Cotton Value Chain & Indian Textile Industry: 11th ATEXCON, Coimbatore

Coimbatore, India. September 2023

Moving our cotton farming trial further and find some answers, I attended the 11th Asian Textile Conference organized by Confederation of Indian Textile Industry (CITI) in Coimbatore last week. The Union minister responsible for textiles was at pains to give the city a moniker in his address – “I am happy to be in this city known as Manchester of the East? confusion… uncertain looks all around… Manchester of South India?” The conference offered insights into the importance of cotton value chain for the industry and government.

Indian government sees this industry as an export earner and employment provider. There is opportunity for making quick gains on industrial productivity, exports as well as employment. All of these ideas were formerly built on India’s large cotton output as an advantage. It seems to align with Dani Rodrik’s recent articulation of the emerging ‘productivism paradigm’ – There are signs of a major reorientation toward an economic policy framework that is rooted in production, work, and localism instead of finance, consumerism, and globalism. It might just turn into a new policy model that captures imaginations across the political spectrum.

The conference had all the big names of the textile industry from the southern states of India. The participation was dominated by Tamil Nadu and understandably so with 30% of India’s textile production coming from this state. There were spinning and weaving companies, machinery suppliers, ready made garment makers and a few representatives from sourcing outfits that intermediate the big fashion labels and brands from EU, US and India. Clearly, not a farmer’s space, especially an Indian farmer with holdings that can never get them to the conference halls and meeting rooms of decision makers in this country. Meeting place for the farmers continue to be Jantar Mantar or the Red Fort in New Delhi, perched atop their tractors, camping in their trolleys, with a mobile kitchen at the picket line.

‘We have the entire textile industry leadership here on the dais’, was heard often. The ministers and bureaucrats were urged to secure more free trade agreements (FTAs), provide specific incentives to encourage various segments of the value chain, set up integrated textile parks and facilitate exports. In contrast, when it came to business growth and profit margins the conversations often turned into a More Victim than Thou match. Cotton is expensive. Raw material is expensive. Compliance costs are high. Vietnam and Bangladesh are eating away business.

Over the two days at the conference, I figured this – Indian textile industry feels cotton as a raw material is unreliable and expensive. Synthetic or man-made fibres (MMF) are the future. The industry must reorient itself to become competitive in MMF. At the same time, since there is a sizable cotton production in India, natural fiber based textile must also be continued but they may not be profitable.

Here are some numbers and industry characteristics gathered presentations by CITI Chairman’s address:

1. India has presence in entire cotton value chain unlike other Asian countries which rely on imported raw material (cotton, yarn) and focus only on value addition like finished garments.
2. Textile sector is second largest employment provider in India after agriculture. It employs over 100 million people.
3. India’s textile output makes up 4% of global trade in textiles.
4. India has the second largest production capacity in textile raw material. 25% of world’s total installed spindles are in India. This is the second largest installed spindles capacity in the world after China.
5. India is now building stringent regulations on sustainable textile value chain. (As seen through recent quality control orders (QCOs) introduced cross the value chain.)

Gherzi Textil of Switzerland is a textile management consulting and engineering company with over a century of experience in this industry. The following notes from Gherzi’s Navdeep Sodhi’s succinct presentation situate the Asian industry in the global context.

Big trends in textile industry:

1. 60% of world’s cotton and 80% of man-made fiber is produced in Asia.
2. Asia’s tremendous growth in this space. For instance, in lyocell, a cellulose-based raw material used to produce breathable fabric, there was only one producer in the world until 2021. By 2030 14 from Asia will get added.
3. Asia has market share of 60% in the global textile and clothing industry with big brands driving the market. For instance, Uniqlo and Xian Clothing are now big brands from Asia in fast clothing.
4. Textile industry is undergoing the second wave of restructuring. First wave was when the production and value chain shifted to Asia and capacity enhancements happened.

Big thematic areas to consider:

1. Sourcing shifts are accelerating due to economics of production and triggered by prevailing geopolitics. For instance, in 2001, when it joined the WTO, China had 18.7% market share. It grew to 40% and is now down to 33%.
2. Climate change brought environment sustainability as a pivot of policy making. Global North introduced over 70 policies on global South manufacturers. EU green deal has singled out textile sector. Compliance requirements will be introduced soon, for example, digital product passports.
3. Digitalization and automation have been major drivers of productivity, supply chain tracking and business growth.
4. Consumption patterns are changing. Trends like spending splits between goods and services in economies will determine textile industry growth – spending in US on goods is 40% and 60% on services. Similar trend is seen in India.
5. Demographics determine global labour force participation. Work force composition will be shifting. Asia is the biggest contributor now. Africa will contribute more in the future.

Thoughts for policy makers:

1. Technology upgradation: There is huge potential in Asia to upgrade. Over 37% of ring spindles in India are less than 10 years old and of latest technology. About 35% of Indian spinning capacity has turned obsolete.
2. Cluster development: this industry thrives in clusters, for example, Ludhiana, Tirupur, Ho Chi Minh City. Only 10% of the industry’s production comes from listed companies. SMEs are the backbone of the sector. They suffer challenges like water scarcity, lack of investment in technologies like zero liquid discharge (ZLD) etc. These are important to consider and facilitate improvements.
3. Scale: China understood the importance of scale early on. There are 25 companies in greater China region (which includes Vietnam) which have knitting capacity more than 50 tons per day. Indian scale is very small compared to this.
4. Policy distortions: This can be a low hanging fruit to address. Fiscal, structural or other policy distortions exist in the entire value chain in India. Policy should provide unhindered and unfettered access to raw materials, logistics, credit and export opportunities.
5. Brand building: The industry must focus on original design manufacturing (ODM) and original equipment manufacturing (OEM) to achieve dominance in this sector.

In the conference, while there were frequent references to the cotton value chain, there was no reference to cotton farming or farmers. Perhaps, the agenda was to focus on higher end of the value chain. However, the omission is symptomatic of industrial planning and policy making. There are significant connections with agriculture sector in terms of raw material supply as well as labour supply. The assumption seems to be that cotton prices will be controlled or moderated in the interest of textile industry. Farmers’ returns are not a consideration. The new productivity paradigm appears to be not inclusive. This will create more losers on an already distressed base of low income population.