VOLUME XIV, No. 03 TEXTILE. YARN CONCERN

VOLUME XIV, No. 03 TEXTILE www.citiindia.com YARN CONCERN ` 60, US$ 4 | Monthly Magazine of CITI | Jun - July 2016 cover story Indian Textile...
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VOLUME XIV, No. 03

TEXTILE www.citiindia.com

YARN CONCERN ` 60, US$ 4

|

Monthly Magazine of CITI

|

Jun - July 2016

cover story

Indian Textile Industry is at a very important threshold from where it can move to a higher orbit of growth. It is well poised to create a much stronger footprint across the globe and more importantly meet the country's inclusive growth objective by providing employment to the rural women. China which controls 35% of the global textile trade is in the process of vacating space due to its high cost structure and no one is better placed than India to capture the opportunity missed in the past. ere was a lot of hope from within and outside India a er we liberalised in the early 90s and industry learned to live without protection. However, we continued to grow at the Hindu rate of growth and saw the rest of Asia overtake us. We, unfortunately, despite having all the ingredients, could never get the correct receipe. However, unless we resolve the di erent issues surrounding di erent segments of the industry, we shall not be able to build a strong foundation and grow. Spinning is a very important segment of the industry. However, it's in a very precarious position. ere is a big disparity between spot cotton prices and yarn prices, which has been prevailing for an extended period of time. is shows there is a deep rooted problem and it's not a temporary feature. e current isolated spurt in Indian cotton prices has aggravated the situation to an extent that many can hear the death knell. e more disturbing fact is that no domestic yarn buyer is hassled or is rushing to buy yarn — they know cotton prices have moved 50% and yarn just 20% — still no anxiety!!! International buyers have diverted their orders as cotton prices in India have increased much more in comparison to the international prices. Indian spinners have been going through a very di cult time over the last 2 years despite cotton prices being reasonably low due to a demand supply imbalance created out of new spinning mills coming up in some St ates (v i able due to incent ives rat her t han

TIMES JUNE - JULY 2016 04 TEXTILE

Sanjay K Jain President NITMA

The more disturbing fact is that no domestic yarn buyer is hassled or is rushing to buy yarn — they know cotton prices have moved

50% and yarn just

20% still no anxiety!!!

fundamentals) and slow demand locally due to two successive poor monsoons and overall subdued sentiments in the globe. Exports have failed to cheer us up due to the disadvantage created by FTAs of our competitors with the big buying nations and we as usual, not able to break any ice anywhere. Cotton yarn has su ered further as the Government felt that yarn needs no incentives. It's true that yarn needs no more any investment incentives but it surely needs incentives to export. Requests went unheeded by the Govt from various Associations because they didn't go into the details of demand – supply minutely or tried to understand the plight of spinning industry (though its classified as a stress industry by the Banking sector). e recent RBI Financial Stability report stated that Textiles had the highest slippages from Standard Account to NPAs I.e. 8.8% in 2015 and the way the industry is going, 2016 is going to be worse. Indian spinning industry is the most developed segment of the textile and clothing industry. It is a market leader in the global markets and we have 30% exportable surplus, which is being exported all across the world. Hence it seems to be an industry needing no assistance, as the Government (Central & State) has given it a lot of incentives over the years leading to the industry coming of age with the best technology. However, surprisingly the excessive and long term continuation of incentives has been the bane of the industry. It has grown no doubt but more on incentives rather than fundamentals. e Central Govt realised this and as a first step, curbed incentives to the industry and finally stopped all incentives. However State Governments (Gujarat Maharashtra, Andhra, Rajasthan, MP etc.) came in with even higher incentives leading to the industry continuing its expansion. e state of the spinning industry can be further understood by the below chart which shows how the margin over cotton for the yarn industry has shrunk despite power, labour and other overhead costs going up. Margins, instead of going up, has come down and is today at a cash loss level. As visible, cotton to yarn had a value addition of Rs 125/kg in March 2013 and went up to Rs. 144/kg in Sept 2014. Since last 1 year, it's been down to Rs. 115/kg and now it has come down to Rs 100/kg. Hence in last 3 years, contribution from yarn manufacturing has reduced by 25% while manufacturing costs have gone up by about 10% !!!

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In last 3 years, contribution from yarn manufacturing has reduced

by

25% while manufacturing costs have gone up by about

10% !!!

Comparison of cotton and cotton yarn Prices In Indian Market (`. per kg)

226.76

239.17 227.76 233.64

249.52 250.43 249.52

255.00

232.24 222.14

205.43 203.71 200.86 202.06 208.11

205.00 120.10

155.00 101.12

113.26

105.60

87.13

89.27

87.00

105.00 104.10

55.00

108.40

111.95

90.02

91.42

89.46

105.40

5.00 -45.00

R

CH

MA

14 15 16 13 5 4 4 3 15 5 4 3 16 13 20 20 20 01 01 01 01 20 01 01 01 20 2 20 H 2 H 2 2 H 2 2 2 . . . C C . C . T . E T E E E T R R C R P C P C N N P N N MA SE JU DE JU DE SE MA MA JU DE JU SE

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YARN Source: Office of Textile Commissioner data base, July 2016 and Ministry of Textiles, July 2016

COTTON

We live with hope that things will improve, however instead of seeing green shoots, suddenly the industry faces a dark black tunnel through which many may not get through to see the light of the day. It's a serious crisis, hence kindly read me out (even if you disagree or find it boring).

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Why are we here today ? Unplanned and illogical incentives being given for building spinning capacities (so much that it's practically irresistible for one to not invest (Central Govt has finally understood, but State Governments still haven't)

· Lack of any authentic crop and stock data in India despite being the largest producer and 2nd largest consumer. No clear cotton fibre policy hence no system of planning exports, stock to use ratio and other cotton developmental issues – working in an ad hoc fashion and leading to lobbying by di erent interested factions

· Wrong and misleading cotton estimates from leading agencies /associations — gave a false notion that the country had enough cotton — agree its di cult to estimate, but if so then better not to give estimates

· Crop size in 2015-16 season is turning out to be substantially lower than estimated, catching spinners on the wrong foot. Quality cotton was exported at low prices and now cotton being imported at high prices (industry losing its main competitive advantage to competing nations).

· CCI acting like a trader when it comes to sell cotton – it surely helps farmers by picking up cotton but when disposing works simply as a trader without any vision of price stabilisation, industry service etc. is year small open bids were made by traders for CCI cotton raising the price level everyday which acted as a market indicator for price levels · MCX/NCDEX is for hedging and price discovery, however its 99% run by traders and speculators (many who have nothing to do with cotton) and hence disrupts the physical market equilibrium. No action taken to rein steep rises in short times, allowing a free run to bulls. Curbing volatility of any nature is one of the prime roles of a regulator.

·

e Government turning a blind eye to the spinning industry without understanding the facts o TUF payments delayed and companies penalised for system errors by Banks in filing TUF claims o Retrospective amendments made to deny benefits under Incremental Export Incentives – industry had to goto Court for justice o Export incentives given to all segments of the industry excepting Yarn under MEIS and subvention — does the end user industry in India have the capacity to consume Indian yarn ?? India leads in exports not because we are the best, but because spinners have no choice but to undercut and sell yarn in exports to o oad the excess spinning capacity

· e Rupee has weakened much less than most other currencies, even yuan has depreciated more over the last one year !!! · Domestic consumption has remain muted due to 2 consecutive poor monsoons, fabric imports, and overall low sentiment in the economy

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Today, the way the spinning industry is placed, there seems no hope for the industry – we have excess capacity, which has to be dumped to China at below cost prices to keep the mills running. High fixed costs makes production cuts di cult. As a result NPAs are increasing, mills are partially or fully closing down on one hand while new investments are coming on the other hand.

Old and new mills have a cost differential of 10% in an industry, which doesn't even have a consistent Net Profit margin of 5%. Government is sitting peacefully and hoping that as value added industry grows, the balance will set in (don't know how they expect industry to get through these prolonged times before value added industry catches up!!) It's amazing that despite this unprecedented and isolated increase of Indian cotton prices in 3 months, the Government has not come out in any visible fashion to understand the issues and problems. Weak and small mills have been le to the mercy of God to

TIMES JUNE - JULY 2016 10 TEXTILE

wither away with the strong bull winds as the world looks on. ere hasn't been even a statement from the Government!! Of course some mills that stocked cotton are making big gains out of this sudden boom in cotton, but the health of majority has got critical. Anyway, we live in hope, and with a new Cabinet rank Minister we expect that the Government shall pay heed to the spinning industry problems and work with it to find solutions to at least break even. We have everything that spinning industry needs, still we are su ering – a real pity. Indian Textile Industry is at a very important threshold and it's now or never. China's cost escalation has given India a golden opportunity to capture a bigger pie of the large global market and up its share from 4 to 5% to 10% over the next decade.

What we feel the Government can do (in order of priority):

Allow immediately from April 1, 2016 MEIS and interest subvention for yarn industry Cotton fibre policy to ensure the country's main competitive advantage i.e. cotton is leveraged fully and a healthy stock to use ratio of cotton is maintained. Our cotton to stock ratio (except 2015) has been always one of the lowest in the world ranging from 8 to 12% as against the world average of about 30 to 40%.

Design a comprehensive, scientific and unbiased system for crop forecast and arrivals

Create a balanced All India policy in consultation with States to ensures valuable Government money goes into developing the Textile Industry in a balanced manner (States giving incentives without seeing the National Picture is detrimental to the industry as a whole)

Release data by DGFT of cotton and yarn exports/imports on real time basis Conclusion: Sincerely hope the step-motherly treatment to the existing spinning capacity with high leverage and created out of incentives won't be allowed to wither away. Spinning is a capital intensive industry and is very important for the value added industry to develop and thrive. We should not forget that such isolated rises in domestic prices of raw material will make the whole value chain uncompetitive, and the logic that we shall take the space occupied by China will go adri . e Rs 6000 crore package given to garment industry is already more than nullified by this sudden spurt in domestic cotton prices and the future price index reflects that its not a temporary phenomenon. Last but not the least, we should not forget that our biggest competitive advantage is our availability of cotton fibre. India cannot a ord to fritter away its biggest competitive advantage – we have built our yarn economics on the same and need to take it forward to fabric and garments. Let's hope a comprehensive and well thought out long term policy/strategy is put in place before it's too late.

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INTERVIEW

on the

go Congratulations on being elected as the CITI-YEG Chairman. How are you feeling to head the Young Entrepreneurs Group of textile industry?

Prashanth Mohota,is the current chairman of the YEG, a forum for young entrepreneur-leaders in the Indian Textile Industry. Mr. Mohota is also the MD of Gimatex Industries, a 118 plus old company, which he has expanded manifold and turned around in a short span of his business career

anks.. It gives me immense sense of pride along with responsibility to steer this energetic group for the next 2 years. Currently, starting from our Hon. Prime Minister, ever y one down the line has highlighted the importance of the youth energy in increasing India's trade competence. I am very excited about special attention that is being given to the textile sector for the potential it holds for future job creation & export enhancement. Textiles has produced a lot of first generation entrepreneurs. How much potential you see in the young entrepreneurs in India to excel in this sector?

Textiles business has changed over the years in the sense that lot of young entrepreneurs are getting attracted towards this sector for the sheer variety of challenges it o ers. Today textile management involves whole gamut of business functions in an environment of extreme competition and Price Volatility, thus ensuring holistic development of managerial & entrepreneurial skills. New sunrise sectors like Technical Textiles, Smart Textiles along with new strategies involving Supply chain and Consumer Behaviour o ers immense opportunity to show one's capabilities.

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What is pulling behind Indian Textile and apparel industry that it is not able to perform like Bangladesh or Taiwan? Bangladesh and Taiwan both have shown high focus on their niche/speciality areas of Garmenting and Technical textile respectively, while India has lacked a cohesive approach on ensuring success on its own strengths. Like China, India had ample raw material availability, but we couldn't take advantage of an integrated approach. Our textile units grew in pockets, more like a decentralized sector, owing to various tax anomalies and ill – founded incentive policies which never encouraged size and collaborative approach. Some sector like spinning could leap ahead leaving other sector like Processing far behind creating a huge gap. Also huge rise in power cost over the years and complicated labour laws and high interest rate regime discouraged risk taking Would you like to suggest any strategy to tackle the trade disadvantage that India is facing? Today most of world's biggest consuming countries like US and EU have given special tari s for encouraging some of the backward countries who end up eating India's textile share. Unfortunately, India finds itself on the toughest part of the spectrum where it has to face many tari / non –tari barriers on its textile trade. It is of utmost importance that new trade

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agreements take shape and old agreements are corrected upon to o er a level playing field for our textile sector. It is important to push our Brand INDIA ahead with shorter deliver y lead times & Integrated / Cluster approach. How textile industry fraternity is taking forward the targets of USD 30 billion for exports, generating 1 crore job and attracting investment of `. 74 thousand crore in next three years ? O late, China has vacated huge space owing to significant price increase and environment compliance issues. Also special incentive package for garmenting to the tune of `. 6500 crore and a new textile policy having focus on integrated approach will help immensely in establishing India a major foothold in times to come. E ase of doing business, Skill development initiative etc are the steps in the right direction which has invigorated the industrial fraternity to come forward to take up this prodigious challenge.

Textile INNOVATIONS ..........NEXT BIG THING AHEAD...........

Now, fabric from waste food City University of Hong Kong teamed up with a government-sponsored research institute in a project that would find a solution to the problem of large amount food waste. is included not just the le overs but also vegetables that are not within the standard range of size or shape. A solution was needed for the mountains of waste food that pile up every day. Edwin Keh, chief executive of the Hong Kong Research Institute of Textiles and Apparel, displayed a piece of textile with a silky smooth texture that was made from kitchen garbage. Keh said that food wastage was a global issue and the innovative material could help solve the problem. e method involved using enzymes to covert food waste containing sugar into polylactic acid, a type of bioplastic. e material is then melted into the form of a filament. e process could recycle 10 tons of food waste into one ton of fabric. A patent was pending.

A new technology to coat fabric in selfhealing, thin films may one day lead to chemically protective suits that would prevent farmers from exposure to pesticides, soldiers from chemical or biological attacks in the field and factory workers from toxic materials, say researchers. Fashion designers used natural fibres made of proteins like wool or silk that were expensive but were not self-healing. Melik Demirel, Professor at Pennsylvania State University in the US said the new innovation would use a coating technology to make conventional fabrics self-healing. e procedure was simple. e material to be coated would be dipped in a series of liquids to create layers of material to form a self-healing, polyelectrolyte layerby-layer coating. Polyelectrolyte coatings were made up of positively and negatively charged polymers. As the coatings were thin, they wouldn't be noticed in everyday wear.

Self-repairing textiles for protection from chemical or biological weapons

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Monthly Exports Update on

Textile and Clothing India's T&C exports gained some momentum in June 2016 and were up by 1.7% in USD terms when compared with the June 2015, while all commodity exports (-7.7%) were down in June 2016 over the same month of previous year. Cumulative export growth of T&C for April-June 2016 was subdued and were down by -3.2% and cumulative decline was marginally lower than the all commodity exports (-5.1%) cumulative growth over the same period of previous year.

T&C exports for cumulative month of AprilJune 2016 stood around USD 8849.9 mn. as against USD 9146.1 mn. in April-June 2015. For the month of June 2016; monthly exports of Handicra s (92.1%), c ar p et (6.1%) and Jute manufactures (2.9%) are positive while rest categories of exports are negative. Textiles (4.3%) alone exports growth was positive while clothing (-0.8%) was down in June 2016 compared to same month of the previous year. In the first three months of this fiscal all T&C subsectors have registered negative growth in exports except for handicra s (47.4%).

India's T&C exports in June 2016 were to the tune of USD 3160.3 mn. as against USD 3107 mn. in June 2015.

Monthly Export Updates of Textile and Clothing Exports, (Exports in USD Mn.) Exports in USD mn.

Export catagory

% Change June _ 16

Cumulative (Apr-June) 2014- 15

June-16

Monthly Cumulative (April-June. 16/ (Apr-June) April-June.15) 2015-16

Cumulative (Apr-June 16)/ (April-June15)

Cotton Yarn/Fabs./made-ups, Handloom Products etc.

826.6

2495.6

807.4

2373.5

-2.3

-4.9

Man-made Yarn/Fabs./made-ups etc.

418.7

1229.6

374.6

1109.7

-10.5-

9.7

RMG of all Textiles

1582.3

4595.0

1569.9

4382.2

-0.8

-4.6

Jute Mfg. including Floor Covering

32.3

91.9

33.2

91.6

2.9

-0.4

Carpet

115.6

370.3

122.7

356.8

6.1

-3.6

Handicrafts excl. handmade carpet

131.6

363.8

252.6

536.1

92.0

47.4

Textiles

1524.7

4551.1 1590.4

4467.7

4.3

-1.8

Clothing

1582.3

4595.0

1569.9

4382.2

-0.8

-4.6

Textile and Clothing

3107.0

9146.1

3160.3

8849.9

1.7

-3.2

22289.4

66690.9

20569.9

63309.3

-7.7

-5.1

All Commodity

Source: Ministry of Commerce and Industry, Quick Estimates, July.2016

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Quick Estimates of IIP for

Textile and Clothing Sector (T&C) during the month of May 2016 as compared to the corresponding month of the previous year. e industry group 'O ce, accounting & computing machinery' has shown the highest positive growth of 18.8 percent followed by 14.8 percent in 'Machinery & equipment n.e.c.' and 10.1 percent in 'Medical, precision & optical instruments, watches and clocks'. On the other hand, 'Electrical machinery & apparatus n.e.c.' has shown the highest negative growth of (-) 41.1 percent, followed by (-) 8.1 percent in 'Furniture; manufacturing n.e.c.' and () 7.6 percent in 'Luggage, handbags, saddlery, harness & footwear; tanning and dressing of leather products'. Among the T&C i.e. textile (4.5%) has grown positively in the May 2016 while wearing apparel (-1.2%) have shown negative growth in the index over the same month of previous year. On the otherhand combined T&C sector IIP has registered positive growth of 2.4% compared to the corresponding month of previous year. T&C growth figures are lower than the previous year's growth figures. Cumulative change for April-May 201617 for textiles, wearing apparel and T&C were 2.01%, 0.05% and 1.25% respectively over the April-May 201516.

e Quick Estimates of Index of Industrial Production (IIP) for the month of May 2016 have been released by the Central Statistics O ce (CSO) of the Ministry of Statistics and Program Implementation (MOSPI) on 13th July 2016. e General Index for the month of May 2016 stands at 181.8, which is 1.2 percent higher as compared to the level in the month of May 2015. e cumulative growth for the period April-May 2016 over the corresponding period of the previous year stands at (-) 0.1 percent. e Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of May 2016 with the growth rates of 1.3 percent, 0.7 percent and 4.7 percent as compared to May 2015. e cumulative growth in these three sectors during April-May 2016 over the corresponding period of 2015 has been 1.2 percent, (-) 1.5 percent and 9.4 percent respectively. In terms of industries, fourteen out of the twenty two industry groups (as per 2-digit NIC-2004) in the manufacturing sector have shown positive growth

Table 1: T&C in Index of Industrial Production (IIP) : Growth Rates (%, Y-o-Y) Sector

Textiles Wearing apparel T&C Sector*

2014-15 2.7 5.4 3.6

2015-16 2.6 6.7 4.0

May-16 4.5 -1.2 2.4

May-15 -0.8 15.8 4.7

Source: Estimates from CSO Data, July. 2016 * Based on CITI Estimates (Calculated by adding the textile and wearing apparel weights)

Trend in T&C Production Growth Textiles

Monthly Wearing Apparel

April

3.4

1.0

2.5

May

4.5

-1.2

2.4

Month and Year

T&C Sector

FY 2016-17 Cumulative Wearing Apparel

T&C Sector

3.4

1.0

2.5

2.0

-0.1

1.3

Textiles

Source: Estimates from CSO Data, July. 2016

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