India has the world’s largest number of looms, but most of these are in the unorganized sectors which suffer from fragmentation and technology obsolescence, leading to inadequate availability of high quality fabric which is a major reason for the low share of India’s apparel exports, according to a report by investment information and credit rating agency ICRA.
India has 4.9 million mills or 60 per cent of the global capacity. However, 98 per cent of this capacity is in the unorganized powerloom and handloom sectors which suffer from fragmentation and technology obsolescence. Consequently, the share of India in global fabric production is only at 20 per cent as against share of 60 per cent in terms of number of looms with China having the highest share in the global fabric production at 40 per cent.
According to the report, the high degree of fragmentation in the domestic industry can be attributed to the governments’ earlier policies of promoting small scale sector though tax and fiscal incentives and also favourable labour policies for smaller units. This apart, availability of TUFS subsidy on second hand imported looms also encouraged capacity addition, but with obsolete machinery. As a result, small scale units had competitive advantage over larger composite mills which discouraged investment in the large scale capacity addition and modern technology
Cotton fabric accounts for 60 per cent of the domestic fabric production. However, most of the non-cotton fabric (90 per cent) is manufactured by the powerloom sector
The report said the Indian fabric industry is mostly driven by the domestic demand; exports are limited at 5 per cent of the production and are lowest in the entire textile value chain reflecting lack of competitiveness.
Maharashtra has the highest weaving and Tamil Nadu has the highest knitting capacities, the report said. But the textile value chain is not integrated due to mismatch between the distribution of spinning and fabric production capacities across the regions.
Growth in fabric production in FY 2016 is expected at 2 to 3 per cent on expectation of improved domestic demand and steady growth in the apparel exports.
ICRA said that the denim segment is relatively less fragmented as compared to the overall fabric industry with most of the production in the organized mill sector. And although oversupply and high yarn prices had affected the profitability over the last two years, it is expected to improve in FY 2016. Globally, India is the second largest manufacturer of denim after China, though India’s share in global denim export is lower and is the fourth largest exporter after China, Pakistan and Turkey.
According to the report, fabric manufacturers have recorded steady revenue growth with stable profitability. But while the debt coverage has improved, they continue to remain modest on account of high leverage and moderate profitability. (SH)