AHMEDABAD UNIVERSITY (AU) H.L. INSTITUTE OF COMMERCE (HLIC) F.Y. B.Com-5.

Project Assignment For Fundamental Of Accountancy Topic- Textile Group no. 14

693 Jain Deepak 694 Bansal Mansi 695 Shah Akash 697 Prajapati Pavan 699 Jadeja Shivrajsinh 700 Shyamdasani Jackie 701 Agrawal Rishabh 702 Jhawar Devang 703 Shah Pratik 705 Parmar Akash

AcknowledgementAll the members of our group are thankful to all the faculties of accounts & H.L. Institute of Commerce who has provided us this opportunity to know about the Textile Industry & helped us to increase our knowledge regarding this sector. This project has provided us reasonable knowledge about the presentation work so that we can enter in to the competitive market. All the members of our group has participated in this project & worked as a team. We are thankful to-

ABHISHEK SHAH SIR PARAG PATEL SIR VIBHA TRIPATHI MAM

NEHA DESAI MAM VAIBHAV KADIA SIR

INDEX

Topics Introduction Scope Growth Operating Environment Government policy Major players Future prospects Risk & opportunity Conclusion Bibliography

Page No 5

Introduction
India is a traditional textile -producing country with textiles in general, and cotton in particular, being major industries for the country. India is among the worlds top Producers of yarns and fabrics, and the export quality of its products are ever increasing. Textile Industry is one of the largest and oldest industries in India. Textile Industry in India is a self-reliant and independent industry and has great diversification and versatility. The textile industry can be broadly classified into two categories, the organized mill sector and the unorganized decentralized sector. The organized sector of the textile industry represents the mills. It could be a spinning mill or a composite mill. Composite mill is one where the spinning, weaving and processing facilities are carried out under one roof. The decentralized sector is engaged mainly in the weaving activity, which makes it heavily dependent on the organized sector for their yarn requirements. This decentralized sector is comprised of the three major segments viz., power loom, handloom and hosiery. In addition to the above, there are readymade garments, khadi as well as carpet manufacturing units in the decentralized sector. The Indian Textile Industry has an overwhelming presence in the economic life of the country. It is the second largest textile industry in the world after China. Apart from providing one of the basic necessities of life i.e. cloth, the textile industry contributes about 14% to the country's industrial output and about 17% to export earnings. After agriculture this industry provides employment to maximum number of people in India employing 35 million people. Besides, another 50 million people are engaged in allied activities. India is the largest producer of Jute, the 2nd largest producer of Silk, the 3 rd largest producer of Cotton and Cellulosic Fiber / Yarn and 5th largest producer of Synthetic Fibers/Yarn.

Scope in india
The Indian textile industry is as old as the world textile industry. In fact the first known cotton cultivation seems to be from India followed by UK. Bombay or Mumbai as its know today is synonymous with the textile industry in India and also has the soubriquet "Manchester of the East". However more and more textile industry has been push to other states of India particularly Gujarat and Madras which are increasingly gaining the attention of the world textile buyers. Mumbai due to its high urbanization is becoming more of realty market. However I want to add a fact to the above statements is that Mumbai is the commercial capital of India. Lot of niche markets is opening up in India. One place I recall was quite interesting was the Tirupur Textile Industry based in Madras. The place has become synonymous with the exports of India Knit wear. The industry based here is truly thriving with all the modern equipments and technologies. It is estimated that around 35 countries of the world visit Tirupur every month. Now look at this they deliver samples of custom-made knit wear in about 12 hours and up to half a million pieces within a few days. All for the dedication and hard work of workers as well as exporters whose ultimate goal is to meet the international buyer's requirement sometimes quite unreasonable. Today Tirupur can boast itself being in the elite list of towns with the largest foreign exchanges in India. Super quality brads like Wal-Mart's, JC Penney, Marks and Spencers have shown a keen interest in the Tirupur textile industry consisting of around 7,000 garment units providing employment to more than a billion people. The world is looking up to the Indian textile industry to deliver its goods using technologies used and developed elsewhere be it the USA or Japan or Hong Kong. India has an untapped potential to become in the top three list of producers as well as exporters.

Operating environment

Growth of the sector in India

The textiles industry in India enjoys a distinctive position due to the pivotal role it plays by way of contribution to industrial output, employment generation (second largest after agriculture) and export earnings of the country. The industry is rich and varied, embracing the hand-spun and hand-woven sector at one end and the capital intensive, sophisticated mill sector at the other. Its association with the ancient culture and tradition of the country lends it a unique advantage in comparison with textiles industry of other countries, thus giving it an uncommon edge to cater to a vast variety of products and market segments both domestically, as well as, globally. The industry currently contributes about 14 per cent to industrial production, 4 per cent to GDP, and 17 per cent to the countrys export earnings, according to the Annual Report 2010-11 of the Ministry of Textiles. The industry accounts for nearly 12 per cent share of the country's total exports basket. It provides direct employment to more than 35 million people Market size The Vision Statement for the textiles industry for the 11th Five Year Plan (200712) sees India securing a 7 per cent share in the global textiles trade by 2012. At current prices, the Indian textiles industry is valued at US$ 55 billion, 64 per cent of which caters to domestic demand. The export of textiles and clothing (T&C) aggregated to US$ 22.42 billion in 2009-10. The Government fixed the target for 2010-11 at US$ 25.48 billion. So far during the period April- September 2010, exports of T&C have been achieved at US$ 11.26 billion. Production During February 2011, total cloth production rose by 5.8 per cent year-on-year (yo-y). During April- February 2011 cloth production increased by 4.5 per cent y-oy. Export Total textile exports during April-December 2010 registered an increase of 16.54 per cent in rupee terms at Rs 87,582.83 crore as against Rs 75,149.98 crore during

the corresponding period of the previous year, according to the latest data released by DGCI&S, Kolkata. The same were valued at US$ 19,217.12 million as against US$ 15,695.07 million during the corresponding period of the previous year, registering an increase of 22.44 per cent. The share of textile exports in total exports was 11.29 per cent during AprilDecember 2010 as against 12.34 per cent during April- December 2009.

Government policy
Boost the growth of the textile industry in India and nurture and fix its position in the global arena as a leading manufacturer and exporter of clothing. To cut down imports of the domestic market. To infuse competitive spirit by liberalizing stringent controls Promoting Foreign Direct Investment and R&D in this sector Focus on diversification and up gradation taking into account the environmental concerns. Evolvement of a firm multi-fibre base; and developing the skills of the weavers and the craftsmen in the process.

Major Players in market

Arvind Mills Ltd.

Arvind Mills Limited is the flagship company of the US$550 million Lalbhai Group. It is engaged in the production of the widest range of textiles. It is the worlds largest exporter of denim and Asias largest denim producer. Ranking among the top denim manufactures of the world, 120 million metres of denim roll out every year from Arvind plants and is stitched into leading international denim brands in more than 70 countries. The company is also in the garment and mens shirting business under the brand names of Newport, Flying Machines, Lee, Arrow.

Raymond Ltd.
Incorporated in 1925, the Raymond Group is a US$ 300 million plus conglomerate having businesses in textiles, readymade garments, engineering files & tools, prophylactics and toiletries. The group is the leader in textiles, apparel, files and tools in India and enjoys a pronounced position in the international market. Raymond Textile produces pure wool, wool blended and polyester viscose fabrics and blankets along with furnishing fabrics. The denim division produces high quality ring denims. Raymond believes in excellence, quality and leadership. Reliance Textiles: Reliance Textiles is one of the major Textile Companies that is in the business of fully integrated manmade fiber. It has capacity of more than 6 million tones per year. It has joint venture partners like, DuPont, Stone & Webster, Sinco (Italy) etc. Vardhaman Spinning: Vardhman deals in spinning, weaving and processing segment of the industry. It is an approved supplier to global retailers like GaP, Target and Tommy Hilfiger. Its sales are little over US$ 120 millions

Future prospective
Tayal adds saying, "No doubt, India is one of the leaders in textile business. However, what it lacks against China is in terms of investments. To achieve top position, apart from investments, Government support is essential. If textile industry gets privileges like that of agriculture industry, as it is closely linked to cotton cultivation and yield, it will create tremendous growth prospects and generate huge employment opportunities."

As for future of textiles, sources from Sangam India Ltd. say that with the Government's support, industry will see rapid progress. An unnamed National Textile Corporation Ltd official also agrees and views that the current booming scenario and liberal Government policies will definitely boost the overall state of the textile sector. Sandeep Sharma believes, "Textile industry is on the rise and is getting rationalized. During our visit to China, we found that they have much more unorganized market compared to India. Chinese banks are not very disciplined; as a result, companies can pay back loans whenever they want to. Thus, it becomes a kind of subsidy for the enterprises. Furthermore, Chinese currency is artificially manipulated. So, if China gets the organized market, the currency price will crash and India will be the ultimate beneficiary. In the last two years, Chinese Yuan compared with Indian Rupee has come down from 8.23 to 7.06 in Rupee terms. This change is due to the WTO agreement, which has rationalized the demand as well." Tayal also beams, "Future prospects for textiles are unquestionably very strong. In the next 10 to 15 years, India will be much ahead of China. In fact, in the next 3 to 5 years, China will start loosing ground, similar to what is happening in Europe today."

risks

The Indian textile industry has been one of the foremost contributors to the country's employment, exports, and GDP. The industry has been rated as one of the key drivers of the Indian economy and a bold target of exports of $50 billion (currently its $22 billion) had been targeted by the year 2012 by the government after the dismantling of the quota regime in 2005. However we are still far away from that target. Though now it can be blamed on the worldwide recession, I think we need to do some soul searching as to was it anyways possible. Globally, the

Indian industry is recognized for its competitive advantages, especially in the cotton segment. The government has set huge targets for the industry and expects to attract investments of about Rs 1.5 lakh crore during the eleventh Plan period. This would meet the export and domestic targets, while taking various initiatives like setting up textile parks, training centers, and made in India label promotion to global markets. It also assured continued interest subsidy through the Textile Upgradation Fund. I keep hearing in many conferences that India has a lot of potential and we are very confident about the industry meeting its potential and that the current situation is just a blip on the monitor. Speakers talk about getting more efficient, delivering more value added products, and adopting new technology to meet the new challenges. However, no one talks about what is the countrys real competitive advantage against its existing competitors like Pakistan, Bangladesh, China, Indonesia, and the newly upcoming ones like Vietnam, Cambodia, and may be a few African countries. Currently the textile industry is one of the worst hit sectors in India, as almost 50 percent of the industry is dependent on exports. Hence, maybe this is not the most opportune time to analyze performance and draw conclusions. However, if we go back a bit when the world was still growing we didnt have any great performances by the textile industry in exports. In the period from April to August 2007, our export turnover saw a meager rise of 0.15 percent in terms of US dollars over the same period last year, while in terms of rupees it fell by 10.52 percent. This shows that it is not only the exchange rate which is killing us, even in terms of dollars we had not grown at all. How will we then achieve those high targets set by us, when in a high GDP growth scenario we have losses? And even more alarming is that cotton garments (which constitute about 45 percent of exports), fell over the same period by 6.86 percent in terms of dollar and 16.6 percent in terms of rupees. It clearly shows that we are losing not only on the aggregate basis, but are losing more on the value addition basis. I was just going over our competitive advantages to understand our strengths in facing the global markets. Firstly, I looked at the basic raw material cotton fiber, which looks very promising. We have doubled our production in five years and have sufficient cotton to feed the growth of the industry. We are the second largest producer today and have also become the second largest exporter of cotton. This means that we have a clear advantage on the cost of cotton. However, the shocking news is that it is not necessarily true the relative advantage of India vis--vis competing countries like Bangladesh, Pakistan, Vietnam, Indonesia, and Thailand has come down, with the gap between Indian cotton price and that of the other countries reducing over the last five years due to the acceptance of Indian cotton by other nations and large scale exports from India. The most alarming point is that the landed cost of Indian popular cotton Shankar 6 is cheaper or equal for mills near the ports in the far eastern countries and Pakistan and Bangladesh by road as against the same for the south Indian mills (Tamil Nadu has the maximum number of spinning mills in India). Road transport is much more expensive than sea transportation, for e.g. it costs $50 (Rs 2,500) to transport 150 bales from Mumbai

to China and it costs Rs. 75,000 to transport it from the place of production in north and western India to Tamil Nadu. Further, in a falling global market where prices were falling across the board, the government hiked the minimum support price (MSP) of raw cotton by 40 percent, making the raw material expensive for our local industry, when on the other hand the price of end products were falling. Hence the industry got squeezed both ways. To top the agonies of the industry, in February 2009 the government introduced with retrospective effect five percent license against exports of cotton, hence making our cotton cheaper for our competing nations We need to rethink whether we want value addition on Indian cotton. We have been talking about a fiber policy for the last two years, but still there is nothing offered except promises. On the manmade fiber side, due to our inherently high raw material prices and import duties, we are clearly out priced. Despite import duties, many manmade textile intermediaries are being imported into the country. Secondly, let us analyze the technology access and its cost. India has access to the best global technology in addition to its locally available machinery. However, apart from ginning and partly spinning, we are largely dependent on imported technology. Europe is considered a hub for it, but the severe appreciation of its currency has made it more expensive by about 20 percent over the last few years (European machinery is anyways not cheap), which is further compounded by import duty despite export obligations. The Chinese textile machinery industry is much more developed and, in fact, is selling all over the world including India. This, coupled with rising interest rates over the last two years, has made capital expensive and projects like spinning mills difficult. Despite the Textile Upgradation Fund, the effective rates are about 7-8 percent, which is high compared to todays international funding rates. Even our discounted working capital rate for exporters at 7 percent means a labor plus five percent rate, which makes us uncompetitive. Due to the recession interest rates have crashed globally; but India rates have only fallen marginally and due to the risk premium going up the positive impact is further reduced. Thirdly, we can talk about labor our favorite listing when it comes to analysis of our advantages. However, in absolute terms we are higher than many of our competitors like Bangladesh, Pakistan, and other developing countries and if adjusted for productivity we are higher than all major textile nations like China, Indonesia, Thailand, and Vietnam. Further, we have a restriction on labor flexibility, making it very difficult for the garment industry, which has seasonal loads of work thereby allowing very limited space for companies to adjust to the changing times and seasonal demands. The Government has a minimum guarantee employment program of 100 days (NREGS). Why cant it,on a similar basis, allow a 200 hundred days guaranteed employment to laborers of the garment industry? The important point is that the industry would pay higher wages and would also enhance skills of the workers.

Fourthly, we have the cost of power, which is probably the most expensive amongst all the nations globally. Our power costs are 10-12 cents per unit and still we dont have uninterrupted supply leading to higher costs of self-generation. On the contrary, most other nations have power costs in the range of 5-7 cents per unit. Textile industry is fragmented, making it difficult for self-generating units to be set up and reduce the power cost impact (the steep oil price hike in 2008 made them anyways unviable unless based on coal or wind). Fifthly, we have the issue of markets. India is in a unique position where it has no preferential access for any product nor does it enjoy any proximity advantage. Turkey has the whole of Europe at its doorstep, the ASEAN countries can trade amongst themselves with preferential duty structure and even Korea is giving them preference. Pakistan and Bangladesh have enjoyed preferences for various markets. We are, on the contrary, opening up our markets to the low and competitive nations like Bangladesh, Pakistan, and Sri Lanka with duty free access to our growing consumer population. Hence, even our growing domestic market is under pressure of duty free imports from SAARC nations and other major countries like China and Thailand due to their competitive cost structure of manmade fiber. The question is, under these circumstances how will the industry move ahead? In the absence of internal accruals, loss of fancy of equity investors, and no FDI how will the industry invest? And without equity how will debt come in? The large investment and turnover targets are fast becoming a pipe dream. Unless problems of each of the pillars of the industry are not tackled very soon in a cumulative manner, we may be headed for a disaster. And for those who think that it is only the exports that are affected and the local industry is doing fine, just have a close look once again. Has there been any increase in prices of the manufactured textile products domestically over the last three years? We say our economy is growing, there is pressure on prices but still price levels of this industry have even fallen in some segments. The prices in retail selling may have gone up in some cases, but that is due to the strength of branding and marketing, not due to manufacturing costs. We need to understand that the basic raw materials are interchangeable and are the same for both exports and domestic sales. In the case of lower export prices and weak demand, the exporters try to shift their capacities to the domestic segment, thereby putting pressure on the domestic market, which is not deep enough to absorb any additional capacity. This causes depression and players that are not in exports but operate in the domestic sector also get hit indirectly. The Indian textile industry will no doubt survive and move along by the strengths of its traditional position and domestic market. However, the growth envisaged and it being re-classified as sunshine industry over the last three years from a sunset industry may turn out to be a myth. We forget that dismantling of quotas (remember that China has not been fully let loose) does not mean increase of global demand; it just means re-organization of sourcing strategies on the basis of

buy from the best place. For India to capture market share it has to be more competitive than other competitors on a cumulative basis. The fact that we have become a big exporter of raw cotton and are selling to all our competing textile nations including China does not change the equation greatly. China, despite being the largest producer of raw cotton, is also the largest buyer, which goes to show how under developed our textile industry is since we are not able to add value to our own cotton. India has been a leader in cotton yarn for many years now, and it was expected that we move on the textile chain upwards. Unfortunately, we have moved in the reverse direction towards export of raw cotton fiber over the last 3-4 years. It is well accepted that textiles is one of the worst affected industries in India, its downturn started much earlier at the end of 2007 when US economy went into trouble. However, hardly anything has been done for the industry except sympathizing with them. Some of the significant government policies that worked against the industry last year were: * Increase of MSP for seed cotton by 40 percent * Introduction of five percent export incentive for raw cotton exports * Reduction of duty drawback rates *Removal of interest subvention of 4 percent and later restoring to 2 percent

Opportunities
India ranks among the top target countries for any company sourcing textiles and apparel. Indeed, apart from China, no other country can match the size, spread, depth, and competitiveness of the Indian textile and apparel industry. Moreover, the global elimination of quotas at the end of 2004 has greatly enhanced the opportunities for sourcing from India. This special report focuses on the opportunities which India now offers as a source of textiles and apparel. Based on a detailed examination of the performance of a large number of apparel and home textile products in the US and EU markets in 2005, the report identifies those which offer the greatest scope for sourcing from India. The report includes profiles of Indian textile and apparel companies which are potential partners for sourcing or collaboration. It also examines the competitiveness of Indias yarn and fabrics industry, identifies opportunities for foreign collaboration, and provides a wealth of statistical data.