- Overview of Infrastructure sector in India
- Current state and performance
Textile Industry is one of the largest contributors to the country’s exports with around 11.4% share in India’s total export earnings for the fiscal period ended 2018-19 valuing to nearly USD 37.5 billion (INR 2,596 billion) and growing at a CAGR of 7% since 2004-05. The industry is currently pegged at an estimate of USD 150 billion (INR 10,834 billion) with 75% of the total consumption being witnessed in domestic market, while exports accounted for the remaining 25% of the total market size. India ranked 2nd in textile export with 6% of global share and stood 5th in apparel export with 4% of global share. In terms of employment, Indian textile industry is the second largest employer after agriculture, providing direct and indirect employment to nearly 100 million people in India. The sector is broadly classified into three categories, with cotton accounting for 50% share, followed by man-made fibres and jute textiles
Despite the large share in the global market and contribution of 2.3% of the Indian GDP, the Textile and Apparel industry has been majorly affected ever since the implementation of the GST, post which the imports in the sector has surged especially due to the apparels from low cost manufacturing destinations like Bangladesh and Sri Lanka. It has been additionally facing hurdles due to decline in exports of yarns amidst withdrawal of various government incentives. The industry is highly capital intensive in nature and is dependent for its capital requirements through borrowings from banks and financial institutions. The industry constituted around 8% of the total gross credit offtake from banks and its share remained constant since May 2014. In terms of the gross value, total outstanding debt for the textile industry stood at INR 23,58,125 million (USD 31,245 million) in FY 2020. Positively, the gross NPA as a % of total gross debt in textile industry has been falling since 2017, when it was as high as 27.5%. The falling trend in the NPA ratio indicates the growing capability of the industry to service its debt obligations within time despite the operational issues.
The widespread impact of the covid-19 which has left no sectors unturned and is expected to decelerate the growth projection of the textile and apparel industry in India, which was once projected to grow at a CAGR of ~12% to reach USD 220 billion (INR 16,637 billion) by 2025-26(as per the data released by the Ministry of Textiles). Due the outbreak of the pandemic, it is expected that the domestic market is seen shrinking by around 28%-30% to USD 61 billion (INR 4,163 billion) led by the decline in the sales mostly in the Q1 for the current financial year ending 20-21.
According to the data released by the Confederation of Indian Textile Industry (CITI), the recovery for the domestic market is expected to be quite steep post pandemic with domestic market estimated to reach USD 120 billion (INR 9,074 billion) by 2024. Apparel retail is even projected to contract by ~USD 27 billion (INR 2,042 billion) in FY 2020-21 as compared to Pre Covid-19 projections for the same period against the ~USD 20 billion (INR 1,512 billion) from the base of FY 2019-20.
The measures taken by the Central Government to combat the impact of the Covid-19 including the INR 3,000 billion collateral free automatic loan for businesses, including the MSME is expected to rejuvenate the critical sectors of the economy and provide the benefit to ~4.5 million small businesses including many small Textile and Apparel units as well. With the extension granted by the Government and RBI, pertaining to 6 months moratorium for interests and for 4 years repayment period including one-year postponement for MSME segments for Covid-19 loans, would provide the much-needed upliftment to the textile industry. Against the backdrop of further impact that the low margin capital-intensive textile industry could face because of the pandemic, the Confederation of Indian Textile Industry (CITI) has approached RBI for one-time loan restructuring, citing a 25-30% drop in the overall demand in FY21. It remains to be seen how RBI would respond to the proposed plea from the CITI for the loan restructuring at a time when the Indian Banking sector is already reeling under the stressed bad loan due to Covid-19 induced stress.
The government of India has initiated various policies to support textile and apparel sector’s growth for the long-term horizon. With the allowance of 100% FDI in the sector under the automatic route it is expected to attract USD 140 billion (INR 10,485 billion) foreign investments in the coming years and also carried out high investments under various scheme’s like Integrated Textile Parks (SITP) and Technology Upgradation Fund Scheme (TUFS) to encourage the flow of more private equity and to train workforce. For further accelerating the growth in the textile industry, the Textile Ministry assigned INR 6,900 Million (USD 106.58 million) for the set-up of 21 readymade garment manufacturing units in seven states for the development and modernization of Indian Textile Sector. India has also become the second largest manufacturer of PPE in the world with more than 600 companies in India certified to produce PPE’s today whose global market worth is predicted to be over USD 92.5 billion (INR 6,927 billion) by the end of 2025, as compared to USD 52.7 billion (INR 3,971 billion) in 2019 which would further enhance the textile products demand in coming years. Being largely a consumer driven industry, textile and apparel sector’s growth and performance is majorly dependent on India’s growing economy. The growth in the textile and apparel sector is sustained by the strong domestic consumption as well as export demand over the medium term. India has high abundance of raw material, particularly with respect to cotton where it is quite cost competitive, together with healthy infrastructure and skilled labour force as compared to neighbouring countries like Bangladesh and Sri Lanka, which is expected to provide support in expanding the country’s share in the global textile and apparel market. Though short-term hiccup due to the ongoing Coronavirus pandemic will result into contraction and lower growth and market value for the next couple of quarters as compared to historical average, it is still estimated that India has the potential to reach USD 70 billion (INR 5,242 billion) in exports and achieve much higher share of the global market by 2024.