a quarterly report by - Technopak

perspective
a quar terly repor t by
The single largest category is woven apparel followed by knitted apparel, made-ups and cotton based
textiles.
Growth Prospects
India’s current domestic consumption of US$
40 Bn is expected to grow to ~US$ 200 Bn over
the next 25 years (growing at over 7% per year).
India’s exports are expected to grow to ~US$ 125
Bn from the current level of US$ 22 Bn by 2035.
Volume 02 / 2009
Exhibit 2
Investment in Textile and Apparel Manufacturing
Sector Investment Required (US$ Mn)
1. Spinning 55,000
2. Weaving 25,000
3. Knitting 10,000
| Volume 02
However, the visible bottleneck to the above 4. Fabric Processing 40,000
growth is the shortfall in the supply to meet 5. Home textiles 4,200
the aforementioned demand. The current
manufacturing capacities cannot meet the unprecedented growth in the demand and therefore, we
would need mega investments to the tune of US$ 130 - 135 Bn over next 25 years in textile and apparel
manufacturing.
If the required demand is not met by indigenous manufacturing then it would be met by imports from Asian
countries like China, Bangladesh, Vietnam, Korea etc.; Eastern European countries like Romania, Bulgaria,
Tunisia etc.; and African countries like Kenya, Nigeria, Egypt etc.
One of the biggest questions to be answered here is - who will invest? We firmly believe that FDI can act as
a catalyst to trigger this investment. One of the most commonly known benefits of FDI is the “Crowding-in”
effect. With entry of foreign firms in the sector, the confidence level of investing in the sector increases and
it has been usually seen that more and more domestic manufacturers follow suite.
Considering the above logic, we believe that approximately 75% to 80% of the investment would still be
done by the domestic business houses, but the balance 20% to 25% investment required as FDI will give
the required confidence to invest in the sector.
A prime example of the same would be what US auto sector underwent in the 1980s.
•Companies
invest in the US because it is single largest economy in the world and its labor pool is one
of the best educated, most productive and innovative, and it provides world class infrastructure.
•The
US auto sector in the 1980s had several features that made it an attractive setting for FDI. Both
the end-product automobile sector, where there were only ‘The Big Three’ US assemblers (General
Motors, Ford, and Chrysler), and the large number of firms in the auto component supply sector
provided such an opportunity.
•There
was substantial inward FDI that originated predominantly from a single country, Japan. This
investment likely increased the competition that then led to productivity changes. In addition, the
Japanese entrants possessed superior production techniques and management practices, which
created the potential for technology transfer.
•They
began to produce vehicles in North America and began to purchase inputs from US autocomponent
manufacturers.
•The
results suggest that increased competitive pressure in the auto sector was the main cause of
overall productivity improvement, at least during the initial stages of foreign direct investment of
the 1980s.
FDI : A Catalyst for Growth of the Textile & Apparel Industry |
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