Spotlight: Destination India

Apparel Export Pie: India Still Looking for that Bigger Slice

The importance of the textiles-apparel sector in terms of share in manufacturing has been growing over the years, but its share in global apparel exports has been more or less stagnant, even falling marginally at the last count. If India has to become a global sourcing destination, a cursory look at the backdrop is paramount.

Long Story, Cut Short
  • Ever since the MFA came to an end (2004) close on the heels of China becoming a WTO member (2001), much talk in India has been about how it can grab a bigger share of the global textiles-apparel exports pie.
  • Buying houses are a critical link in the value chain that makes or breaks India's RMG exports.
  • Even without getting into the complications of comparing oranges with mangoes, it should be clear that the apparel exports segment is lagging behind and needs some help.
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Good Buy The role that a small but crucial cog always plays in the turning of the textiles-apparel wheel gets left out of most discussions is that of buying houses, who, as it were, serve as a critical link in the value chain that makes or breaks India's RMG exports. Clark Street Mercantile / Unsplash

On 14 April, the Indian textiles and apparel industry got the sop that it had been anxiously waiting for a while. The government announced the selection of 61 applicants under the Production Linked Incentive (PLI) Scheme for textiles. The proposed total investment expected from the applicants was stated to be ₹19,077 crore and the projected turnover was ₹184,917 crore over a period of five years with a proposed direct employment of 240,134 people. Big numbers there.

The Scheme was meant for three categories: MMF apparel, MMF fabrics and products of technical textiles. Our interest area, for this article, is the first: apparel. Of late, India's readymade garment (RMG) exports numbers have looked up, but not that good. RMG exports for the financial year 2021–22 were worth $15,939.5 million. This was certainly better than 2020–21 ($12,285.8 million) or even 2019–20 when the pandemic hit exports in the March 2020 ($15,509.5 million), but these numbers were still lower than the last pre-pandemic financial year of 2018–19 ($16,156.1 million) and certainly much lower than the high of 2016–17 ($17,382.8 million), according to the Directorate-General of Commercial Intelligence and Statistics (DGCI&S).

The pandemic-hit Indian textiles and apparel industry had been clamouring for help in the face of a liquidity crunch, global downturn and supply chain bottlenecks—with the government finally approving the PLI Scheme with a budgetary outlay of ₹10,683 crore on 8 September 2021. The notification for the scheme was issued on 24 September. Operational guidelines were issued on 28 December, and applications received online from 1 January 2022 to 28 February.

Now, with relief albeit for only 61 players, Indian industry has to make up for lost time and drained revenues, if it has to go over the target that should have been over 2016–17. Everyone has a role to play in ramping up production and exports, especially the 61 selected which include big names like Pratibha Syntex Limited, Shahi Exports Private Limited, Trident Limited, Donear Industries Ltd, Gokaldas Exports Limited, KG Denim Limited and of course industry giant Arvind Limited.

The announcement certainly created a bit of a flutter, but in the din, the role that a small but crucial cog always plays in the turning of the textiles-apparel wheel got left out of most discussions: that of buying houses. Estimates vary, but there are roughly 1,000 buying houses in the country who, as it were, serve as a critical link in the value chain that makes or breaks India's RMG exports.

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The Importance of Apparel A slightly older data shows that the textiles-apparel industry has grown in importance over the years. The share of the overall manufacturing sector in India's GDP grew from 16.11% in 2011–12 to 18.21% in 2016–17. Over the same period, the textiles-apparel sector's share in GDP manufacturing grew from 10.51% to 12.65%. As a result, the sector's contribution to India's GDP grew from 1.69% to 2.3%. Cam Morin / Unsplash

India As a Sourcing Destination: Immediate Backdrop

Ever since the Multi Fibre Agreement (MFA) came to an end (2004) close on the heels of China becoming a member (2001) of the World Trade Organization (WTO), much of the talk in India has been about how it can grab a bigger share of the global textiles-apparel exports pie.

Except that the talk has not translated into dollars. At least, enough dollars. According to the last World Trade Statistical Review 2021, India's share in world exports slipped from 3.0% in 2000 to 2.9% in 2020 with very nominal increases in between (3.1% in 2005 and 3.2% in 2010). India stands at the fifth position with exports worth $13 billion in 2020, behind China ($142 billion), Vietnam ($29 billion), Bangladesh ($28 billion) and Turkey ($15 billion).

The latest figures are not available on the Ministry of Textiles website, but slightly older data shows that the textiles-apparel industry has grown in importance over the years. The share of the overall manufacturing sector in India's GDP grew from 16.11% in 2011–12 to 18.21% in 2016–17. Over the same period, the textiles-apparel sector's share in GDP manufacturing grew from 10.51% to 12.65%. As a result, the sector's contribution to India's GDP grew from 1.69% to 2.3%.

Even without getting into the complications of comparing oranges with mangoes, it should be clear that the apparel exports segment is lagging behind. It needs some help.

There are numerous reasons for this, and if India has to meet the Union Textiles Minister Piyush Goyal's objective of $100 billion by 2030 (incidentally, India's exports for textile items in 2020 was $15 billion, bringing the cumulative textiles-apparel exports to $28 billion), then the apparel manufacturing/exports segment has much work to do.

Table 1 : India's RMG Exports
Month 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
April 1329 1749.9 1351.8 1408.8 126.8 1297.8
May 1488.6 1607.4 1339.4 1530.1 517 1107.3
June 1572.9 1550.1 1358.8 1233.5 804.3 1003.3
July 1456.5 1275.7 1275.4 1365.8 1065.7 1389.3
August 1330.9 1338.2 1293.2 1261.9 1085.6 1238
September 1286.1 1663.4 1104.7 1080.6 1192.9 1301.2
October 1367.5 830.3 1132.1 1108.9 1180.1 1255.7
November 1152.4 1036.6 1131 1058.5 1047.1 1072.2
December 1454.2 1337.5 1376.7 1409.5 1195.8 1466.4
January 1526 1397.3 1528.2 1453.5 1295.9 1546.4
February 1605.3 1440.9 1546.4 1477.9 1348.6 1600.2
March 1813.4 1491.6 1718.4 1120.5 1426 1661.5
Total 17382.8 16718.9 16156.1 15509.5 12285.8 15939.5
Source: Directorate General of Commercial Intelligence and Statistics (DGCI&S), 2022
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Seeking Help The pandemic-hit Indian textiles and apparel industry had been clamouring for help in the face of a liquidity crunch, global downturn and supply chain bottlenecks. Jacob Nizierski / Unsplash

India as a Sourcing Destination: Problems Galore

The most recent study that has ascertained the situation was prepared by the Indian Institute of Foreign Trade (IIFT) in 2018. Titled 'Challenges and Strategies to Promote India as a Sourcing Destination', the study had examined four major product segments in the textile sector—apparel, carpets, cotton and man-made fibre.

The study was rooted in realities, as pointed out in the preface: "A select group of buying houses and exporters of each product category located in various parts of India were contacted to understand the challenges faced with respect to quality, delivery, pricing and compliances. Based on the survey, a detailed recommendation to overcome some of the major challenges have been given."

The report is, obviously, pre-pandemic, but the challenges outlined in the executive summary still stand good, though some might insist that matters have worsened:

  • rising competition from neighbouring countries such as China, Bangladesh, Vietnam and Turkey in areas such as cotton fabric, apparels, MMF and carpets;
  • sluggish demand in major export destinations—the EU and US—as a result of global economic crisis, and
  • domestic challenges such as lack of technology upgradation, inefficient infrastructure and fragmented industry structure among others.

But before diving deep into the reasons and solutions, a quick look at the 2021 Fashion Industry Benchmarking Study published by the United States Fashion Industry Association (USFIA) will give an idea about how India is perceived. Symptoms, if you please.

A section of the report which sought to understand the strengths and weaknesses of each primary sourcing destination, respondents rated them against five criteria with the most significant impact on sourcing decisions. On a scale of five, India scored 2.5 on speed to market, 3.5 on sourcing cost, 3.0 on flexibility and agility, 2.5 on risk of labour and social compliance, and 2.5 on risk of environmental compliance.

Similar ratings for the European Union—the other big and attractive market for India—do not exist. But the US ratings clearly state where India stands.

RMG export prospects cannot be seen in isolation; those have to be rooted in realities (as the IFFT study was) and conflate them with the US study.

Table 2 : Strengths and Weakness of Primary Sourcing Bases—by Country
Sourcing destination Speed to market Sourcing cost Flexibility and agility Risk of labour and social Compliance Risk of environmental compliance
USA 4 2 3 3.5 3.5
Mexico 3.5 3 3 3 3
CAFTA-DR 3.5 3 3 3 3
Colombia 3 3 3 3 3
China 3 3.5 4 2 2.5
Vietnam 3 3.5 3.5 3 3
Bangladesh 2 4.5 3 2 2
Indonesia 2.5 3.5 3 2.5 2.5
India 2.5 3.5 3 2.5 2.5
SriLanka 2.5 3 3 3 3
Cambodia 2.5 3.5 3 2.5 2.5
Europe 3 2 3 3.5 3.5
Turkey 3 3 3 3 3
AGOA 2 3.5 2.5 2.5 2.5
Egypt 2.5 3.5 3 2.5 3
Source: 2021 Fashion Industry Benchmarking Study
 
 
 
  • Dated posted 18 April 2022
  • Last modified 18 April 2022