Benefits From Investing In Textile Industry Business Essay
The textile industry, being one of the most significant sectors in the Indian economy, has been a key focus area for the Government of India. A number of policies have been put in place to make the industry more competitive. These all prescribed schemes prove different benefits in the form of incentives.
The Technology Up gradation Fund Scheme
Integrated Textile Parks Scheme
Scheme for Handlooms
Health Insurance Scheme
The Textile Commission, under the Ministry of Textiles, facilitates firms in the industry to improve their quality levels and also get recognized quality certification.
Foreign Direct Investment (FDI) Policy
100% FDI is allowed in the textile sector under the automatic route. FDI in sectors to the extent permitted under automatic route does not require any prior approval either by the Government of India or Reserve Bank of India (RBI). The investors are only required to notify the Regional Office concerned of RBI within 30 days of receipt of in word remittance.
Abundant availability of Raw Materials
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India has significantly lower raw material costs, wastage costs and labor costs when compared to other countries. A recent study estimated India's labour costs (total employment cost for labour across industries) to be amongst the lowest (2.024 Euro) in the world, a sixth of even China's (13.88 Euro)
The fragmented industry structure and small average scale of operation in India's textile industry has created the capability for enhanced flexibility in production. Indian firms are used to handling small-runs, and have skilled manpower with the ability and willingness to work on complex designs. Therefore India has the ability to produce not only large orders but also smaller and complex orders. In contrast, the textile industry in other countries like China is more industrialized, and production lines are mostly geared to handle relatively simple designs that can be easily broken down and mass-produced. The flexibility offered by India's textile industry can be a significant advantage for the fashion industry, which typically demands small lots of complex designs. India also offers flexibility in its ability to handle different materials such as cotton, wool, silk and jute, with equal skill. These advantages also enable the Indian industry to produce high value customized apparel that is increasingly finding demand in several exports markets.
Lower lead times
India is one of the few developing countries today with a fully developed textile value chain extending from fibre to fabric to garment exports. The presence of capabilities across the entire value chain within the country is an advantage as it reduces the lead time for production and cuts down the intermediate shipping time. Indian textile firms have leveraged this advantage to integrate their operations, either forward or backward. For example, Arvind Mills, the largest producer of blends and denim in the country and the third largest denim producer globally, supplies fabric to virtually every major clothing brand in the world, such as Levi's, Gap, Dockers and so on. Three years ago it integrated forward into garment manufacturing (jeans and T-shirts), investing more than $30 million in ten new factories.
Favorable demand conditions - large, growing domestic market
Demographic trends in India are changing, with increase in disposable income levels, consumer awareness and propensity to spend. According to NCAER data, the Consuming Class, with an annual income of US$ 980 or above, is growing and is expected to constitute over 80 per cent of the population by 2009-10. There is a change in the consumer mindset that has led to a trend of increased consumption on personal care and lifestyle products as well as branded products. These trends offer great growth opportunities for companies across various sectors, including textiles. Supporting the increasing demand for consumption is the revolution taking place in India's retail sector. Organized retail is playing a key role in structuring the Indian domestic market, reinforced by the rapid rise of supermarkets, malls, theme stores and franchises across urban India. India thus presents a large and vibrant market for textiles and apparels, with a potential for sustained growth.
Strong presence of related and supporting industries
India's textile industry is supported by well established supporting industries and institutions that provide inputs and expertise to the industry in terms of design, engineering and machinery.
Product development/ design
India has built adequate infrastructure throughout the various stages in textile development, that is, design, sourcing, merchandising and production. Apart from institutes such as NIFT (National Institute of Fashion Technology) and Apparel Training Institutes, there are several colleges, including the Indian Institutes of Technology and National Institutes of Technology that offer courses in Textile Engineering. Thus, India has the infrastructure in place to produce qualified and skilled manpower in areas of textile design and engineering Indian firms have leveraged this strength to develop a competitive advantage - the ability to contribute to the design, not only in preparing samples and prototypes, but also in translating concepts into varieties of finished designs, as well as introducing designs of their own. Several Indian firms have their own design departments and in the last five years have begun to work closely with overseas designers and/or agents. High value, up-market specialty buyers value such expertise and have been leveraging this while buying from India.
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The Indian textile engineering industry, which began as an offshoot of the textile industry, is today reckoned as the largest segment in the country. Indian textile machinery manufacturers are able to produce at competitive prices sophisticated machines of higher speed and production capability. The textile industry also gets significant support from the well developed IT capabilities of Indian firms.
Industry competition - promotes innovation
Despite a large and growing market, the presence of a large number of small scale players makes the Indian textile Industry highly competitive. A number of MNCs have also entered India in different areas. The high level of competition in the industry impels the firms to work to increase in productivity and innovation. India today is one of the lowest cost manufacturers of quality textiles, not only due to its inherent strengths, but also because industry rivalry has prompted firms to focus on quality improvement, cost reduction and productivity increase.
Favorable Policy Initiatives
The Indian Government is trying to create an environment to attract an investment of Rs 1,400 billion in the Eleventh Plan period (2007-2012) when the textiles and garment exports are expected to rise from the current US$14 billion to US$40 billion. The Multi Fiber Arrangement (MFA) that came to an end on January 1, 2005 has opened up a plethora of opportunities for the Indian textile industry. Global trade in textiles is expected to increase to US$ 600 billion by 2010 from US$ 356 billion in 2003. The phasing-out of MFA has ensured that quota restrictions in US, European Union and Canada which restricted textile and apparel exports from India to these regions have been removed. India and China are the two countries poised to derive the maximum benefit from the phasing out of MFA. India's quota allocation for important markets likes the US, EU and Canada was very low.
By analyzing all benefit of textile industry, an investor can expect a high rate of return on investment which is done in textile industry.
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