India’s fraying garment industry needs a stitch in time under Modi 3.0

Looking back at the survey, which was conducted 13 years ago at a time when global supply chains were getting further embedded in Asia, one statistic is revealing. When asked about the new sourcing hotspots in the next five years, 89% said Bangladesh, followed by Vietnam, Indonesia and Cambodia. India did not have the confidence of global purchasing managers; in hindsight, they were prescient.

Early this year, the New Delhi-based research group Global Trade Research Initiative (GTRI) reported that India's global market share in garment trade has declined between 2015 and 2023: share of knitted apparel dropped from 3.85% to 3.10%, and the share of non-knitted apparel dropped from 4.6% to 3.7%.

In 2023, China exported $114 billion worth of garments, the EU $94.4 billion, Vietnam $81.6 billion, Bangladesh $43.8 billion, and India just $14.5 billion, according to GTRI. Consider the trend in growth. Between 2013 and 2023, while China’s garment exports declined by 23.5%, Bangladesh’s grew by 69.6%, Vietnam's grew by 81.6%, and India’s grew by a marginal 4.6%.

Ajay Shrivastava, a former bureaucrat and the founder of GTRI, stressed how important the entire sector is to the Indian economy and its dream of becoming a manufacturing nation. “The sector [including both textiles and garments] provides jobs to [an estimated] 50 million people,” Shrivastava said. “Textiles and garments are not technology-intensive industries; these are labour-intensive. If we are losing to countries like Bangladesh then it is a sad reality and we have to do something about it.”

Shrivastava lays out the entire value chain of the sector. “Cotton is grown in the fields, then cotton fibre is converted into yarns, then yarn into fabric, then fabric into garments. It's sad that we have to export cotton yarns. Ideally, we should convert it into fabrics, but after yarns, our value chain breaks, mostly because of quality issues,” he said.

Another bottleneck plaguing exports is the industry failing to catch up with shifting trends in the fast fashion industry, according to Shrivastava. “We are a historically cotton-growing country. But about 70% of clothing bought by developed countries is made of mixed synthetics— it has overtaken cotton and become a favourite of the fashion industry. Their share in Indian exports is less than 40%.”

Hence, Indian factories produce cotton apparel for the spring and summer seasons in the West, leading to low utilisation during autumn and winter when synthetics and blended fabrics dominate demand. “A factory that runs only six months a year still has to pay the full year’s fixed costs. This makes anything made in the factory expensive. With weak synthetics, India’s apparel industry is a horse running with one leg tied. The results are low exports, low wages, and low investments in the sector,” Shrivastava said.

“Entry into synthetics would make factories run full year and increase wages manifold.”

Fast fashion is a low-margin industry with a complex production process, and one indicator could determine manufacturing success. It is called the Standard Allowed Minute (SAM), which measures the time taken by a worker at a factory unit to make one garment. SAM is a function of skilled workforce, assembly line efficiency and the man-to-machine ratio. According to GTRI, about 80% of Indian exporters fail to meet SAM or other [industry] requirements, thereby limiting their ability to secure orders.”

Kumar Duraiswamy, joint secretary at the Tirupur Exporters’ Association in Tamil Nadu, said that while the man-to-machine ratio in India is about 2:1, it is close to 1.15:1 for China and Bangladesh. “The efficiency of machines is about 80-85% in Bangladesh, China and Vietnam whereas the average for us is about 40%. Now imagine a 10,000 sq.ft factory with the standard expenses producing 5000 pieces in India [compared to] 9000 pieces there—what we get is cheaper products offered by these countries,” he said. “

A crucial part of the garment industry is the thousands of weaving and processing units, most of which are informal and small- and medium-sized enterprises. Shrivastava said that these units lack expertise, scale, and technology and remain racked with issues such as power outages and underutilization, which, in turn, increase weaving costs in India to levels comparable with those in the EU or US. Consider this statistic: Chinese fabric processing units process about 1 million metres of cloth per day compared to less than 20,000 metres in India, according to GTRI’s analysis.

Duraiswamy inveighed against successive governments’ apathy toward the garment industry. “The thing is you cannot transform the MSME sector all of a sudden. The availability of orders, and the trust of the customers, is a big process. And with the policies that we have, people are tired; they do not want to run a garment business,” he said.

In 2021, the government announced that it will build seven Mega Integrated Textile Region and Apparel (PM MITRA) parks, as part of Prime Minister Narendra Modi’s “5F vision: Farm to Fibre to Factory to Fashion to Foreign.” The parks aim to create an integrated value chain: spinning, weaving, processing, dyeing and printing at one location.

“Tirupur - India’s largest garment-making hub - is a cluster-based model. About 2000 exporters are supported by 20,000 MSMEs that are part of the different processes in the value chain from yarn to fabric to knitting to dyeing to finishing to sewing, printing, embroidery and packaging. The future is an integrated model but we have to scale up taking the traditional model along because orders by buyers are a function of the manufacturing model, and the transition will take time,” Duraiswamy said.

To boost the sector, the government included it in its flagship production-linked incentives scheme, which was launched in 2021. However, under the scheme, fibre manufacturers were prioritised over garment makers and the threshold for investments was between rupees 100 crore to 300 crore, which, according to Duraiswamy, is high for the industry, cutting off most small and medium-sized manufacturers.

“The government has to go to the grassroots and find out about the nature of transformation that is required in this industry. High employment potential is only possible in the garment industry. You are promoting cotton and yarn exports. But exporting one unit of garment generates more jobs than one unit of cotton or yarn,” Duraiswamy said.

On June 25, 2024, the newly installed textiles minister Giriraj Singh said that his challenge is to beat China - not Bangladesh - in garment exports, and promised to make small clusters for smaller players in India and revive the making of integrated textile parks. “Who knows how much time it will take to make it happen? This is the time to talk to leading manufacturers and ask them about the problems they face. There are decisions that need to be made now and not in the future,” Shrivastava said.

“In Bangladesh, executives from companies such as Zara and H&M planned and designed policies for the garment sector, and the government fully supported them in whatever policy changes and trade facilitation measures they wanted,” he said, noting that India should negotiate both tariff and non-tariff barriers in its ongoing free trade agreement discussions with the United Kingdom and EU.

“The EU levies tariffs anywhere between 10-18% on India-made garments while the tariffs for Bangladesh and Vietnam remain zero. However, we have to remember that the EU levies full duty on China-made garments and yet China is their top garment supplier,” Shrivastava said.

“Tariff is only one of the factors [that determine success in exports],” Duraiswamy says that an appreciating dollar has made machines expensive - most of which are imported - at a time when small -and medium-sized factories are finding it difficult to get access to credit owing to the adoption of Basel III capital norms by India. “When credit growth stops, these factories go out of business.”

According to Duraiswamy, the global buying capacity has not increased but the manufacturing capacities [in Asia] have increased in the last few years with Pakistan, Vietnam, Cambodia and Myanmar joining the global supply chain. “Change is the order of the day,” he said and stressed the importance of a factory to a growing and ambitious economy such as India’s.

“Factories create an entire ecosystem with indirect jobs: a tea vendor will come, a fruit vendor will come, a salon will come, a real estate fellow will come,” Duraiswamy said. “But if the industry doesn't do well, it affects this entire ecosystem.”

Rohit Inani is a Delhi-based reporter.