CHENNAI, India — In late August, Indian company Raymond Ltd. opened a new plant outside the southern city of Bangalore to make trousers and suits entirely for export.
The factory, owned and operated by the firm’s subsidiary, Silver Spark Apparel Ltd., has an annual capacity of 1.3 million suits and 500,000 pairs of trousers. Continuing its growth, by January, Raymond plans to set up another factory to make three million pairs of denim jeans a year. A plant to manufacture shirts in India and a worsted fabric factory in Thailand are being considered.
The motive for Raymond’s aggressive expansion is clear: Already India’s leading producer of worsted suit fabric and denim — it shipped $238 million worth of fabric for the year ended in March — the firm is getting ready for a quota-free textile world.
“These investments will help Raymond reach its goal to become the largest apparel manufacturer in this part of the world,” said Gautam Hari Singhania, chairman and managing director.
Studies done by Indian and foreign agencies predict India will remain an important player once textile quotas are abolished. A study last year by the U.S. International Trade Commission said India would likely remain a competitive supplier and said many U.S. companies consider India the primary alternative to China.
India’s textile exports are expected to jump to $40 billion by 2010 from $12 billion in fiscal 2004, with an average annual growth of 18 percent, predicted a study by Crisil Infrastructure Advisory for the Indian Cotton Mills Federation. If that happens, India’s share of global textile and clothing trade would more than double from its 3 percent now.
Hitting that target won’t be easy, industry experts acknowledged.
“India will face fierce competition as a natural result of globalization,” said S. Ramalingam, senior general manager of overseas operations at SNQS International, a buying agency.
Key factors that will determine sustainable growth include competitive pricing; quick production and delivery; quality, and product development for better unit value realization.
“To achieve these, companies must improve infrastructure and consolidate capacity, improve productivity and supply chain management, go for product specialization and comply with buyer standards,” Ramalingam added.
Many Indian companies are already working on these elements by integrating vertically, modernizing and expanding capacity. An industry report from a local investment firm recently pointed out that as fashion cycles grow faster, overseas retail chains are looking for one-stop solutions, a trend that benefits vertically integrated companies.
Rajasthan Spinning and Weaving Mills, the flagship company of the Bhilwara group, is shifting focus from exporting yarn and fabric to making and exporting apparel. Ritspin Synthetics Ltd., a leading producer of yarn from man-made fibers, intends to manufacture apparel. Companies in south India manufacturing fabric are also adding apparel to their product line.
The second major development taking place is capacity expansion. In the past two years, Indian companies are estimated to have invested $700 million in new mills and equipment, and they plan to spend an additional $2.5 billion by 2005 to expand capacity.
Arvind Mills, one of the biggest denim producers in the world, has added capacity of 2.4 million shirts to its factory in Bangalore. The A.V. Birla group, which makes fabric and apparel, is expanding its acrylic and rayon fiber business, with the aim of becoming one of the top three companies in the global fiber market. Its Grasim Industries’ textile and apparel subsidiary unit has increased fabric manufacturing capacity to 1.5 million meters a month from 700,000 meters.
Even medium and small companies are on an expansion spree. Knitwear factories in the southern Indian town of Tirupur are among those expanding and modernizing their machinery to meet the new challenge. A. Sakthivel, chairman of the Apparel Export Promotion Council, said these factories have taken loans worth about $56 million at current exchange rates from the government’s technology upgrade fund.
The other significant development is some companies that had set up manufacturing facilities outside the country are considering moving them back to India to take advantage of cost benefits. Apparel manufacturers like Ambattur Garments and FabriTex Exports are among companies considering such a move. Arvind Mills, which has manufacturing facilities for denim and apparel in Mauritius, is moving the plants back to India.
Although India’s textile industry is gearing up, government officials and industry executives are conscious that the road ahead is difficult.
G. Shanker, an executive at the Indo-American Chamber of Commerce, said competition from China would be stiff because its production costs already are about 10 to 35 percent lower than India’s. China also has larger capacity plants, better infrastructure, greater economies of scale, higher productivity and lower power costs and interest rates, Shanker said.
India’s textile industry, on the other hand, is highly fragmented, suffers low investment in research and development, faces serious infrastructure problems, has quality issues and still maintains a traditional management.
“There is lack of a comprehensive and integrated approach to problems,” said Ramalingam of the SNQS buying agency. “Some companies are only trying to impress buyers by changing the factory layout, whereas they must work to improve their product and productivity.”
According to Ramalingam, product development will be an important area of focus. India traditionally has concentrated on apparel for the spring-summer season, neglecting fall-winter. Ramalingam suggested Indian makers should turn their attention to cold weather wear and try to move up the value chain. Some companies have already begun making blazers and suits. While the ability to import affordable raw materials — such as wool — can be a problem in this segment, that can be resolved by the government lowering tariffs, he said.
While three months remain until the end of the quota regime, the Indian industry has been facing pressure, particularly on prices, for some time.
“Quotas provided an umbrella,” said Nariman F. Mogrelia, chairman and managing director of the Chennai-based Zoro Garments. “It is now a fight for survival.”
He estimated that more than 25 percent of southern India’s apparel factories had shut down over the past 18 months due to price pressures.
Mogrelia, who also heads a trade association, said, “Whoever quotes the lowest price will get orders.” He said India’s main competitor would be China, whose prices can be 40 percent lower than India’s.
“There is a lot of uncertainty,” said Mogrelia. “Exporters don’t know where they are going to land.”
Mogrelia said to enable Indian companies to compete with China, the government must provide them a level playing field by allowing import of raw materials at zero customs duty. Today, India’s duties range from 15 to 35 percent on textiles, with synthetic-fiber duties averaging 20 percent and apparel tariffs hovering around 35 percent. In addition, infrastructure problems at ports and procedural delays must be addressed.
“Government measures so far are halfhearted and insufficient,” he added.
India’s rigid labor laws, which prevent companies from laying off workers if profits dip, are a major worry for the industry. The government has acknowledged there are infrastructure issues and that inflexible labor laws are problems, but has asserted it is trying to address them.
R.C.M. Reddy, secretary of the Textile Committee, a government agency, said the authorities need to improve infrastructure, reform labor laws and provide a stable fiscal policy. The government is setting up China-style special economic zones in various parts of the country where factories are expected to have somewhat greater flexibility in hiring and firing labor.
Textile minister Shankersinh Vaghela has promised the industry that the government is committed to launching modernization programs. According to the minister, incentives for the textile industry in this year’s national budget could see new investments worth $1.3 billion in five years. In the latest trade policy, the government has allowed the textile industry to import secondhand machinery. This will encourage capital investment, Sakthivel said.
The government is addressing the infrastructure problem by urging apparel factories to form industrial clusters so that power, water, road and port links can be provided easily. Apparel parks are being established all over the country with proper infrastructure.
Under the plan to develop industrial clusters, the northern city of Ludhiana — a center of hosiery and woolen manufacturing — is getting funds to develop its infrastructure, technology and marketing. In addition, an apparel park also is being planned through a $10 million public-private partnership. The park will have 60 knitwear factories and 200 ancillary factories, to feed the domestic and export markets.
Despite the mixed scenario, buying agencies are optimistic about India’s potential.
“Indian entrepreneurship will overcome difficulties,” said Ramalingam. “We expect business to grow once the quotas are removed.”