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Cover Story | January 2018

Fuelling growth and creating employment

Indian textile and apparel market is estimated at $118 billion, 69% of which is domestic consumption while exports constitute the rest 31%.

The global apparel consumption in 2016 is estimated to be $1.7 trillion, which formed around 2 per cent of the world GDP of $73.5 trillion. EU-28 was the largest apparel consumer market worth $400 billion, which was followed by markets of the USA, China and Japan. These top four markets together constituted approximately 62 per cent of the global apparel consumption. The next four largest markets were India, Brazil, Russia and Canada, accounting for an additional 11 per cent share while the rest of the world held a 28 per cent share.

The apparel consumption is forecast to grow at a CAGR of 5 per cent and reach $2.6 trillion by 2025. It is expected that the market growth rate of developed countries will slow down whereas large emerging economies will be the key drivers of growth. China and India, with a large population base, will be the fastest growing markets in the segment.

Global textile and apparel trade in 2016 was $765 billion, which has been increased overall at a CAGR of 3 per cent since 2006, despite year wise fluctuations in demand. EU-28 and the USA are the largest importing nations accounting for approx. 46 per cent of global imports (approximately $352 billion). Vietnam and the UAE emerged as the fastest growing import markets from 2006 to 2016. It is worthwhile to note that the share of the top 10 global markets has reduced from 80 per cent in 2006 to 69 per cent in 2016, which indicates faster growth of imports of new markets.

China has remained the undisputed leader in the global textile and apparel exports. It accounted for around 37 per cent share in global textile and apparel exports in 2016, which was substantially higher from the value of 32 per cent in 2006. India maintained its second largest exporter position with 5 per cent share, which has increased from 4 per cent in 2006. India is followed by Bangladesh, Italy and Germany with 4 per cent share each.

Over the past decade, the share of the top 10 global textile and apparel exporters has increased from 62 per cent in 2006 to 70 per cent in 2016, which indicates that there has been a consolidation of global sourcing of textile and apparel products from these countries.

Trends impacting the global textile sector

Growing Domestic Market of India and China: It is expected that over the next decade, domestic apparel market of India and China will attain high growth rates of 12 per cent and 10 per cent respectively, to add a cumulative market size of $405 billion by 2025.

High economic growth will be a major factor behind increasing apparel market size in both these countries. Other trends facilitating the growth in India are increasing youth population and high purchasing power, shift from need- based purchase to aspiration-based purchase, growing urbanisation increasing the market demand, increased penetration of technology and greater access to internet resulting in significant growth in online retail sales.

Trends which will catalyse growth in Chinese market demand are boosting demand of outdoor wear and fast fashion categories, end of the one- child policy fostering demand of kid’s wear segment, gradual increase in spending of Chinese customer from offline to online retail channel.

Growth in retail front will lead to a trickle-down effect in the local manufacturing value chain benefitting national manufacturers the most. Huge growth will make domestic market more attractive than exports in many cases for manufacturers.

Slower expected export growth of China: China dominates the global apparel trade with a share of approximately 36 per cent. However in the recent years, a continuous decline in China’s textile and apparel exports has been observed. Between 2014 and 2016, apparel exports from China reduced by 24 per cent to reach a level of $147 billion (2016). Also, the overall share of China in global textile and apparel has fallen from 39 per cent share in 2013 to a current 36 per cent.

In future, China’s share is expected to further reduce because of gradual shift of global buyers from China due to rising manufacturing costs in China and availability of other lower cost destinations in the region. Apart from this, China is also shifting from a cost driven to innovation driven manufacturing destination. Also the focus of Chinese manufacturers is expected to increase towards their fast growing domestic market. While China’s exports will continue to grow, its global share is likely to reduce and this is expected to create export market vacuum of around $50 billion by 2025.

China’s loss of share in global apparel trade will throw up opportunities for emerging exporters including Vietnam, Ethiopia, Kenya, Myanmar, Bangladesh and India. Increasing consolidation of global sourcing: From 1995 to 2015, there are only fewer countries left, which are having some significant share in total trade. This implies that buyer is now seeking for long term arrangement with fewer suppliers.

These trends favor India as a textile and apparel manufacturing and sourcing destination for global markets and hence provide good opportunity for Indian textile and apparel companies to take advantage of the huge opportunity.

Indian industry overview

Indian textile and apparel market is estimated at $118 billion, 69 per cent of which is domestic consumption while exports constitute the rest 31 per cent. The overall domestic market of India stood at $81 billion. in 2016. Within this, apparel retail contributes $63 billion, technical textiles contribute $12 billion and home textiles contribute $6 billion.

Domestic apparel market: In recent times, Indian domestic market has performed better than the largest textile consumption regions like US, EU and Japan, registering a healthy CAGR of 10 per cent between 2007 and 2015. Domestic apparel market size of India is expected to maintain this growth and reach a level $180 billion in 2025 by growing at a CAGR of 12.4 per cent.

Home textiles & technical textiles: Domestic home textiles and technical textiles market stood at $6 billion and $15 billion in 2016. Domestic home textiles market will also grow at 13.7 per cent CAGR to reach a level of $19 billion in 2025. While, the technical textiles market is expected to grow by 11.2 per cent CAGR over the same period to reach a level of $39 billion.

India is the second largest exporter of textile commodities in the world with an export value of $37 billion in 2016. India’s textile and apparel exports registered a CAGR of 5 per cent over the last decade illustrating a higher rate of growth as compared to the global textile industry of 4 per cent during the same period indicating that Indian textile industry is performing better in the export front also.

Apparel is the largest exported category in India’s exports with a dominant share of 46 per cent. It is followed by the exports of “others” category which includes home textile products, made-ups, etc.

with a share of 19 per cent. Fibre/filament category has registered the highest growth in India’s export of textile and apparel with a CAGR of 11 per cent over the last decade. EU and USA are the largest markets for Indian textile and apparel exports with shares of 19 per cent and 18 per cent respectively. The other major export markets for India are UAE, China and Bangladesh, which have a share of 9 per cent, 8 per cent and 5 per cent respectively.

Growth trends for Indian textile sector

As mentioned in the previous section, domestic textile and apparel market of India is large and it has grown at a robust pace over the last decade. This market is expected to grow at an even higher pace in the coming years owing to the following growth drivers:

Changing demographic dividend: India has the largest youth population in the world and as this population joins the workforce, gets more money in their hands, their spending power will increase. Apparel category will be the prime beneficiary of this increase in purchasing power. Also, since 2000s, India has witnessed a demographic shift in terms of increase in the urban population. Urban areas are expanding and large number of people are moving from villages to cities.

This increasing urbanisation in turn will have a major growth impact on apparel consumption.

Increasing consumer prosperity: Over the last decade, India’s per capita income has grown from $749 in 2005 to $1,723 in 20161. The growing income of people in the country has reflected in the increase of aspirational buying. Nowadays people are becoming more fashion conscious and are spending more on clothing. Judging by the GDP growth of the country, this trend is expected to rise in the coming years.

Emerging Categories for Consumption: Increasing spending power of people along with the changing social scenario of the country has led to the emergence of certain new consumption categories in India such as active wear, sportswear, women wear, protective wear, etc. These categories have emerged substantially only in the last five to six years and they are expected to attain high growth in the coming years.

Increasing penetration of organised retail: India has become a very attractive and large market for international brands owing to the above mentioned features. Many top international fashion brands such as H&M, Zara, Aeropostale etc. have entered in the Indian market in the recent years. The presence of top brands in the country will lead to higher consumption of fashion apparel.

Growth of technical textiles

Technical textiles is one of the most promising segments of the industry. Technical textile is expected to become of the fastest growing segments in the industry based on the following factors:

a.Growth of end use industries such as medical industry, automobile industry, protective wear industry, construction industry etc.

b.Increasing consciousness of health, hygiene and safety amongst consumers

c.Introduction of regulatory norms such as mandatory usage of seatbelts and airbags in automobiles, flame retardant fabrics in commercial places, use of geotextiles for construction, etc. On the export front also, there are several trends which indicate a bright future for Indian textile and apparel industry which are given below:

Slowdown in China’s exports: In the recent years, China’s growth in the global textile and apparel trade has slowed down. Chinese exports of textile and apparel have shown de-growth continuously for the last two years. This slowdown in growth is expected to remain over the next decade which will result in reduction of China’s share in the global textile and apparel trade in the coming years. This reduction in China’s share will serve as an opportunity for the competing nations to increase their share in the global trade by filling it. Textile manufacturing nations like Vietnam, Ethiopia, Kenya, Myanmar, Bangladesh and India etc. have an opportunity to fill this gap.

As compared to all the nations mentioned above, India is the largest and more resourceful country which has the capability to take maximum advantage because of its huge textile base, manpower availability and infrastructure.

Increasing exports to USA: USA is the biggest market for India’s export of textile and apparel products. In 2016, 21 per cent of the textile and apparel products exported from India were shipped to the US. Apparel and home textiles occupied almost 88 per cent share of the $7.5 billion exports to the US. Fibre and other categories have shown an impressive growth of 16 per cent and 14 per cent respectively in the last five years.

Implications of GST on Indian textile & apparel industry: As per its defined objectives, GST will have a positive influence on the textile industry in terms of eliminating distortions in the tax system, reducing compliance for industry, facilitation of input tax credit etc. However, GST has failed to resolve the issue of differential duty structure in the industry as well as the issue of fibre neutrality. Duty accumulation was an issue for the MMF industry earlier also, however, with the increase in the duty rates, it will become more prominent and it will lead to a likely increase in the prices of finished goods. The exact nature of impact of GST on the industry still remains to be seen and will be evident in the near future.

Source: Knowledge paper on fuelling growth and creating employment by Wazir Advisors during FICCI TAG meet.

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