Indian Textile Industry

Indian Textile IndustryStructure, Problems and Solutions Subject: Term Paper of Organization Management Under Guidance of Dr. Vinayshil Gautam Written By Jaimeen Rana Entry# 2012SMF6890 1 INDEX a) Introduction 3 b) History 3 c) Structure of Indian Textile Industry 3 d) Communication and Effectiveness 4 e) Problems faced by Textile Industry in India 5 f) Steps taken by government till now 7 g) Strategies for growth 8 h) Conclusion 9 i) References 10 2 a) Introduction Indian Textile and Apparel Industry is second largest manufacturer in the world with an estimated export value of US$ 34 billion and domestic consumption of US$ 57 billion.It stands at number two position in generating huge employment for both educated and uneducated labor in India. Over 350 lakh people are employed in this industry in India. 14% of total industrial production is done by this sector. 4% of India’s GDP is obtained by this sector. It contributes 17% to the India’s total export earnings. Top co mpanies in Textile industry in India: Bombay Dyeing Fabindia JCT Limited Welspun India ltd Lakshmi Mills Mysore Silk Factory Arvind Mills Raymonds Reliance Textiles Grasim Industries ) History India’s textile industry evolved and developed at a very early stage and its manufacturing technology was one of the best ones. India’s manually operated textile machines were among the best in the world, and served as a model for production of the first textile machines in newly industrialized countries like England. Marco Polo’s records show that Indian textiles used to be exported to many Asian countries. Textiles have also comprised a significant portion of the Portuguese trade with India.These included embroidered bedspreads, wall hangings and quits of embroidered wild silk on a cotton or jute ground. A big success of Indian textile industry led to the foundation of the London East India Company in 1600, followed by Dutch and French companies. By 1670, there was serio us demand for their governments to ban the import of these cottons from India. The legacy of the Indian textile industry stemmed from its wealth in natural resources cotton, jute and silk. The technology used was superior and the skills of the weavers gave the finished product a most beautiful and ethnic look. ) Structure of Indian Textile Industry The structure of this industry is very complex with the modern, automated and highly mechanized mill sector on one side and hand spinning and hand weaving (handloom sector) on the other side. The small scale power loom sector, which is decentralized, lies in between of the two. 3 Indian Textile Industry is divided into major 3 segments: 1) Cotton Textiles 2) Synthetic Textiles 3) Others (wool, jute, silk etc) Till today cotton textiles are on top with 73% share in total Indian textiles.Coexistence of old technologies of hand working (spinning, weaving, and knitting) with the advanced automatic spindles and loom makes the structure of cott on textile industry very complex. Indian textile industry consists of small scale, non integrated spinning, weaving, knitting, fabric finishing and clothing enterprises, which is not the case in other countries. This unique structure is because of government policies that have promoted labor intensive small scale operations and discriminated against big scale organizations. d) Communication and effectiveness:The study regarding this was conducted within city of Coimbatore, which is considered â€Å"Manchester of South India†. Six textile organizations (3 small and 3 large) were selected within the city. The objective of the study was to examine the difference between small and large organizations in terms of structure, communication and effectiveness. The difference based on structure, communication and effectiveness between large and small organizations show that the two organizations differ significantly with respect to all dimensions except participation in decision making .Large organizations are more centralized, formalized and employees experience highly routine tasks. With regard to communication pattern, small organizations have more open communication while in large organizations communication is more accurate. With regard to effectiveness, large organizations are more effective with regard to all dimensions except job involvement and job performance which are better in small organizations. The effect of structure and communication variables on organizational commitment, job satisfaction, organizational performance and adaptability are more pronounced in large organizations while moderate in small ones.Participation in decision making process has a strong positive effect on job satisfaction, commitment, organization performance and moderate positive effect on job performance. Task routineness and formalization have low positive effect on job involvement and performance in large firms. In small organizations, centralization has a moderate negativ e effect on job satisfaction. Centralization has a low negative, task routineness has a low positive and formalization has a moderate negative effect on group processes.The effect of communication openness is pronounced on job satisfaction and performance. The negative effect of communication accuracy is high on job involvement and group processes and moderate on organizational performance. 4 e) Problems faced by Textile Industry in India (1) Shortage of raw materials: Raw material determines 35 per cent of the total production cost. The country is short of cotton, particularly long- staple cotton which is imported from Pakistan, Kenya, Uganda, Sudan, Egypt, Tanzania, U. S. A. and Peru.It is pity that despite largest area under cotton (26 per cent of the world acreage) the country accounts for only 9 percent of the world output of cotton. Fluctuating prices and uncertainties in the availability of raw material cause low production. (2) Obsolete machinery: In India most of the cotton textile mills are working with old and obsolete machinery. According to one estimate in India over 60 per cent of the spindles are more than 25 years old. The automatic looms account for only 18 per cent of the total number of looms in the country against the world average of 62 per cent and 100 per cent in the United States.Obsolete machinery leads to low output and poor quality of goods as a result of which Indian textile goods are not able to face competition in the international market. (3) Power shortage-Textile mills are facing acute shortage of power. Supplies of coal are difficult to obtain and frequent cuts in electricity and load shedding affect the industry badly. This leads to loss of man hours, low production and loss in the mills. (4) Low productivity of labour: Low productivity is another major problem of cotton textile industry. On an verage an Indian factory worker only handles 380 spindles and 2 looms as compared to 1,500-2,000 spindles and 30 looms in Japan. If t he productivity of an American worker is taken as 100, the corresponding figure for U. K. is 51 and for India only 13. Also industrial relations are not very good in the country. Strikes, layoffs, retrenchments are the common features of many cotton mills in the country. (5) Competition in foreign market: The Indian cotton textile goods are facing stiff competition in foreign markets from Taiwan, South Korea and Japan whose goods are cheaper and better in quality.It is really paradoxical that in a country where wages are low and cotton is internally available, production costs should be so high. While certain traditional buyers of Indian textile goods like Myanmar, Indonesia, Sri Lanka, Ethiopia, Aden etc. are facing severe balance of trade problem some European countries like France, Germany, U. K. and Austria etc. have imposed quota limitations over the Indian textile imports. Acute world recession has badly affected the export prospects. (6) Competition from the decentralized sec tor: An important factor for the rowing sickness of the mill sector is the growth of the decentralized sector. Being a small-scale sector, the Government allowed excise concessions and other privileges. These accompanied with low wages have led to low cost of production in the decentralized sector. 5 As a result of which the share of mill sector is decreasing, while the share of decentralized sector is increasing. So much so that the share of mill sector in the production of cotton fabrics has gone down from 7. 9 per cent in 1994-95 (cf. power looms 69% and handlooms 21. 6%) to 4. 4per cent in 1999-2000 (cf. ower looms 76. 3% and handlooms 19. 3%). (7) Government controls and heavy excise duties: the cotton textile industry has greatly suffered due to wrong and faulty policies of the Government. In the past the Government has sought control of price, distribution of yarn, pattern of production, etc. At one time the price of the cloth was fixed by the Government below the cost of pro duction. Similarly under the yarn distribution scheme of 1972, the Government made it obligatory on all mills to supply 50 per cent of the production of yarn to the decentralized sector at reduced rates.The high import duty on imported cotton, upward revision of the price of the indigenous cotton and heavy excise duty on cotton cloths are other detrimental factors. Another problem of the mill sector is related to the production of controlled cloths wherein mills are incurring huge loss. (8) Sick mills-In India about 130 cotton mills are sick and incurring constant losses. The Government has set up the National Textile Corporation (NTC) to run these sick mills. Although the government has invested huge money to rehabilitate and modernize these mills, but these mills are yet to become profitable.The NTC is facing dual problems of the obsolete machine, y and excess labour in these mills. According to a working group of the Planning Commission the industry needs Rs. 180. 55 crores for r ehabilitation and Rs. 630 crores for the modernization of sick mills. The cotton textile industry of the country is thus facing both short-term and longterm problems. Former includes problems of high prices, shortage of raw materials, liquidity problems due to poor sales and accumulation of huge stocks due to poor demand in the market.The long term problems of the industry include the slow pace of modernization, outdated technology resulting into low productivity, high cost of production, low profitability and increasing sickness of mills. Other small problems are inadequate training facilities in textile sector, fragmented garment industry, structural weaknesses in weaving and processing, rigid labor laws, infrastructural bottlenecks in terms of power, utility, road transport etc 6 f) Steps taken by government till nowThe Government has undertaken a series of progressive measures like introduction of Technology Mission on Cotton (TMC), Technology Up gradation (sp) fund Scheme (TUFS ), Scheme for Integrated Textile Park (SITP), reduction in customs duty on import of state-of-the-art machinery, Debt Restructuring Scheme, setting up of Apparel Training and Design Centers (ATDCs), 100% Foreign Direct Investment in the textile sector under automatic route, setting up of National Institute of Fashion Technology (NIFT) etc, for upgrading and strengthening the textile sector in India.From time to time, in consultation with all stakeholders, Government modifies these schemes so as to achieve better results through improved delivery of programs/schemes. These progressive measures have helped the textile sector to achieve improved growth in production; enhanced productivity and a larger share of textile export market in the world. (1) Technology Upgrading Fund Scheme To facilitate technological upgrading in the sector, the Government launched TUFS with effect from 1 April 1999 for five years initially, and which is extended up to 2011/12.The scheme provides for reimburse ment of 5 per cent interest paid on term loans for technological upgrading of textile machinery. In this way, the Government has assisted the Indian textile companies by ensuring that they are not over-burdened by the high interest rate prevailing in the country. (2) Integrated textile parks scheme In order to a world-class infrastructure for textile units as well as facilitate the need for them to meet international social and environmental standards, this scheme envisages the creation of textile parks in the public-private partnership mode.Currently, 30 parks are in various stages of implementation, and 50 more are planned for the next five years. (3) Fiscal rationalization In the 2006 budget, the excise duty on all manmade fibers and yarns was reduced from 16 per cent to 8 per cent. The 2007 budget carried it forward by reducing the customs duty on polyester fibers and yarns from 10 per cent to 7. 5 per cent. The customs duty on polyester raw materials such as DMT, PTA and MEG we re also reduced from 10 per cent to 7. 5 per cent. These measures are expected to make manmade fibers and yarn cheaper and thus increase the competitiveness of fabric and apparel manufacturers. 4) Technology Mission on Cotton In February 2000, the Government launched the Technology Mission on Cotton with the objective of addressing the issues of raising productivity, improving quality and reduction of contamination in cotton. Indeed, cotton 7 production in the past three years has increased substantially and contamination has been reduced, as assessed by independent agencies. (5) Other steps taken to increase competitiveness Earlier, only small-scale manufacturers were allowed to make woven RMG, knitted and hosiery products.While the initial aim was to boost employment opportunities and promote entrepreneurship at the smaller enterprise levels, in practice it rendered the small manufacturers uncompetitive globally. By 2003/04, the sector had been totally freed. In addition, FDI up t o 100 per cent through the automatic route has now been allowed. So that textile industry will have higher amount of foreign investment. And new technology machinery can be used in India by foreign players which can cause local players also to use the new technology. g) Strategies for growth 1) Improving labour laws: One of the main requirements for growth in the apparel subsector is the relaxation/amendment of the labour laws, to ensure an equal chance of success for the country’s exporters and manufacturers in the present global environment. Outdated labour laws have induced inflexibility in the clothing industry, leading both to fragmented operations in order to circumvent these laws and to lost export orders due to industry’s hesitation over expanding when there is an upsurge. Most of the countries competing with India have labour laws that are more flexible.For example, the Chinese apparel industry has highly flexible labour laws that allow for lay-offs during the non-peak season, hiring of contract labour, and a flexible hiring and firing system in SEZ-based units. The Mexican apparel industry allows layoffs during the slack business season. The industry in India is proposing the provision of flexibility to textile exporting units in hiring labour, subject to ensuring 100 days employment to cater to variations in demand. An increase in daily working hours from 9 hours a day to 12 hours a day, and in weekly working hours from 48 hours a week to 60 hours a week, is also being proposed. 2) Decreasing transaction costs: Various studies have established that the transaction costs faced by the Indian industry are very high, which adversely affects its competitiveness. A study undertaken by the EXIM Bank of India clearly showed that although transaction costs in India had declined because of declining procedural complexities, they were still substantially higher if compared with competitors. Transaction costs vary from sector to sector, and are ve ry high in the textiles and garment subsector, ranging from 3 per cent to 10 per cent of export revenue in 2002. These costs, inter alia, are shown in table 2. 3) Improving the general infrastructural conditions: This improvement includes roads, transportation etc. , so that the costs of reaching the nearest port as well as turnaround time at the port are globally comparable, to ensure that Indian exporters are not placed at a disadvantage vis-a-vis global competitors. 8 h) Conclusion Indian textile industry is a huge source of employment for both skilled and unskilled labor of India so it is very important industry as per economic perspective. This industry faces many problems some of which have been overcome thanks to government policies. But, still some problems are yet to be solved.Different strategies have to be implemented for that purpose. Large sections of the textile value-chain still need to be fully modernized, while the export sector has yet to take full advantage of its existing production strength. There are many areas around the world and many product lines where India is very weakly represented. Thus, while the private sector will need to continue its heavy investment in this industry during the next several years, building on the recent positive trends, India also needs to integrate more fully into the global textile and apparel value chain in order to reap the full benefits from its strengths.Only a coordinated effort by all – the Government, industry and individual units – can enable India to achieve its apparently high and stretched targets of the 12th FiveYear Plan. 9 i) References 1) Sharma Milan, â€Å"Textile Industry of India and Pakistan†, A. P. H. Publishing Corporation, New Delhi, 2006 2) Research paper: Organizational structure, communication and effectiveness in Textile industry (January, 2000) Authors: T Chandramohan Reddy and S Gayathri Journal: Indian Journal of Industrial Relations http://www. jstor. org/s table/27767666 ) Article: Indian Textile Industry by Dr. P Chellasamy and N Sumathi http://www. fibre2fashion. com/industry-article/market-research-industry-reports/indian-textileindustry/indian-textile-industry1. asp 4) Article: Indian textile and clothing sector poised for a leap by J. N. Singh http://www. unescap. org/tid/publication/tipub2500_pt1chap6. pdf 5) Article: Indian Textile and apparel sector : An analysis of aspects related to domestic supply and Demand by Badri Narayan G http://www. unescap. org/tid/publication/tipub2500_pt1chap5. pdf 10