour­ing coun­tries. Rahul Me­hta, pres­i­dent, The Cloth­ing Man­u­fac­tur­ers As­so­ci­a­tion of In­dia (CMAI), a body rep­re­sent­ing 20,000 firms mostly into ready­made gar­ments, con­firms a sig­nif­i­cant in­crease in im­ports from Bangladesh. “The agree­ments signed with Bangladesh en­sure that cheap Chi­nese fab­ric go­ing into Bangladesh is routed to In­dia as cheap apparel,” says Me­hta. More­over, In­dia’s exports are in a sham­bles. “Af­ter GST came into ef­fect, our ex­porters are un­able to com­pete in the world mar­kets as the cost of our prod­ucts has gone up by 5-7 per cent,” he says. Ex­porters usu­ally op­er­ate on wafer­thin mar­gins, so a 5 per­cent­age point dif­fer­ence in costs can hit them badly. Fur­ther, un­der the new tax regime, re­funds to ex­porters, amount­ing to thou­sands of crores, re­main stuck. “This is not a net loss since ex­porters will ul­ti­mately re­ceive the money, but in the in­terim, they

face work­ing cap­i­tal short­ages,” ex­plains Me­hta. The story from Tirupur, one of In­dia’s largest apparel and knit­ting centres, is no dif­fer­ent. Ex­porters are un­happy with GST. “Since GST came into force, the duty draw­back and Re­mis­sion of State Levies (ROSL) that ex­porters used to get has fallen from 11 per cent over­all to 3 per cent,” says A. Sak­thivel, pres­i­dent, Tirupur Ex­porters As­so­ci­a­tion. This has im­pacted prof­its. “We have re­quested the gov­ern­ment for at least a re­fund of the em­bed­ded taxes, such as pe­tro­leum prod­ucts,” he says.

STIFF COM­PE­TI­TION

Tex­tile exports have gone down­hill in the re­cent past. Ac­cord­ing to data com­piled by the Con­fed­er­a­tion of In­dian Tex­tile In­dus­try in Fe­bru­ary this year, tex­tile and apparel exports fell 13 per cent to Rs 18,600 crore in Jan­uary 2018 from Rs 21,500 crore in Jan­uary 2017. Tex­tile and apparel exports be­tween April 2017 and Jan­uary 2018 have de­clined by 4 per cent from a year ago, at a time when im­ports of yarn, fab­ric and ready­made gar­ments rose 15 per cent. Ex­perts say one of the ma­jor anom­alies in the tex­tile busi­ness is In­dia’s con­tin­u­ing fo­cus on cot­ton fab­rics, at a time when the world is mov­ing into man­made fi­bres that are both con­ve­nient and cost-ef­fec­tive. In­dian tex­tile exports are pre­dom­i­nantly cot­ton-based in con­trast to global con­sump­tion, where syn­thetic tex­tiles have over 50 per cent mar­ket share, says Anuj Sethi, a se­nior di­rec­tor with Crisil. Exports of syn­thetic tex­tiles are dom­i­nated by China, due to eas­ier ac­cess to raw ma­te­rial. “The in­verted duty struc­ture in In­dia—wherein im­port duty on syn­thetic raw ma­te­ri­als is higher than the ex­port in­cen­tives— leads to tex­tile man­u­fac­tur­ers favour­ing cot­ton exports over syn­thetic tex­tiles from In­dia,” says Sethi.

Exports aren’t get­ting enough push ei­ther. Bangladesh is fo­cused on boost­ing exports, gen­er­at­ing em­ploy­ment, and re­al­is­ing more from the lu­cra­tive ready­made gar­ments busi­ness. Bangladesh and Pak­istan have signed pref-

DOWN­SIZ­ING BY US RE­TAIL­ERS HAS HIT IN­DIAN HOME TEX­TILE EX­PORTERS, WITH OP­ER­AT­ING MAR­GINS DOWN 3 PER CENT

er­en­tial treaties with the EU due to which they get a 10-15 per cent price ad­van­tage over In­dia. More­over, wages in In­dia have been on the rise while labour pro­duc­tiv­ity is low. “In the past two years, min­i­mum wages in the tex­tile hubs, such as Tirupur, Ben­galuru and Gu­ru­gram, have gone up sharply,” says Sethi. Kar­nataka in­creased min­i­mum wages by 30-35 per cent. Us­ing its cheap labour, Bangladesh has built for­mi­da­ble ca­pac­i­ties in man­u­fac­tur­ing ready­made gar­ments. How­ever, it lacks fab­ric man­u­fac­tur­ing ca­pa­bil­i­ties. The coun­try im­ports fab­ric from In­dia, con­verts it into value-added prod­ucts and exports them back. Ac­cord­ing to sources, the gov­ern­ment has been con­sid­er­ing im­port du­ties on fin­ished prod­ucts from Bangladesh, but has so far re­frained from do­ing so as some In­dian com­pa­nies have units there.

There is a dire need for fac­to­ries to shift to modern ma­chines. Fac­tory own­ers have not been able to take full ad­van­tage of ATUFS, cit­ing pro­ce­dural com­pli­ca­tions. “The var­i­ous re­quire­ments and pa­per­work make it cum­ber­some for the in­dus­try, es­pe­cially since 80 per cent of the play­ers are in the MSME (mi­cro, small and medium en­ter­prises) sec­tor,” says Me­hta. Ac­cord­ing to Crisil, bet­ter trade terms with lead­ing ex­port des­ti­na­tions, such as the EU, and more in­cen­tives could help In­dian en­trepreneur­s be more com­pet­i­tive glob­ally.

Thanks to the dereg­u­la­tion that be­gan in the mid-1980s, spin­ning is the most con­sol­i­dated sec­tor in In­dia’s tex­tile in­dus­try. But the av­er­age plant size re­mains small and the tech­nol­ogy is out­dated. IBEF says the sec­tor con­sists of about 1,146 small-scale in­de­pen­dent firms and 1,599 larger scale in­de­pen­dent units. Fab­ric pro­cess­ing is dom­i­nated by smallscale en­ter­prises, with some 2,300 pro­ces­sors in op­er­a­tion (2,100 in­de­pen­dent units and 200 units that are in­te­grated with spin­ning, weav­ing or knit­ting units). Avail­abil­ity of credit at at­trac­tive rates re­mains a crit­i­cal need for the SMEs and mid-cor­po­rates to stay com­pet­i­tive. Crisil says the do­mes­tic tex­tile sec­tor has been af­fected by volatile raw ma­te­rial prices, high en­ergy costs and re­duced ex­port in­cen­tives, im­pact­ing com­pet­i­tive­ness with

In­dia’s Asian peers, but also notes that the yarn and apparel play­ers are bet­ter placed than the dye­ing/ print­ing play­ers in cost man­age­ment.

That said, In­dia has been do­ing fairly well in some niche seg­ments, such as den­ims and home tex­tiles. Do­mes­tic home tex­tile firms have had a good run since fis­cal 2012, with In­dia’s share of US im­ports of cot­ton bed­sheets and terry tow­els in­creas­ing from 34 per cent to about 40 per cent in 2016-17; In­dian bed linen is cheaper than the prod­ucts from China and Pak­istan. At around $16 bil­lion (Rs 1 lakh crore), the US ac­counts for a third of the global home tex­tiles mar­ket. Al­most 47 per cent of In­dia’s home tex­tile exports (Rs 34,450 crore) last fis­cal were to the US. But things have changed. With many US re­tail­ers prun­ing in­ven­to­ries and down­siz­ing in the face of the threat from on­line re­tail­ers, the op­er­at­ing mar­gins of In­dian home tex­tile ex­porters have been hit.

It’s not that the gov­ern­ment has not been mak­ing ef­forts. In Fe­bru­ary 2017, a spe­cial re­forms pack­age was an­nounced to gen­er­ate around 11 mil­lion jobs in the apparel sec­tor, in­creas­ing exports to about Rs 2 lakh crore and bring­ing in in­vest­ments worth Rs 80,630 crore by 2020. An ad­di­tional pro­duc­tion-linked in­cen­tive of 10 per cent un­der ATUFS is be­ing pro­vided to pro­mote em­ploy­ment.

Ac­cord­ing to Union tex­tiles min­is­ter Sm­riti Irani, ini­tia­tives in the Union bud­get, such as a 39 per cent in­crease in ROSL, will boost exports. The bud­get al­lo­ca­tion for ROSL has been raised to Rs 2,163 crore from Rs 1,555 crore in 2017-18. Speak­ing about a scheme to pro­mote tex­tiles in the North­east, Irani said, “We want to en­cour­age the lo­cal pop­u­la­tion into for­mal em­ploy­ment. One of the big­gest ben­e­fits of this pack­age has been 180,000 gar­ment work­ers for­mally be­com­ing a part of EPFO (Em­ploy­ees’ Prov­i­dent Fund Or­gan­i­sa­tion) in the past one year. That means more and more for­mal­i­sa­tion is hap­pen­ing.”

The tex­tile sec­tor can lead the way in re­viv­ing man­u­fac­tur­ing. But its prob­lems are too many and too deep. While var­i­ous gov­ern­ment ini­tia­tives have helped, what is lack­ing is an in­te­grated ap­proach to a sec­tor that could still be a ma­jor em­ploy­ment provider.

CRISIL SAYS IN­CEN­TIVES AND BET­TER TRADE TERMS WITH EX­PORT HUBS LIKE THE EU WILL MAKE IN­DIAN FIRMS MORE COM­PET­I­TIVE

A STITCH IN TIME Work­ers at the Ray­monds fa­cil­ity in Chikka­bal­la­pura dis­trict, Kar­nataka

NILOTPAL BARUAH

DIS­TRESS CALL A weaver at a pow­er­loom in Bhi­wandi near Mum­bai

MANDAR DEODHAR

OUT OF THE RACE One of Bhi­wandi’s tra­di­tional looms

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