Sept 17, 2007 (Full Version)

1. Cotton & Textile Industry of India & Development prospects for the future.Presented By : Mohit D. Shah Director Gill & Company Pvt Ltd. Mumbai, India Sept 17, 2007 (Full Version)

2. Structure • Indian Textile Industry – at a glance • Share of cotton v/s MMF • Indian raw cotton scenario • “ Future Trends”

3. Indian Textile Industry- at a glance • Directly employs approximately 35 mn people • 14% share in India’s total exports earnings • 14% share in national industrial production • 5.5% contribution to the GDP • 4% share in the global textile trade • 3% share in the global apparel market • 25 % share in world trade of cotton yarn • Thus making it the second largest exporter of cotton yarn in the world after Pakistan

4. On the Raw Cotton Front • Approximately 9.5 mn hectares of area under cotton cultivation largest in the world & is approx 27% of the world area under cotton • 2nd largest producer of raw cotton • 2nd largest consumer of raw cotton • Poised to become 2nd largest exporter of raw cotton after USA

5. Mills And Installed Capacity In Organised Sector Year 2005-06 No Of Mills 2953 Spindles Installed (MN) 37.51 Rotors (000) 395 Shuttle Looms (000) 73 Shuttle Less Looms 9788

6. Reasons • MFA that had governed textile trade between nations since 1974 expired on 31st Dec 2004 • Economic liberalisation in the last decade made the industry globally competitive in terms of price and quality • Removal of fiscal distortion in excise duties in the entire supply chain of textile industry • Subsidy to industry by the Govt at 5% interest rate on capital expenditure for modernisation and expansion under Technology Upgradation Fund (TUF) for a period 10 years • Export boom for cotton yarn aided expansion of capacity • Emphasis on technology and sophisticated machinery

7. Summary • India has a high scope of producing quality yarn and fabric • A tremendous future growth potential lies due to : • Strong raw cotton base • Strong entrepreneurial class • Flexibility in production of small order lots • Adequate labour supply at relatively competitive wages • Cultural comfort with US and Europe • Growing domestic market • Buyers preference for India after China • English speaking population a language advantage • India will continue to be a major and dominant player in textiles

8. Share of Cotton v/s Man Made Fibers

9. Consumption of Textile Fibers(in ‘000 Tons)

10. Footnote • Share of MMF & Cotton has remained around 40% & 60% in 2006-2007 • However it is expected that share of MMF will increase to 50% by 2011-2012

11. Reasons • In absolute terms, cotton consumption will rise but its share in the total fibre/filament basket decline • Consumption of MMF will rise on account of consumer preference due to easy-care properties, durability and lesser maintenance cost • Prices of MMF have been relatively less volatile than cotton • Infact prices of MMF (mainly polyester) have been lower than comparable cottons • Productivity of manufacturing units is higher when MMF is blended with cotton or when 100% of MMF is used • Easy and adequate availability of MMF all year round

12. Summary • Despite the increasing trend of MMF vis-a-vis cotton, India will still continue to be one of the largest and major consumer of raw cotton in the years to come

13. Indian raw cotton scenario • Area • Yield • Production and Consumption • Exports & Imports • Cotton balance sheet

14. Area ( in mn hectares )

15. Reasons • Steadily rising over the last three years from 8.79 mn hectares in 2004-05 to 9.16 mn hectares in 2006-07 • Will increase to 9.5 mn hectares in 2007-2008 • Cotton prices have been generally remunerative for farmers in comparison to other cash crops such as rice, wheat, chilies, ground nut, soyabean and tobacco • Large portion of area, where farmers have no alternative but to plant cotton

16. Yield ( in kg. / hec. )

17. Reasons • Dramatic increase • From 399 kgs per hectare in 2003-2004 to 521kgs per hectare in 2006-2007 • Forecasted to rise to 550 kgs per hectare of lint cotton in 2007-2008 • Although still much lower compared to the world average of 740 kgs/ hecter Reasons for increased yields. • Phenomenal spread of hybrid and Bt. Cottons • Nearly 70 % under bt cotton in 2007-2008 • Adoption of scientific agronomic practices by farmers • Increase in area under irrigated cotton • Augmented development of good quality seeds by private sector • Development efforts by Technology Mission on Cotton, East India Cotton Association and other NGOs

18. Production & Consumption ( in mn bales of 480 lbs )

19. Reasons Production • Has posted sharp increase during the last three years • From of 17.90 mn bales in 2003-2004 to 28.00 in 2006-2007 mn bales & forecasted at 31.5 mn bales 2007 – 08 Reason for sharp • Favourable climatic conditions • Increased area under cotton cultivation • Dramatic improvement in productivity from bt cotton • Better seed management

20. Consumption • Also increased significantly From 16.88 mn bales in 2003 – 04 to 23.5 mn bales in 2006 – 07 • Forecasted at 25.5 mn bales 2007 – 08

21. Imports and Exports of Indian CottonOver Last Five Years(in mn bales of 480 lbs)

22. Reasons • New paradigm shift • From being a net importer to a net exporter (second largest in the world) • Large exportable surplus to continue in the years to come • India is the only Country producing all kinds of cotton for spinning with a wide range of counts from 10s to 100s • 82% of the total crop is Rollar Ginned • Modernisation of Ginning & Pressing Factories / Market Yards under TMC schemes • Spinning value of Indian cotton fibre is far better because of manual harvesting and gentle processing which minimises the damage to fibre • Geographical proximity leading to advantage in transit cost and transit time • Indian varieties well established in all major consuming markets like China, Pakistan, Bangladesh, Turkey & the Far East • Demand for imported cotton will also grow but will mainly be confined to els cottons like US pima, Egyptian an Cis • Imports currently take place with a customs duty of 10%

23. Cotton Balance Sheet ( in mn bales of 480 lbs each )

24. Summary • The cotton balance sheet reveals • The is a large carry over for last three years is declining • India has been a major exporter of cotton due large surplus • In 2007-2008 India’s % share in World production will be 20.9%, consumption13.5% , exports11.8% and ending stocks 8.4% repectively

25. Future Trends

26. FutureTrends In Cotton Production And Consumption (in mn bales of 480 lbs)

27. Reasons • Production forecasted to increase from 24.2 mn bales in 2007-2008 to 32.00 mn bales in 2011-2012 • Consumption forecasted to increase from 19.90 mn bales in 2007-2008 to 31.00 mn bales reducing thus wide gap between production & consumption • Momentum gained by Indian cotton sector in recent years will be maintained with continued focus on further improvement in quality and sustained increase in productivity atleast to the world average by the year 2010 • In short term, i.e. in next 3 years, India is likely to have surplus cotton available for exports

28. Future Trend of India in the Global Textile & Clothing Market • Current global textiles and clothing industries a $480 billion is expected to grow to about $700 billion by the year 2012 • Based on 9% economy growth • India’s Textile & Apparel sector in the global textile export trade likely to grow from 4% in 2005 to 7% in 2012 • India’s textile exports is likely to grow from $20 billion in 2006-07 to $50 billion in 2011-12 • Increase in per capita fiber consumption in the country as disposal incomes rise in the middle class the size of the domestic market estimated to grow from $30 billion in 2006-2007 to $43billion by 2011-2012 • Employment likely to grow from 35 mn in 2006 to 40 mn in 2012 • Total spindles likely to increase from 37.00 mn in 2006 to 48 mn spindles in 2012

29. Homework to be done & Areas of concern • Improvement required in the Govt labour policy • High transaction & power cost • Fabric/ Processing still to gear to meet international standards • Rupee appreciation against the dollar over last two months by about 10%. Among our major competitors Sri Lanka, Bangladesh & Vietnam witnessed depreciation of their currencies and countries like China & Indonesia had negligible currency appreciation • Rising interest rates • Possible rise in Inflation • Competition from other emerging markets such as Brazil, Russia, China, Pakistan & Bangladesh • India’s dependence on monsoons for cotton crop

30. Thank you