India, Science and Technology:  2008

S&T and Industry

 

 

 

 

Recent Trend in Technology Upgradation in the

Indian Textile Industry – Need for S&T

Intervention

 

 

 

Pradip Biswas

 

The importance of textile industry in the national economy can be found in its substantial contribution to employment, value addition and export earnings. In 2005-06 textile sector contributed 17.4 percent in total exports of the country. The following summary account of the sector exhibits a few features of importance, and these are: (1) industry structure with significant presence of small sectors; (2) under-capitalized units and low labour productivity holding up; (3) skill sets in need of improvement – and all this call for technological intervention.  

The textiles and clothing industry can be broadly divided into five stages of production, namely, ginning, spinning (yarn), weaving (fabrics), made-ups, and garments. The Handbook of Statistics on Textile Industry (HBSTI) provides detailed data on selected segments of the industry. According to the HBSTI (2008), Non-SSI textile mills including spinning employed 8.53 lakh workers in 2007 with the average size of employment per mill being 472 and the SSI spinning mills employed 42270 workers with the average employment per mill being 32 workers. A comprehensive study covering all the segments of the industry was made by Bedi (2008). According to the estimates made by Bedi (2008), approximately 52.5 lakh textile and clothing units existed in India in 2000–2001 and around 99.9 percent of these units (96.1 percent marginal and 3.8 percent small) operated with gross value of plant and machinery (GVP&M) less than or equal to Rs 1 crore (Table 1). In fact, the share of own account manufacturing enterprise (OAME) units is very high (85.7 percent). Total value-addition by this sector amounts to Rs 37127 crore of which ginning, cleaning and bailing shared 0.1 percentage, spinning shared 28.9 percent, weaving shared 19.4 percent and the finishing, made up and garment  shared 7 percent, 16.2 percent and 28.5 percent respectively (table 2). It employed around 124 lakh people and the share of ginning, cleaning and bailing was 0.2 percent, spinning 7.6 percent, weaving 26.3 percent, finishing 3.8 percent, made-ups 22.9 percent and garments 39.2 percent (table 3). Value added per worker turns out to be only Rs 24 thousand. There is an urgent need for raising productivity of labour and this can be achieved through technological up-gradation of the various small, medium and large units operating at different segments of the industry.

 

 

Table 1: Number of Cotton and Synthetic Textiles and Clothing Units

 

Note: Parenthesis indicates percentage share in total

 

 

 

 

Technology Up-gradation Fund Scheme (TUFS) and Investment Pattern

 

In order to facilitate up-gradation of technology TUFS was introduced on April 1, 1999. It was initially launched for five years only but later on it was further extended several times and the latest extension is up to March 31, 2012. The scheme was intended to compensate for the global disadvantages faced by the Indian textiles and clothing industry in the field of power, transaction costs and additional costs borne by the industry due to poor infrastructure. The scheme was also intended to attain a higher level of infrastructure creation for modernization of textiles sector. More than 70% of the beneficiaries under TUFS belong to small-scale industries sector. TUFS encompasses all the inter-connecting sectors of the textile manufacturing process such as ginning, spinning, weaving, knitting, processing and readymade garment making. There are various subventions under TUFS for different forms of capital subsidy/interest subsidy. But on an average Government outflow under the scheme has been around 5% of the amount disbursed (by the banks and financial institutions in the form of loans/advances, etc).

TUF scheme has been an important contributor to investment and modernization of the textiles and clothing industry since the inception of the scheme.  Till March 31, 2008 a total of Rs. 54229 crore had been sanctioned and Rs 44917 crore had been disbursed under TUFS to various textiles and garment units. Spinning mills availed the maximum benefit from TUFS with disbursement of Rs. 14841 crore (i.e.33.04% of the total disbursed amount) till March 31, 2008 from the beginning of the scheme in April 1, 1999. Next major beneficiary is the composite mill sector with disbursement of Rs. 8484 crore (18.88%). Other major beneficiaries are units of processing of textiles and garments, weaving, garment manufacturing, manufacturing viscose filament yarn, synthetic filament yarn, texturising, crimping & twisting and knitting with disbursement of Rs 4661 crore (10.38%), Rs.3857 crore (8.59%), Rs. 2243 crore (5%), Rs. 2099 crore (4.67%), Rs.1066 (2.37%) respectively till March 31, 2008.

However there has been a gradual shift in relative importance of different segments of textiles & clothing sector in terms of availing of TUFS. For instance, share of composite mills in total amount disbursed under TUFS decreased from 30.74% as on March 31, 2002 to 18.88% as on March 31, 2008. But during this period, absolute amount disbursed to the sector increased manifold - from Rs.1049 crore to Rs. 8485 crore. Similarly, share of processing of textiles and fabrics in disbursements has decreased from 17.39% to 10.37% between 2002 and 2008 with absolute amount increasing to Rs.14842 crore from Rs. 986 crore. On the other hand, share of spinning units both-SSI and Non-SSI increased from 28.90% (Rs.986 crore) to 33% (Rs.14841 crore) between the same periods. Similarly, the share of weaving units increased from 6% (Rs. 205.29 crore) to 8.58 % (Rs.3856.68 crore). One striking development is in the category of ‘others’ whose share drastically increased from 2.37% (Rs. 80.83 crore) to 14.27% (Rs. 6408 crore). Here ‘others’ includes cotton ginning and pressing, CPP on stand alone basis, fabric embroidery, jute industry, silk reeling and twisting, wool scouring and combing, etc. This shows that the coverage of TUFS is getting broad based with the passage of time. It can be observed that even if some segments are getting relatively lesser importance over the years, the absolute amount invested in them through TUFS is massive and is increasing manifold over time. Moreover, there are some segments which were unwilling to avail of TUFS or could not avail of the scheme due to ignorance or some other reasons earlier, are now utilizing TUFS and modernizing their plant and machinery on a large scale in recent years.

The other important aspect to note is that in many segments loans availed through TUFS make a significant contribution of project costs of the units that had applied for TUFS. This is vindicated by the estimates given in Table 7. In the spinning segment 47-57% of the project cost was covered through TUFS loans during 1999-2008. Similarly, in the case of composite mills it varied between 37-45% and in case of garment manufacturing it varied between 45-56%. One major segment in which investments in projects have been relatively more of self-financed nature than through TUFS loans is knitting in which share of TUFS loans varied between 23-31%. On the other hand, if we compare disbursed amount under TUFS with that of total investments (at current prices) made under different segments by units in the factory sector we find that spinning & weaving segment is the biggest beneficiary of TUFS followed by finishing of textiles, knitting segment, garment manufacturing and made-ups segment in that order. During 2002-05 out of total nominal investments of Rs 13025 crore made in spinning & weaving Rs. 2401 crore was availed through TUFS. This amounts to 18.44% of the nominal investments made in the segment. Similarly, in processing & finishing of textiles, knitting, garment making and made-up manufacturing 16.69%, 14.36%, 6.89%, and 2.51% of their respective investments were made through TUFS during this period. From these figures it can be concluded that TUFS has not only provided to different segments of textiles and clothing capital subsidy for modernization of their plant and machinery to make them competitive but also has given them incentive to plan new investments and expand through self financed sources and/or through equity capital.

 

Recently the government has made some changes in the financial and operational parameters of the scheme in respect of loans sanctioned with effect from 01.11.2007 up to 31.03.2012. For instance, it has reduced the reimbursement of interest charged by lending agencies on spinning machinery to 4% from 5%. Similarly, cover for a foreign exchange rate fluctuation has been reduced to 4% from 5% for spinning machinery. For other types of machinery it remains at the earlier level of 5%. In addition, a few other measures have also been taken for modernization of other segments as discussed below. Now powerloom units have option to avail of 20% Margin Money subsidy under TUFS in lieu of 5% interest reimbursement on investment in TUF compatible specified machinery subject to a capital ceiling of Rs. 200 lakh and ceiling on margin money subsidy Rs.20 lakh. Similarly, manufacturers of technical textiles and garmenting machinery have been provided 5% interest reimbursement plus 10% capital subsidy for specified machinery.  The scheme now provides 25% capital subsidy on purchase of the new machinery and equipment for the pre-loom & post-loom operations, handlooms/up-gradation of handlooms and testing & quality control equipment for handloom production units (Ministry of Textiles, 2007).

 

A major drawback with TUFS is that it does not take into account the textile machinery manufacturing sector which could have been a leading and thriving sector given the rapid growth in domestic demand for textile machinery. This sector is stagnating with little investment in raising capacity or modernization so as to produce machinery comparable to international standard. Thus with growing demand the textile industry has been importing larger and larger share of its total machinery requirement. Imports of even conditioned (second hand) machinery are also quite substantial at present. In this context extending TUFS to machinery manufacturing sector and allotting a percentage of that for R&D would in the long run raise its scale of operation and make it globally competitive.  This would also save the textile sector from the problems of currency fluctuation for importing machines as it is happening at present. One may compare with the technology up-gradation policy adopted in China who is the major global competitor of textile products. Under the direction and support of the Chinese Government the industry scrapped 110 million outmoded cotton spindles, 280,000 wool spindles and one million silk spindles during 1997-2000. As a result around 1.4 million workers were laid off. The government provided RMB 3.1 billion to the industry in the form of grants or tax rebate to facilitate its restructuring. During 2000-05 around USD $18.9 billion was spent on imports of advanced textile and apparel equipment for the technological up-gradation of the industry. This helped the Chinese textile industry to become the largest exporter of textiles and apparel products in the world.

Technology and innovation capacity development were given the highest priority in the Chinese 11-th Five Year Plan: “To significantly enhance the independent innovation capacity of the textiles industry, develop influential technologies with intellectual property rights ownership and foster well-known global brand names”. In its guideline it is stated, “To strengthen the technological capability of the textile industry and increase the number of Chinese-owned brand names; to develop high-tech, high-performance, differential, and environmental-friendly fibers and renewable fibers, and to enhance the development and utilization of textiles for industry-use, silk and non-cotton natural fibers; to advance the gradient shift of the textile industry.”  The Circular on Relevant Policies to Promote Chinese Textile Industry to Shift to New Ways of Growth in Foreign Trade and Support Chinese Textile Enterprises to Go Global expressly authorized the allocation of government funds to support technology innovation. A special fund was established in 2006 in accordance with this notice, with RMB 560 million dedicated to projects related to technology innovation purposes. The local governments are providing interest subsidies on loan to support technological innovation projects – for instance, Zhongshan City has provided loan interest subsidies that cover 30-40 percent of the actual interest payments on loans.

It seems the initial large demand for modernization can be met through imports of high technology machinery. But, once that is done the country has to develop its own machine tools industry to maintainits competitive edge. This however requires state initiative and large expenditure of public money on R&D. A part of the TUFS money can be set aside for this purpose. Chinese experience in this regard can be a good example for India.

In brief, the Indian textile industry is in need of technology up-gradation so as to make it globally competitive. Although this up-gradation process is going on, particularly after the introduction of TUFS, it is rather slow and too much dependent on imports of machinery. In view of the large demand for textile products a large variety of machinery is being imported. Keeping in view this huge domestic demand for machinery, suitable machine tools industry can be developed and that can also achieve scale economy. Along with this substantial amount of R&D would be needed to develop the state of the art technology. Because of inappropriate technology, the existing Indian textile machinery manufacturing industry is not only facing severe under-utilisation of capacity but also whatever it produces a lion share of which is being exported, not used by the Indian textile manufacturers. It is suggestive that a part of the TUFS money can be earmarked for R&D in the machine tools industry segment that is engaged in developing textiles machinery.

 

Table 7: Segment-wise Progress under TUFS (Rs crore)

 

Note: * refers to project cost as on 31.07.2005

Source: Office of Textile Commissioner, Mumbai

 

 

 

References:

• Bedi, Jatinder S. and Caesar B. Cororation (2008), Cotton-Textile-Apparel Sectors of India, IFPRI Discussion Paper 00801.
• Handbook of Statistics on Textile Industry,CITI (2008),.
• Annual Survey of Industries, various issues.
• Trade Layers Advisory Group (2007) “China’s Support Programs for Selected Industries: Textiles and Apparel

 

 

 

 

 

 

 

 

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