Economy, in particular the loss of manufacturing jobs, is center stage in the presidential election campaigns in the U.S. these days. This has been a dramatic shift from other issues that were considered priority six months back. Some economic pundits are predicting recession in 2008 in the U.S. However, this situation is quite a contrast 10,000 miles away—in India. India is rising and moving ahead with opportunities in every sector. For the past four years, India’s GDP has grown more than 8%. The growth in 2007 reached as high as 9.4% and is predicted to be in between 8-9% in 2008. The Indian middle class population tops 300 million, which is set to spearhead the growth of the nonwovens and technical textile industry.
According to Goldman Sachs, India’s economy will exceed the economy of Europe and Japan by 2030 and that of the U.S. by 2045. Such a growth is possible because of the increase in household incomes and the predicted growth in agriculture, manufacturing and service sectors. The consumer spending level is growing more than 5% per annum, which has resulted in the ongoing growth of organized retail sectors. India’s population of 1.1 billion, one-third of which is in the middle income group, plays an important role with the growth of India’s economy. India has roughly 100 million people younger than 25, out of which approximately 25 million are highly educated and this number is still growing. The economy gets a boost due to the growing middle class, young and educated population. These are vital factors for the growth of the nonwovens and technical textiles industry in India.
The 11th five-year plan of the Government of India (April 2007- March 2012) calls for all-inclusive growth, which is expected to reach double digits by the end of the fiscal year 2012. This clearly emphasizes the growth needed in agriculture and manufacturing sectors, as the IT and service sectors have done extremely well in recent years. Taking this mandate of the National Planning Council into consideration, the Ministry of Textiles of India sees the nonwovens and technical textiles sector as an important area for support and growth.
Several positive programs at the central government level have been implemented to support the growth of the nonwovens and technical textiles industry in India. A major support scheme has been launched by the National Technology Mission for Technical Textiles by the prime minister of India, which will be implemented during the 11th five-year plan to promote the development of the technical textiles industry in India with a budget of $170 million. This technology mission is in addition to the inclusion of a technical textiles sector in the Technology Upgradation Fund. These support programs from the government of India as well as the growth in the middle class population are expected to change the nature of the technical textiles industry in the next five to 10 years. This fits with the goal of India Inc. and the vision of the former Indian president, Abdul Kalam, to enable India to be an industrialized and developed nation by 2020.
We predict that India’s per capita consumption of nonwovens and technical textiles will be double that of the U.S. when India reaches a per capita GDP of $45,028, which is the current per capita GDP of the U.S. Interestingly, at this per capita GDP level, U.S. consumption is far less than what India would have. An important prediction is that in the next two decades, the rate of growth of nonwovens and technical textiles will be further ahead than what it was in the U.S. and Europe during the last three decades, during which the industry in the western hemisphere grew and matured. Therefore, growth is certain in India and hence it is the place for international players to be active.
India’s Consumption of Nonwovens (2007-2050)
The liberalization of the Indian economy in 1991 coincided with the booming of the information technology sector. This fortuitous development has led to the growth of a middle class population with disposable income. In addition, since 2000 India is gearing up with one-stop superstores, which are commonly referred to as “big bazaars” and most recently with organized retail stores and malls. The economy and the growth in the sales outlets will lead to a higher consumption of disposable items such as nonwovens. Furthermore, the government is planning to spend a large sum of money for infrastructure projects such as highways and bridges, which consume semi-durable and durable nonwovens and technical textiles.
According to estimates by INDA and EDANA, the current per capita consumption of nonwovens in India is less than 100 grams, whereas the per capita consumption of nonwovens in developed markets such as U.S. and Western Europe is around 3-3.5 kilograms. As is evident from the growth of the nonwovens industry in developed markets, it has taken nearly four decades to cross the threshold level of 3 kilograms per capita consumption. More interestingly, the per capita consumption of nonwovens is directly correlated with the per capita income levels of the population. Industry pundits are in agreement with this theory. However, no one has predicted the growth of the nonwoven industry based on per capita consumption in India in relation to India’s per capita income level for the next four decades. Our analysis using per capita income levels from World Bank has led to some interesting conclusions that will be of enormous interest to the global nonwovens and technical textiles industry. For this analysis, we have used certain baseline figures that were drawn from the data published by the World Bank. We present our original estimates of India’s per capita nonwoven consumption based on World Bank’s income estimates. As per the World Bank data for 2007, per capita GDP of the U.S. and India are $45,817 and $946.1 respectively. At this per capita income level, we assume India’s per capita consumption of nonwovens is 80 grams. We are using the annual growth rate for the U.S. and India’s economy to be 4.6% and 13.27% respectively. These figures are the average growth rates of the two countries, U.S. and India respectively, from 2003-2007. We have used these growth rates to calculate the per capita nonwoven consumption for India and the U.S. for the years 2005-2050. Table I provides the per capita income levels and the corresponding nonwovens consumption for the years 2005-2050. Since the data will be exhaustive, we are providing the data for every five years from 2005-2050.
You may note from Table I, the growth rate in per capita GDP used for nonwovens consumption is the same as that of the growth rate assumed for the economy. This is a fairly accepted theory in the industry with regard to the relationship between per capita GDP and nonwovens consumption growth. Assuming that the industry is fairly developed when the per capita consumption of nonwovens reaches 3-3.5 kilograms (i.e., the current state of the industry in the U.S. and Western Europe), India will reach this level in 2030. India’s nonwovens and technical textiles industry is currently highly fragmented and is in the embryonic stage. The industry is poised to have double digit growth of around 13-15% per annum in the next two decades, leading up to a developed stage in 2030. During this period, developed markets such as the U.S. and Western Europe are set to grow at a much slower rate of around 5%. Therefore, it is of much value for the global industry to take India seriously and take part in the growth enabling its own development.
Drivers for Growth in India
The growing middle class population and rise in income levels of half of India’s population are the major drivers for the growth of nonwovens and technical textiles in India. In addition, there is much interest in both the public (government) and private sectors to look into opportunities beyond the conventional textile chain (i.e., fiber to fashion). This situation is quite a contrast to what is happening in the U.S. and the rest of the developed economies. Recent reports about the U.S. textile funding for 2008 estimate that the funding will remain similar to the 2007 level with a major cut in R&D spending for textiles, which will not be welcomed by the U.S. textile industry. So both from the perspective of private and public sectors in India, time is ripe to invest in nonwovens and technical textiles.
The government of India is coming under pressure to provide incentives to sustain and develop the textile industry, which contributes to nearly one third of foreign exchange income through exports. In addition, the textile industry provides the second highest employment next to agriculture. Therefore, both from economic and political points of view, the government has to support the growth of the textile industry by tapping into untapped segments such as nonwovens and technical textiles.
Furthermore, according to the Planning Commission of India, the 11th five-year plan should enable all-inclusive growth, meaning growth not only in the highly skilled IT sector. In order to rise the income levels of unskilled and under-represented people, growth should occur in the agriculture and manufacturing sectors. The textile industry occupies an important position within the manufacturing sector in India and hence receives the attention of the upper echelons of the Indian administration. This situation has heightened due to the current decline in the export of commodity textiles due to the hike in rupee against the dollar. The Indian conventional textile industry’s comparative advantages such as low-cost, skilled labor and the dollar/rupee ratio have started eroding in the last year. For example, rupee gained 12% over the dollar within one year, resulting in a dramatic decrease in the influx of foreign exchange via exports. In addition, the labor advantage that India has is becoming competitive with challenges from countries such as Vietnam, Cambodia and Bangladesh that are capable of providing highly skilled, low-cost labor in the commodity textile sectors. Hence, the preferred option for the textile industry is to enlarge its competency in related textile fields such as nonwovens and technical textiles. The nonwovens and technical textiles industry provides a safe haven in that it can cater to both the burgeoning domestic and export markets.
The Government of India during its 11th five-year plan (April 2007–March 2012) has initiated and has continued with several positive programs to support the growth of nonwovens and technical textiles. The National Mission for Technical Textiles was launched by the prime minister of India, Dr. Manmohan Singh, in the Texsummit-2007 conference in September 2007 in New Delhi. This ambitious mission has a budget of $170 million for the next five-year period. The main aim of the mission is to grow the current technical textiles industry to a size of around $12-15 billion by 2012.
The mission will be divided into four mini-missions, which will focus on creating awareness, human resource development, capacity building of the nonwoven and technical textile industry base and the related machinery industry base, establishing centers for research excellence and support with testing and standardization. This mission spans the entire spectrum of technical textiles and focuses on those areas that will aid the growth of the industry. The government has identified four important sectors within the technical textile industry for immediate attention and growth. These are: Medtech, Geotech, Agrotech and Buildtech. As is evident from these prioritized sectors, durable and semi-durable technologies will take the front seat and disposable technologies will follow.
The Technology Upgradation Fund, which was launched in 1999 to provide a shot in the arm for the under-developed sectors of the textile chain, will be continued during the 11th five-year plan. This program provides 10% capital subsidy upfront for new projects involving new machinery in technical textiles with the addition of 5% interest subsidy on the loans. The technical textiles sector was not included in the earlier five-year plan period and it is glad to report that investors in the technical textiles sector will be able to take advantage of this subsidy. Almost all technical textiles machinery such as coating and laminating, spunmelt machinery, carded and thermal bonding machines and converting machines, are covered under this plan. The basic custom duty on imported technical textiles machinery has been reduced from 10% to 5%, so that the effective customs rate totals around 20%.
The government has created Special Economic Zones (SEZs) with the aim of enhancing foreign direct investments and exports from India. There are fourteen Special Economic Zones in India that have been approved, which focus on textile-related activities. Examples include: Mundra SEZ in the western state of Gujarat and Mas Holdings SEZ in South India.
These SEZs provide duty-free imports and domestic procurement for 100% exports. Several tax incentives are provided for entities that are setting up their operations in SEZs. The details on SEZs can be obtained from India’s Ministry of Commerce. In addition to the incentive programs provided by the Central Government for the technical textile industry, some state governments have their own attractive incentives. The state of Gujarat provides 10% investment subsidy for technical textiles projects. Most recently, the government of the state of Tamilnadu has come up with its new industrial policy aimed at promoting the manufacturing sector.