India aims to almost double its apparel exports over the next three years — but there are lots of hurdles in the way.
This story first appeared in the October 7, 2016 issue of WWD. Subscribe Today.
With production declining in China as global brands and retailers seek other lower-cost alternatives, Indian firms see a huge opportunity to gain market share at the expense of manufacturers in China, Vietnam and Bangladesh. Unlike the latter two countries, the Indian industry is completely vertical from growing cotton to final garment production, an advantage companies hope to capitalize on.
But while the industry has significant potential, there are roadblocks to growth in the form of the size of its factories, the lower demand for
cotton products, its workforce and logistics.
“China is not a threat now with declining manufacturing there, but the question is how much India will be able to take over from the market that is vacated by China,” said DK Nair, an industry expert and the former head of the Confederation of the Indian Textiles Industry. “As of now, it seems that we will be the third gainer after Bangladesh and Vietnam. India has much more potential than anybody else because we have the whole value chain here, while Bangladesh and Vietnam are substantially dependent on imported fabrics. But the growth has been very slow so far.”
Textile and apparel exports from India are expected to increase to $82 billion by 2021 from $41.4 billion in 2015.
Of these, apparel exports were $17 billion for the 12 months through March and are expected to increase to $30 billion by 2020.
Apparel exports have been almost stagnant for the last three years, growing only 1 percent in the 12 months through March compared to the previous year. Part of the reason has been slower demand from the main markets of the U.S. and European Union, the lack of economies of scale, and fragmentation of factories in India.
The Indian government appears to have noted that, responding with a critical set of announcements for the apparel industry in June. A reform package worth almost $1 billion included tax refunds, an easing of overtime rules for workers and additional subsidies from the government. The package is expected to attract investment of $11 billion for the industry.
While exports from India have been primarily at a higher price point — with a focus on embroidery and hand-made products — those from other countries like Bangladesh have continued to grow as the demand for lower-priced apparel has skyrocketed. Exports from Bangladesh, which is the second-largest apparel exporter in the world after China, grew to more than $27 billion over the last year. Bangladesh has set a goal of achieving $50 billion in apparel exports by 2021.
There are other reasons that India has lost out on some areas of potential growth.
“One of the factors why more orders have gone to countries like Bangladesh is the price difference, in which they have an advantage in terms of cheaper labor costs as well as on import duty, which itself gives a 10 to 12 percent price advantage,” said Rahul Mehta, president of the Clothing Manufacturers Association of India. “Also, while Bangladesh has larger factories, India has historically and traditionally focused on low-volume and mid-priced segments, the casual segment rather than the formal segment and the fashion segment rather than the basics. So the requirements of our buyers are also for smaller volumes. Traditionally, this has been the case because we have always had much more labor input rather than technology.”
India’s smaller factories stem from a variety of factors, manufacturers said.
“Largely because the labor laws are hard to comply with,” Mehta said. “It’s a cycle that we have gotten into.”
Others in the industry feel that the cycle of large-scale recurring orders is now giving way to more experimentation and innovation.
“India has always been a market for embroidery and hand labor. I don’t think that will change anytime soon,” said Sidharth Agarwal, managing director of Creative Impex and executive director of the Creative Group.
Creative does a lot of embellishment and handmade work, and supplies the likes of Giorgio Armani, Kenzo, Michael Kors, Anthropologie, Topshop and AllSaints.
“What has changed is that over the last year and a half the Indian garment industry is trying to enter new dimensions,” Agarwal said. “The industry was dying and never really picked up properly after the crash of 2008. But I feel that after these new policies, people are willing to try new things and buyers are willing to give better prices.”
He said in some areas there has been more growth, especially with the boho trend, where buyers are looking for the vintage look, which has brought more manufacturing contracts to India.
Agarwal added that another point of transformation has resulted from a new policy instituted last November.
“Now we are able to import fabric because of the changed duty drawback policy that has given a fillip to the cut-and-sew business,” he said. “With the tax rebate for importing fabric, it is now possible to make more garments with the fabrics needed for winter. India used to lose out on these.”
According to a study by Citi, more than 65 percent of global demand for apparel is for man-made fiber products. Meanwhile, more than 80 percent of India’s garment exports are cotton based.
Exporters are also taking their time, watching the world situation with concern before investing further.
Ashok G. Rajani, chairman of the Apparel and Export Promotion Council, said exporters are concerned with zero duty access in the EU market for Vietnam that could be implemented from the Trans-Pacific Partnership trade deal. Meanwhile, India faces import duties of 9.6 percent.
Rashmi Verma, secretary at the Ministry of Textiles, noted in a speech earlier this year that the lack of such global agreements was among the biggest challenges for Indian apparel exports. With a new minister for textiles, Smriti Irani, appointed in July, industry analysts believe there will be a greater focus on facilitating agreements, as well as on increasing the ease of doing business in the coming year.
Many of the reforms are expected to come into implementation this month, but as Nair observed, they are not expected to have instant results.
“Some notifications have already been issued, and some have already kicked in,” Nair added. “Now people are getting some enthusiasm that this industry can do better. There is some compulsion for government also — they have to produce jobs, so this package is a very good beginning, but it will take some time. In my calculation, it will take two years for us to come out of the slow growth right now and bounce back. We used to have 15 to 16 percent growth. We can come back to that. I see a gradual increase.”
The Confederation of Indian Industries’ six-point agenda for growth could help be a game changer for the sector.
Some of its important suggestions are to build scale, bridging the operating cost gap; investing more in technology and in better infrastructure, especially at ports and import facilities; signing free trade agreements with major markets like the EU; more pride and a greater emphasis on “Make in India” as Prime Minister Narendra Modi has suggested, and more emphasis on ease of doing business.
Yet there is a sense of indecision, after so many years of stagnant growth and a reluctance to move too quickly.
Yet with the boho trend and interest in detailing and embroidery, there are those who believe the timing couldn’t be better.
“India is uniquely positioned to capitalize on this opportunity,” said Chandrajit Banerjee, director general of the Confederation of Indian Industries. “We are the only country in the world, other than China, to have the entire value chain from fiber to fashion, both in cotton and synthetics, an abundant and young labor force, a vibrant domestic market and a good starting point in exports.”
Mehta, president of the clothing manufacturers association, agreed. “Yes,” he said, “things are changing. The government is becoming a little more industry minded, the laws are becoming a little more flexible, there are benefits in terms of taxation, and incentives and opportunities.”
Asked if India can do $30 billion in exports by 2020, Rajani said flatly: “Without any doubt.”