Study on Impact of Economic slowdown on Indian. Textile and Clothing Industry. June, PDF Free Download

Study on Impact of Economic slowdown on Indian Textile and Clothing Industry June, 2009

Table of Contents Table of Contents Section-1 Section-2 Project background & Approach to the study Analysis of Indian Textile and Clothing industry 4 14 Section-3 Section-4 Impact of economic slowdown on the demand of textile and clothing Analysis of cost competitiveness of Indian Textile and Clothing industry vis-à-vis competing countries 29 193 Section-5 Policy approach towards Textile and Clothing industry 242 Section-6 Recommendations 275 2

Table of Contents Table of Contents Annexure I Annexure II Indian Textile & Clothing industry List of companies analysed for the financial performance 293 334 Annexure III Annexure IV Annexure V Average IIP for Textiles and Textile products Assumptions about the traded goods for the Doing Business study Calculation of Effective Taxes and Duties 340 342 344 Annexure VI Recent trade defense measures by certain markets 346 Annexure VII Rigidity of Employment Index by "Doing Business " 348 Annexure VIII Snapshot of T&C industry of the Competing countries 350 3

Table of Contents Background to the study Analysis of key issues Indian Textile and Clothing industry and Impact of economic slowdown on the demand of textile and clothing Analysis of cost competitiveness of Indian Textile and Clothing industry vis-à-vis competing countries Policy approach towards Textile and Clothing industry Recommendations 4

Scope of the work The scope of this engagement is to assess the impact of the global and domestic economic crisis on the Textile and Clothing industry in India. The study covers Spinning, Weaving, Knitting, Processing/Finishing, Made-ups and Clothing segments of Textile and Clothing industry. 5

Terms of Reference Based on the scope of work, the terms of reference for this engagement are: 1. Conduct a sector analysis of the Indian Textile and Clothing industry. 2. Analyse the effect of economic slowdown on demand of Textile and Clothing in domestic markets and major export markets i.e. USA, EU, UK and Japan. 3. Evaluate the cost competitiveness of Indian Textile and Clothing Industry vis-à-vis competing countries viz. China, Bangladesh, Sri Lanka, Vietnam and Turkey. 4. Analyse the fiscal incentives provided by Governments in the competing countries (as in point 3). 5. Recommend short term and long term action plans for government and industry for achieving sustained growth of Textile and Clothing industry and its exports. 6

Approach to the study Phase 1 Diagnostic analysis Phase 2 Assessment of future challenges for the industry Phase 3 Recommendations 7

Phase 1: Diagnostic analysis Module 1 Analysis of demand trends of Textile and Clothing Module 2 Analysis of the competitiveness of Indian Textile and Clothing sector vis-a-vis competing countries 8

Module 2: Analysis of competitiveness of Indian Textile and Clothing industry Work stream 1: Analysis of Indian Textile and Clothing industry Analysis of past performance of Textile and Clothing industry to assess the impact of economic slowdown Work stream 2: Analysis of the competitive landscape Competitiveness assessment of Indian Textile and Clothing industry to understand its strengths and weaknesses vis-à-vis competing countries Work stream 3: Analysis of the Trade environment Comparative analysis of the trade policies/incentives to understand its impact on the industry 9 9

SWOT analysis for the Indian T&C Industry Analysis of Textile and Clothing industry Competitive assessment of Indian industry vis-a-vis other countries SWOT analysis of Indian Textile and Clothing Industry Analysis of trading environment in competing nations 10

Phase 2: Assessment of future challenges for the industry Forecast the possible economic developments in T&C markets and project the Textile and Clothing demand for 2015 Assess the challenges for Indian Textile and Clothing industry 11

Phase 3: Recommendations Recommend interventions by both the industry as well as the Government that are WTO compatible and focus on measures to : Achieve sustainable growth of Textile and Clothing industry in India Increase the share of Textile and Clothing in the global markets 12

Methodology Primary Research Questionnaire based survey of the industry players to get feedback on present condition Discussions with industry experts and key industry players in each product category Discussions with Industry associations Discussions with officials in Export promotion councils of Textile and Clothing sector Secondary Research Information available in the public domain and from sources considered reliable 13

Table of Contents Background to the study Analysis of Indian Textile and Clothing industry* and key issues Impact of economic slowdown on the demand of textile and clothing Analysis of cost competitiveness of Indian Textile and Clothing industry vis-à-vis competing countries Policy approach towards Textile and Clothing industry Recommendations 14 *Refer Annexure I for details

Indian Textile and Clothing (T&C) industry is one of the most important sectors in terms of output, foreign exchange earnings and employment Fig: Textile and Clothing industry (2007-08) Fig: Indian T&C trade in 2007-08 Contribution of T&C industry to India s GDP Contribution of T&C industry to India s Industrial Production Contribution of T&C industry to export earnings 4% 14% 12% Ready Made Garment Textile* 0.1 Imports Exports 9.7 3.1 12.7 0 5 10 15 US $ billion Source: Office of Textile Commissioner T&C industry is one of the largest and most important sectors in the Indian economy in terms of output, foreign exchange earnings and employment. The industry contributes 4% to the country s GDP and 14% to the country s industrial production. With US $ 12.7 billion of Textile exports and US $ 9.7 billion of Garment exports in 2007-08, the industry contributed 12% to the foreign exchange earnings. As of March 2006, the industry provided direct employment to 33.17 million # people. *Textile includes Made-ups articles # This also includes employment in Handloom, Sericulture, Handicraft and Jute industry Source: Office of Textile Commissioner 15

T&C industry is the second largest employment generating sector with significant employment opportunities for both skilled and unskilled labour T&C industry is the second largest employment generating sector in India, after agriculture. In addition to direct employment, the industry generates significant employment through forward and backward linkages, both in traditional activities like production of cotton and other natural fibers and in modern industries like textile design and fashions. Apart from the employment potential, the large number of skilled and unskilled activities in the industry makes the sector extremely important from the perspective of inclusive growth. 16

US $ billion Indian T&C industry has significant dependence on exports Fig: Indian T&C market (2007-08) Fig: Year-wise trend in Indian T&C exports Export market 35% 25 20 15 17.8 48% 19.4 46% 22.4 43% Domestic market 65% 10 5 52% 54% 57% Total market size # : Rs. 2.55 trillion Source: ICRA report 0 2005-06 2006-07 2007-08 Textile Garment Source: Office of Textile Commissioner With exports accounting for 35% (by value) of the total market size, the Indian T&C industry has significant dependence on export market. T&C exports have increased at a CAGR of 12% from 2005-06 to 2007-08 with textile exports registering 17% growth and garment exports registering 9% growth. Value-wise share of textiles in total T&C exports has increased over the years from 52% in 2005-06 to 57% in 2007-08. # Market size has been computed on the basis of retail prices and excludes Technical Textiles 17

Indian T&C exports have significant dependence on EU27 and US which together accounted for 54% of total T&C export value during 2007-08 Fig: Value-wise share of various products in total T&C exports by India (2007-08) Fig: Value-wise share of major export markets in total T&C exports by India (2007-08) Others 1% Garment 43% Madeups 16% Fibre 12% Yarn 14% Fabric 14% Japan 1% Bangladesh 3% China 5% Italy 4% Total Exports: US $ 22.4 billion Others 27% UAE 6% US 21% EU27 33% Source: Office of Textile Commissioner Garment is the major export product of Indian T&C industry, constituting 43% by value of the total T&C exports in 2007-08, followed by Made-ups (16%), Yarn (14%) and Fabric (14%). EU27 is the largest export market for Indian T&C products, with a share of 33% by value of the total T&C exports in 2007-08; UK alone accounts for 7.5% of India s total T&C export value. US is the second largest export market with a share of 21% by value of total T&C exports in 2007-08. Other important export markets are UAE, China, Italy, Bangladesh and Japan. 18

Recent economic slowdown has impacted the major T&C import markets thus, negatively impacting the Indian T&C industry EU27, US and Japan are major import markets for T&C products in the world accounting for 46% of world textile imports and 76% of world clothing imports in 2007. Recent economic slowdown has significantly impacted the T&C market of these three large importers of textile and clothing. India being one of the major exporters of textile and clothing products to these markets, the Indian T&C industry has also witnessed a downward impact. 19

US $ million Growth of Indian T&C exports stagnated during Apr Dec 2008 as compared to a growth of 15% (y-o-y) in FY08 25% 20% 15% 10% 5% 0% -5% Fig: Annual Growth of Indian T&C exports 21% -4% Exports of Textiles 9% 7% Exports of Garments 15% 0.2% Total T&C Exports Annual growth rate achieved in 2007-08 Annual growth rate achieved in 2008-09* Fig: Value-wise monthly total exports of Cotton yarn, fabric and made-ups 450 400 350 300 250 Aug Sep Oct Nov Dec 2007 2008 Source : Office of Textile Commissioner, DGCIS Growth of Indian T&C exports stagnated during Apr Dec 2008 as compared to a growth of 15% y- o-y in FY08. During Apr Dec 2008, garment exports grew by 7% (y-o-y) as against a growth of 9% (y-o-y) in FY08 whereas Textile exports declined by 4% (y-o-y) as against a growth of 21% (y-o-y) in FY08. Decline in exports was observed in all major categories of T&C industry during Aug Dec 2008. During 2008, exports of cotton yarn, fabric and made-ups declined significantly in September (by 16% y-o-y), October (by 15% y-o-y) and November (by 26% y-o-y). *Refers to Apr Dec 2008 20

Indian T&C industry witnessed a slowdown in production with the Index of Industrial Production (IIP) for Cotton textiles declining by 2.6% (y-o-y) in Apr-Feb FY09 Indian T&C industry has witnessed a significant impact with the major T&C importing markets undergoing an economic slowdown. The Index of Industrial Production (IIP) for Cotton textiles declined by 3.7% (y-o-y) in Dec 2008 (as against an increase of 2% y-o-y in Dec 2007), 6.2% (y-o-y) in Jan 2009 (as against an increase of 4% y-o-y in Jan 2008) and 12.1% in Feb 2009 (as against an increase of 5.1% y-o-y in Feb 2008). IIP for Textile products including apparel declined by 2.3% (y-o-y) in Feb 2009. 50% 40% 30% 20% 10% 0% -10% Fig: Year-on-year growth in IIP Cotton Textiles Wool, Silk and man-made fibre textiles Textile Products (including Wearing Apparel) -20% Jan-05 Jul-05 Feb-06 Aug-06 Mar-07 Sep-07 Apr-08 Nov-08 Source: CSO, IMaCS analysis 21

Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 During Apr - Feb FY09, spun yarn production declined by 3% (y-o-y) and MMFY production declined by 6% (y-o-y) Fig: India s monthly spun yarn production in million kgs 400 350 300 250 200 150 100 50 0 40% 30% 20% 10% 0% -10% -20% -30% Production (mkg) Growth (yoy) Fig: Year-on-year growth in filament yarn production PFY VFY 25% 20% 15% 10% 5% 0% -5% -10% -15% Spun yarn production has declined since July 2008, with the decline continuing in each successive month. During Apr-Feb, FY09 spun yarn production declined by 2.9% (y-o-y) to 3.6 million MT. Production of Manmade Filament Yarn (MMFY) declined by 6% (y-o-y) in FY09, compared to a growth of 10.1% in FY08. Production of Polyester Filament Yarn (PFY) declined by 6% (y-o-y) in FY09, as against an increase of 12% (y-o-y) in FY08. Source: Office of the Textile Commissioner 22

Fabric production declined by 1.4% (y-o-y) during Apr - Feb, FY09 Total fabric production declined by 1.4% y-o-y during Apr Feb, FY09 and by 2% y-o-y during Feb, 2009 as against a 3-year CAGR of 7.3% from FY05 to FY08; Fabric production by handloom, power loom and hosiery decreased by around 7% y-o-y, 1% y-o-y and 2% y-o-y respectively during Feb, 2009. 20% 15% 10% 5% 0% Fig: Year-on-year growth in fabric production -5% 2005 2006 2007 2008 Apr - Feb FY09 Mills Powerloom Hosiery Total Source: Office of Textile Commissioner, IMaCS analysis 23

Decline in production has negatively impacted the profit margin of Indian T&C companies 22% 17% 12% 7% 2% -3% Fig: Operating profit margins for a sample of Indian companies* 20% 18% 14% 12% Q2 FY08 Q3 FY08 Q4 FY08 Q1 FY09 Q2 FY09 Q3 FY09 20% 12% 9% -2% Spinning Weaving Garment Made-ups Fig: Net profit margins for a sample of Indian companies* 10% 5% 0% -5% -10% -15% -20% 7% 7% 3% 4% 1% -1% Q2 FY08 Q3 FY08 Q4 FY08 Q1 FY09 Q2 FY09-18% -2% Q3 FY09 Operating profit margin of the analsyed Spinning and Garment companies have dropped significantly from Q3FY08 to Q3FY09. Net profit margin for the analyzed companies of all sectors declined significantly in Q3FY09 with Made-ups and Spinning companies registering a loss. *Analysis based on a sample of companies. Refer Annexure II for details 24

Highly leveraged capacity expansion combined with drop in production has resulted in weak debt coverage indicators Fig: D/E ratio for a sample of Indian companies 3.5 3.4 3.5 3.0 3.1 2.5 2.6 2.0 1.7 1.5 1.0 1.6 1.2 0.8 0.5 FY04 FY05 FY06 FY07 FY08 Spinning Weaving Garment Made-ups Fig: Quarterly interest coverage ratio for a sample of Indian companies* 5.5 4.5 3.5 2.5 1.5 0.5-0.5-1.5 2.8 2.3 0.9 5.0 Q2 FY08 Q3 FY08 Q4 FY08 Q1 FY09 Q2 FY09 1.8 1.6 0.7-1.2 Q3 FY09 D/E ratio of the analysed Spinning, Weaving and Made-ups companies has increased significantly from FY04 to FY08, indicating leveraged capacity expansion. Recent drop in production has resulted in under utilisation of capacities, inadequate absorption of fixed costs and weak debt coverage indicators; the interest coverage ratio for the analyzed companies of all sectors has declined significantly in Q3FY09. *Analysis based on a sample of companies. Refer Annexure II for details 25

Investments for technology up gradation have significantly decreased in FY08 and 9MFY09 Rs crore 70000 60000 50000 40000 30000 20000 10000 0 Fig: Year-wise project cost of applications sanctioned under TUFS FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 (9M) Source: Office of Textile Commissioner, IMaCS analysis Cost of the projects sanctioned under TUFS have declined significantly from Rs. 66,233 crore in FY07 to Rs.19,917 crore in FY08 and Rs. 31,672 crore during 9MFY09. This is indicative of reduction in expansion and modernisation plans of the T&C industry which would be counter productive in the current competitive scenario. 26

Decline in production in the T&C industry is estimated to have resulted in a job loss of 5 6 lakh 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% Fig: Month on month change in average IIP* for Textiles and Textile products (2008-09) 3% 7% -1% -3% -4% -5% -5% -8% Source: CSO, IMaCS analysis Jun Jul Aug Sep Oct Nov Dec Jan Feb Since June, 2008 average IIP for Textiles and Textile products has witnessed a decline in majority of months with an average month-on-month drop of 1.44% from June, 2008 to February, 2009 indicating a drop in production. Considering the fact that T&C industry as a whole has not witnessed any major technological change over the nine-month period under discussion, loss in production of 1.44% would lead to an equivalent loss in jobs. Thus, decline in production is estimated to have resulted in a loss of 5 6 lakh jobs. 3% *Refer Annexure III for details of methodology 27

Major issues faced by T&C manufacturers Order book status Majority of surveyed T&C manufacturers reported to have an order book status of 15 days to a month. Issues faced in global markets Less price realisation and Shift of order to competing countries were ranked as the most severe issues faced in the global markets. Major business constraints faced by the T&C industry Majority of the domestic manufacturers ranked lack of power as the most severe business constraint. Shortage of skilled labour and working capital issues were ranked as the second most severe business constraints by the industry. High interest rates and delay in refund were also mentioned as the key business constraints impacting the industry. Source: Primary Survey 28

World T&C trade has significant dependence on EU27 and US, which together account for 43% of world textile exports and 69% of world clothing exports by value EU27 is the largest importer of textile and clothing accounting for 33.7% of world textile imports and 45.5% of world clothing imports in 2007, followed by US. China ranks third in world textile imports with a share of 6.7% while Japan is world s third largest importer of clothing with a share of 6.7% in world clothing imports in 2007. 43% of the world textile imports Table: World s top five textile importers (2007) Top importers of Textile Value in US $ billion % annual change % share in world textile imports European Union (27) 84.21 10 33.7 United States 24.09 3 9.6 China 16.64 2 6.7 Hong Kong, China 13.56-3 5.4 Japan 6.30 2 2.5 76% of the world clothing imports Table: World s top five clothing importers (2007) Top importers of Clothing Value in US $ billion % annual change % share in world imports European Union (27) 162.8 13 45.5 United States 84.9 2 23.7 Japan 24.0 1 6.7 Hong Kong, China 19.1 2 5.4 Russian Federation 14.5 79 4.1 30 Source: WTO Trade Statistics

World s major T&C importers are facing economic slowdown which has impacted the T&C demand EU27, US and Japan are major import markets for T&C products accounting for 46% of world textile imports and 76% of world clothing imports in 2007. EU27 entered an economic slowdown phase from Q3,2008 with its GDP declining by 0.2% (quarter on quarter) in Q3,2008, followed by a reduction of 1.5% in the final quarter of the year. Economic growth in US fell by 0.3% between June and September, 2008. Japan's economy is witnessing economic slowdown after shrinking by 0.1% in the third quarter of 2008; the economy had shrunk by 0.9% in the April to June, 2008. Recent economic slowdown has significantly impacted the T&C market of these three large importers of textile and clothing. 31

Impact of economic slowdown on the imports of textile and clothing Impact of economic slowdown on T&C imports by EU27 Impact of economic slowdown on T&C imports by UK Impact of economic slowdown on T&C imports by US Impact of economic slowdown on T&C imports by Japan Projected T&C imports in identified global markets for 2015 32

EU27 is the largest importer of T&C accounting for 33.7% of world textile imports and 45.5% of world clothing imports EU27 is the largest importer of T&C accounting for 33.7% of the world textile imports and 45.5% of the world clothing imports by value. Garments account for the largest share of EU s T&C import volume with their share increasing over the years from 36% in 2005 to 43% in 2008. Share of made-ups in EU s T&C import volume has also increased over the years whereas share of yarn and fabric has decreased. Fig: Volume-wise share of products in total T&C imports by EU27 Other yarns and fabrics 19% Jan Dec 2005 Total imports: 17.9 million MT Garments 36% Yarn 21% Fabric 14% Made-ups 10% Other yarns and fabrics 19% Jan Dec 2008 Total imports: 21.1 million MT Garments 43% Yarn 16% Fabric 11% Made-ups 10% 33 Source: Eurostat, IMaCS Analysis

Million MT Billion Euros During 2008, total T&C import value by EU27 decreased by 2.9% (yo-y) Fig: Total T&C imports by EU27 Fig: Year-wise growth in total T&C imports 21 19 180 175 170 165 160 15% 10% 5% 17 155 150 0% 15 145 140 2002 2003 2004 2005 2006 2007 2008 Volume in million MT Value in billion Euros -5% -10% 2003 2004 2005 2006 2007 2008 % increase in volume % increase in value Source: Eurostat, IMaCS Analysis Value-wise T&C imports in 2008 witnessed a drop of 2.9% (y-o-y) as against an increase at a 5- year CAGR of 3% from 2002 to 2007. Though import value decreased, the import volume in 2008 increased by 12.8% (y-o-y). 34

Impact of economic slowdown on the imports of textile and clothing Impact of economic slowdown on T&C imports by EU27 Yarn imports Fabric imports Garment imports Made-ups imports Impact of economic slowdown on T&C imports by UK Impact of economic slowdown on T&C imports by US Impact of economic slowdown on T&C imports by Japan Projected T&C imports in identified global markets for 2015 35

Million MT During 2008, yarn imports by EU27 declined 13.4% (y-o-y) by value and 12.9% (y-o-y) by volume Billion Euros Fig: Yarn imports by EU27 Fig: Year-wise growth in imports of yarn 5 4.5 4 3.5 14 13 12 11 10 9 8% 4% 0% -4% -8% 3 8 2002 2003 2004 2005 2006 2007 2008 Volume in million MT Value in billion Euro -12% -16% 2003 2004 2005 2006 2007 2008 % increase in Volume % increase in Value Source: Eurostat, IMaCS Analysis Value-wise yarn imports by EU27 declined by 13.4% (y-o-y) in 2008 as against an increase of 1.2 % (y-o-y) in 2007. Volume-wise yarn imports in 2008 declined by 12.9% (y-o-y) as against an increase of 2.5% in 2007. 36

EU27 yarn imports witnessed a significant impact of economic slowdown with volume-wise imports declining by 13% (y-o-y) in Q3,2008 and 26% (y-o-y) in Q4,2008 10% 0% -10% -20% -30% Fig: Year-on-year increase in volume-wise yarn imports by EU27 6% -6% 2% 2% 0.3% -8% -13% Q1 Q2 Q3 Q4-26% y-o-y % increase in yarn import volume (2007 over 2006) y-o-y % increase in yarn import volume (2008 over 2007) 10% 0% -10% -20% -30% Fig: Year-on-year increase in value-wise yarn imports by EU27 5% 0% -8% -10% 2% -15% -2% Q1 Q2 Q3 Q4-21% y-o-y % increase in yarn import value (2007 over 2006) y-o-y % increase in yarn import value (2008 over 2007) Source: Eurostat, IMaCS Analysis Yarn imports by EU27 witnessed a significant impact of the economic slowdown with imports declining 13% y-o-y by volume and 15% y-o-y by value in Q3,2008. The decline in imports continued in Q4,2008 with a reduction of 26% y-o-y by volume and 21% y-o-y by value. 37

Thousand MT Million Euros Imports of yarn declined significantly in October, November, and December 2008 Fig: Volume-wise monthly yarn imports ( 000 MT) Fig: Value-wise monthly yarn Imports (million Euros) 450 400 350 2006 2007 2008 1300 1200 1100 1000 2006 2007 2008 300 900 250 800 700 200 600 150 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 500 Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Source: Eurostat, IMaCS Analysis Volume-wise yarn imports in 2008 registered a decline since March, 2008 with significant decline in the month of October (21.7% y-o-y), November (27.3% y-o-y), and December (29.7% y-o-y). Value-wise yarn imports in 2008 registered a decline in each month with a significant decline in the months of October (18.6% y-o-y), November (22.2% y-o-y), and December (24.2% y-o-y). 38

China is the leading exporter of yarn to EU27 followed by Turkey and India Thousand MT Fig: Volume-wise share of EU Intra and EU Extra in total yarn imports by EU27 Jan Dec 2007 EU Extra 41% EU Intra 59% Fig: Yarn imports by EU27 from EU Extra countries 1600 1400 1200 1000 800 600 400 200 0 6.6% 6.9% 6.2% 6.1% 5.3% 5.7% 6% 6% 4.3% 5.5% 8.2% 10.7% 2002 2003 2004 2005 2006 2007 2008 Other EU Extra Vietnam Turkey Sri Lanka India China Bangladesh Source: Eurostat, IMaCS Analysis Jan Dec 2008 During 2008, EU Extra countries gained share in EU27 yarn imports from 40.8% in 2007 to 43.1% in 2008. EU Extra 43% EU Intra 57% Amongst the EU Extra countries, China is the leading exporter of yarn to EU27 followed byturkey and India. Share of China in EU s yarn import volume increased from 8.2% in 2007 to 10.7% in 2008. Both India and Turkey maintained their market share in EU s yarn import volume during 2008. 39

Though yarn import volume decreased by 12.9% (y-o-y)during 2008, the volume-wise imports from China increased by 14% (y-o-y) Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Demand Shrinkage - 13% China (+ 14%) India (- 13%) Turkey (- 15%) EU Intra (- 16%)* Other EU Extra (- 13%) Source: Eurostat, IMaCS Analysis Volume-wise yarn imports by EU27 declined by 12.9% (y-o-y) in 2008. In spite of drop in imports, volume-wise yarn imports from China increased by 14.3% y-o-y during 2008 resulting in increase in market share of China from 8.2% in 2007 to 10.7% in 2008. Though India maintained its market share in EU27 yarn import volume during 2008, volumewise yarn imports from India dropped by 13.2% (y-o-y). Volume-wise yarn imports from Turkey also decreased by 15.2% (y-o-y) *Indicates y-o-y increase/decrease in import volume during 2008 40

During 2008, value-wise yarn imports from India declined by 15% (yo-y) whereas that from China increased by 5% (y-o-y) Fig: Value-wise share of key competing countries in the yarn imports by EU27 Table: Value-wise annual change in yarn imports from key competing countries Turkey China India 5% 5% 4.5% 4.4% 6% 2007 2008 7% Increase/decrease in imports India China Turkey 2008-15% 5 % -15% 2007 4.5% 35% -5% 0% 2% 4% 6% 8% Source: Eurostat, IMaCS Analysis During 2008, value-wise yarn imports by EU27declined by13% (y-o-y). Amongst the analysed countries, China, India and Turkey are the major suppliers of yarn to EU27. During 2008, though India maintained its market share in EU27 yarn imports, value-wise yarn imports from India declined by 15% y-o-y. Yarn imports from China increased by 5% y-o-y resulting in increase in its market share to 7% in 2008 from 6% in 2007. Yarn imports from Turkey declined by 15% y-o-y during 2008 however, it maintained its market share at 5%. 41

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Euros/kg China supplies yarn at the most competitive prices which explains its strengthening position in yarn import during 2008 Fig: Unit Value realisation for yarn for the competing countries 2.9 2.7 2.5 2.3 2.1 1.9 1.7 Turkey India China Source: Eurostat, IMaCS Analysis Unit value realisation for Chinese yarn export to EU27 is the least amongst the key competing countries which explains the increase in share of China in EU27 yarn imports during 2008. Price realisation of India decreased from 2.28 Euro/kg in Feb 2008 to 2.16 Euro/kg in Jun 2008 however, there was an increase in price realisation in later months to 2.43 Euro/kg in Nov 2008. This decreased again in December 2008 to 2.34 Euro/kg. 42

Yarn imports by EU27 - Key findings During 2008, yarn imports by EU27 declined 13.4% (y-o-y) by value and 12.9% (y-o-y) by volume. Volume-wise imports declined by 13% y-o-y in Q3,2008 (as against an increase of 2% y-o-y in Q3,2007) and 26% y-o-y in Q4,2008 (as against stagnated imports in Q4,2007) indicating a significant impact of economic slowdown. Decline in yarn import volume during 2008 was significant in the month of October (21.7% y-oy), November (27.3% y-o-y) and December (29.7% y-o-y). Amongst the countries under consideration, China is the leading supplier of yarn to EU27 followed by Turkey and India. Though India maintained its market share of 6% in the total yarn import volume during 2008, yarn import volume from India declined by 13% y-o-y. Yarn import volume from China increased by 14% y-o-y during 2008 resulting in increase in market share ofchina from 8.2% of EU27total yarn import volume in 2007to 10.7% in 2008. Though Turkey maintained its market share of 6% in EU27 total yarn import volume in 2008, the import volume from Turkey decreased by 15% y-o-y. Amongst the countries under consideration, China supplies yarn at the most competitive prices to EU27 followed by India and Turkey. 43

Million MT Billion Euros Value-wise total fabric imports by EU27 declined by 13.1% y-o-y during 2008 Fig: Total Fabric imports by EU27 Fig: Year-wise growth in Fabric imports 3.5 26 20% 3 22 10% 2.5 2 18 0% -10% 1.5 2002 2003 2004 2005 2006 2007 2008 Volume in million MT Value in billion Euro 14-20% -30% 2003 2004 2005 2006 2007 2008 % increase in Volume % increase in Value Source: Eurostat, IMaCS Analysis During 2008, fabric import volume increased by 7.8% y-o-y as against an increase of 7.9% y-o-y in 2007. Though fabric import volume registered an increase, the fabric import value declined by 13.1% y-o-y in 2008 as against a 0.2% y-o-y decline in 2007. 45

EU27 fabric imports witnessed an impact of economic slowdown with volume-wise imports declining by 13% in Q4,2008 40% 30% 20% 10% 0% -10% -20% Fig: Year-on-year increase in volume-wise fabric imports by EU27 7% -2% 12% 28% 15% 7% 5% Q1 Q2 Q3 Q4-13% y-o-y % increase in fabric import volume (2007 over 2006) y-o-y % increase in fabric import volume (2008 over 2007) 10% 0% -10% -20% Fig: Year-on-year increase in value-wise fabric imports by EU27 3% -9% 0% 0% -13% -12% -4% Q1 Q2 Q3 Q4-18% y-o-y % increase in fabric import value (2007 over 2006) y-o-y % increase in fabric import value (2008 over 2007) Source: Eurostat, IMaCS Analysis Fabric imports by EU27 witnessed an impact of economic slowdown in Q4,2008 with import volume declining by13% y-o-y as against a growth of 5% y-o-y in Q4,2007. Fabric import value also registered a decline of 12% y-o-y in Q3,2008 and 18% y-o-y in Q4,2008. 46

Fabric imports by EU27 declined significantly in the month of October and November, 2008 Thousand MT Million Euros 350 300 Fig: Volume-wise monthly fabric imports ( 000 MT) 2006 2007 2008 1900 1700 Fig: Value wise monthly fabric imports (million Euros) 250 1500 200 1300 1100 150 900 700 2006 2007 2008 100 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 500 Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Source: Eurostat, IMaCS Analysis During 2008, fabric import volume increased in the second quarter though there was a drop in imports after August, with significant decline in the month of October (11.6% y-o-y), November (20.1% y-o-y), and December (5% y-o-y). Value-wise imports during 2008 decreased in each month with a significant decline in the month of October (15.5% y-o-y), November (21.4% y-o-y), and December (16% y-o-y). 47

Thousand MT Amongst the EU Extra countries, China is the major exporter of fabric to EU27 followed by Turkey and India Fig: Volume-wise share of EU Intra and EU Extra in total fabric imports by EU27 Jan Dec 2007 EU Extra 56% EU Intra 44% 1200 1000 800 600 400 200 0 Fig: Fabric imports by EU27 from EU Extra countries 6.5% 9.2% 3% 3.9% 9.2% 7.6% 3.7% 3.1% 12.6% 17.3% 19% 18.1% 2002 2003 2004 2005 2006 2007 2008 Other EU Extra Vietnam Turkey Sri Lanka India China Bangladesh Source: Eurostat, IMaCS Analysis Jan Dec 2008 EU Extra 48% EU Intra 52% Share of EU Intra in the total fabric import volume has increased from 44.5% in 2007 to 51.8% in 2008. Amongst the EU Extra countries, China is the key exporter of fabric to EU27 followed byturkey and India. Share of China in fabric import volume increased from 12.6% in 2005 to 19% in 2007 however, there was a drop in 2008 (to 18.1%). Share of Turkey in fabric import volume increased from 6.5% in 2005 to 9.2% in 2007 however, there was a significant drop in 2008 to 7.6%. Share of India increased marginally from 3% in 2005 to 3.7% in 2007 though the market share declined to 3.1% in 2008. 48

Volume-wise fabric imports from India declined by 8.5% (y-o-y) whereas that from China increased by 3% (y-o-y) Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 EU Intra (+ 25%) China (+ 3%) Other EU Extra (- 11.3%) India (- 8.5%) Turkey (- 11.2%) Volume-wise fabric imports from EU Intra countries increased by 25% y-o-y resulting in gain in market share. Though China lost market share marginally, fabric import volume from China increased by 3% (y-o-y) during 2008. Fabric import volume from India declined by 8.5% y-o-y. Source: Eurostat, IMaCS Analysis Volume-wise fabric imports from Turkey also decreased by 11.2% y-o-y. 49

During 2008, value-wise fabric imports from India declined by 7% (yo-y) whereas that from China increased by 1.9% (y-o-y) Fig: Value-wise share of key competing countries in the fabric imports by EU27 Table: Value-wise annual change in fabric imports from key competing countries Turkey China India 2% 2.1% 7% 7% 9% 10% 2007 2008 Increase/decrease in imports India China Turkey 2008-7% 1.9% -14% 2007-3.2% 8% 5% 0% 5% 10% 15% Source: Eurostat, IMaCS Analysis During 2008, fabric imports by EU27 declined by 13.1% (y-o-y) in value terms. Amongst the analysed countries, China, India and Turkey are the major suppliers of fabric to EU27. During 2008, though India maintained its market share in EU27 fabric imports, value-wise fabric imports from India declined by 7% y-o-y. Fabric imports from China increased by 1.9% y-o-y resulting in increase in its market share to 10% in 2008 from 9% in 2007. Fabric imports from Turkey declined by 14% y-o-y during 2008 though it maintained its market share at 7%. 50

China supplies fabric at the most competitive prices which explains its strengthening position in fabric import during 2008 Euros/kg Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Fig: Unit Value realisation for fabric for the competing countries 7.5 6.5 5.5 4.5 3.5 2.5 Turkey India China Source: Eurostat, IMaCS Analysis Unit value realisation for Chinese fabric is the least amongst the key competing countries. Unit value realisation of India decreased from 5.2 Euro/kg in Jan 2008 to 4.5 Euro/kg in Aug 2008 however, there was an increase in later months to 5.15 Euro/kg in Nov and 5.21 Euro/kg in Dec 2008. 51

Fabric imports by EU27 - Key findings During 2008, though fabric imports by EU27 increased 7.8% y-o-y by volume, the import value declined by 13.1% y-o-y. Volume-wise fabric imports declined by 13% y-o-y in Q4,2008 as against an increase of 5% y-o-y in Q4,2007 indicating an impact of economic slowdown. Decline in fabric import volume during 2008 was significant in the month of October (11.6% y-oy), November (20.1% y-o-y) and December (5% y-o-y). Amongst the countries under consideration, China is the leading supplier of fabric to EU27 followed by Turkey and India. Fabric import volume from India declined by 8.5% y-o-y in 2008 resulting in drop in market share in EU27 total fabric import volume from 3.7% in 2007 to 3.1% in 2008. Fabric import volume from China increased by 3% y-o-y during 2008 though the market share of China declined marginally from 19% in 2007 to 18.1% in 2008. Market share of Turkey in EU27 total fabric import volume declined significantly from 9.2% in 2007 to 7.6% in 2008. Amongst the countries under consideration, China supplies fabric at the most competitive prices to EU27 followed by India and Turkey. 52

Million MT Billion Euros During 2008, volume-wise garment imports by EU27 increased significantly however, the imports from EU Extra countries grew by only 2.5% y-o-y. Fig: Garment imports by EU27 Fig: Year-wise growth in imports 10 9 8 7 6 5 120 110 100 90 50% 40% 30% 20% 10% 4 2002 2003 2004 2005 2006 2007 2008 80 0% -10% 2003 2004 2005 2006 2007 2008 Volume in million MT Value in billion Euros % increase in Volume % increase in Value Source: Eurostat, IMaCS Analysis Garment imports by EU27 increased at a 5-year CAGR of 5.3% by volume and 4.6% by value from 2002 to 2007. During 2008 garment import volume increased by 39% y-o-y whereas the import value remained almost constant. Garment imports from EU Extra countries grew by only 2.5% y-o-y in 2008, whereas imports from EU Intra countries grew by 161% during the same period. 54

Volume-wise garment imports by EU27 witnessed a drastic increase on account of growth in imports from EU Intra countries however, value-wise imports stagnated 95% 75% 55% 35% 15% -5% Fig: Year-on-year increase in volume-wise garment imports by EU27 7% 95% 34.4% 20% 2% 8% 4% 0% Q1 Q2 Q3 Q4 y-o-y % increase in garment import volume (2007 over 2006) y-o-y % increase in garment import volume (2008 over 2007) 55 15% 5% -5% Fig: Year-on-year increase in value-wise garment imports by EU27 6% 5% 5% -0.6% 0.3% 4% 0.8% 0.6% Q1 Q2 Q3 Q4 y-o-y % increase in garment import value (2007 over 2006) y-o-y % increase in garment import value (2008 over 2007) Source: Eurostat, IMaCS Analysis Volume-wise garment imports by EU27 witnessed a sharp increase in Q1,2008 however, the growth slowed down after September, 2008. In Q1,2008 EU Extra imports grew by only 2% (y-o-y) in volume terms, whereas EU Intra imports grew by 4 times (y-o-y) in the same period. Q4,2008 witnessed a decline of 1.9% (y-o-y) in garment import volume from EU Extra countries, whereas EU Intra imports grew by 1.5 times (y-o-y) in the same period, thus accounting for the significant growth in garment import volume. Value-wise garment imports stagnated in 2008 as compared to increase in each quarter of the previous year.

Thousand MT Million Euros Garment import value registered a decline of 0.7% (y-o-y) in October, 3.8% (y-o-y) in November, although it grew by 7.2% (y-o-y) in December, 2008 1400 Fig: Volume wise monthly Garment Imports by EU27 12000 Fig: Value wise monthly Garment Imports by EU27 2006 2007 2008 1200 2006 2007 2008 11000 1000 10000 800 9000 600 8000 400 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 7000 Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Source: Eurostat, IMaCS Analysis Garment import volume by EU27 registered a moderate growth of 6.5% y-o-y in September 2008 followed by a decline of 4.3% y-o-y in October 2008. December 2008 saw a dramatic increase in the volume of garments imported (117% y-o-y). Growth in garment import volume can be attributed to increase in EU Intra imports since imports from EU Extra countries grew by only 5.9% (y-o-y) in December 2008, Garment import value registered a decline of 0.7% y-o-y in October 2008 and 3.8% y-o-y in November 2008, although it grew by 7.2% y-o-y in December 2008. 56

Thousand MT China is the major supplier of garments to EU27 followed by Bangladesh and Turkey Fig: Volume-wise share of EU Intra and EU Extra in total garment imports by EU27 Jan Dec 2007 EU Intra 23% 6000 5000 4000 3000 2000 1000 0 Fig: Garment imports by EU27 from EU Extra countries 7.3% 7.3% 3.6% 3.9% 7.3% 4% 4.6% 3% 30% 31% 34% 27.8% 7% 8.6% 8.3% 6.4% 2002 2003 2004 2005 2006 2007 2008 Other Extra Vietnam Turkey Sri Lanka India China Bangladesh Source: Eurostat, IMaCS Analysis EU Extra 77% Jan Dec 2008 EU Extra 56% EU Intra 44% EU Extra is the major supplier of garments to EU27. Share of EU Extra countries increased from 68% in 2005 to 77% in 2007 though there was a significant decline in their share during 2008 to 56% with EU Intra gaining market share. China is the major supplier of garments to EU27 followed by Bangladesh and Turkey. Share of China in EU27 garment import volume increased from 30% in 2005 to 34% in 2007 however, there was a decline in 2008 to 27.8%. Share of Turkey in EU27 garment import volume also declined during 2008 to 4.6% from 7.3% in 2007. Bangladesh also witnessed a decline in its market share in EU27 garment import volume from 8.3% in 2007 to 6.4% in 2008. India s share in EU27 garment import volume was 4% in 2007 which declined to 3% in 2008. 57

During 2008, garment import volume from Bangladesh increased by 7.1% (y-o-y) whereas that from India increased by 3.9% (y-o-y) Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Bangladesh (+ 7.1%) EU Intra (+161%) China (+ 12.2%) Other EU Extra (- 6.9%) Turkey (- 12.1%) India (+ 3.9%) Source: Eurostat, IMaCS Analysis Though China lost market share in EU27 garment import volume during 2008, volume-wise garment imports from China increased by 12.2% y-o-y. Garment import volume from Bangladesh has also increased by 7.1% y-o-y whereas that from Turkey dropped by 12.1% y-o-y. Garment import volume from India increased by 3.9% y-o-y during 2008. 58

During 2008, value-wise garment imports from India increased by 3.2% (y-o-y) whereas that from China increased by 14% (y-o-y) Fig: Value-wise share of key competing countries in the garment imports by EU27 Vietnam 1% 2007 1.2% 8% Turkey 2008 7% Sri Lanka China Bangladesh India 1% 1% 3.9% 4.2% 3.7% 3.8% 21% 24% 0% 5% 10% 15% 20% 25% Table: Value-wise annual change in garment imports from key competing countries Increase/decrease in imports India Bangladesh China Sri Lanka Turkey Vietnam 2008 3.2% 7% 14% 8% -11% 10% 2007 1.1% -4.6% 14% 7% 8% 11% Source: Eurostat, IMaCS Analysis Garment imports by EU27 in value terms remained almost constant during 2008. During 2008, India maintained its market share in EU27 garment imports however, value-wise imports from India increased by 3.2% y-o-y. Garment imports from China increased by 14% y-o-y resulting in an increase in its market share to 24% in 2008 from 21% in 2007. During 2008, value-wise garment imports from Bangladesh increased by 7% y-o-y. Imports from Sri Lanka and Vietnam also increased by 7% y-o-y and 10% y-o-y respectively in 2008. Imports from Turkey declined by 11% y-o-y during 2008 resulting in a drop in its market share to 7% in 2008 from 8% in 2007. 59

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Euros/kg Amongst the countries under consideration, Bangladesh supplies garments at the most competitive prices followed by China Fig: Unit Value realisation for garment for the competing countries 24 19 14 9 Turkey India China Bangladesh 4 Source: Eurostat, IMaCS Analysis Unit value realisation for garments imported from Bangladesh is the least amongst the key competing countries, followed by China. Unit value realisation of Indian garments decreased from 17.54 Euro/kg in Feb 2008 to 14.42 Euro/kg in Oct 2008 however, there was a marginal increase in Nov 2008 to 15.19 Euro/kg, and a further increase to 16.18 Euro/kg in December 2008. 60

Garment imports by EU27 - Key findings Volume-wise garment imports by EU27 registered a dramatic increase in Q4,2008 with import volume increasing by 34% y-o-y; the import value declined by 0.6% y-o-y as against an increase of 4% in Q4,2007. Increase in garment import volume has been on account of surge in EU Intra imports which increased by 1.5 times during Q4, 2008 whereas imports from EU Extra countries witnessed a decline of 1.9% y-o-y. Amongst the countries under consideration, China is the leading supplier of garments to EU27 followed by Bangladesh and Turkey. India s share in EU27 garment import volume was 4% in 2007 which declined to 3% in 2008 though there was an increase of 3.9% y-o-y in garment import volume from India. Garment import volume from China increased by 12.2% y-o-y in 2008 though there was a drop in its market share in EU27 total garment import volume from 34% in 2007 to 27.8% in 2008. Garment import volume from Bangladesh increased by 7.1% y-o-y during 2008 though the market share of Bangladesh declined from 8.3% of EU27 total fabric import volume in 2007 to 6.4% in 2008. EU27 garment imports from Turkey declined by 12.1% y-o-y resulting in a drop in market share of Turkey in EU27 total garment import volume from 7.3% in 2007 to 4.6% in 2008. Amongst the countries under consideration, Bangladesh supplies garments at the most competitive prices to EU27 followed by China, India and Turkey. 61

During 2008, imports of made-ups declined 2% (y-o-y) by value and 1.4% (y-o-y) by volume Million MT Billion Euros Fig: Imports of Made-ups by EU27 Fig: Year-wise growth in imports 2.6 2.2 12 11 10 20% 16% 12% 1.8 1.4 1 2002 2003 2004 2005 2006 2007 2008 9 8 7 6 8% 4% 0% -4% 2003 2004 2005 2006 2007 2008 Volume in million MT Value in billion Euro % increase in Volume % increase in Value Source: Eurostat, IMaCS Analysis Made-ups imports by EU27 increased at a 5-year CAGR of 11.1% by volume and 7% by value from 2002 to 2007. During 2008 imports declined for the first time in last six years; made-ups import volume declined by 1.4% y-o-y whereas the decline was 2% y-o-y in terms of value. 63

EU27 made-ups imports witnessed an impact of economic slowdown with imports declining 8% (y-o-y) by volume and 4% (y-o-y) by value in Q4,2008 Fig: Year-on-year increase in volume-wise made-ups imports by EU27 Fig: Year-on-year increase in value-wise made-ups imports by EU27 20% 18% 17% 15% 16% 12% 10% 10% 10% 0% -10% 7% -5% 1% Q1 Q2 Q3 Q4-8% y-o-y % increase in made-ups import volume (2007 over 2006) y-o-y % increase in made-ups import volume (2008 over 2007) 7% 5% 4% 2% 0.4% -3% -1% -3% -4% -8% Q1 Q2 Q3 Q4 y-o-y % increase in made-ups import value (2007 over 2006) y-o-y % increase in made-ups import value (2008 over 2007) Source: Eurostat, IMaCS Analysis Made-ups imports by EU27 witnessed an impact of economic slowdown with growth in import volume moderating in Q3,2008 to 1% y-o-y as against a growth of 15% y-o-y in Q3,2007. Made-ups import volume declined by 8.1% y-o-y in Q4,2008 as against an increase of 16% in Q4, 2007. The import value also registered a decline of 4% y-o-y in Q4,2008. 64

Thousand MT Million Euros Imports of made-ups declined significantly in the month of October and November, 2008 280 260 240 Fig: Volume wise monthly made-up imports by EU27 2006 2007 2008 1050 1000 Fig: Value wise monthly made-up imports by EU27 2006 2007 2008 220 950 200 180 160 140 120 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 900 850 800 750 700 Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Source: Eurostat, IMaCS Analysis Made-ups import volume witnessed a significant decline in the month of October (by 6.5% y-oy) and November (by 15.3% y-o-y. Imports in value terms also declined in October (by 2.9% y-o-y) and in November (by 9.6% y-oy. 65

China is the major supplier of made-ups to EU27 followed by India and Turkey Million MT Fig: Volume-wise share of EU Intra and EU Extra in total made-up imports by EU27 Jan Dec 2007 EU Extra 66% EU Intra 34% 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Fig: Made-ups imports by EU27 from EU Extra countries 9.1% 11.2% 10.4% 8.9% 9.1% 9% 25.7% 8.6% 8.9% 27.6% 27.6% 30.1% Other EU Extra Vietnam Turkey Sri Lanka India China Bangladesh 2002 2003 2004 2005 2006 2007 2008 Source: Eurostat, IMaCS Analysis Jan Dec 2008 EU Extra 69% EU Intra 31% EU Extra is the major supplier of made-ups to EU27 with its share increasing over the years from 66% in 2007 to 69% in 2008. Amongst the EU Extra countries, China is the major supplier of made-ups to EU27 followed byturkey and India. Share of China in EU27 made-ups import volume has increased to 30.1% in 2008 from 27.6% in 2007. India s share in EU27 made-ups import volume remained stagnant during 2008 at 8.9%. Share of Turkey in EU27 made-ups import volume declined over the years from 11.2% in 2005 to 8.6% in 2008. 66

Though total made-ups import volume declined by 1.4% (y-o-y), imports from China and Bangladesh increased by 7.8% (y-o-y) and 15.8% (y-o-y) respectively Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Demand Shrunk - 1.4% Bangladesh (+ 15.8%) EU Intra (- 10.3%) China (+ 7.8%) Other EU Extra (+ 2.9%) Turkey (- 7.1%) India (- 1.8%) Source: Eurostat, IMaCS Analysis Volume-wise made-ups imports have declined by1.4% y-o-y in 2008. Despite decline in demand, imports from China increased by 7.8% y-o-y during 2008. Imports from India declined by 1.8% y-o-y whereas that from Turkey declined by 7.1% y-o-y. Bangladesh, though having a small share in EU27 imports witnessed an increase in import volume by 15.8% (y-o-y) during 2008. 67

During 2008, value-wise made-ups imports from India decreased by 6% (y-o-y) whereas that from China increased by 6% (y-o-y) Fig: Value-wise share of key competing countries in made-ups imports by EU27 0.9% Vietnam 2007 0.9% Turkey China Bangladesh India 1.9% 2.1% 7% 7% 10% 10% 2008 21% 23% 0% 5% 10% 15% 20% 25% Table: Value-wise annual change in made-ups imports from key competing countries Increase/decrease in imports India Bangladesh China Turkey Vietnam 2008-6% 8% 6% -7% -6% 2007 11% 19% 9% 2.5% 8% Source: Eurostat, IMaCS Analysis During 2008, value-wise imports of made-ups by EU27 declined by 2% (y-o-y). During 2008, though India maintained its market share in EU27 made-ups imports at 7%, the value-wise imports from India decreased by 6% y-o-y. Made-ups imports from China increased by 6% y-o-y resulting in an increase in its market share to 23% in 2008 from 21% in 2007. In 2008, value-wise made-ups imports from Bangladesh increased by 8% y-o-y whereas that from Turkey and Vietnam declined by 7% y-o-y and 6% y-o-y respectively. 68

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Euros/kg Bangladesh supplies made-ups at the most competitive prices followed by China and India Fig: Unit Value realisation for made-ups for the competing countries 6 5.5 5 4.5 4 3.5 3 2.5 Turkey China India Bangladesh Source: Eurostat, IMaCS Analysis Unit value realisation for made-ups imported from Bangladesh is the least amongst the key competing countries Unit value realisation of India decreased from 4.02 Euro/kg in Feb 2008 to 3.60 Euro/kg in Jun 2008 however there was an increase in price realisation in later months to 4.34 Euro/kg in Nov and 4.11 Euro/kg in Dec 2008. Though imports from India were relatively higher priced in early 2007, the unit value realisation of imports from India closely matched that of China from May 2008 onwards. 69

Made-ups imports by EU27 - Key findings During 2008, imports of made-ups by EU27 declined 1.4% y-o-y by volume and 2% y-o-y by value. Volume-wise made-ups imports declined by 8% y-o-y in Q4,2008 as against an increase of 16% y-oy in Q4,2007indicating an impact of economic slowdown. Decline in made-ups import volume during 2008 was significant in the month of October (6.5% y-oy), November (15.3% y-o-y), and December (1.3% y-o-y). Amongst the countries under consideration, China is the leading supplier of made-ups to EU27 followed by India and Turkey. Though India maintained its market share at 8.9% of total made-ups import volume, the import volume from India declined by 1.8% y-o-y in 2008. Made-ups import volume from China increased by 7.8% y-o-y during 2008 resulting in increase in the market share of China from 27.6% in 2007 to 30.1% in 2008. Market share of Turkey in EU27 total made-ups import volume declined from 9.1% in 2007 to 8.6% in 2008. Bangladesh, though having a small share in EU27 made-ups import volume witnessed an increase in import volume by 15.8% (y-o-y) during 2008. Amongst the countries under consideration, Bangladesh supplies made-ups at the most competitive prices to EU27 followed by India and China. 70

UK is one of the largest importer of textile and clothing amongst the EU27 countries, accounting for 13.6% of the total EU27 countries T&C import value UK is one of the largest importer of textile and clothing amongst the EU27 countries with imports of textile and clothing worth 23.6 billion Euros in 2007, accounting for 13.6% of the total EU27 countries T&C import value. Garment is the major import product constituting 76% of the total T&C imports by value and 50% of total T&C imports by volume. Share of garments and made-ups in the import basket has increased over the years whereas that of yarn and fabric has decreased. Other special yarns and fabrics 27% Made-ups 11% Fig: Volume wise share of products in total T&C imports by UK Jan Dec 2005 Jan Dec 2008 Other Yarn special Yarn 11% yarns and Fabric 8% fabrics 9% 22% Garment 42% Made-ups 13% Garment 50% Fabric 7% 72 Source: Eurostat, IMaCS Analysis

'000 MT billion Euros During 2008, T&C imports by UK decreased 10% (y-o-y) by value and 11% (y-o-y) by volume 3400 Fig: Total T&C imports by UK 25 40% Fig: Year-wise growth in total T&C imports 3000 23 30% 20% 2600 21 10% 0% 2200 2002 2003 2004 2005 2006 2007 2008 19-10% -20% 2003 2004 2005 2006 2007 2008 Volume in '000 MT Value in billion Euros % increase in volume % increase in value Source: Eurostat, IMaCS Analysis Total T&C imports by UK increased at a 5-year CAGR of 1.1% in value terms from 2002 to 2007. During 2008, the import value decreased by 10% y-o-y as against a marginal increase of 1% y-oy in 2007. During the same period, total T&C import volume decreased by 11% (y-o-y) as against an increase of 9% (y-o-y) in 2007. 73

Impact of economic slowdown on the imports of textile and clothing Impact of economic slowdown on T&C imports by EU27 Impact of economic slowdown on T&C imports by UK Yarn imports Fabric imports Garment imports Made-ups imports Impact of economic slowdown on T&C imports by US Impact of economic slowdown on T&C imports by Japan Projected T&C imports in identified global markets for 2015 74

'000 MT million Euros During 2008, yarn imports by UK declined 17.2% (y-o-y) by value and 13.1% (y-o-y) by volume Fig: Yarn Imports by UK Fig: Year-wise growth in imports of yarn 550 450 350 250 1200 1100 1000 900 800 700 600 55% 35% 15% -5% -25% -45% 2003 2004 2005 2006 2007 2008 150 500 % increase in Volume % increase in Value Volume in '000 MT Value in million Euros Source: Eurostat, IMaCS Analysis Total yarn imports by UK decreased at a compounded annual rate of 9.7% in volume terms and 7.4% in value terms from the year 2002 to 2007. Value-wise yarn imports by UK declined by 17.2% (y-o-y) in 2008 as against a decline of 6.5 % (y-o-y) in 2007. Volume-wise yarn imports in 2008 declined by 13.1% (y-o-y) as against a decline of 8.2% in 2007. 75

UK yarn imports witnessed the impact of economic slowdown with volume-wise imports declining by 14% (y-o-y) in Q3,2008 and 19% (y-o-y) in Q4,2008 0% -10% -20% Fig: Year-on-year increase in volume-wise yarn imports by UK -7% -7%-8% -8% -13% -14% -11% Q1 Q2 Q3 Q4-19% y-o-y % increase in yarn import volume (2007 over 2006) y-o-y % increase in yarn import volume (2008 over 2007) -5% -15% -25% Fig: Year-on-year increase in value-wise yarn imports by UK -4% -16% -6% -12% -5% -21% -11% -20% Q1 Q2 Q3 Q4 y-o-y % increase in yarn import value (2007 over 2006) y-o-y % increase in yarn import value (2008 over 2007) Source: Eurostat, IMaCS Analysis Yarn imports by UK witnessed an impact of the economic slowdown with imports during H2 2008 declining at a faster pace than that witnessed in H2 2007. In Q3,2008 yarn imports declined 14% y-o-y by volume and 21% y-o-y by value. The decline in imports continued in Q4,2008 with a reduction of 19% y-o-y by volume and 20% y-o-y by value. 76

Volume-wise yarn imports in 2008 registered a significant decline post September as compared to the imports in same period, previous year '000 MT million Euros Fig: Volume-wise monthly yarn imports Fig: Value-wise monthly yarn Imports 26 24 22 20 18 16 14 12 10 Jan Feb Mar Apr May Jun 2006 2007 2008 Jul Aug Sep Oct Nov Dec 90 80 70 60 50 40 30 2006 2007 2008 Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Source: Eurostat, IMaCS Analysis Volume-wise yarn imports in 2008 registered significant decline in September (15.9% y-o-y), October (13.1% y-o-y), November (23.2% y-o-y) and December, 2008 (21.2% y-o-y). Yarn imports by value also registered a decline in each month with a significant decline in the month of September (22.2% y-o-y), October (13.2% y-o-y), November (23% y-o-y), and December 2008 (26.3% y-o-y). 77

000 MT China is the leading exporter of yarn to UK followed by Turkey and India Fig: Volume-wise share of EU Intra and EU Extra in total yarn imports by UK Jan Dec 2007 EU Extra 44% EU Intra 56% Jan Dec 2008 EU Extra 48% EU Intra 52% 140 120 100 80 60 40 20 0 Fig: Yarn imports by UK from EU Extra countries Share of EU Intra in the total yarn import volume has decreased from 66% in 2005 to 56% in 2007 and 52% in 2008. Amongst the EU Extra countries, China is the leading exporter of yarn to UK followed by Turkey and India. Share of China in UK yarn import volume has increased from 5.4% in 2005 to 9.6% in 2007 and 11.3% in 2008. Share of Turkey in UK yarn import volume had stagnated at around 7.5% till 2007 however there was an increase in its share to 10.2% in 2008. India s share in UK yarn import volume increased from 2.8% in 2005 to 4.2% in 2007 and 4.8% in 2008. 78 7.7% 7% 7.8% 10.2% 4.2% 4.8% 2.8% 3.5% 5.4% 6.4% 9.6% 11.3% 2002 2003 2004 2005 2006 2007 2008 Other EU Eextra Vietnam Turkey Sri Lanka India China Bangladesh Source: Eurostat, IMaCS Analysis

Though yarn import volume decreased by 13.1% during 2008, the imports from Turkey increased by 14.6% y-o-y Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Demand Shrunk - 13.1% China (2.3%) India (- 1.2%) Turkey (14.6%) EU Intra (- 19.5%) Other EU Extra (- 14.8%) Volume-wise yarn imports by UK declined by13.1% (y-o-y) in 2008. Source: Eurostat, IMaCS Analysis In spite of drop in imports, yarn import volume from Turkey increased significantly (by 14.6% y-oy) during 2008 resulting in increase in market share of Turkey from 7.7% in 2007 to 10.2% in 2008. Yarn import volume from China also increased by 2.3% (y-o-y) resulting in increase in market share of China from 9.7% in 2007 to 11.3% in 2008. Though India s market share in UK yarn import volume increased marginally during 2008, the import volume from India declined by 1.2% 79

During 2008, value-wise yarn imports from India declined by 2.9% (yo-y) whereas that from Turkey increased by 1.6% (y-o-y) Turkey Fig: Value-wise share of key competing countries in yarn imports by UK China India 4.6% 5% 4.3% 5% 7% 9% 2007 2008 0% 2% 4% 6% 8% 10% Table: Value-wise annual change in yarn imports from key competing countries Increase/decrease in imports India China Turkey 2008-2.9% -4.5% 1.6% 2007 19% 4.1% -3.8% Source: Eurostat, IMaCS Analysis Value-wise yarn imports by UK declined by 17.2% (y-o-y) in 2008 as against a decline of 6.5 % (y-o-y) in 2007. Amongst the analysed countries, China, India and Turkey are the major suppliers of yarn to UK. During 2008, though India marginally increased its market share in UK yarn imports, value-wise yarn imports from India declined by 2.9% y-o-y. Yarn imports from China fell by4.5% y-o-y, though it maintained its market share at 5% in 2008. Yarn imports from Turkey increased by 1.6% y-o-y during 2008 resulting in increase in its market share to 9% in 2008 from 7% in 2007. 80

Yarn imports by UK - Key findings During 2008, yarn imports by UK declined 13.1% y-o-y by volume and 17.2% y-o-y by value. Volume-wise imports declined 14% y-o-y in Q3,2008 and 19% y-o-y in Q4,2008 as against a decline of 8% y-o-y in Q3,2007 and 11% y-o-y in Q4,2007 indicating an impact of economic slowdown. Decline in yarn import volume during 2008 was significant in the month of October (13.1% y-oy), November (23.2% y-o-y) and December, 2008 (21.2% y-o-y). Amongst the countries under consideration, China is the leading supplier of yarn to UK followed by Turkey and India. Though India s market share in UK yarn import volume increased marginally from 4.2% in 2007 to 4.8% in 2008, yarn import volume from India declined by 1.2% y-o-y. Yarn import volume from China increased by 2.3% y-o-y during 2008 resulting in an increase in market share of China from 9.6% in 2007 to 11.3% in 2008. Yarn import volume from Turkey increased by 14.6% y-o-y during 2008 resulting in increase in market share of Turkey from 7.8% in 2007 to 10.2% in 2008. 81

000 MT Million Euros Total fabric imports by UK declined 13.7% (y-o-y) by volume and 18.8% (y-o-y) by value during 2008 350 310 270 230 190 150 Fig: Total Fabric Imports by UK 2002 2003 2004 2005 2006 2007 2008 2400 2200 2000 1800 1600 1400 1200 1000 Volume in '000 MT Value in million Euros Fig: Year-wise growth in fabric imports 5% -5% -15% -25% 2003 2004 2005 2006 2007 2008 % increase in Volume % increase in Value Source: Eurostat, IMaCS Analysis Total fabric imports by UK decreased at a compounded annual rate of 9.3% by volume and 9.7% by value from the year 2002 to 2007. During 2008, value-wise fabric imports by UK declined by 18.8% (y-o-y) as against a marginal increase of 0.5% (y-o-y) during 2007. Volume-wise fabric imports in 2008 declined by 13.7% (y-o-y) as against an increase of 2.5% (yo-y) in 2007. 83

UK fabric imports witnessed an impact of economic slowdown with value-wise imports declining by 22% (y-o-y) in Q3,2008 and by 24% (y-o-y) in Q4,2008 35% 25% 15% 5% -5% -15% -25% Fig: Year-on-year increase in volume-wise fabric imports by UK -3% -0.3% 33% -23% -12% -9% -7% Q1 Q2 Q3 Q4-19% y-o-y % increase in fabric import volume (2007 over 2006) y-o-y % increase in fabric import volume (2008 over 2007) 10% 0% -10% -20% -30% Fig: Year-on-year increase in value-wise fabric imports by UK -1% -11% 7% -19% 3% -22% -6% Q1 Q2 Q3 Q4-24% y-o-y % increase in fabric import value (2007 over 2006) y-o-y % increase in fabric import value (2008 over 2007) Source: Eurostat, IMaCS Analysis Fabric imports by UK witnessed an impact of economic slowdown with import value declining by 22% y-o-y in Q3,2008 as against an increase of 3% y-o-y in Q3,2007. Import value further declined in Q4,2008 by 24% (y-o-y) as against a decline of 6% (y-o-y) in Q4,2007. Fabric import volume also declined by 9% y-o-y in Q3,2008 and 19% y-o-y in Q4,2008 as against a decline of 12% in Q3,2007 and 7% y-o-y in Q4, 2007. 84

Fabric imports by UK declined significantly in the month of November and December, 2008 '000 MT Million Euros 35 Fig: Volume wise monthly fabric Imports Fig: Value wise monthly Fabric Imports 30 25 20 15 10 5 2006 2007 2008 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 150 140 130 120 110 100 90 80 70 60 2006 2007 2008 Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Source: Eurostat, IMaCS Analysis During 2008, fabric import volume registered a decline since March, 2008 with a significant decline in November (27.1% y-o-y) and December (25.9% y-o-y). Value-wise imports in 2008 registered a decline in each month with a significant decline in the month of September (20.5% y-o-y), October (19.8% y-o-y), November (27.1% y-o-y), and December (26% y-o-y). 85

000 MT Amongst the EU Extra countries, China is the leading exporter of fabric to UK followed by India and Turkey Fig: Volume-wise share of EU Intra and EU Extra in total fabric imports by UK Jan Dec 2007 EU Extra 54% EU Intra 16.7 46% Jan Dec 2008 EU Extra 55% 37 38.1 3.9 EU Intra 45% 200 180 160 140 120 100 80 60 40 20 0 Fig: Fabric imports by UK from EU Extra countries Share of EU Intra in total fabric import volume has decreased from 49.7% in 2005 to 46% in 2007 and 44% in 2008. Amongst the EU Extra countries, China is the leading exporter of fabric to UK followed by India and Turkey. Share of China in UK fabric import volume has increased from 10.1% in 2005 to 11.8% in 2007 however, there was a marginal decline to 11.5% in 2008. Share of Turkey has increased from 4.8% in 2005 to 7.1% in 2007 though there was a decline in share to 6.3% in 2008. Share of India in UK fabric import volume has remained stagnant for the last few years (2007 and 2008). 86 4.8% 6.9% 7.1% 7.8% 8.9% 7.6% 6.3% 7.6% 10.1% 11.2% 11.8% 11.5% 2002 2003 2004 2005 2006 2007 2008 Other EU Extra Vietnam Turkey Sri Lanka India China Bangladesh Source: Eurostat, IMaCS Analysis

Fabric imports from all major origins witnessed a decline during 2008 Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Demand Shrunk -13.7% China (-16.1%) India (- 13.4%) EU Intra (-16.2%) Turkey (- 23.3%) Other EU Extra (- 4.4%) Source: Eurostat, IMaCS Analysis Volume-wise fabric imports decreased by 13.7% (y-o-y) during 2008. Volume-wise fabric imports from Turkey decreased by 23.3% (y-o-y) during 2008 resulting in drop in market share of Turkey from 7.1% in 2007 to 6.3% in 2008. During 2008, fabric import volume from China declined by 16.1% (y-o-y) and from India declined by 13.4% (y-o-y). Sri Lankan fabric imports by UK surged during 2008, increasing by 56.8% (y-o-y) though the share of Sri Lanka in total UK fabric imports remained very small (0.1%). 87

During 2008, value-wise fabric imports declined from India (by 11% y- o-y), China (by 18% y-o-y) and Turkey (by 23% y-o-y) Turkey China India Fig: Value-wise share of key competing countries in the fabric imports by UK 9% 8% 8% 8% 7% 8% 0% 5% 10% 2007 2008 Table: Value-wise annual change in fabric imports from key competing countries Increase/decrease in imports India China Turkey 2008-11% -18% -23% 2007-1.7% 7% 9% Source: Eurostat, IMaCS Analysis Fabric imports by UK declined by 18.8% (y-o-y) in value terms during 2008. Amongst the analysed countries, China, India and Turkey are the major suppliers of fabric to UK. During 2008, though India increased its market share in UK fabric imports to 8% in 2008 from 7% in 2007, value-wise fabric imports from India declined by 11% y-o-y. During 2008, fabric imports from China decreased by 18% y-o-y but it was able to maintain its market share at 8%. Fabric imports from Turkey declined by 23% y-o-y during 2008 thus, its market share declined to 8% in 2008 from 9% in 2007. 88

Fabric imports by UK- Key findings During 2008, fabric imports by UK declined 13.7% y-o-y by volume and 18.8 % y-o-y by value. Volume-wise fabric imports declined by 19% y-o-y in in Q4,2008 as against a decline of 7% y-o-y in Q4,2007 indicating an impact of economic slowdown. Decline in fabric import volume during 2008 was significant in the month of November (27.1% y-oy) and December (25.9% y-o-y). Amongst the countries under consideration, China is the leading supplier of fabric to UK followed by India and Turkey. Though India maintained its market share in total fabric import volume by UK, volume-wise fabric imports from India declined by 13.4% y-o-y in 2008. Fabric import volume from China declined by 16.1% y-o-y during 2008 resulting in marginal drop in market share of China from 11.8% of UK total fabric import volume in 2007 to 11.5% in 2008. Market share of Turkey in UK total fabric import volume declined from 7.1% in 2007 to 6.4% in 2008 with a drop of 23.3% (y-o-y) in fabric import volume from Turkey. 89

000 MT Billion Euros During 2008, garment imports by UK increased by 4.4% (y-o-y) in volume terms though, value-wise imports declined by 8.5% (y-o-y) 1300 1250 1200 1150 1100 1050 1000 950 900 Fig: Garment imports by UK 2002 2003 2004 2005 2006 2007 2008 18 17 16 15 14 20% 10% 0% -10% Fig: Year-wise growth in imports 2003 2004 2005 2006 2007 2008 Volume in '000 MT Value in billion Euros % increase in Volume % increase in Value Source: Eurostat, IMaCS Analysis Total garment imports by UK increased at a 5-year CAGR of 5% by volume and 2.5% by value from the year 2002 to 2007. During 2008, garment imports increased 4.4% (y-o-y) by volume as against an increase of 8% (yo-y) during 2007. UK garment imports from EU Intra countries grew by 24.4% (y-o-y) whereas imports from EU Extra countries almost stagnated. Value-wise garment imports in 2008 declined by 8.5% (y-o-y) as against an increase of 1.5% (yo-y) in 2007. 91

Garment imports declined significantly in Q1,2008 and Q2,2008 with the rate of decline moderating in Q3,2008 30% 20% 10% 0% -10% Fig: Year-on-year increase in volume-wise garment imports by UK 8% -6% 20% -10% 7% -2% 0% Q1 Q2 Q3 Q4 33% y-o-y % increase in garment import volume (2007 over 2006) y-o-y % increase in garment import volume (2008 over 2007) 92 5% 0% -5% -10% -15% Fig: Year-on-year increase in value-wise garment imports by UK 1% -11% 4% -13% 3% -7% -1% -3% Q1 Q2 Q3 Q4 y-o-y % increase in garment import value (2007 over 2006) y-o-y % increase in garment import value (2008 over 2007) Source: Eurostat, IMaCS Analysis Garment import value witnessed a sharp decline in Q1,2008 (by 11.4% y-o-y) and Q2,2008 (by 12.7% y-o-y) though the decline moderated in Q3,2008 (to 7.1% y-o-y) and Q4, 2008 (to 3.2% y-o-y). Garment import volume also declined significantly in Q1,2008 (by 5.5%) and Q2,2008 (by 9.8%) though the decline moderated in Q3,2008 (to 1.6% y-o-y). Q4,2008 witnessed a 33.4% y-o-y increase compared to Q4,2007. Imports from EU Extra countries grew by 1.2% y-o-y in Q4,2008, whereas EU Intra imports grew by 2 times y-o-y in the same quarter.

During 2008, value-wise garment imports declined by 7.6% (y-o-y) in November and 0.5% (y-o-y) in December Thousand MT Million Euros Fig: Volume wise monthly garment imports 2006 2007 2008 170 150 130 110 90 1600 1450 1300 Fig: Value wise monthly garment imports 2006 2007 2008 70 50 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 93 1150 1000 Jan Feb Mar AprMay Jun JulyAug Sep Oct NovDec Source: Eurostat, IMaCS Analysis Value-wise imports in 2008 witnessed a significant decline in May (by 16.2% y-o-y), June (by 16.7% y-o-y), Aug (by 10% y-o-y) and November (by 7.6% y-o-y), 2008. Volume-wise imports in 2008 witnessed a dramatic increase in November (32.8% y-o-y) and December 2008 (80.6% y-o-y). In November 2008, imports from EU Extra countries fell by 2.3% y-o-y, while EU Intra imports increased by 2 times y-o-y. Similarly, in December 2008, imports from EU Extra countries grew by only 3.3% y-o-y, whereas EU Intra imports grew by 5 times y-o-y in the same month.

Thousand MTs China is the major supplier of garments to UK followed by Bangladesh and Turkey Fig: Volume-wise share of EU Intra and EU Extra in total garment imports by UK Jan Dec 2007 EU Extra 79% EU Extra 82% Jan Dec 2008 EU Intra 18% EU Intra 21% 1200 1000 800 600 400 200 0 Fig: Garment imports by UK from EU Extra countries 10.1% 9.1% 5.7% 5.0% 8.7%% 28% 28% 32% 35% 8.2% 9.6% 8.8% 8.7% Source: Eurostat, IMaCS Analysis EU Extra is the major supplier of garments to UK and its share has increased over the years from 80.5% in 2005 to 82.1% in 2007but declined to 78.7% in 2008. China is the leading supplier of garments to UK followed by Bangladesh, Turkey and India. Share of China in UK garment import volume has increased over the years from 28% in 2005 to 34.6% in 2008. Share of Bangladesh in UK garment import volume has increased from 8.2% in 2005 to 8.7% in 2008 and that of India has decreased from 5.7% in 2005to 5.5% in 2008. During 2008, Sri Lanka had a share of 3.7% in UK garment import volume whereas Vietnam maintained a share of 2%. 5.7% 6.5% 5.5% 2002 2003 2004 2005 2006 2007 2008 Other EU Extra Vietnam Turkey Sri Lanka India China Bangladesh 94

During 2008, garment import volume from China increased by 14% (yo-y) whereas that from India increased by 1.5% (y-o-y) Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Bangladesh (+ 3.6%%) EU Intra (+24.4%) Other EU Extra (- 15.1%) China (+ 14.3%) Vietnam (+ 2.4%) Turkey (- 22.2%) Sri Lanka +8.9% India (+ 1.5%) Source: Eurostat, IMaCS Analysis Volume-wise garment imports by UK have increased by 4.4% (y-o-y) in 2008. Volume-wise imports from China increased by 14.3% y-o-y resulting in increase in market share of China in UK garment import volume from 31.6% in 2007 to 34.6% in 2008. Volume-wise imports also increased from Bangladesh, India and Sri Lanka by 3.6% (y-o-y), 1.5% (y-o-y) and 8.9% (y-o-y) respectively. Garments imports from Turkey have dropped by 22.2% y-o-y resulting in drop in market share from 8.8% in 2007 to 6.5% in 2008. 95

During 2008, value-wise garment imports from India declined by 6% (y-o-y) whereas that from China increased by 17% (y-o-y) Fig: Value-wise share of key competing countries in garment imports by UK Vietnam 1.3% 2007 1.5% 12% Turkey 2008 10% Sri Lanka China Bangladesh India 3.3% 3.9% 5% 6% 6% 6% 26% 33% -5% 5% 15% 25% 35% Table: Value-wise annual change in garment imports from key competing countries During 2008, value-wise garment imports by UK declined by 8.5% (y-o-y) as against an increase of 1.5% (y-o-y) in 2007. During 2008, though India maintained its market share in UK garment imports at 6%, value-wise imports from India decreased by 6% y-o-y. Garment imports from China increased by 17% y-o-y resulting in an increase in its market share to 33% in 2008 from 26% in 2007. During 2008, value-wise garment imports from Bangladesh reduced by 1.1% y-o-y. Imports from Turkey also declined by 27% y-o-y during 2008 resulting in a drop in its market share to 10% in 2008 from 12% in 2007. Imports from Sri Lanka and Vietnam increased by 6% y-o-y and 10% y-o-y respectively in 2008. 96 Increase/decrease in imports India Bangladesh China Sri Lanka Turkey Vietnam 2008-6% -1.1% 17% 6% -27% 10% 2007 14% -2.7% 12% 0.3% 9% 9% Source: Eurostat, IMaCS Analysis

Garment imports by UK - Key findings During 2008, garment imports by UK increased 4.4% (y-o-y) by volume but import value declined by 8.5% (y-o-y). Increase in garment import volume has been on account of surge in EU Intra imports which increased by 2 times during Q4, 2008 whereas imports from EU Extra countries grew by 1.2% y-o-y. Amongst the countries under consideration, China is the leading supplier of garments to UK followed by Bangladesh and Turkey. India s share in UK garment import volume was 5.7% in 2007 which decreased to 5.5% in 2008 though import volume from India increased by 1.5% y-o-y. Garment import volume from China increased by 14.3% y-o-y in 2008 resulting in increase in its market share in UK total garment import volume from 31.6% in 2007to 34.6% in 2008. Garment import volume from Bangladesh increased by 3.6% y-o-y during 2008 whereas that from Turkey declined by 22.2% y-o-y resulting in a drop in market share of Turkey in UK total garment import volume from 8.7% in 2007 to 6.5% in 2008. Volume-wise garment imports from Sri Lanka increased by 8.9% (y-o-y). 97

'000 MT Million Euros During 2008, made-ups imports declined 1.5% (y-o-y) by volume though the decline was much higher in value terms i.e. 11.7%(y-o-y) Fig: Imports of Made-ups by UK 360 1700 320 1600 1500 280 1400 240 1300 200 1200 2002 2003 2004 2005 2006 2007 2008 Volume in '000 MT Value in million Euros Fig: Year-wise growth in imports 35% 25% 15% 5% -5% -15% 2003 2004 2005 2006 2007 2008 % increase in Volume % increase in Value Source: Eurostat, IMaCS Analysis Total made-ups imports by UK increased at a 5-year CAGR of 9% by volume and 4% by value from 2002 to 2007. During 2008, made-ups imports declined 1.5% y-o-y by volume as against an increase of 4% y- o-y in 2007. Value-wise imports of made-ups in 2008 declined by 11.7% y-o-y as against an increase of 2% y- o-y in 2007. 99

UK made-ups import volume witnessed a decline of 4% (y-o-y) in Q4, 2008 as against an increase of 5% (y-o-y) in Q4, 2007 10% 5% 0% -5% Fig: Year-on-year increase in volume-wise made-ups imports by UK 10% -4% 2% 0% -1% 2% 5% Q1 Q2 Q3 Q4-4% y-o-y % increase in made-ups import volume (2007 over 2006) y-o-y % increase in made-ups import volume (2008 over 2007) 15% 5% -5% -15% -25% Fig: Year-on-year increase in value-wise made-ups imports by UK 13% 2% -12% -11% 4% -15% -10% Q1 Q2 Q3 Q4-9% y-o-y % increase in made-ups import value (2007 over 2006) y-o-y % increase in made-ups import value (2008 over 2007) Source: Eurostat, IMaCS Analysis Made-ups import volume witnessed a declined of 4% y-o-y in Q4,2008 as against an increase of 5% (y-o-y) in Q4, 2007. Decline in made-ups import value was significantly higher than the decline in import volume in each quarter of 2008 indicating a shift towards low-priced products. 100

'000 MT Imports of made-ups declined significantly from the month of November, 2008 Million Euros 34 32 30 28 26 24 22 20 Fig: Volume wise monthly made-ups Imports 2006 2007 2008 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Fig: Value wise monthly Made-ups imports 180 2006 2007 2008 160 140 120 100 Jan Feb Mar Apr MayJun JulyAug Sep Oct NovDec Source: Eurostat, IMaCS Analysis Volume-wise made-ups imports in 2008 registered a significant decline in September (by 11.7% y-o-y), November (by 4.7% y-o-y), and December (by 3.8% y-o-y). Made-ups imports by value registered a decline in each month with a significant decline in the month of September (14% y-o-y), October (10.2% y-o-y), November (9.5% y-o-y), and December (7.3% y-o-y) 2008. 101

China is the leading exporter of made-ups to UK with its share increasing over the years Fig: Volume-wise share of EU Intra and EU Extra in total made-up imports by UK EU Extra 85% Jan Dec 2007 EU Intra 15% Fig: Made-ups imports by UK from EU Extra countries 350000 300000 250000 200000 150000 100000 50000 0 8.6% 14.3% 29.2% 5.5% 6.6% 6.6% 6.7% 2002 2003 2004 2005 2006 2007 2008 Source: Eurostat, IMaCS Analysis EU Extra is the major supplier of made-ups to UK with its share increasing over the years from 82.3% in 2005 to 85% in 2007 and 87% in 2008. 7.7% 13.4% 28.8% 6.6% 5.7% 14.3% 13.2% 32.9% 34.5% Other EU Extra Vietnam Turkey Sri Lanka India China Bangladesh Jan Dec 2008 EU Intra 13% EU Extra 87% Amongst the EU Extra countries, China is the leading supplier of made-ups to UK followed by India, Bangladesh and Turkey; the share of Sri Lanka and Vietnam being negligible. Share of China in UK made-ups import volume has increased over the years from 29.2% in 2005 to 34.5% in 2008. India had a share of 14.4% in UK made-ups import volume in 2007 though there was a decline in its share to 13.2% in 2008. Share of Bangladesh in made-ups import volume has increased from 5.5% in 2005 to 6.7% in 2008 whereas share of Turkey has decreased from 8.8% in 2005 to 5.7% in 2008. 102

Though total made-ups import volume declined during 2008, import from China increased by 3.3% y-o-y Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 EU Intra (-14.4%) Demand Shrunk - 1.5% Other EU Extra (+ 9%) China (+ 3.3%) Turkey (- 16.3%) India (- 9.2%) Source: Eurostat, IMaCS Analysis Volume-wise made-ups imports byuk declined by 1.5% (y-o-y) in 2008. In spite of decline in total imports, the import volume from China increased by 3.3% y-o-y during 2008 resulting in increase in its market share from 33% in 2007 to 34.5% in 2008. Volume-wise imports from India declined by 9.2% y-o-y resulting in drop in its markets share from 14.3% in 2007 to 13.2% in 2008. During 2008, import volume from Bangladesh was maintained as the previous year whereas imports from Turkey declined by 16.3% (y-o-y). Though Sri Lanka has a very small share (0.3% in 2007) in UK made-ups import volume, the import volume surged by 18.4% (y-o-y) in 2008. 103

During 2008, value-wise made-ups imports from India decreased by 12% (y-o-y) Fig: Value-wise share of key competing countries in made-ups imports by UK Table: Value-wise annual change in made-ups imports from key competing countries 0.7% Vietnam 0.7% 2007 Turkey China Bangladesh India 2008 9% 8% 31% 35% 5% 5% 11% 11% 0% 10% 20% 30% 40% Increase/decrease in imports India Bangladesh China Turkey Vietnam 2008-12% -11% -0.2% -25% -17% 2007 10% -3% 2.1% -7% 0% Source: Eurostat, IMaCS Analysis Value-wise imports of made-ups by UK declined by 11.7% y-o-y in 2008 as against an increase of 2% y-o-y in 2007. During 2008, though India maintained its market share in UK made-ups imports at 11%, the value-wise imports from India decreased by 12% y-o-y. Made-ups imports from China fell marginally by 0.2% y-o-y, resulting in an increase in its market share to 35% in 2008 from 31% in 2007. In 2008, Bangladesh and Vietnam maintained their market share, but value-wise imports from these countries fell by 11% y-o-y and 17% y-o-y respectively. Made-ups imports from Turkey fell drastically by 25% y-o-y, resulting in fall in its market share to 8% in 2008 from 9% in 2007. 104

Made-ups imports by UK - Key findings During 2008, imports of made-ups by UK declined 1.5% y-o-y by volume and 11.7% y-o-y by value. This indicates a drop in demand as well as shift of demand towards low-priced products on account of economic slowdown. Decline in made-ups import volume during 2008 was significant in the month of November (4.7% y- o-y) and December (3.8% y-o-y). Amongst the countries under consideration, China is the leading supplier of made-ups to EU27 followed by India and Bangladesh. Made-ups import volume from India declined by 9.2% y-o-y during 2008 resulting in drop in the market share of India from 14.3% in 2007 to 13.2% in 2008. Made-ups import volume from China increased by 3.3% y-o-y during 2008 resulting in increase in the market share of China from 32.9% in 2007 to 34.5% in 2008. Market share of Turkey in UK total made-ups import volume declined from 6.6% in 2007 to 5.7% in 2008 whereas Bangladesh maintained the same share as previous year. 105

US is the second largest importer of T&C accounting for 9.6% of world textile imports and 23.7% of world clothing imports US is the second largest importer of T&C after EU27 with imports worth US $ 96 billion during Jan Dec 2007, up 3.4% from Jan Dec 2006. Garments are the major import product constituting 76.7% of the total T&C import value and 45% of the total T&C import volume. Fabric and yarn imports form a smaller share of the US total T&C imports; their share in imports has declined over the years, while the share of made-ups has increased Fig: Volume wise share of products in total T&C imports by US Jan Dec 2005 Jan Dec 2008 Madeups 30.8% Apparel 43.3% Madeups 33.6% Apparel 45.1% Fabric 18.7% Fabric 15.5% Yarn 7.1% 107 Yarn 5.8% Source: Otexa, IMaCS Analysis

Billion SME US $ billion During Jan Dec 2008, T&C imports by US declined 3.3% (y-o-y) by value and 5.2% (y-o-y) by volume 60 Fig: Total T&C imports by US 100 12% Fig: Year-wise growth in total T&C imports 90 50 80 40 70 30 60 2002 2003 2004 2005 2006 2007 2008 Volume in billion SME Value in US $ billion 8% 4% 0% -4% -8% 2003 2004 2005 2006 2007 2008 % increase in volume % increase in value Source: Otexa, IMaCS Analysis US T&C imports witnessed a sharp decline in Jan Dec 2008 as against a growth in each preceding year. Though value-wise imports declined by 3.3% y-o-y during 2008, the drop in volume terms was 5.2% (y-o-y). * SME refers to square meter equivalents 108

Impact of economic slowdown on the imports of textile and clothing Impact of economic slowdown on T&C imports by EU27 Impact of economic slowdown on T&C imports by UK Impact of economic slowdown on T&C imports by US Yarn imports Fabric imports Garment imports Made-ups imports Impact of economic slowdown on T&C imports by Japan Projected T&C imports in identified global markets for 2015 109

Million SME US $ million During 2008, yarn imports by US declined 11.1% (y-o-y) by volume and 9% (y-o-y) by value 4000 3500 3000 2500 2000 Fig: Import of yarn by US 2002 2003 2004 2005 2006 2007 2008 Volume in million SME Value in US $ million 2000 1500 1000 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% Fig: Year-wise growth in imports of yarn 2003 2004 2005 2006 2007 2008 % increase in Volume % increase in Value Source: Otexa, IMaCS Analysis Volume-wise yarn imports by US declined by a 3-year cumulative annual rate of 7% from 2005 to 2008. Volume-wise yarn imports in Jan Dec 2008 declined by 11.1% (y-o-y) as against a decline of 9.7% (y-o-y) in 2007. During the same period, yarn imports in value terms declined by 9% (y-o-y) as against a decline of 9.5% (y-o-y) in 2007. 110

US yarn imports during 2008 witnessed a significant decline in each quarter of the year in line with the decline observed in 2007 Fig: Year-on-year increase in volume-wise yarn imports by US Fig: Year-on-year increase in value-wise yarn imports by US 0% -2% -10% -8% -7% -9% -8% -5% -4% -4% -13% -16% -20% -18% Q1 Q2 Q3 Q4 y-o-y % increase in yarn import volume (2007 over 2006) y-o-y % increase in yarn import volume (2008 over 2007) -15% -11% -9% -12% -10% -10% Q1 Q2 Q3 Q4-13% y-o-y % increase in yarn import value (2007 over 2006) y-o-y % increase in yarn import value (2008 over 2007) Source: Otexa, IMaCS Analysis Yarn imports by US witnessed a significant decline in each quarter of 2008. Decline in yarn imports during Jan Dec 2008 was in line with the decline observed in Jan Dec 2007 with the exception of Q4,2008 when the yarn import value declined by 13% (y-o-y) as against a drop of 4% (y-o-y) in Q4,2007. 111

million SME US $ million Yarn imports declined significantly in December, 2008 and the trend continued in January 2009 and February 2009 Fig: Volume-wise monthly yarn imports Fig: Value wise monthly Yarn Imports 350 2006 2007 150 310 270 230 2008 2009 130 110 190 90 150 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 70 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Otexa, IMaCS Analysis Volume-wise yarn imports in 2008 registered a significant decline in the month of June (23% y- o-y) and December (15% y-o-y); the trend continued in January 2009 with a decline of 23.5% y- o-y and in February 2009 with a decline of 24.6% y-o-y. Value-wise yarn imports in 2008 registered a significant decline in the month of November (12% y-o-y) and December (19% y-o-y); the trend continued in January 2009 with a decline of 26.5% y-o-y and also in February 2009 with a decline of 28.5% y-o-y. 112

million SME million SME China is a leading supplier of yarn to US with its share increasing over the years 700 600 500 400 300 200 100 0 Fig: Yarn imports by US from the six competing countries 0.6% 2.2% 2.5% 3% 0.7% 1.7% 5.2% 5.8% 1 % 0.9% 2 % 2.5% 6% 6% 9.7% 11.4% 2002 2003 2004 2005 2006 2007 2008 16.2% 15.2% Source: Otexa, IMaCS Analysis During Jan Dec 2008, US imported only 21% of the total yarn import volume from the six countries under consideration; the other countries that account for significant share of US yarn import volume were Korea Rep (18%),Mexico (13%), Canada (12.5%),Indonesia (11%),Thailand and Pakistan (4% each). Amongst the countries under consideration, China, India and Turkey are the leading yarn exporters to US; the share of Sri Lanka, Bangladesh and Vietnam being negligible. India s share in US yarn import volume has increased over the years from 2.5% in 2005 to 5.9% in 2007 thereafter showing a stagnation. Share of China has increased at a faster pace from 3% in 2005 to 11.4% in 2008. In Jan 2009, China has gained a significant share in US yarn import volume (16.2% ) while the share of India and Turkey has remained almost stagnant. However the share of all these three countries has fallen in Feb 2009. 60 50 40 30 20 10 0 0.9% 2.44% 5.7% Jan-09 1% 2.4% 3.7% Feb-09 Vietnam Turkey Sri Lanka India China Bangladesh 113

Yarn imports from India declined by 11% (y-o-y) whereas that from China and Turkey increased by 4% (y-o-y) and 8% (y-o-y) respectively Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Turkey (+8%) Vietnam (-17%) Demand shrunk -11% India (-11%) China (+4%) Others (-13%) Source: Otexa, IMaCS Analysis Volume-wise yarn imports by US declined by 11% (y-o-y) in Jan Dec 2008. Though India maintained its market share in US yarn import volume in 2008, volumewise imports from India declined by 11% (y-o-y). US yarn imports from China increased by 4% (y-o-y) in Jan Dec 2008 increasing its market share from 9.7% in 2007 to 11.4% in 2008. Imports from Turkey increased by 8% (y-o-y) whereas that from Vietnam decreased by 17% (y-o-y). 114

During 2008, value-wise yarn imports from India declined by 8% (y-oy) whereas that from Turkey increased by 20% (y-o-y) Turkey Fig: Value-wise share of key competing countries in the yarn imports by US China India 3% 3.9% 4.7% 4.8% 6% 2007 2008 7% 0% 2% 4% 6% 8% Table: Value-wise annual change in yarn imports from key competing countries Increase/decrease in imports India China Turkey 2008-8% 2.2% 20% 2007 9% 24% 9% Source: Otexa, IMaCS Analysis During 2008, US yarn imports in value terms declined by 9% (y-o-y) as against a decline of 9.5% (y-o-y) in 2007. Amongst the analysed countries, China, India and Turkey are the major suppliers of yarn to US. During 2008, though India maintained its market share in US yarn imports, value-wise yarn imports from India declined by 8% y-o-y. Yarn imports from China increased by 2.2% y-o-y resulting in increase in its market share to 7% in 2008 from 6% in 2007. Yarn imports from Turkey increased by 20% y-o-y during 2008 resulting in increase in its market share to 3.9% in 2008 from 3% in 2007. 115

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 US $/SME China supplies yarn at the most competitive prices to US followed by India Fig: Unit Value realisation for yarn for the competing countries 1 China India Turkey World 0.8 0.6 0.4 0.2 Source: Otexa, IMaCS Analysis Unit value realisation for Chinese yarn is the least amongst the key competing countries followed by India. Unit value realisation of Indian yarn decreased from 0.39 US $/SME in February 2008 to 0.35 US $/SME in August 2008; there was an increase in realisation in October 2008 to 0.41 US $/SME however, the prices declined in January 2009 to 0.37 US $/SME. In February 2009 the unit value realisation further declined for India to 0.33 US $/SME 116

Yarn imports by US - Key findings During 2008, yarn imports by US declined 11.1% y-o-y by volume and 9% y-o-y by value. Yarn imports declined both volume and value-wise in each quarter of 2008 in line with the decline observed in 2007; the trend continued in 2009 with volume-wise yarn imports declining 23.5% y-oy and 24.6% y-o-y by volume and 26.5% y-o-y and 28.5% y-o-y by value in January and February respectively. During Jan Dec 2008, US imported only 21% of the total yarn imports from the six countries under consideration; the other countries that account for significant share of US yarn imports were Korea Rep (18%), Mexico (13%), Canada (12.5%), Indonesia (11%), Thailand and Pakistan (4% each). Amongst the countries under consideration, China is the leading supplier of yarn to US followed by India and Turkey. Though India maintained its market share of 6% in the total yarn import volume during 2008, yarn import volume from India declined by 11% y-o-y. Yarn import volume from China increased by 4% y-o-y during 2008 resulting in increase in market share of China from 9.7% of US total yarn import volume in 2007 to 11.4% in 2008. Yarn import volume from Turkey increased by 8% y-o-y during 2008 resulting in increase in market share of Turkey from 2% of US total yarn import volume in 2007 to 2.5% in 2008. Amongst the countries under consideration, China supplies yarn at the most competitive prices to US followed by India. 117

Impact of economic slowdown on the imports of textile and clothing Impact of economic slowdown on T&C imports by EU27 Impact of economic slowdown on T&C imports by UK Impact of economic slowdown on T&C imports by US Yarn imports Fabric imports Garment imports Made-ups imports Impact of economic slowdown on T&C imports by Japan Projected T&C imports in identified global markets for 2015 118

Million SME US $ million During 2008, fabric imports by US declined 9.3% (y-o-y) by volume and 7% (y-o-y) by value 10000 Fig: Fabric imports by US 5800 8% Fig: Year-wise growth in fabric imports 9000 8000 5600 5400 5200 4% 0% -4% -8% 7000 5000 2002 2003 2004 2005 2006 2007 2008 Volume in million SME Value in US $ million -12% 2003 2004 2005 2006 2007 2008 % increase in Volume % increase in Value Source: Otexa, IMaCS Analysis Fabric imports by US declined at a 3-year cumulative annual rate of 6% by volume and 4% by value from 2005 to 2008. Volume-wise imports in Jan Dec 2008 declined by 9.3% (y-o-y) as against a decline of 3% (yo-y) in Jan Dec 2007. Value-wise imports in Jan Dec 2008 declined by 7% (y-o-y) as against an increase of 1% (y-oy) in Jan Dec 2007. 119

US fabric imports witnessed an impact of economic slowdown with imports declining 16% (y-o-y) by volume and 19% (y-o-y) by value in Q4,2008 10% 0% -10% -20% Fig: Year-on-year increase in volume-wise fabric imports by US -7%-6% -6% -8% -8% 1% 1% Q1 Q2 Q3 Q4-16% y-o-y % increase in fabric import volume (2007 over 2006) y-o-y % increase in fabric import volume (2008 over 2007) 10% 0% -10% -20% Fig: Year-on-year increase in value-wise fabric imports by US -2% -0.04% 0% -5% 3% 4% -6% Q1 Q2 Q3 Q4-19% y-o-y % increase in fabric import value (2007 over 2006) y-o-y % increase in fabric import value (2008 over 2007) Source: Otexa, IMaCS Analysis Fabric imports by US witnessed an impact of economic slowdown with fabric import volume declining by 8% y-o-y in Q3,2008 as against a growth of 1% y-o-y in Q3,2007. Fabric import volume continued to decline in Q4,2008, by 16% y-o-y as against an increase of 1% y-o-y in Q4, 2007. Fabric import value also registered a decline of 6% y-o-y in Q3,2008 and 19% y-o-y in Q4,2008 as against an increase of 3% y-o-y in Q3,2007 and 4% y-o-y in Q4,2007 120

million SME US $ million Fabric imports by US declined significantly in December 2008; the trend continued in January 2009 with a decline of 11.5% (y-o-y) by volume and 25.2% (y-o-y) by value Fig: Volume wise monthly fabric imports Fig: Value wise monthly fabric imports 900 2006 550 800 700 2007 2008 2009 500 450 400 600 350 300 500 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 250 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Otexa, IMaCS Analysis Volume-wise fabric imports in Jan Dec 2008 registered a decline in each month with significant decline in the month of October (14.5% y-o-y), November(14.9% y-o-y) and December (17.9% y-o-y). Value-wise imports also declined significantly in October (12.8% y-o-y), November (20.9% y-oy) and December (22.4% y-o-y) Decline in fabric imports continued in 2009, with import volume declining by 11.5% and by 12.9% y-o-y in Jan and Feb respectively; the decline in import value was steeper, at 25.2% and 31.5%y-o-y in Jan and Feb respectively. 121

million SME million SME China is the leading supplier of fabric to US followed by India and Turkey 2500 2000 1500 1000 500 0 Fig: Fabric imports by US from the six competing countries 1.5% 0.4% 1 % 1.7% 0.5% 2.1% 1.6% 1.9% 6.5% 3.1% 4.4% 4.6% 17.4% 16.8% 18% 21.6% 2002 2003 2004 2005 2006 2007 2008 During Jan Dec 2008, US imported only 31% of the total fabric import volume from the six countries under consideration; the major share of imports were from Korea Rep (14.3%), Canada (9.4%), Mexico (6.5%), Israel (5.5%) and Japan (3.6%). Amongst the countries under consideration, China is the leading exporter of fabric to US, followed by India and Turkey; the share of Sri Lanka, Bangladesh and Vietnam being negligible. India s share in US fabric import volume has increased over the years from 3% in 2005 to 6.5% in 2008. Share of China in US fabric import volume has increased from 17.3% in 2005 to 21.6% in 2008 whereas that of Turkey declined from 2% in 2005 to 1.7% in 2008. Vietnam, though having a small market share, has witnessed a significant increase in share from 0.4% in 2005 to 1.5% in 2008. During January 2009, share of India, China and Vietnam in US fabric import volume increased whereas that of Turkey declined; In February however only the share of Vietnam has increased while the rest have declined 122 250 200 150 100 50 0 3% 1.5% 7.4% 23.3% Jan-09 4.9% 1.42% 5.3% 22.1% Vietnam Turkey Sri Lanka India China Bangladesh Feb-09 Source: Otexa, IMaCS Analysis

Volume-wise fabric imports from India increased by 27% (y-o-y) resulting in increase in market share from 4.6% (2007) to 6.5% (2008) Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Others (-16%) China (+8%) Demand shrunk -9.3% Source: Otexa, IMaCS Analysis India (+27%) Turkey (-16%) Vietnam (+34%) Volume-wise fabric imports by US declined by 9.3% (y-o-y) in Jan Dec 2008. Volume-wise fabric imports from India increased by 27% (y-o-y) in 2008 resulting in increase in market share of India from 4.6% in 2007 to 6.5% in 2008. US fabric imports from China increased by 8% (y-o-y) in Jan Dec 2008 increasing its market share from 18% in 2007 to 21.6% in 2008. US fabric imports from Vietnam registered a significant increase, by 34% (y-o-y) during 2008; the trend continued in January 2009 resulting in increase in Vietnam s share in US fabric import volume to 3% (January 2009). US fabric imports from Turkey witnessed a decline of 16% (y-o-y) in 2008. 123

During 2008, value-wise fabric imports from India increased by 23% (y-o-y) whereas that from Turkey declined by 5% (y-o-y) Fig: Value-wise share of key competing countries in fabric imports by US Table: Value-wise annual change in fabric imports from key competing countries Turkey China India 2.4% 2.5% 3.2% 4.2% 18% 2007 2008 22% Increase/decrease in imports India China Turkey 2008 23% 11% -5% 2007 1.5% 10% 6% 0% 5% 10% 15% 20% 25% Source: Otexa, IMaCS Analysis During 2008, fabric imports by US declined by 7% (y-o-y) in value terms. Amongst the analysed countries, China, India and Turkey are the major suppliers of fabric to US. Fabric imports from India increased by 23% y-o-y resulting in increase in its market share to 4.2% in 2008 from 3.2% in 2007. Fabric imports from China increased by 11% y-o-y resulting in increase in its market share to 22% in 2008 from 18% in 2007. Fabric imports from Turkey declined by 5% y-o-y during 2008 however, it maintained its market share. 124

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 US $/SME US fabric imports from India are at competitive prices though Vietnam is emerging as a low cost supplier 1.15 0.95 0.75 0.55 0.35 0.15 Fig: Unit Value realisation for fabric for the competing countries China India Turkey Vietnam World US fabric imports from India are at a price lower than average price and more competitive than China which explains the increase in share of India in US fabric imports during Jan Dec 2008. Unit value realisation of India increased from 0.39 US $/SME in September 2008 to 0.45 US $/SME in November 2008 however there was a decline in January 2009 to 0.32 US $/SME. In February 2009 the unit value realisation increased for India to 0.35 US $/SME Source: Otexa, IMaCS Analysis Vietnam is emerging as a low cost supplier of fabric to US; the share of Vietnam in US fabric imports has increased by 34% y-o-y during Jan Dec 2008 125

Fabric imports by US - Key findings (1) During 2008, fabric imports by US declined 9.3% y-o-y by volume and 7% y-o-y by value. Fabric imports declined 16% y-o-y by volume and 19% y-o-y by value in Q4,2008 as against an increase of 1% y-o-y and 4% y-o-y respectively in Q4,2007 indicating an impact of economic slowdown. Decline in fabric import volume during 2008 was significant in the month of October (14.5% y-oy), November(14.9% y-o-y) and December (17.9% y-o-y). Decline in fabric imports continued in 2009, with import volume declining by 11.5% y-o-y and by 12.9% y-o-y in Jan and Feb respectively; the decline in import value was steeper, at 25.2% y-o-y and 31.5% y-o-y in Jan and Feb respectively. Amongst the countries under consideration, China is the leading supplier of fabric to US followed by India and Turkey. Despite drop in total fabric imports, the fabric import volume from India increased by 27% y-o-y in 2008 resulting in increase in market share in US total fabric import volume from 4.6% in 2007 to 6.5% in 2008. Fabric import volume from China increased by 8% y-o-y during 2008 increasing its market share from 18% in 2007 to 21.6% in 2008; the trend continued in January 2009 with China s share in US fabric import volume increasing to 23.3% but falling to 22.1% in February 2009. 126

Fabric imports by US - Key findings (2) US fabric imports from Vietnam registered a significant increase of 34% (y-o-y) during 2008; the trend continued in January 2009 resulting in increase in Vietnam s share in US fabric import volume to 3% in January 2009 from 1.5% in 2008. Share of Vietnam again showed a drastic increase to 4.9% in February 2009 Market share of Turkey in US total fabric import volume declined from 1.9% in 2007 to 1.7% in 2008 on account of decline in fabric import volume from Turkey by 16% y-o-y; the trend continued in 2009. Amongst the countries under consideration, Vietnam supplies fabric at the most competitive prices to US followed by India. 127

Impact of economic slowdown on the imports of textile and clothing Impact of economic slowdown on T&C imports by EU27 Impact of economic slowdown on T&C imports by UK Impact of economic slowdown on T&C imports by US Yarn imports Fabric imports Garment imports Made-ups imports Impact of economic slowdown on T&C imports by Japan Projected T&C imports in identified global markets for 2015 128

US $ billion Retail sales of clothing and clothing accessories in US have declined sharply after September, 2008 20 Fig: US retail sales* of clothing and accessories 2006 8% Fig: Year-wise growth in US retail sales 19 2007 2008 4% 0% 18-4% -8% 17 16 Jan 2009 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -12% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2007 over 2006 2008 over 2007 2009 over 2008 Source: US Census, IMaCS Analysis US retail sales of clothing and accessories witnessed a decline of 1.5% (y-o-y) in Jan Dec 2008 after an increase of 5.3% (y-o-y) in 2007. Sales started declining in September 2008 with a significant decline in November (by 8% y-oy), December (by 10% y-o-y) of 2008 and January, 2009 (by 10% y-o-y). This can be attributed to the economic slowdown and resulting drop in expenditure. * Estimates are adjusted for seasonal variations and holiday and trading-day differences, but not for price changes. 129

US $ billion Drop in retail sales and piled up inventory at US retailers is resulting in drop in orders for garment exporting countries Fig: End of month retail inventories of US clothing and clothing accessories stores Fig: Inventory to Sales ratio of US clothing and clothing accessories stores 50 2006 2007 2008 2.80 2006 2007 2008 48 46 2.70 2.60 2.50 44 2.40 42 2.30 40 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2.20 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: US Census, IMaCS Analysis Clothing and clothing accessories retail stores have reduced their inventories during Jan Dec, 2008. On account of reduced sales, the inventory to sales ratio of the stores has increased significantly post September 2008. This is likely to result in drop in garment orders for the garment exporting countries. 130

Billion SME US $ billion During Jan Dec 2008, US garment imports witnessed a decline of 2.7% (y-o-y) by volume and 3.2% (y-o-y) by value 24 22 20 18 16 14 Fig: Garment imports by US 2002 2003 2004 2005 2006 2007 2008 80 70 60 50 40 12% 10% 8% 6% 4% 2% 0% -2% -4% Fig: Year-wise growth in garment imports 2003 2004 2005 2006 2007 2008 Volume in billion SME Value in US $ billion % increase in volume % increase in Value Source: Otexa, IMaCS Analysis During Jan Dec 2008, volume-wise garment imports by US declined by 2.7% (y-o-y) as against an increase at a 5-year CAGR of 6.2% from 2002 to 2007. Value-wise garment imports in Jan Dec 2008 also declined by 3.2% (y-o-y) as against an increase at a 5-year CAGR of 5.4% from 2002 to 2007. 131

US garment imports witnessed a decline since Q1,2008 in both volume and value terms 10% Fig: Year-on-year increase in volume-wise garment imports by US 9% 9% Fig: Year-on-year increase in value-wise garment imports by US 10% 5% 0% -5% -5% 5% -3% 2% -2% -0.9% Q1 Q2 Q3 Q4-1.1% y-o-y % increase in garment import volume (2007 over 2006) y-o-y % increase in garment import volume (2008 over 2007) 4% -1% -6% -5% 4% 1% -3% -2% -1% Q1 Q2 Q3 Q4-3% y-o-y % increase in garment import value (2007 over 2006) y-o-y % increase in garment import value (2008 over 2007) Source: Otexa, IMaCS Analysis Garment imports by US witnessed a significant decline since Q1,2008 however the decline moderated in each quarter. 132

Million SME Million US $ Decline in garment imports by US continued in January 2009 with imports declining 7% (y-o-y) by volume and 6.3% (y-o-y) by value Fig: Volume wise monthly garment imports Fig: Value wise monthly garment imports 2300 2050 2006 2007 2008 2009 8000 7500 7000 6500 1800 6000 5500 1550 5000 4500 1300 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 4000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Otexa, IMaCS Analysis Garment import volume declined by 6% y-o-y in November and 1% y-o-y in December, 2008; the trend continued in 2009 witnessing a decline of 7% y-o-y in January and in February of 14.8% y-o-y Garment import value also declined by 10% y-o-y in November and 1% y-o-y in December, 2008; the trend continued in 2009 witnessing a decline of 6.3% y-o-y in January and of 16.5% y-o-y in February. 133

billion SME million SME China is the leading supplier of garments to US followed by Vietnam and Bangladesh 14 12 10 8 6 4 2 0 Fig: Garment imports by US from the six competing countries 3.6% 3.6% 26.7% 4.2% 3.7% 5.5% 6.7% 3.7% 3.9% 28.9% 34.4% 34.3% 5.1% 5.8% 5.8% 6.3% 2002 2003 2004 2005 2006 2007 2008 During Jan Dec 2008, US imported 53% of the total garment import volume from the six countries under consideration. China is the leading exporter of garment to US followed by Vietnam, Bangladesh and India; share of Sri Lanka in US garment import volume is mere 2%. Share of China in US garment import volume has increased over the years from 26.7% in 2005 to 34.3% in 2008; the trend continued in January 2009 with marginal gain in share to 35.7%, however it fell in February 2009 to 31.7% Share of Bangladesh in US garment import volume has increased over the years from 3.6% in 2005 to 6.3% in 2008 and 7.8% in January 2009. Its share fell marginally in February 2009 to 7.4% Share ofvietnam has increased over the years from 4.2% in 2005 to 6.7% in 2008 and 8% in February 2009. India s share in US garment imports has increased marginally over the years from 3.6% in 2005 to 3.9% in 2008 thoughtheir was a significant increase in January 2009 to 5%. It further increased to 5.4% in February 2009 134 1200 1000 800 600 400 200 0 8.5% 5% 35.7% 8% 5.4% 31.7% 7.8% 7.4% Jan-09 Vietnam Turkey Sri Lanka India China Bangladesh Feb-09 Source: Otexa, IMaCS Analysis

Despite drop in total garment import volume in 2008, imports from Bangladesh increased by 6% (y-o-y) and that from Vietnam increased by 20% (y-o-y) Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Bangladesh (+6%) Volume-wise garment imports by US declined by 2.7% (y-o-y) in Jan Dec 2008. Garment imports from Bangladesh increased by 6% (y-o-y) thus, increasing its market share from 5.8% in 2007 to 6.3% in 2008. Others (-6%) China (-3%) Imports from Vietnam increased by 20% (y-o-y) thus, increasing its share in US garment import volume from 5.5% in 2007 to 6.7% in 2008. Though India s share in garment import volume remained stagnant in 2008, the volume-wise imports from India increased by 2% (y-o-y). Demand shrunk (-3%) Vietnam (+20%) India (+2%) Volume-wise garment imports from China decreased by 3% (y-o-y) in Jan Dec 2008 though China maintained its share at 34.3%. Source: Otexa, IMaCS Analysis 135

During 2008, value-wise garment imports from India decreased by 3% (y-o-y) whereas that from Vietnam increased by 20% (y-o-y) Fig: Value-wise share of key competing countries in garment imports by US Vietnam 6% 2007 7% 0.8% Turkey 2008 0.6% Sri Lanka China Bangladesh India 2.1% 2.1% 4.2% 4.8% 4.3% 4.3% 31% 32% Table: Value-wise annual change in garment imports from key competing countries Increase/decrease in imports India Bangladesh China Sri Lanka Turkey Vietnam 2008-3% 11% 0.8% -7% -28% 20% 2007-0.5% 7% 23% -7% -23% 35% Source: Otexa, IMaCS Analysis -5% 5% 15% 25% 35% During Jan Dec 2008, value-wise garment imports by US declined by 3.2% (y-o-y). India maintained its market share in US garment imports at 4.3% in 2008 however, value-wise imports from India decreased by 3% y-o-y. Garment imports from Vietnam increased by 20% y-o-y resulting in an increase in its market share to 7% in 2008 from 6% in 2007. Imports from China grew marginally by 0.8% y-o-y during 2008 resulting in a marginal increase in its market share to 32% in 2008 from 31% in 2007. Garment imports from Bangladesh increased by 11% y-o-y whereas imports from Sri Lanka and Turkey declined by 7% y-o-y and 28% y-o-y respectively in 2008. 136

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 US $/SME Bangladesh supplies garments at the most competitive prices to US followed by China 4 3.8 3.6 3.4 3.2 3 2.8 2.6 2.4 2.2 2 Fig: Unit Value realisation for garment for the competing countries Bangladesh China India Vietnam World US imports from Bangladesh are at the most competitive prices which explains the increase in share of Bangladesh in US garment exports. In early 2007, unit value realisation of Indian garment imports was highest amongst the four competing countries though the prices declined after June 2008. In January 2008, the unit value realisation of India was the highest amongst the analysed countries at 3.89 US $/SME however, the realisation dropped to 3.07 US $/SME in November 2008. There was a marginal increase in realisation to 3.27 US $/SME in January 2009. In February 2009 the unit value realisation increased for India to 3.39US $/SME 137 Source: Otexa, IMaCS Analysis

Garment imports by US - Key findings US retail sales of clothing and accessories witnessed a significant decline in November (by 8% y-oy), December (by 10% y-o-y) of 2008 and January, 2009 (by 10% y-o-y) owing to the economic slowdown and resulting drop in expenditure. On account of reduced sales, the inventory to sales ratio of the stores has increased from 2.55 in September to 2.73 in December 2008. Garment imports by US declined 2.7% (y-o-y) by volume and 3.2% (y-o-y) by value during Jan Dec 2008. Garment imports registered a decline since Q1,2008 with import volume declining in each subsequent quarter of 2008. Decline in garment imports continued in January 2009 and February 2009 with import value declining by 6.3% (y-o-y) and 16.5% y-o-y respectively. Amongst the countries under consideration, China is the leading supplier of garments to US followed by Vietnam and Bangladesh.. India s share in US garment import volume was 3.7% in 2007 which increased marginally to 3.9% in 2008 on account of 2% (y-o-y) increase in import volume however, India gained a significant share in US garment import volume (5%) in January 2009 and (5.4%) in February 2009. 138

Garment imports by US - Key findings (2) Garment import volume from China decreased by 3% (y-o-y) in Jan Dec 2008 though China maintained its share in US garment import volume at 34.3% ; there was a marginal increase in share of China to 35.7% in January 2009, which fell to 31.7% in February 2009. Garment import volume from Bangladesh increased by 6% y-o-y during 2008 resulting in increase in its market share from 5.8% in 2007 to 6.3% in 2008; Bangladesh further gained market share in January 2009 to 7.8% but lost marginally in February 2009 to 7.4%. US garment imports from Vietnam increased by 20% (y-o-y) in 2008 thus, increasing its share in US garment import volume from 5.5% in 2007 to 6.7% in 2008; the market share of Vietnam further increased in January 2009 to 8.5% which fell marginally to 8% in February 2009. Amongst the countries under consideration, Bangladesh supplies garments at the most competitive prices to US followed by China. 139

Impact of economic slowdown on the imports of textile and clothing Impact of economic slowdown on T&C imports by EU27 Impact of economic slowdown on T&C imports by UK Impact of economic slowdown on T&C imports by US Yarn imports Fabric imports Garment imports Made-ups imports Impact of economic slowdown on T&C imports by Japan Projected T&C imports in identified global markets for 2015 140

During Jan Dec 2008, US imports of made-ups witnessed a decline of 5.4% (y-o-y) by volume and 2.1% (y-o-y) by value Billion SME US $ billion Fig: Imports of made-ups by US 19 18 17 16 15 14 13 12 10 11 8 9 6 7 4 2002 2003 2004 2005 2006 2007 2008 Volume in billion SME Value in US $ billion Fig: Year-wise growth in made-ups imports 29% 24% 19% 14% 9% 4% -1% -6% 2002 2003 2004 2005 2006 2007 2008 % increase in Volume % increase in Value Source: Otexa, IMaCS Analysis Made-ups imports by US increased at a 5-year CAGR of 14% by volume and 13% by value from 2002 to 2007. During Jan Dec 2008, imports of made-ups declined for the first time in last five years. In 2008, import volume declined by 5.4% (y-o-y) as against an increase of 4.6% (y-o-y) in Jan Dec 2007. Likewise, import value in 2008 declined by 2.1% (y-o-y) as against an increase of 6.4% (y-o-y) in Jan Dec 2007. 141

US made-ups imports witnessed an impact of economic slowdown with imports declining 9% (y-o-y) by volume and 6% (y-o-y) by value in Q4,2008 6% 2% -2% -6% -10% Fig: Year-on-year increase in volume-wise made-ups imports by US 5% 4% 4% -1% -6% -5% 5% Q1 Q2 Q3 Q4-9% y-o-y % increase in made-ups import volume (2007 over 2006) y-o-y % increase in made-ups import volume (2008 over 2007) 8% 4% 0% -4% -8% Fig: Year-on-year increase in value-wise made-ups imports by US 7% 1% 5% -0.3% 7% -3% 7% Q1 Q2 Q3 Q4-6% y-o-y % increase in made-ups import value (2007 over 2006) y-o-y % increase in made-ups import value (2008 over 2007) Source: Otexa, IMaCS Analysis Made-ups imports by US witnessed an impact of economic slowdown with import volume declining by 5% y-o-y in Q3,2008 as against a growth of 4% y-o-y in Q3,2007. Decline in made-ups import volume continued in Q4,2008 by 9% y-o-y as against an increase of 5% in Q4, 2007. Made-ups import value also registered a decline of 3% y-o-y in Q3,2008 and 6% y-o-y in Q4,2008 as against an increase of 7% y-o-y each in Q3 and Q4 of 2007. 142

million SME US $ million Volume-wise made-ups imports declined by 15% (y-o-y) in November and by 10% (y-o-y) in December, 2008 with decline continuing in January 2009 1700 Fig: Volume wise monthly made-ups imports 1600 1500 1400 1300 1200 1100 1000 900 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 2007 2008 2009 Fig: Value wise monthly made-ups imports 1500 1400 1300 1200 1100 1000 900 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Otexa, IMaCS Analysis Though value-wise imports registered a significant decline in the months of June, July and August, but recovered to zero growth in October. There was a huge decline in import value in the months of November (9% y-o-y) and December (10% y-o-y), 2008. Import volume also declined significantly in November (by 15% y-o-y) and December (by 10% y-o-y), 2008. Decline in imports continued in 2009 with made-ups import value declining by 10.7% y-o-y and 23.6% y-o-y in January and February respectively. 143

million SME Billion SME China is the largest supplier of made-ups to US with a share of 63.8% in 2008 16 14 12 10 8 6 4 2 0 Fig: Made-ups imports by US from the six competing countries 7% 7.2% 7.5% 7.4% 7.7% 8.2% 60.8% 64.1% 63.8% 54.3% 58.1% 9.2% 45.3% 29.9% 2002 2003 2004 2005 2006 2007 2008 1200 1000 800 600 8.4% 9.1% 400 64.2% 57.4% 200 0 Vietnam Turkey Sri Lanka India China Bangladesh Jan-09 Feb-09 Source: Otexa, IMaCS Analysis During Jan Dec 2008, US imported 75% of the total made-ups import volume from the six countries under consideration. Amongst the analysed countries under consideration, China is the leading exporter of made-ups to US with around 64% share in total made-ups import volume. Share of China in US made-ups import volume increased from 58% in 2005 to 63.8% in 2008 and 64.2% in January 2009. Its share fell drastically in February 2009 to 57.4% In 2008, India had a share of 7.5% in US made-ups import volume (up from 7% in 2007); the share of India increased in January 2009 to 8.4%. India s share further increased in February 2009 to 9.1% 144

Made-ups import volume from India increased by 1.2% (y-o-y) whereas that from China declined by 6% (y-o-y) Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Demand Vietnam shrunk Turkey (+29%) -5% (-14%) India (+1.2%) Others (-7%) China (-6%) Bangladesh (+14%) Volume-wise made-ups imports by US declined by 5.4% in Jan Dec 2008. Despite decline in imports, volume-wise imports from India increased by 1.2% resulting in increase in market share from 7% in 2007 to 7.5% in 2008; share of India in US made-ups import volume further increased to 8.4% in January 2009. Volume-wise imports from Vietnam and Bangladesh also registered an increase during Jan Dec 2008 by 29% (y-o-y) and 14% (yo-y) respectively. Imports from China fell by 6% (y-o-y) in Jan Dec 2008 whereas that from Turkey fell by 14% (y-o-y). Source: Otexa, IMaCS Analysis 145

During 2008, value-wise made-ups imports from India increased by 2.1% (y-o-y) Fig: Value-wise share of key competing countries in made-ups imports by US 1.1% Vietnam 1.1% 2007 Turkey China Bangladesh India 2.7% 2.3% 0.6% 0.6% 11% 11% 2008 55% 56% 0% 10% 20% 30% 40% 50% 60% Table: Value-wise annual change in made-ups imports from key competing countries Increase/decrease in imports India Bangladesh China Turkey Vietnam 2008 2.1% 9% 0.7% -15% -1.8% 2007 5% 7% 12% -2.1% 8% Source: Otexa, IMaCS Analysis During Jan Dec 2008, US imports of made-ups witnessed a decline of 5.4% (y-o-y) by value. During 2008, value-wise imports from India increased by 2.1% y-o-y whereas that from China increased by 0.7% y-o-y. Though Bangladesh has a small market share, made-ups imports from Bangladesh increased by 9% y-o-y in 2008. Value-wise made-ups imports from Turkey and Vietnam fell by 15% y-o-y and 1.8% y-o-y respectively. 146

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 US $/SME US made-ups imports from Bangladesh are at the most competitive prices 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 Fig: Unit Value realisation for made-ups for the competing countries Bangladesh China India Vietnam World Source: Otexa, IMaCS Analysis US imports from Bangladesh are at the most competitive prices which explains the increase in share of Bangladesh in US made-ups exports. In March 2008, unit value realisation of Indian made-ups was the highest amongst the analysed countries at 1.48 US $/SME however, it declined to 1.26 US $/SME in December 2008. There was an increase in realisation in January 2009 to 1.32 US $/SME. In February 2009 the unit value realisation declined marginally for India to 1.3 US $/SME 147

Made-ups imports by US - Key findings During 2008, imports of made-ups by US declined 5.4% (y-o-y) by volume and 2.1% (y-o-y) by value. Volume-wise made-ups imports declined by 9% y-o-y in Q4,2008 as against an increase of 5% y-o-y in Q4,2007 indicating an impact of economic slowdown. Decline in made-ups import volume during 2008 was significant in the month of November (15% y- o-y) and December (10% y-o-y). Decline in imports continued in 2009 with made-ups import value declining by 10.7% y-o-y and 23.6% y-o-y in January and February respectively. Amongst the countries under consideration, China is the leading supplier of made-ups to US with a share of around 64% in the US made-ups import volume. Imports from China fell by 6% (y-o-y) in Jan Dec 2008. Despite decline in total made-ups import volume in 2008, volume-wise imports from India increased by 1.2% (y-o-y) resulting in increase in market share from 7% in 2007 to 7.5% in 2008; share of India in US made-ups import volume further increased to 8.4% in January 2009 and 9.1% February. Though Bangladesh has a very small share in US made-ups import volume (1.3% in 2008), volumewise imports from Bangladesh registered an increase during Jan Dec 2008 of 14% (y-o-y). Vietnam has a very small share in US made-ups import volume (0.8% in 2008), however, volumewise imports from Vietnam registered an increase during Jan Dec 2008 by 29% (y-o-y). 148

Japan is the third largest importer of clothing accounting for 6.7% share of world clothing imports Japan is the third largest importer of clothing with imports worth US $ 24 billion in 2007, accounting for 6.7% of the world clothing imports by value. The country is also the fourth largest importer of textile with imports worth US $ 6.3 billion in 2007, accounting for 2.5% of the world textile imports by value. Japan's economy witnessed economic slowdown after shrinking by 0.1% in the third quarter of 2008. The economy had shrunk by 0.9% in the April to June, 2008. 150

Impact of economic slowdown on the imports of textile and clothing Impact of economic slowdown on T&C imports by EU27 Impact of economic slowdown on T&C imports by UK Impact of economic slowdown on T&C imports by US Impact of economic slowdown on T&C imports by Japan Yarn imports Fabric imports Garment imports Made-ups imports Projected T&C imports in identified global markets for 2015 151

Million kgs Billion Yen During 2008, yarn imports by Japan declined 5.4% (y-o-y) by value and 1.4% (y-o-y) by volume 310 Fig: Yarn imports by Japan 110 Fig: Year-wise growth in imports of yarn 15% 300 290 280 105 100 95 10% 5% 270 90 0% 260 85-5% 250 2002 2003 2004 2005 2006 2007 2008 Volume Value 80-10% 2003 2004 2005 2006 2007 2008 % increase in volume % increase in value Source: Ministry of Finance, Japan IMaCS Analysis Value-wise yarn imports by Japan declined by 5.4% (y-o-y) in 2008 as against an increase of 11.2% (y-o-y) in 2007. Volume-wise yarn imports in 2008 declined by 1.4% (y-o-y) as against an increase of 2.4% (y-o-y) in 2007. 152

Yarn imports witnessed an impact of economic slowdown with volume-wise imports declining by 9.8% (y-o-y) in Q4,2008 Fig: Year-on-year increase in volume-wise yarn imports by Japan Fig: Year-on-year increase in value-wise yarn imports by Japan 2% 0.8% 4.7% 0% -5% -2% -1% -2% -2% -1.3% -10% -6% -15% -10% -9.8% Q1 Q2 Q3 Q4-20% -17% Q1 Q2 Q3 Q4 y-o-y % increase in yarn import volume (2008 over 2007) y-o-y % increase in yarn import value (2008 over 2007) Source: Ministry of Finance, Japan IMaCS Analysis Yarn imports by Japan declined significantly in Q4,2008 witnessing a significant impact of economic slowdown. Volume-wise yarn imports by Japan declined by 9.8% (y-o-y) in Q4,2008 whereas imports in value terms declined by 17.2% (y-o-y). 153

Million kgs Billion Yen Yarn imports declined significantly in the month of November and December, 2008 with the trend continuing in January, 2009 Fig: Volume-wise monthly yarn imports Fig: Value-wise monthly yarn Imports 27 25 23 21 19 2007 2008 2009 11 10 9 8 17 7 15 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 154 6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Ministry of Finance, Japan IMaCS Analysis Volume-wise yarn imports in Jan Dec 2008 registered a significant decline in the month of November (11% y-o-y) and December (16.7% y-o-y). Value-wise imports in Jan Dec 2008 registered a significant decline in the month of October (by 9.7% y-o-y), November (by 19.9% y-o-y) and December (by 23.5% y-o-y). Decline in imports continued in January 2009 with import volume declining by 19.6% y-o-y (as against a marginal increase of 0.1% y-o-y in January 2008) and import value declining by 31.6% y-o-y (as against an increase of 1.4% y-o-y in January 2008).

Million kgs Million kgs China is the leading supplier of yarn to Japan 90 80 70 60 50 40 30 20 10 0 Fig: Yarn imports by Japan from the six competing countries 6.4% 6% 6.2% 17.8% 19.2% 18.3% 2002 2003 2004 2005 2006 2007 2008 Bangladesh, China, India, Sri Lanka, Turkey and Vietnam together accounted for 26.4% of total yarn import volume of Japan in 2008; other countries with significant share in Japan yarn import volume are Taiwan (21.2%) and Indonesia (18.6%). China is the leading exporter of yarn, with a share of 18.3% (by volume) in 2008. Share of China increased from 16% of Japan s total yarn import volume in 2005 to 19.2% in 2007 however there was a marginal decline in 2008 to 18.3%. India had 6.2% share in Japan s total yarn import volume in 2008. In January 2009, share of China in Japan s total yarn import volume was 19.7% whereas that of India was 7.1%. 155 7 6 5 4 3 2 1 0 7.1% 19.7% Jan-09 Vietnam Turkey Sri Lanka India China Bangladesh Source: Ministry of Finance, Japan IMaCS Analysis

Though yarn import volume decreased by 1.4% (y-o-y) during 2008, import volume from India increased by 2.3% Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Demand Shrunk -1.4% Bangladesh (+ 7.5%) China (- 5.7%) India (+ 2.3%) Others (- 0.7%) Source: Ministry of Finance, Japan IMaCS Analysis Volume-wise total yarn imports by Japan declined by 1.4% (y-o-y) in 2008. Volume-wise yarn imports from India increased by 2.3% (y-o-y) during 2008 resulting in marginal increase in its share from 6% in 2007 to 6.2% in 2008. Yarn import volume from China declined by 5.7% (y-o-y) in 2008 resulting in drop in market share of China to 18.3% from 19.2% in 2007. 156

During 2008, value-wise yarn imports declined from India by 10% (yo-y) and from China by 8% (y-o-y) China India Fig: Value-wise share of key competing countries in yarn imports by Japan 9% 9% 22% 21% 2007 2008 0% 5% 10% 15% 20% 25% Table: Value-wise annual change in yarn imports from key competing countries Increase/decrease in imports India China 2008-10% -8% 2007-1% 16% Source: Ministry of Finance, Japan, IMaCS Analysis During 2008, yarn imports by Japan declined by 5.4% (y-o-y) in value terms. Amongst the analysed countries, China and India are the major suppliers of yarn to Japan. During 2008, though India maintained its market share in Japan yarn imports, value-wise yarn imports from India declined by 10% y-o-y. Yarn imports from China declined by 8% y-o-y resulting in a marginal fall in its market share to 21% in 2008 from 22% in 2007. 157

Yarn imports by Japan - Key findings During 2008, yarn imports by Japan declined 5.4% (y-o-y) by value and 1.4% (y-o-y) by volume. Volume-wise yarn imports by Japan declined by 9.8% (y-o-y) in Q4,2008 whereas imports in value terms declined by17.2% (y-o-y) indicating a significant impact of economic slowdown. Decline in yarn import volume during 2008 was significant in the month of November (11% y-o-y) and December (16.7% y-o-y), 2008. Decline in imports continued in January 2009 with import volume declining by 19.6% y-o-y (as against a marginal increase of 0.1% y-o-y in January 2008) and import value declining by 31.6% y- o-y (as against an increase of 1.4% y-o-y in January 2008). Bangladesh, China, India, Sri Lanka, Turkey and Vietnam together accounted for 26.4% of total yarn import volume of Japan in 2008; other countries with significant share in Japan yarn import volume are Taiwan (21.2%) and Indonesia (18.6%). Amongst the countries under consideration, China is the leading exporter of yarn to Japan, with a share of 18.3% (by volume) in 2008; yarn import volume from China declined by 5.7% (y-o-y) in 2008 resulting in drop in market share of China from 19.2% in 2007. Volume-wise yarn imports from India increased by 2.3% (y-o-y) during 2008 resulting in marginal increase in its share from 6% in 2007 to 6.2% in 2008. In January 2009, share of China in Japan s total yarn import volume has increased to 19.7% whereas that of India has increased to 7.1%. 158

Impact of economic slowdown on the imports of textile and clothing Impact of economic slowdown on T&C imports by EU27 Impact of economic slowdown on T&C imports by UK Impact of economic slowdown on T&C imports by US Impact of economic slowdown on T&C imports by Japan Yarn imports Fabric imports Garment imports Made-ups imports Projected T&C imports in identified global markets for 2015 159

Million Kgs Billion Yen During 2008, fabric imports by Japan declined 4.7% (y-o-y) by value and 0.2% (y-o-y) by volume 145 Fig: Fabric imports by Japan 100 15% Fig: Year-wise growth in Fabric imports 140 11% 135 90 7% 130 125 80 3% -1% 120 2002 2003 2004 2005 2006 2007 2008 Volume Value 70-5% 2003 2004 2005 2006 2007 2008 % increase in volume % increase in value Source: Ministry of Finance, Japan IMaCS Analysis Volume-wise fabric imports by Japan registered a decline since 2006; the import volume declined by 3.1% (y-o-y) in 2007 and 0.2% (y-o-y) in 2008. Value-wise imports declined by 4.7% (y-o-y) in 2008 as against a decline of 2.5% (y-o-y) in 2007. 160

Fabric imports witnessed an impact of economic slowdown with imports declining 10% by volume and 14% by value in Q4,2008 10% 5% 0% -5% -10% Fig: Year-on-year increase in volume-wise fabric imports by Japan 3% 1% 6% -10% Q1 Q2 Q3 Q4 y-o-y % increase in fabric import volume (2008 over 2007) 5% 0% -5% -10% -15% Fig: Year-on-year increase in value-wise fabric imports by Japan -3% -5% 5% -14% Q1 Q2 Q3 Q4 y-o-y % increase in fabric import value (2008 over 2007) Source: Ministry of Finance, Japan IMaCS Analysis Fabric imports by Japan witnessed an impact of economic slowdown with import volume declining by 10% y-o-y in Q4,2008. Fabric import value also registered a decline of 14% y-o-y in Q4,2008. 161

Million kgs Billion Yen Fabric imports declined significantly in November and December, 2008 with decline continuing in January, 2009 14 13 12 Fig: Volume-wise monthly fabric imports 2007 2008 2009 9 8 Fig: Value wise monthly fabric imports 11 7 10 6 9 8 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Ministry of Finance, Japan IMaCS Analysis Volume-wise fabric imports in 2008 witnessed a significant decline in November (by 11.7% y-o-y) and December (by 13.3% y-o-y). The trend continued in January 2009 with a decline in fabric import volume by 12.3% y-o-y as against an increase of 1.6% (y-o-y) in January 2008. Value-wise imports in 2008 also witnessed a significant decline in November (by 18.8% y-o-y) and December (by 17.4% y-o-y). In January 2009, value-wise fabric imports declined by 22.4% (y-o-y) as against a decline of 2.1% y- o-y in January 2008. 162

China is the leading supplier of fabric to Japan with a share of 48.4% in total fabric import volume in 2008 Million kgs Million kgs 90 80 70 60 50 40 30 20 10 0 Fig: Fabric imports by Japan from the six competing countries 2.2% 2.7% 2.9% 50.3% 50% 48.4% 2003 2004 2005 2006 2007 2008 6 5 4 3 2 1 0 45% Jan-09 2.3% Vietnam Turkey Sri Lanka India China Bangladesh Source: Ministry of Finance, Japan IMaCS Analysis Bangladesh, China, India, Sri Lanka, Turkey and Vietnam together accounted for 55.2% of total fabric imports by Japan in 2008. China is the leading exporter of fabric to Japan, with a share of 48.4% (by volume) in total fabric imports of 2008. Share of China in total fabric import volume declined marginally from 50.3% in 2006 India s share in Japan fabric imports has increased marginally from 2.2% in 2006 to 2.9% in 2008. 163

During 2008, fabric imports from India increased by 8.4% (y-o-y) whereas that from China declined by 3.4% (y-o-y) Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Demand Shrunk - 0.2% Others (+ 1.9%) China (- 3.4%) Vietnam (+ 6.1%) India (+ 8.4%) Source: Ministry of Finance, Japan IMaCS Analysis Volume-wise total fabric import by Japan declined marginally by 0.2% (y-o-y) in 2008. During 2008, fabric imports from India increased by 8.4% (y-o-y) and those from Vietnam increased by 6.1% (y-o-y). Fabric imports from China decreased by 3.4% (y-o-y) in 2008 resulting in drop in its market share to 48.4% from 50% in 2007. 164

During 2008, value-wise fabric imports from India declined by 0.5% (y-o-y) whereas that from Vietnam increased by 9% (y-o-y) Fig: Value-wise share of key competing countries in fabric imports by Japan Table: Value-wise annual change in fabric imports from key competing countries Vietnam China India 1.1% 1.3% 1.4% 1.4% 41% 42% 2007 2008 Increase/decrease in imports India China Vietnam 2008-0.5% -3.1% 9% 2007 29% 2.1% 12% 0% 10% 20% 30% 40% 50% Source: Ministry of Finance, Japan, IMaCS Analysis During 2008, fabric imports by Japan declined by 4.7% (y-o-y) in value terms. Amongst the analysed countries, China, India and Vietnam are the major suppliers of fabric to Japan. During 2008, though India maintained its market share in Japan fabric imports, value-wise fabric imports from India declined by 0.5% y-o-y. Fabric imports from China declined by 3.1% y-o-y although there was a slight increase in its market share to 42% in 2008 from 41% in 2007. Fabric imports from Vietnam increased by 9% y-o-y during 2008. 165

Fabric imports by Japan - Key findings During 2008, fabric imports by Japan declined 4.7% (y-o-y) by value and 0.2% (y-o-y) by volume. Fabric imports by Japan declined by 10% y-o-y in volume terms and 14% y-o-y in value terms during Q4,2008 owing to economic slowdown. Volume-wise fabric imports in 2008 witnessed a significant decline in November (by 11.7% y-o-y) and December (by 13.3% y-o-y). The trend continued in January 2009 with a decline in fabric import volume by 12.3% y-o-y as against an increase of 1.6% (y-o-y) in January 2008. Bangladesh, China, India, Sri Lanka, Turkey and Vietnam together accounted for 55.2% of total fabric imports by Japan in 2008. China is the leading exporter of fabric, with a share of 48.4% (by volume) in total fabric imports of 2008; fabric imports from China decreased by 3.4% (y-o-y) in 2008 resulting in drop in its market share from 50% in 2007. India had a share of 2.7% in total fabric import volume of Japan in 2007; fabric imports from India increased by 8.4% (y-o-y) in 2008 resulting in marginal increase in share of India to 2.9%. 166

Impact of economic slowdown on the imports of textile and clothing Impact of economic slowdown on T&C imports by EU27 Impact of economic slowdown on T&C imports by UK Impact of economic slowdown on T&C imports by US Impact of economic slowdown on T&C imports by Japan Yarn imports Fabric imports Garment imports Made-ups imports Projected T&C imports in identified global markets for 2015 167

Million kgs Billion Yen During 2008, garment imports by Japan declined 5.6% (y-o-y) by value and 1.3% (y-o-y) by volume 1100 1050 1000 950 900 850 Fig: Garment imports by Japan 2002 2003 2004 2005 2006 2007 2008 Volume Value 2700 2600 2500 2400 2300 2200 2100 2000 16% 12% 8% 4% 0% -4% -8% Fig: Year-wise growth in imports 2003 2004 2005 2006 2007 2008 % increase in volume % increase in value Source: Ministry of Finance, Japan IMaCS Analysis Garment imports by Japan increased at a 5-year CAGR of 5.1% by value and 2.7% by volume from 2002 to 2007. Volume-wise garment imports by Japan declined by 2.3% y-o-y in 2007 and 1.3% y-o-y in 2008. Garment import value declined by 5.6% y-o-y in 2008 as against an increase of 1.8% y-o-y in 2007. 168

Volume-wise garment imports increased by 2.6% (y-o-y) in Q4,2008 though the import value declined by 3% (y-o-y) 4% 1% -2% -5% Fig: Year-on-year increase in volume-wise garment imports by Japan -0.4% 3% -4% -4% Q1 Q2 Q3 Q4 y-o-y % increase in garment import volume (2008 over 2007) 0% -2% -4% -6% -8% -10% -12% Fig: Year-on-year increase in value-wise garment imports by Japan -7% -10% -3% -3% Q1 Q2 Q3 Q4 y-o-y % increase in Garment import value (2008 over 2007) Source: Ministry of Finance, Japan IMaCS Analysis Garment import volume by Japan witnessed a significant decline in H12008 though the decline moderated in Q3,2008 and the imports increased in Q4,2008 by 3% y-o-y. Garment import value also declined significantly in H12008 however, the decline moderated in Q3and Q4 of 2008. 169

Million kgs Billion yen Volume-wise garment imports increased by 8.3% (y-o-y) in December 2008 and the trend continued in January 2009 130 120 110 100 90 80 70 60 50 Fig: Volume wise monthly Garment Imports by Japan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2007 2008 2009 300 270 240 210 180 150 Fig: Value wise monthly Garment Imports by Japan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Ministry of Finance, Japan IMaCS Analysis Volume-wise garment imports in 2008 majorly followed the same trend as of 2007 imports, with the exception of February, May and August with import volume declining by 22.7% y-oy, 12.6% y-o-y and 11.8% y-o-y respectively. Value-wise imports in 2008 were significantly lower than in 2007, in months of February (by 24.5% y-o-y) May (by 16.8% y-o-y) and June (by 13.2% y-o-y). In January 2009, garment imports increased 19.4% y-o-y by volume (as against a decline of 2.2% y-o-y in January 2008) and 7.5% y-o-y by value (as against a decline of 2.5% y-o-y in January 2008). 170

Million kgs Million kgs China is the largest supplier of garment with a share of 91% in total garment import volume of Japan 1200 1000 800 600 400 200 0 Fig: Garment imports by Japan from the six competing countries 2.2% 2.5% 2.9% 0.5% 0.4% 0.5% 91.8% 91.8% 91.3% 2002 2003 2004 2005 2006 2007 2008 91.1% The six countries under consideration together accounted for 95% of total garment import volume of Japan during 2008. China is the largest exporter of garments to Japan, with a share of 91% (by volume) in total garment imports of 2008. Amongst the six countries, Vietnam ranks as the second largest exporter of garments to Japan with a share of 2.9% in garments import volume in 2008, up from 2.5% in 2007; share of Vietnam increased to 3.5% in January 2009. India s share in Japan garment import volume was 0.5% in 2008, up marginally from 0.4% in 2007. 100 80 60 40 20 0 3.5% Jan-09 0.4% Vietnam Turkey Sri Lanka India China Bangladesh Source: Ministry of Finance, Japan IMaCS Analysis 171

Garment import volume from India increased by 1.2% (y-o-y) whereas that from China declined by 1.9% (y-o-y) during 2008 Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Vietnam (+ 15.3%) India (+ 1.2%) Others (- 0.8%) Demand Shrunk - 1.3% China (- 1.9%) Source: Ministry of Finance, Japan IMaCS Analysis Volume-wise total garment import volume by Japan declined by 1.3% (y-o-y) in 2008. During 2008, volume-wise garment imports from India marginally increased (by 1.2% y-o-y). Garment import volume from China decreased by 1.9% (y-o-y) in 2008 whereas that from Vietnam increased by 15.3% (y-o-y). 172

During 2008, value-wise garment imports from India increased by 5% (y-o-y) whereas that from China declined by 5% (y-o-y) Vietnam Fig: Value-wise share of key competing countries in garment imports by Japan China India 3.1% 3.5% 0.7% 0.8% 84% 84% 2007 2008 0% 20% 40% 60% 80% 100% Table: Value-wise annual change in garment imports from key competing countries Increase/decrease in imports India China Vietnam 2008 5% -5% 7% 2007-10% 2.5% 13% Source: Ministry of Finance, Japan, IMaCS Analysis During 2008, garment imports by Japan declined by 5.6% y-o-y in value terms as against an increase of 1.8% y-o-y in 2007. Amongst the analysed countries, China, India and Vietnam are the major suppliers of garment to Japan. Though India has a small market share in garment imports by Japan, value-wise garment imports from India increased by 5% y-o-y in 2008. Garment imports from China declined by 5% y-o-y in value terms during 2008 though, China maintained its market share in Japan garment imports. Garment imports from Vietnam increased by 7% y-o-y during 2008. 173

Garment imports by Japan - Key findings Garment imports by Japan declined 5.6% (y-o-y) by value and 1.3% (y-o-y) by volume. Volume-wise garment imports by Japan witnessed a significant decline in H12008 though the decline moderated in Q3,2008 with imports increasing in Q4,2008. The trend continued in January 2009 with garment imports increasing 19.4% y-o-y by volume (as against a decline of 2.2% y-o-y in January 2008) and 7.5% y-o-y by value (as against a decline of 2.5% y-o-y in January 2008). The six countries under consideration together accounted for 95% of total garment imports by Japan during 2008. China is the largest exporter of garments to Japan, with a share of 91% (by volume) in total garment imports of 2008. Though China maintained its market share in total garment import volume of Japan, import volume from China decreased by 1.9% (y-o-y) in 2008. Amongst the six countries, Vietnam ranks as the second largest exporter of garments to Japan with a share of 2.9% in garments import volume in 2008, up from 2.5% in 2007 on account of increase in garment imports by 15.3% y-o-y; share of Vietnam increased to 3.5% in January 2009. India s share in Japan garment import volume was 0.5% in 2008, up marginally from 0.4% in 2007 on account of marginal increase (1.2% y-o-y) in volume-wise garment imports from India. 174

Impact of economic slowdown on the imports of textile and clothing Impact of economic slowdown on T&C imports by EU27 Impact of economic slowdown on T&C imports by UK Impact of economic slowdown on T&C imports by US Impact of economic slowdown on T&C imports by Japan Yarn imports Fabric imports Garment imports Made-ups imports Projected T&C imports in identified global markets for 2015 175

Million kgs Billion Yen During 2008, made-ups imports by Japan increased 0.8% (y-o-y) by value and 2.2% (y-o-y) by volume Fig: Imports of made-ups by Japan Fig: Year-wise growth in imports 14% 450 310 12% 410 270 10% 8% 370 330 290 250 2002 2003 2004 2005 2006 2007 2008 230 190 150 6% 4% 2% 0% -2% -4% 2003 2004 2005 2006 2007 2008 Volume Value % increase in volume % increase in value Source: Ministry of Finance, Japan IMaCS Analysis Imports of made-ups by Japan increased at a 5-year CAGR of 6% by value and 5.3% by volume from 2002 to 2007. During 2008, value-wise made-ups import by Japan witnessed an increase of 0.8% (y-o-y) as against an increase of 1.5% y-o-y in 2007. Volume-wise made-ups import in 2008 also increased by 2.2% y-o-y as against a decline of 1.4% in 2007. 176

Japan made-ups imports increased 1% (y-o-y) by volume and 3% (y-o-y) by value in Q4,2008 Fig: Year-on-year increase in volume-wise made-ups import by Japan Fig: Year-on-year increase in value-wise made-ups import by Japan 5% 4% 3% 2% 1% 0% 2% 2% 4% 1% Q1 Q2 Q3 Q4 y-o-y % increase in made-up import volume (2008 over 2007) 9% 7% 5% 3% 1% -1% -3% -5% -3% -4% 7% 3% Q1 Q2 Q3 Q4 y-o-y % increase in made-up import value (2008 over 2007) Source: Ministry of Finance, Japan IMaCS Analysis Volume-wise made-ups imports by Japan increased in each quarter of 2008 with the growth moderating in Q4,2008. Made-ups import value witnessed an increase in Q3,2008 (by 7% y-o-y) after a decline of 3% y- o-y in Q1,2008 and 4% y-o-y in Q2,2008. Increase in import value continued in Q4,2008 though the rate of growth moderated to 3% y-o-y. 177

Million kgs Million yen Made-ups imports increased in Dec 2008 and the trend continued in Jan, 2009 with imports increasing 14.4% (y-o-y) by volume and 10.9% (y-o-y) by value 45 40 35 30 25 Fig: Volume wise monthly made-up imports by Japan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2007 2008 2009 30 27 24 21 18 15 Fig: Value wise monthly made-up imports by Japan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Ministry of Finance, Japan IMaCS Analysis Volume-wise made-up imports in 2008 largely followed the same trend as 2007, with exception of February and November when the imports declined by 12.5% y-o-y and 6.2% y-o-y respectively. Value-wise imports in 2008 registered a decline in months of February (by 18.3% y-o-y) and May (by 10.6% y-o-y), but recovered in September and October (with an increase of 19.7% y-o-y and 7.3% y- o-y respectively). In January 2009, made-ups imports registered an increase of 14.4% y-o-y by volume (as against an increase of 1.7% y-o-y in January 2008) and of 10.9% y-o-y by value (as against a decline of 0.8% y- o-y in January 2008). 178

Million kgs Million kgs China is the largest supplier of made-ups to Japan with a share of 86% in total made-ups import volume of Japan Fig: Made-ups imports by Japan from the six competing countries 400 300 200 100 0 4.5% 4.6% 4.6% 0.8% 0.8% 85.1% 86.1% 85.8% 2002 2003 2004 2005 2006 2007 2008 0.9% 40 35 30 25 20 15 10 5 0 4.4% 0.8% 86.6% Jan-09 Vietnam Turkey Sri Lanka India China Bangladesh Source: Ministry of Finance, Japan IMaCS Analysis Bangladesh, China, India, Sri Lanka, Turkey and Vietnam together accounted for 92.2% of total made-ups import volume by Japan in 2008. China is the largest exporter of made-ups, with a share of 85.8% (by volume) in total made-ups imports of 2008, down from 86.1% in 2007. Amongst the six countries under consideration, Vietnam has the second largest share at 4.6% of the total made-up import volume of Japan. India s share in Japan made-ups import volume was 0.9% in 2008, marginally up from 0.8% in 2007. 179

During 2008, made-ups import volume from India increased by 14% (y-o-y) Fig: Volume-wise imports from competing countries in 2008 as compared to 2007 Vietnam (+ 2%) Others (+ 3.2%) India (+ 14%) China (+1.8%) Source: Ministry of Finance, Japan IMaCS Analysis Volume-wise made-ups imports by Japan increased by 2.2% (y-o-y) in 2008. Made-ups imports from India increased by 14.1% (y-o-y) during 2008 and that from Vietnam increased by 2% y-o-y. Made ups imports from China also increased by 1.8% (y-o-y) in 2008. 180

During 2008, value-wise made-ups imports from India increased by 1.9% (y-o-y) whereas that from Vietnam increased by 4.5% (y-o-y) Fig: Value-wise share of key competing countries in made-ups imports by Japan Table: Value-wise annual change in made-ups imports from key competing countries Vietnam China India 3.2% 3.4% 1.2% 1.2% 84% 84% 2007 2008 Increase/decrease in imports India China Vietnam 2008 1.9% 1.3% 4.5% 2007-0.5% 3.4% 9% 0% 20% 40% 60% 80% 100% Source: Ministry of Finance, Japan, IMaCS Analysis During 2008, value-wise made-ups import by Japan witnessed an increase of 0.8% (y-o-y) as against an increase of 1.5% y-o-y in 2007. Amongst the analysed countries, China, India and Vietnam are the major suppliers of made-ups to Japan. During 2008, value-wise made-ups imports from India increased by 1.9% y-o-y and India maintained its market share at 1.2%. China maintained its market share in Japan made-ups imports however, value-wise made-ups imports from China increased by 1.3% y-o-y. Made-ups imports from Vietnam also increased by 4.5% y-o-y during 2008 though, the growth moderated as compared to 2007. 181

Made-ups imports by Japan - Key findings During 2008, imports of made-ups by Japan increased 0.8% (y-o-y) by value and 2.2% (y-o-y) by volume. Volume-wise made-ups imports by Japan increased in each quarter of 2008 with the growth moderating in Q4,2008. Increase in imports continued in January 2009 with imports increasing 14.4% (y-o-y) by volume (as against an increase of 1.7% y-o-y in January 2008) and 10.9% (y-o-y) by value (as against a decline of 0.8% y-o-y in January 2008). Bangladesh, China, India, Sri Lanka, Turkey and Vietnam together accounted for 92.2% of total made-ups imports by Japan in 2008. China is the largest exporter of made-ups, with a share of 85.8% (by volume) in total made-ups imports of 2008, down from 86.1% in 2007 though import volume from China increased by 1.8% (yo-y) in 2008. Amongst the six countries under consideration, Vietnam has the second largest share at 4.6% of the total made-up import volume of Japan; volume-wise made-ups imports from Vietnam increased by 2% y-o-y in 2008. India s share in Japan made-ups import volume was 0.9% in 2008, marginally up from 0.8% in 2007 on account of increase in made-ups import volume from India by 14% y-o-y. 182

On the basis of changing dynamics of different markets, IMaCS has estimated their textile and clothing demand during 2010 2015 Past trend of imports Key demand drivers and market dynamics Econometric modeling to forecast the size of imports in 2015 The past trend of imports individually for each category i.e. apparel, fabric, made-ups and yarn has been analysed along with the total textile and clothing imports. Key parameters considered for the analysis are the GDP per capita, six-month LIBOR rate, Industrial production index, Import price production index, Retail sales in month of December and Final consumption expenditure. 184

000 s US$ LIBOR rate (%) GDP per capita and six-month LIBOR rates have been considered as the key economic indicators for the US economy 48 46 44 42 40 38 36 34 32 30 Fig: GDP per capita at current prices 45.7 46.7 41.9 44.1 36.3 37.7 39.8 34.8 35.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 7 6 5 4 3 2 1 0 6.6 Fig: Six-month LIBOR rate 5.3 3.7 5.3 4 3.2 1.9 1.2 1.8 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: World Economic Indicators, IMF The Congressional Budget Office has revised GDP estimates for US, according to which we arrive at a GDP per capita estimate of around US$ 45.63 thousand in the year 2009 and then again a gradual growth till 2015. The LIBOR rates have been very volatile; year 2009 estimates of the same are around 1.5%. 186

The Index of Industrial Production (IIP) in US has gradually declined over the years 160 150 140 130 120 110 100 90 80 70 Fig: Index of Industrial Production (IIP) 147 139 116 101 98 97 97 94 105 97 97 83 75 84 78 77 76 75 2000 2001 2002 2003 2004 2005 2006 2007 2008 Clothing IIP Textile & products IIP 120 115 110 105 100 95 90 Fig: Import Price Index (IPI) 116 113 110 105 106 99 100 100 99 100 100 99 99 99 99 99 96 94 2000 2001 2002 2003 2004 2005 2006 2007 2008 Cotton Clothing IPI Textile supplies IPI Source: www.federalreserve.gov, The Bureau of Economic Analysis Garment production in US has declined more significantly as compared to decline in production of total Textile and Textile products. The import prices of cotton apparel have more or less remained stable over the years while that for textile and related products have increased. 187

US$ Apparel retail sales in the US have declined significantly in December, 2008 110 105 100 95 90 85 Fig: Per capita apparel retail sales in the month of December 88 86 88 92 97 103 106 103 90 390 370 350 330 310 290 270 Fig: Private Consumption Expenditure on Clothing and Footwear 298 298 304 311 325 342 360 374 374 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 250 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: The Bureau of Economic Analysis Apparel retail sales in December, 2008 have declined compared to the same period in previous years. Total consumption expenditure on clothing and footwear category has also stagnated in 2008 as compared to increase in each proceeding year. 188

T&C imports by US are expected to witness a decline during 2009 however, would recover in further years Volume in billion SME Fig: Projected total T&C imports by US in volume terms 70 60 50 40 30 20 53 50.4 49.2 59 65 10 0 2007 2008 2009 (P) 2012 (P) 2015 (P) Source: IMaCS Analysis During 2009, volume-wise total T&C imports by US are expected to decline by around 2.3% (y-oy), as against a decline of 5.2% (y-o-y) during 2008. Total T&C imports are expected to increase again with a CAGR of 3.9% from 2010 to 2015 thus, the overall CAGR of volume-wise T&C imports by US from 2009 to 2015 is estimated at 4.74%. 189

Euros GDP per capita was the key criteria in estimating the T&C imports by EU Euros 27,000 Fig: GDP per capita at current prices 22,000 Fig: Final consumption Expenditure per capita 25,000 23,000 21,000 19,000 20,500 20,700 21,600 19,100 19,800 22,500 23,600 24,900 25,100 20,000 18,000 16,000 14,000 16,200 16,400 17,800 18,600 17,100 15,000 15,600 19,400 19,700 17,000 12,000 15,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 10,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: National accounts indicator, Eurostat According to the GDP estimates for EU provided by Eurostat, GDP per capita for the year 2009 is estimated at Euros 25,700. A gradual growth based on IMF estimates has been considered till 2015. 191

Volume in million Kgs Total T&C imports by EU from the EU Extra countries are expected to grow at a CAGR of 6.3% from 2009 to 2015 8000 7000 6000 5000 4000 3000 2000 1000 0 Fig: Projected total T&C import volume by EU from the EU Extra countries 5,183 5,019 5,246 6,225 7,562 2007 2008 2009 (P) 2012 (P) 2015 (P) Source: IMaCS Analysis Total T&C imports by EU from the EU Extra countries are expected to increase at a CAGR of 6.3% from 2009 to 2015. The increase in imports from EU Extra countries can also be associated with the shift of orders from EU Intra to EU Extra countries, apart from the growth in imports by EU. 192

Total Cost of processing in India: 100 A 61 B C D E 6 10 3 20 Total Cost of processing in Country A: X Comparing Costs - Our Approach Certain cost drivers of competitiveness have been identified For each segment the cost break-up of Indian companies has been considered as the base and the same has been derived for the companies of other countries by factoring in the cost drivers. Sum of all the individual cost heads has been then taken to arrive at the total cost advantage / disadvantage for India. Others Interest Salary Depreciation Raw Material Cost drivers Others Interest Salary Depreciation Raw Material Source: IMaCS Analysis IMaCS 2008

Key drivers of Cost Competitiveness Duties and Taxes Labour Import duties on raw materials Corporate tax rates Local taxes and duties and their cascading impact Labour costs Labour productivity Other Costs Infrastructure Cost Preferential market access Power cost and availability of power Finance costs Infrastructure issues (delays in port clearance, high freight rates, etc.) Trade agreements with the global markets IMaCS has analysed these key drives of cost competitiveness for this exercise IMaCS 2008

Typical Cost Break-up of Indian companies Cost Heads Table: Typical cost break-up* of Indian industry Cotton Spinning Industry Manmade Spinning Industry Weaving Industry Garment Industry Made-ups industry Raw Materials 57.0% 59.9% 60.2% 49.9% 46.6% Power & Fuel Cost 8.9% 10.2% 3.6% 1.7% 8.7% Employee Cost 8.7% 7.2% 3.8% 8.6% 8.8% Selling and Administration 5.1% 5.3% 9.0% 11.0% 9.1% Expenses Other Manufacturing Expenses 5.9% 5.7% 7.1% 19.7% 12.8% Miscellaneous Expenses 1.6% 1.1% 2.5% 1.1% 0.9% Interest 6.5% 5.8% 7.4% 3.4% 5.4% Depreciation 6.2% 4.7% 5.0% 2.7% 7.4% Tax 0.1% 0.1% 1.4% 1.9% 0.4% *This has been used to assess the cost competitiveness of manufacturing in India vis-a-vis other countries 196

Import Duties for raw material Fig: Import duty on fibres Fig: Import duty on yarns Fig: Import duty on fabrics Other manmade fibres Other manmade yarns Manmade fabric Nylon fibre Raw cotton Nylon yarn Cotton yarn Cotton fabric 0% 10% 20% 30% 40% 50% Source: Market Access Map, International trade Centre 0% 10% 20% 0% 10% 20% Vietnam Turkey Sri Lanka Bangladesh China India Note: For calculation of cost competitiveness we have considered preferential import tariff for ASEAN countries i.e. 5% in case of Vietnam and duty free imports in case Bangladesh HS Codes: Raw cotton (5201), Cotton yarn (520511), Cotton fabric (520811), Nylon fibre (550110), other MMF fibre (550120), Nylon yarn (550911), Other MMF yarn (55021), MMF fabric (551211) 197

Labour cost India China Bangladesh Sri Lanka Turkey Vietnam Labor Cost (USD/hour) 0.51 0.55 0.22 0.43 2.44 0.38 Source - EmergingTextiles.com Fig: Index of labour productivity India Indonesia Thailand S. Korea 40 50 65 65 India has higher labour cost as compared to Bangladesh, Vietnam and Sri Lanka. Moreover, India has a lower labour productivity as compared to other countries. China 75 US 90 Hong Kong 90 Germany 100 0 50 100 150 Source: Werner International 198

US $ / Kwh Power cost and availability of power 0.12 Fig: Power Cost in US $ / Kwh Fig: Percent power deficit from April 2008 to March 2009 0.1 0.08 0.06 0.04 0.11 0.08 0.08 0.09 0.11 0.05 All India North-Eastern Region Eastern Region Southern Region 4.6% 7.5% 11% 13.5% 0.02 Western Region 16% 0 India China Bangladesh Sri Lanka Turkey Vietnam Northern Region 10.8% Source: EIA Power cost in India is the highest amongst the low cost countries 0 5 10 15 20 Source: Central Electricity Authority, IMaCS Analysis. Further, manufacturing in India suffers from both non availability of power and poor quality of power. Owing to power shortage in major Textile producing states, captive power generation is the only alternative to sustain production. Liquid Fuels such as furnace oil and diesel used for captive power generation attract 10% basic customs duty and 14% excise duty; with current fuel prices, captive power is more than twice as expensive as grid power. 199

Interest cost Fig: Prime Lending rate Vietnam, 16% Turkey, 13% Sri Lanka, 17% Bangladesh, 14% China, 7% India, 13% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Source: Central Banks of respective countries Interest rate in India is high as compared to China but is lesser than other competing countries 200

Corporate Tax Fig: Corporate Tax in various countries (2007) Vietnam 28% Turkey 20% Sri Lanka 35% Bangladesh China India 30% 33% 34% 0% 5% 10% 15% 20% 25% 30% 35% 40% Source: KPMG's Corporate and Indirect Tax Rate Survey 2007 Corporate tax in India is higher as compared to Bangladesh, Turkey and Vietnam 201

Summary of Trade Agreements with EU27 Country Description of agreement Current Tariff structure India Generalized System of Preferences Reduced Tariffs China Generalized System of Preferences Reduced Tariffs Bangladesh Sri Lanka Turkey Generalized System of Preferences- Everything But Arms Initiative Generalized System of Preferences Plus- Special Incentive Arrangement for Sustainable Development and Good Governance Preferential Trade access due to membership in European Customs Union Zero Tariff Zero Tariff Zero Tariff Vietnam Generalized System of Preferences Reduced Tariffs 202

Summary of Trade Agreements with US Country Description of agreement Impact India Generalized System of Preferences Does not extend to most textile and apparel products China Generalized System of Preferences Does not extend to most textile and apparel products Bangladesh Generalized System of Preferences Least Developed Beneficiary Developing Country (LDBDC) Does not extend to most textile and apparel products Sri Lanka Generalized System of Preferences Does not extend to most textile and apparel products Turkey Generalized System of Preferences Does not extend to most textile and apparel products Vietnam Generalized System of Preferences Does not extend to most textile and apparel products 203

Summary of Trade Agreements with Japan Country Description of agreement Impact India China Bangladesh Sri Lanka Turkey Vietnam* Generalized System of Preferences Generalized System of Preferences Generalized System of Preferences - Least Developed Country Generalized System of Preferences Generalized System of Preferences Generalized System of Preferences Reduced tariffs for most textile products Reduced tariffs for most textile products Zero tariffs Reduced tariffs for most textile products Reduced tariffs for most textile products Reduced tariffs for most textile products *Economic Partnership Agreement between Vietnam and Japan is under negotiation which would change this tariff structure 204

Comparative analysis of various costs 205

Comparison of competing countries is based on Product-country matrix to facilitate a meaningful and focussed analysis It is observed that each of the peer countries is competitive in certain product segments due to presence of certain factors while they are not a key player in certain other product segments. Hence, instead of comparing all countries for all products, a product-country matrix is devised to facilitate a meaningful and focused comparison. To devise product-country matrix, India s share in total product import of identified export markets has been set as benchmark. Countries having a market share equal to or higher than that of India have been considered for comparison. Sub-sector Product country matrix China Bangladesh Sri Lanka # Vietnam Turkey Yarn Fabric Apparel & Made-ups # Though Sri Lanka s market share in identified global markets is less than that of India, the country is gaining share in garment imports of EU27 and UK thus, it has been included in comparative analysis 206

India has a cost disadvantage in cotton yarn manufacturing vis-à-vis China Total Cost advantage/(disadvantage) for India in cotton yarn manufacturing China Turkey - 3.58% 32.7% Fig: % Cost competitiveness vis-a-vis China Advantage for India Disadvantage for India Fig: % Cost competitiveness vis-a-vis Turkey Power & Fuel Cost 2.24 Employee Cost 33.00 Raw Materials 1.16 Raw Materials Employee Cost Finance Cost 0.68 3.18 Power & Fuel Cost Finance Cost 0.00 0.25 Corporate Tax Total 3.58 Corporate Tax Total 0.03 32.73 0 2 4 6 32.5 33 33.5 * This does not factor the market access advantages and logistics cost differentials because of proximity to market 207

India has a cost disadvantage vis-à-vis China in exports of cotton yarn to the identified global markets because of high manufacturing cost Export to EU27* China (GSP) Turkey (PTA) Manufacturing cost competitiveness for India - 3.58% 32.7% Import by EU27 duty differential 0% -3% Net export competitiveness for India - 3.58% 29.7% Export to US** China (MFN) Turkey (MFN) Manufacturing cost competitiveness for India - 3.58% 32.7% Import by US duty differential 0% 0% Net export competitiveness for India - 3.58% 32.7% Export to Japan*** China (GSP) Turkey (GSP) Manufacturing cost competitiveness for India - 3.58% 32.7% Import by Japan duty differential 0% 0% Net export competitiveness for India - 3.58% 32.7% * The calculation corresponds to the HS code 52051200 ** The calculation corresponds to the HS code 52051210 *** The calculation corresponds to the HS code 520512010 208

India has significant cost disadvantage in manmade yarn manufacturing vis-à-vis China Total Cost advantage/(disadvantage) for India in manmade yarn manufacturing China Turkey -6.43% 26.17% Fig: % Cost competitiveness* vis-a-vis China Fig: % Cost competitiveness* vis-a-vis Turkey Advantage for India Disadvantage for India Advantage for India Disadvantage for India Raw Materials Power & Fuel Cost Employee Cost Finance Cost Corporate Tax Total 1.60 2.56 0.56 2.83 6.43 Employee Cost Raw Materials Power & Fuel Cost Finance Cost Corporate Tax Total 27.07 0.57 0.28 0.00 0.04 26.17-2 1 3 5 7 209 0 10 20 * This does not factor the market access advantages and logistics cost differentials because of proximity to market

India has a cost disadvantage vis-à-vis China in exports of manmade filament yarn to the identified global markets because of high manufacturing cost Export to EU27* China (GSP) Turkey (PTA) Manufacturing cost competitiveness for India -6.43% 26.17% Import by EU27 duty differential 0% -3% Net export competitiveness for India -6.43% 23.17% Export to US** China (MFN) Turkey (MFN) Manufacturing cost competitiveness for India -6.43% 26.17% Import by US duty differential 0% 0% Net export competitiveness vis-à-vis India -6.43% 26.17% Export to Japan*** China (GSP) Turkey (GSP) Manufacturing cost competitiveness vis-à-vis India -6.43% 26.17% Import by Japan duty differential 0% 0% Net export competitiveness vis-à-vis India -6.43% 26.17% * The calculation corresponds to the HS code 54020000 ** The calculation corresponds to the HS code 54025210 *** The calculation corresponds to the HS code 54025201 210

India has significant cost disadvantage in cotton woven fabric manufacturing vis-à-vis China Total Cost advantage/(disadvantage) for India in cotton fabric manufacturing China Turkey - 7.04% 10.6% Fig: % Cost competitiveness* vis-a-vis China Fig: % Cost competitiveness* vis-a-vis Turkey Advantage for India Disadvantage for India Advantage for India Disadvantage for India Raw Materials 2.73 Employee Cost 14.54 Power & Fuel Cost 0.91 Raw Materials 3.28 Employee Cost Finance Cost 0.30 3.66 Power & Fuel Cost Finance Cost 0.10 0.00 Corporate Tax Total 0.04 7.04 Corporate Tax Total 0.56 10.60 0.00 2.00 4.00 6.00 8.00 0 5 10 15 20 * This does not factor the market access advantages and logistics cost differentials because of proximity to market 211

India has a cost disadvantage vis-à-vis China in exports of cotton fabric to the identified global markets because of high manufacturing cost Export to EU27* China (GSP) Turkey (PTA) Manufacturing cost competitiveness for India - 7.04% 10.60% Import by EU27 duty differential 0% -6% Net export competitiveness for India - 7.04% 4.6% Export to US** China (MFN) Turkey (MFN) Manufacturing cost competitiveness for India - 7.04% 10.6% Import by US duty differential 0% 0% Net export competitiveness for India -7.04% 10.6% Export to Japan*** China (GSP) Turkey (GSP) Manufacturing cost competitiveness for India - 7.04% 10.6% Import by Japan duty differential 0% 0% Net export competitiveness for India -7.04% 10.6% *The calculation corresponds to the HS code 5208 1216 ** The calculation corresponds to the HS code 5208 1240 *** The calculation corresponds to the HS code 5208 12010 212

India has significant cost disadvantage in manmade woven fabric manufacturing vis-à-vis China Total Cost advantage/(disadvantage) for India in manmade fabric manufacturing Fig: % Cost competitiveness* vis-a-vis China China Turkey - 4.31% 13.31% Fig: % Cost competitiveness* vis-a-vis Turkey Advantage for India Disadvantage for India Advantage for India Disadvantage for India Raw Materials 0.00 Employee Cost 14.54 Power & Fuel Cost 0.91 Raw Materials 0.57 Employee Cost 0.30 Power & Fuel Cost 0.10 Finance Cost Corporate Tax Total 3.66 0.04 4.31 Finance Cost Corporate Tax Total 0.00 0.56 13.31 0 1 2 3 4 5 0 5 10 15 * This does not factor the market access advantages and logistics cost differentials because of proximity to market 213

India has a cost disadvantage vis-à-vis China in exports of manmade fabric to the identified global markets because of high manufacturing cost Export to EU27* China (GSP) Turkey (PTA) Manufacturing cost competitiveness for India - 4.31% 13.31% Import by EU27 duty differential 0% -6% Net export competitiveness for India - 4.31% 7.31% Export to US** China (MFN) Turkey (MFN) Manufacturing cost competitiveness for India - 4.31% 13.31% Import by US duty differential 0% 0% Net export competitiveness for India - 4.31% 13.31% Export to Japan*** China (GSP) Turkey (GSP) Manufacturing cost competitiveness vis-à-vis India - 4.31% 13.31% Import by Japan duty differential 0% 0% Net export competitiveness for India - 4.31% 13.31% *The calculation corresponds to the HS code 5407 6110 ** The calculation corresponds to the HS code 5407 6111 *** The calculation corresponds to the HS code 5407 6101 214

India has significant cost disadvantage in Cotton garment manufacturing vis-à-vis Bangladesh, Vietnam, China and Sri Lanka China Turkey Bangladesh Vietnam Sri Lanka Total Cost advantage/(disadvantage) for India in cotton garment manufacturing - 1.49% 30.96% -10.06% -4.97% -6.04% Fig: % Cost competitiveness* vis-a-vis China Advantage for India Disadvantage for India Raw Materials Finance Cost 0.00 1.69 Fig: % Cost competitiveness* vis-a-vis Turkey Advantage for India Employee Cost Raw Materials Disadvantage for India 32.71 0.91 Employee Cost 0.68 Power & Fuel Cost 0.05 Power & Fuel Cost 0.42 Finance Cost 0.00 Corporate Tax 0.06 Corporate Tax 0.79 Total 1.49 Total 30.96 0.0 0.5 1.0 1.5 2.0 0 5 10 15 20 25 30 * This does not factor the market access advantages and logistics cost differentials because of proximity to market 215

Overall cost competitiveness of India in cotton garment manufacturing vis-à-vis Bangladesh, Vietnam and Sri Lanka Fig: % Cost competitiveness* vis-a-vis Bangladesh Raw Materials Power & Fuel Cost Employee Cost 4.54 0.52 4.91 Fig: % Cost competitiveness* vis-a-vis Vietnam Raw Materials Power & Fuel Cost Employee Cost 2.27 0.89 2.20 Raw Materials Power & Fuel Cost Employee Cost Advantage for India Fig: % Cost competitiveness* vis-a-vis Sri Lanka 4.23 2.10 1.38 Finance Cost 0.13 Finance Cost 0.73 Finance Cost 1.66 Corporate Tax 0.23 Corporate Tax 0.34 Corporate Tax 0.01 Total 10.06 Total 4.97 Total 6.04 0 5 10 15 0 5 10 0 5 10 * This does not factor the market access advantages and logistics cost differentials because of proximity to market 216

India has a cost disadvantage vis-à-vis Bangladesh, Vietnam, China and Sri Lanka in garment exports to EU27 and US Export to EU27* Manufacturing cost competitiveness for India Import by EU27 duty differential Net export competitiveness for India China (GSP) Turkey (PTA) Bangladesh (PTA LDC) Vietnam (GSP) Sri Lanka (PTA) - 1.49% 30.96% -10.06% -4.97% -6.04% 0% -9.6% -9.6% 0% -9.6% -1.49% 21.36% -19.66% -4.97% -15.64% Export to US** Manufacturing cost competitiveness for India Import by US duty differential Net export competitiveness for India China (MFN) * The calculation corresponds to the HS code 6205 200090 ** The calculation corresponds to the HS code 6205 2020 Turkey (MFN) Bangladesh (MFN) Vietnam (MFN) Sri Lanka (MFN) - 1.49% 30.96% -10.06% -4.97% -6.04% 0% 0% 0% 0% 0% -1.49% 30.96% -10.06% -4.97% -6.04% 217

India has a cost disadvantage vis-à-vis Bangladesh, Vietnam, Sri Lanka and China in garment exports to Japan Export to Japan*** Manufacturing cost competitiveness for India Import by Japan duty differential Net export competitiveness for India China (GSP) Turkey (GSP) Bangladesh (PTA LDC) Vietnam (GSP) Sri Lanka - 1.49% 30.96% -10.06% -4.97% -6.04% 0% 0% -7.4% 0% 0% -1.49% 30.96% -17.46% -4.97% -6.04% ***The calculation corresponds to the HS code 6205 200000 218

India has cost disadvantage in Cotton made-ups manufacturing vis-àvis China, Bangladesh, Vietnam and Sri Lanka China Turkey Bangladesh Vietnam Sri Lanka Total Cost advantage/(disadvantage) for India in cotton made-ups manufacturing - 4.15% 31.98% -11.76% -7.92% -5.18% Fig: % Cost competitiveness vis-a-vis China Fig: % Cost competitiveness vis-a-vis Turkey Advantage for India Disadvantage for India Advantage for India Disadvantage for India Raw Materials 0.00 Employee Cost 33.22 Finance Cost 2.65 Raw Materials 0.85 Employee Cost 0.69 Power & Fuel Cost 0.24 Power & Fuel Cost 2.17 Finance Cost 0.00 Corporate Tax 0.01 Corporate Tax 0.15 Total 4.15 Total 31.98 0.0 1.0 2.0 3.0 4.0 5.0 31 32 33 34 * This does not factor the market access advantages and logistics cost differentials because of proximity to market 219

Overall cost competitiveness of India in cotton made-ups manufacturing vis-à-vis Bangladesh, Vietnam and Sri Lanka Fig: % Cost competitiveness vis-a-vis Bangladesh Fig: % Cost competitiveness vis-a-vis Vietnam Advantage for India Disadvantage for India Fig: % Cost competitiveness vis-a-vis Sri Lanka Raw Materials Power & Fuel Cost Employee Cost 4.23 2.70 4.99 Raw Materials Power & Fuel Cost Employee Cost 2.12 4.64 2.24 Raw Materials Power & Fuel Cost Employee Cost 0.40 4.54 1.36 Finance Cost 0.21 Finance Cost 1.14 Finance Cost 1.06 Corporate Tax 0.04 Corporate Tax 0.06 Corporate Tax 0.06 Total 11.76 Total 7.92 Total 5.18 0 10 20 0 5 10 0 5 10 220

India has a cost disadvantage vis-à-vis Bangladesh, Vietnam, Sri Lanka and China in made-ups exports to EU27 and US Export to EU27* Manufacturing cost competitiveness for India China (GSP) Turkey (PTA) Bangladesh (PTA LDC) Vietnam (GSP) Sri Lanka (PTA) - 4.15% 31.98% -11.76% -7.92% -5.18% Import by EU27 duty differential 0% -9.6% -9.6% 0% -9.6% Net export competitiveness for India - 4.15% 22.38% -21.36% -7.92% -14.78% Export to US** Manufacturing cost competitiveness for India Import by US duty differential Net export competitiveness for India China (MFN) Turkey (MFN) Bangladesh (MFN) Vietnam (MFN) Sri Lanka (MFN) - 4.15% 31.98% -11.76% -7.92% -5.18% 0% 0% 0% 0% 0% - 4.15% 31.98% -11.76% -7.92% -5.18% *The calculation corresponds to the HS code 6304191090 ** The calculation corresponds to the HS code 6304 1910 221

India has a cost disadvantage vis-à-vis Bangladesh, Vietnam, Sri Lanka and China in made-ups exports to Japan Export to Japan*** Manufacturing cost competitiveness vis-à-vis India China (GSP) Turkey (GSP) Bangladesh (PTA LDC) Vietnam (GSP) Sri Lanka (GSP) - 4.15% 31.98% -11.76% -7.92% -5.18% Import by Japan duty differential 0% 0% -5.9% 0% 0% Net export competitiveness vis-àvis India *** The calculation corresponds to the HS code 6304 19010-4.15% 31.98% -17.66% -7.92% -5.18% 222

Transaction costs 223

Transaction costs on account of EXIM procedures are amongst the highest for Indian companies (1) Fig: EXIM procedural costs in the competing countries Viet Nam Turkey Srilanka China Bangladesh India 0 100 200 300 400 Transaction cost in US $ Customs clearance and technical control Documents preparation Source: World Bank*, IMaCS Analysis. Documents preparation and Customs clearance take around 10-12 days for Indian companies. EXIM procedural costs in India are high as compared to other competing countries which further affects the competitive position. *Refer Annexure IV for details 224

Transaction costs on account of EXIM procedures are amongst the highest for Indian companies (2) Fig: Number of export documents required Vietnam Turkey Sri Lanka India China Bangladesh 0 2 4 6 8 Number of documents Fig: Port and terminal handling costs Viet Nam Turkey Srilanka China Bangladesh India 0 100 200 300 400 500 Costs in US $ Source: World Bank, IMaCS Analysis. Port handling charges for Indian companies are almost twice than that for Chinese companies. Indian custom procedures require comparatively higher number of documents which further adds to the time and costs of EXIM procedures. 225

Inland transportation costs are the highest for the Indian companies Fig: Inland transportation and handling costs in India Viet Nam Turkey Srilanka China Bangladesh India 0 50 100 150 200 250 300 Costs in US $ Source: World Bank, IMaCS Analysis. Inland transportation costs for Indian companies are more than three times than that for Chinese companies. Inadequate road and rail infrastructure coupled with barriers to inter-state transport of goods add up avoidable costs for the Indian companies. On account of high geographical spread, Indian T&C industry involves significant inter-state movement of raw material and finished goods; high inland transportation further affects the competitive position of the T&C industry. 226

Cascading impact of taxes and duties 227

Objective of analysing the impact of Indirect Taxes In India, multiple indirect taxes are levied on the manufacturers, importers and exporters. The objective of this section is to understand the overall impact of indirect taxes on the competitiveness of manufacturers (and exporters) of textiles and clothing and identify the anomalies that exist. For understanding the impact of indirect taxes and duties, IMaCS has considered the following : Customs Duty Excise Duty Value Added Tax (VAT) Central Sales Tax (CST) Octroi Duty draw-back on indirect taxes 228

Methodology adopted to assess the impact of Indirect Taxes Indirect Taxes paid while purchase of Raw Materials Raw Material Purchase Indirect Taxes collected during sale of Finished Goods Finished Goods Sale Imports Domestic Exports Domestic Custom Duty Inter-state Intra-state Duty Drawback Inter-state Intra-state Octroi CST VAT CST VAT Various taxes and duties paid at the raw material purchase stage are then set-off against corresponding collections at the finished goods sale stage. Besides the taxes mentioned above, a similar calculation is done for net excise payable depending on the value of production. 229

Customs duty applicable on imports of different textile articles Duty type Raw Cotton Cotton Yarn Manmade* Fibre Manmade Yarn Cotton Fabric Manmade Fabric Basic duty 0% 10% 5% 5% 10% 10% Preferential duty 0% 0% 0% 0% 0% 0% CVD 0% 4% 4% 4% 4% 4% Central Excise Education Cess Customs Education Cess 0% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% Special CVD 4% 4% 0% 0% 0% 0% Total 4.04% 19.76% 14.13% 14.13% 15.12% 15.12% Only recently the import duty on raw cotton was made 0% while that on polyester fibre and yarn was made 5% from the earlier level of 10% * Manmade fibre / yarn refers primarily to polyester 230

Excise duty applicable on production of various textile articles Duty type Raw Cotton Cotton Yarn Manmade* Fibre Manmade Yarn Cotton Fabric Manmade Fabric Cotton Garment Excise duty 0% 0% 4% 4% 0% 4% 0% Additional duty of excise Total excise duty 0% 0% 0% 0% 0% 0% 0% 0% 0% 4% 4% 0% 4% 0% Education Cess Effective Excise Duty 3% 3% 3% 3% 3% 3% 3% 0% 0% 4.12% 4.12% 0% 4.12% 0% Excise duty applicable has been reduced across all textile products * Manmade fibre / yarn refers primarily to polyester 231

Other Indirect Taxes applicable on intra-state and inter-state transactions Duty type Raw Cotton Cotton Yarn Manmade* Fibre Manmade Yarn Cotton Fabric Manmade Fabric Cotton Garment CST 2% 2% 2% 2% 2% 2% 2% VAT 4% 4% 4% 4% 0% 0% 4% Octroi* 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% * Octroi duty considered refers to that of Mumbai and Ahmadabad ; all states do not have Octroi duty. VAT is applicable on intra-state transactions while CST is applicable on inter-state transactions. Octroi is charged as an entry tax by certain states in India * Manmade fibre / yarn refers primarily to polyester 232

Duty Drawback available on exports Drawback Rates Cotton Yarn Manmade^ Fibre Manmade Yarn Cotton Fabric Manmade Fabric Cotton Garment Grey 4% 2.4% 10.2% 4.6% 9.2% 8.8% Dyed 5% 2.4% 12.1% 5.5% 10.3% 8.8% Note: For our calculations we have considered the drawback rates on grey and not dyed for all articles When a manufacturer exports his produce, he is eligible for a drawback on the customs duty paid by him for the imports. This drawback is also available on excise duty paid for the purchase of raw materials ^The drawback rates for manmade yarn and fabric are for those belonging to HS code 55 233

Criteria for forming different scenarios for indirect taxes calculation There are two key factors which have a significant impact on the amount of indirect taxes paid by a manufacturer: Location of raw material (RM) purchase Destination of finished goods (FG) sale To assess the impact of the above factors in the amount of indirect taxes paid, IMaCS has considered four cases as stated below: Case (I) : 100% Domestic purchase of RM and 100% Exports of FG Case (II) : 100% Imports of RM and 100% Exports of FG Case (III) : 100% Domestic purchase of RM and 100% Domestic sale of FG Case (II) : 100% Import of RM and 100% Domestic sale of FG 234

Break-up of the inter-state and intra-state transactions in case of domestic purchase/sale IMaCS has arrived at certain assumptions about the inter and intra state transactions of various textile articles based on the following: Location of major raw material suppliers Location of the markets Textile Article Intra-state Transaction Inter-state Transaction Cotton Fibre 25% 75% Cotton Yarn 30% 70% Manmade Fibre 25% 75% Manmade Yarn 30% 70% Cotton Fabric 50% 50% Manmade Fabric 50% 50% Cotton Garments 40% 60% 235

Summary of Effective Duties Paid CASE I II III IV Purchase of Raw Material Sale of Finished Goods 100% Domestic 100% Imported 100% Domestic 100% Imported 100% Exports 100% Exports 100% Domestic 100% Domestic Cotton Yarn 3.29% Nil 1.89% 2.26% Manmade Yarn 1.03% Nil 1.99% 8.33% Cotton Fabric 3.25% 6.56% 2.46% 11.16% Manmade Fabric 0.92% Nil 2.46% 7.98% Cotton Garments 1.52% Nil 1.05% 7.07% Note: Duties as a percentage of ex-factory price On account of anomaly in tax structure, T&C manufacturers pay duties and taxes that are not refunded. *Refer Annexure V for details 236

Anomalies in the Indian Tax and Duty structure VAT and CST are not adjustable: If a manufacturer while purchasing raw-materials has paid VAT and while selling collects CST, he cannot avail a credit. Exporter does not get credit for VAT / CST paid during raw material purchase: When a manufacturer exports all his goods he does not get any credit for the VAT or CST paid at the raw material purchase stage. Customs paid while purchase and Excise collected while sale are not adjustable: If a manufacturer imports raw material and pays customs duty on it, he is unable to adjust it against the excise that he collects while selling. VAT on fabric is Nil: A fabric manufacturer pays VAT while buying the raw material but cannot collect the same while selling his product. Anomaly in duty drawback rates: Duty drawback rates are not as high as effective duties as a result T&C exporters pay excessive duties. 237

SWOT Analysis of Indian Textile and Clothing industry 238

SWOT analysis of Indian T&C industry (1) STRENGTHS Strong domestic textile presence across the entire value chain. Abundant availability of raw material, both cotton and manmade. Increasing modernization of Indian T&C manufacturing sector facilitated by the TUFS. 239

SWOT analysis of Indian T&C industry (2) WEAKNESSES High dependence of T&C trade on EU27 and US. Large number of small scale units in the garment industry on account of reservation under SSI till recently thus, lacking benefits of economies of scale. Weaving, garmenting and processing sectors of the industry are still not fully modernized. High dependence of Indian T&C industry on Cotton as against the world T&C industry which is dominated by manmade fibre. Lack of trained manpower. Restrictive labour laws as compared to other competing countries. High cost of labour as compared to Bangladesh, Sri Lanka and Vietnam, coupled with low labour productivity. High power cost and lack of availability of power. High finance cost as compared to China. High transaction costs as compared to other competing countries. Lack of any free trade agreements with the major T&C global markets resulting in high import tariffs as compared to Bangladesh, Sri Lanka and Turkey. Lack of proximity to key global markets. 240

SWOT analysis of Indian T&C industry (3) OPPORTUNITIES Favourable demographics in the domestic market; increasing young population coupled with rising income levels in the domestic market is likely to act as a key growth factor for the Indian textile Industry. Increasing production costs in China resulting in China becoming non-competitive. FTA with EU (under negotiation) which not only aims to eliminate tariffs and quotas, but also non-tariff barriers to trade. This FTA is expected to be implemented by end of 2009. THREATS Removal of US and EU quotas on imports from China from December 31, 2008. Emerging low cost garment manufacturers i.e. Bangladesh, Vietnam and Sri Lanka. Trade defense measures been taken by certain major export markets of India^. ^Refer Annexure VI for details 241

Indian Government has taken some measures to support the industry during the economic slowdown (1) Particulars Modernisation of Technology Raw material for Spinning Industry Details Technology Up gradation Fund Scheme has been extended till 2012. With Rs 57878 crore of disbursement as on December, 2008, TUFS has facilitated technological up gradation and expansion in the T&C industry. Additional funds of Rs. 1400 crore have been sanctioned for TUFS Import duty on cotton fiber has been reduced to zero Sales Tax Central Sales Tax has been reduced from 3% to 2% Excise Duty CENVAT applicable to non-petroleum products has been reduced by 4% CENVAT on cotton textiles and textile articles has been reduced from 4% to zero as a measure to stimulate the economy in the context of global economic slowdown 243

Indian Government has taken some measures to support the industry during the economic slowdown (2) Particulars Export Incentives Service tax Details 2% duty credit scrip under Market-Linked Focus Product Scheme for garment exports (both knitted and woven) to the U.S and EU27 from 1.4.2009 to 30.9.2009. The scrip, which is a cash substitute, can be used by exporters to pay for duties on imported inputs. Relaxations in the Duty Entitlement Passbook scheme (DEPB) without waiting for realisation of export proceeds. Extension of export obligation period against advance authorisation. Reinstating interest subvention of 2% for export credit. Service tax on foreign agents commission will be refunded upto 10% of FOB value of exports instead of 2% allowed earlier. Refund of Service Tax on output services will be available to units availing duty drawback also. 244

Policy approach impacting the Indian T&C industry Delay in disbursement of refunds Policy approach towards Cotton fibre Policy approach towards Manmade fibre Stringent labour laws Other issues 245

Though TUFS has supported modernisation and expansion in T&C industry, delay in disbursement of TUFS assistance has been a deterrent TUFS has supported modernisation and expansion in the T&C industry however, delay in disbursement of interest compensation under TUFS has been a major deterrent. Analysis reveals that there has been on an average one year backlog in the disbursement of interest compensation. This is a significant cost to the industry and has compounded the current working capital problems of the industry. 246

Policy approach impacting the Indian T&C industry Delay in disbursement of refunds Policy approach towards Cotton fibre Policy approach towards Manmade fibre Stringent labour laws Other issues 247

Yield (kgs per hectare) Production in lakh bales India is the second-largest producer of cotton in the world, accounting for around 20% of the world production India is the second-largest producer of cotton (behind China) in the world with production of around 5.36 million MT in CY2008, accounting for around 20% of world production. Since the launch of Technology Mission on Cotton by the Government of India (GoI) in February 2000, significant achievements have been made in increasing cotton production and yields. Fig: Year-wise production and yield of cotton in India 600 500 400 300 200 100 0 350 300 250 200 150 100 50 0 Yield (kgs per hectare) Production in lakh bales Source: Cotton Corporation of India, IMaCS analysis *as per CAB dated 13th February 2009 248

FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09* Lakh bales Policy approach towards Cotton fibre in India Cotton has a special significance to Indian textile industry since it accounts for nearly 60% of India s total fibre consumption as compared with the world average of 37%. In 2008-09, import duty on Cotton was reduced to zero. Imports accounted for 2 3% of the total cotton consumption during 2005-06 to 2008-09. With a very small share of imports, the import duty exemption of cotton has not supported the industry to a great extent. 300 250 200 150 100 50 0 Fig: Share of imports in total consumption of cotton Total Consumption % of imports Imports 100% 80% 60% 40% 20% 0% Source: Cotton Advisory Board, IMaCS analysis Cotton prices in India are controlled bypolicy intervention through Minimum Support Price (MSP). MSP for cotton has been increased from Rs 2055 per quintal in CY2007-08 to Rs 2850 per quintal in CY2008-09. On 17th February 2009, Central Government has introduced 5% export incentive for raw cotton, through the Vishesh Krishi aur Gramodyog Yojana. The incentive is effective from 1st April 2008 to 30th June 2009. 249

US cents/lb Cotton prices in India have increased which has resulted in significant increase in cost of various textile products 3000 2500 2000 1500 1000 Fig: Minimum Support Price of Cotton in Rs/quintal 500 0 2055 40% 2850 2007-08 2008-09 Source: Cotton Corporation of India, IMaCS analysis 90 80 70 60 50 40 Fig: Cotton prices in US cents/lb World vs India India World Source: Cotton Corporation of India, Emerging Textiles In CY2008-09 the Minimum Support Price (MSP) for cotton was hiked by 40%. Cotton prices in India were higher compared to international prices during July 2008 to December 2008. In December 2008, S-6 variety of cotton was priced at Rs 21,950 per candy as against Rs 19,800 per candy in December 2007. This hike in cotton price is estimated to result in 6.2% increase in cost of yarn, 3.7% increase in cost of fabric and 1.9% increase in cost of garment. Increase in raw material cost in light of diminishing demand and intensifying competition impacted the profitability of the cotton spinning industry. This also resulted in increase in working capital requirement for cotton procurement. 250

Lakh bales of 170 kgs Lakh bales of 170 kgs In spite of high cotton production, high MSP resulted in artificial shortage of cotton in domestic market Fig: Procurement of Kapas by Cotton Corporation of India (CCI) up to January, 20 th 70 60 50 40 30 20 10 0 + 636% 7.88 57.99 Cotton procured by CC I CY2007-08 CY2008-09 Under MSP 99.91% Normal 0.09% Fig: Stock of Kapas by CCI as on January, 20 th 60 50 40 30 20 10 0 + 1421% 3.15 47.92 Stock as on January 20th CY2007-08 CY2008-09 Source: Cotton Corporation of India, IMaCS analysis Cotton advisory board (CAB) has estimated a cotton crop of around 322 lakh bales (of 170 kg) for CY2009, up 2.17% over the previous year. As on 20 th January, 2009 CCI procured 57.99 lakh bales of cotton on account of high MSP. High level of stocks were build-up at CCI because of reluctance to sell at low prices thus, resulting in artificial shortage of cotton in domestic market. 251

Export incentives are supporting raw material supply to the countries who are key competitors in value added T&C products Fig: Major export markets for raw cotton Vietnam 4% Turkey 2% Others 10% Pakistan 20% China 47% Indonesia 5% Bangladesh 12% Source: DGCIS Exports of cotton have increased significantly in the recent years from 47 lakh bales in FY06 to 85 lakh bales in FY08. Majority of raw cotton from India is exported to China, Bangladesh and Pakistan who are the key competitors to the Indian T&C industry. Export of cotton at competitive prices to these countries is likely to hamper the competitiveness of Indian T&C industry vis-à-vis these countries. Recent government policy for 5% export incentive for raw cotton is likely to boost cotton fibre exports at competitive prices. 252

Cotton Stock to-use ratio in India is much lesser than the world average resulting in high price volatility Fig: Cotton Stock-to-Use ratio of India as compared with the world average 2009 2008 2007 2006 2005 2004 17% 13% 16% 21% 11% 35% 40% 50% 47% 48% 49% 49% 0% 10% 20% 30% 40% 50% 60% Cotton stock to use ratio-india Cotton stock to use ratio-world Cotton Stock-to-Use ratio plays an important role in ensuring stable cotton prices. Cotton Stock-to-Use ratio in India is very low compared to the world average and that of competing countries. During CY2008, China, Pakistan and Turkey had Cotton Stock-to-Use ratio of 34%, 35% and 31% respectively which was much higher than that of India (13%). 253

Policy approach impacting the Indian T&C industry Delay in disbursement of refunds Policy approach towards Cotton fibre Policy approach towards Manmade fibre Stringent labour laws Other issues 254

India is the one of the largest producers of manmade fibres in the world with polyester being the most popular fibre/filament India is one of the largest producers of manmade fibres in the world with a production of 1.24 million MT of manmade staple fibre and 1.5 million MT of manmade filament yarn in 2007-08. The country accounted for 7% of the total manmade fibre production in the world in FY06. Polyester is the most common fibre/filament; polyester staple fibre accounts for 71% of the total manmade staple fibre production while polyester filament yarn accounts for 94% of the total filament yarn production in India. Fig: Share of various varieties in total synthetic staple fibre production in India (2007-08) Fig: Share of various varieties in total synthetic filament yarn production in India (2007-08) Acrylic Staple fibre 7% Viscose Staple fibre 22% Nylon Filament yarn 2% Poly propylene Filament yarn 1% Viscose Filament yarn 3% Polyester Staple fibre 71% Total synthetic fibre production:1.24 million MT Polyester Filament yarn 94% Total filament yarn production:1.5 million MT Source: Office of textile commissioner, IMaCS analysis 255

India is a net exporter of polyester staple fibre and filament yarn with exports increasing significantly over the years Fig: Volume-wise import and export of polyester staple fibre FY09(H1) FY08 FY07 FY06 FY05 FY04 7 14 16 15 12 18 32 43 50 77 Imports Exports 124 Polyester accounted for 82% of the total manmade fibre exports (by volume) and 90% (by volume) of the total filament yarn exports of India in FY08. With 1.39 lakh MT of exports and 0.18 lakh MT of imports in FY08, India is a net exporter of polyester staple fibre. Exports of polyester staple fibre have increased at a CAGR of 44% from FY04 to FY08 though the imports have stagnated over the years. India is also a net exporter of polyester manmade filament yarn with exports of 2.22 lakh MT and imports of 0.85 lakh MT in FY08. Exports of polyester filament yarn increased at a CAGR of 33% from FY04 to FY08. 139 0 50 100 150 000 MT 256 Fig: Volume-wise import and export of polyester filament yarn FY09(H1) FY08 FY07 FY06 FY05 FY04 43 85 91 107 93 106 96 115 71 94 175 222-50 50 150 250 000 MT Source: ICRA report

Despite a strong base in manmade fibre production, Indian textile trade has significant dependence on cotton Share of various fibres in total fibre consumption In 2007, Cotton fibre accounted for 62% by volume of India s total fibre consumption as against 37% of world fibre consumption. Despite a significant base in manmade fiber production, cotton T&C accounts for substantially higher share of India s total T&C export value indicating significant dependence of Indian T&C trade on cotton. Fig: Fibre-wise share in total fibre consumption (2007) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Manmade 36% Manmade 61% Cotton 62% Cotton 37% India World Source: ICRA report 257

Jun-07 Jul-07 Aug'07 Sept'07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 US $/kg Unlike China, polyester prices in India are higher than cotton prices Empirical studies have shown a negative relationship between cotton consumption and the price ratio of cotton to polyester i.e. if polyester is relatively lower priced, then fibre substitution may occur and less cotton is likely to be consumed. Thus, fibre (natural and synthetic) demand is dictated to some extent by relative prices. However, other factors such as the durability of synthetic fibres also explain the substitutability between fibres. In India, polyester prices are relatively higher than cotton as against that in China which is one of the reasons for the preference in consumption of cotton. Fig: Cotton polyester price differential* (US $/kg) 0.6 0.4 0.2 0-0.2-0.4 India China *Refers to cotton price less polyester price 258 Source: Emerging Textiles

Anomaly in duty structure of manmade fibres/filaments in adversely affecting their domestic consumption Policy related issues are partly responsible for high domestic prices of Manmade fibres/filaments resulting in their reduced consumption. Anomaly in excise duty structure Manmade fibres and textiles attract high excise duty (4.12%) as compared to cotton (nil). Polyester intermediate MEG attracts a higher excise duty (8.24%) than polyester which results in accumulation of CENVAT credit. Higher excise duty structure of polyester as compared to cotton is likely to affect the domestic consumption of polyester. Import duty on manmade fibres Manmade fibres attract a 5% import duty as against cotton fibre on which the import duty has been recently reduced to zero. As a result, Indian T&C industry is unable to procure manmade fibres/filaments at globally competitive prices. 259

Policy changes are required to ensure domestic availability of fibres/filaments at competitive prices Import duty on manmade fibre intermediates PTA, MEG and DMT are the key raw materials for polyester fibre/filament production. These polyester fibre intermediates attract a basic import duty of 5%*. Import duty on intermediates is likely to raise polyester prices thus, adversely affecting its domestic consumption. Export incentives for manmade fibres Man made staple fibres like Polyester, Acrylic are allowed a Duty draw back of 2.4 % with a drawback cap of 1.4 Rs per kg; polyester staple fibre exports have a DEPB rate of 5% subject to a cap value of Rs 55 per kg under the Duty Entitlement Passbook scheme. Export incentive for polyester, which is a key raw material for the Indian T&C industry is likely to affect the availability of the fibres and filaments for the domestic T&C industry at competitive prices. *Source: Office of Textile Commissioner 260

Policy approach impacting the Indian T&C industry Delay in disbursement of refunds Policy approach towards Cotton fibre Policy approach towards Manmade fibre Stringent labour laws Other issues 261

India ranks high on the 'Rigidity of Employment index' among the competing countries on account of stringent labour laws India ranks highest on the Difficulty of Firing index amongst the key competing countries. India also ranks high on the Rigidity of Employment index amongst the key competing countries. This indicates the high rigidity in labour laws in the country Country Ranking of economies by Doing Business 2009 * Difficulty of Hiring Index Rigidity of Hours Index Difficulty of Firing Index Rigidity of Employment Index Firing costs (weeks of salary) India 0 20 70 30 56 China 11 20 50 27 91 Bangladesh 44 20 40 35 104 Sri Lanka 0 20 60 27 169 Turkey 44 40 30 38 95 Vietnam 11 20 40 24 87 Source: World Bank *Refer Annexure VII for details

Restrictive labour laws affect the competitiveness of Indian T&C industry (1) T&C industry comes under the purview of Contract Labour Act, 1970 which prohibits contract labour for the work that is perennial in nature Contract Labour Act, 1970 prohibits contract labour for the work that is perennial in nature, incidental to and necessary for the work of the factory and is being done in most concerns through regular workmen. The Act applies to every establishment in which 20 or more workmen are employed or were employed on any day on the preceding 12 months as contract labour. Though, it does not apply to establishments where the work performed is of intermittent or seasonal nature, such an establishment will be covered by the Act if the work performed is more than 120 days and 60 days in a year respectively. T&C industry comes under the purview of Contract Labour Act. T&C industry, especially the Export Oriented Units have to deal with highly uncertain market dynamics and thus, need the flexibility of contract labour to face stiff competition from other countries. The recent economic turmoil has made the industry more vulnerable. Competing countries like China and Bangladesh do not have such restrictions on Contract labour in Textiles. 263

Restrictive labour laws affect the competitiveness of Indian T&C industry (2) The Factories Act, 1948 poses restrictions on the maximum working hours which further affects the competitiveness of industry The act stipulates that no adult worker shall be required or allowed to work in a factory for more than forty-eight hours in any week. Also, women workers are not to be employed in night shifts on account of safety issues. The restrictive working hours are detrimental to the T&C industry as it restricts the ability of the units to meet the peak season demand. The problem is compounded on account of restrictions on contract labour. Indian Labour laws introduce unfair discrimination against large companies Indian Labour laws introduce unfair discrimination amongst large companies and the smaller ones and thus, are partly responsible for lack of economies of scale and poor competitiveness of Indian T&C industry. Units employing over 100 people currently fall under the purview of the Industrial Disputes Act, 1947 (IDA, 1947). The Act stipulates that employers must obtain necessary regulatory approvals for lay-offs. As a result, Indian manufacturers often set up several plants instead of a single large one. 264

Policy approach impacting the Indian T&C industry Delay in disbursement of refunds Policy approach towards Cotton fibre Policy approach towards Manmade fibre Stringent labour laws Other issues 265

Indian T&C exporters do not have duty free access to the key global markets Global Market EU27 US Japan Trade agreement Reduced duties applied on T&C products India and the EU commenced talks on the creation of a Free Trade Agreement in 2006. FTA not only aims to eliminate tariffs and quotas, but also non-tariff barriers to trade. This FTA is expected to be implemented by end of 2009 MFN duties applied on majority oft&c products Although India is currently a beneficiary of the US GSP, textiles produced with cotton, wool, manmade fiber, and other vegetable fiber are prohibited from receiving GSP treatment. Reduced tariffs for textile products Under Japan s GSP, India qualifies for reduced tariffs for T&C products 266

Other policy related issues (1) No duty credit scrip for yarn, fabric and made-ups Yarn, Fabric and Made-ups together account for around 44% of the total T&C export earnings. The sector has been significantly affected by the economic slowdown. However, the 2% duty credit scrip under Market-Linked Focus Product Scheme does not provide any incentive for made-ups, fabric and yarn exports. Interest subvention partially re-instated An interest subvention of 4% on export credit was withdrawn by the Government in October 2008 of which 2% has been reinstated. Effectively, this has resulted in a reduction in interest subvention of 2% for the T&C exporters. Delay in disbursement of various refunds Majority of incentives provided to the T&C sector are in the form of refunds. Delay in disbursement of funds by the government and non-payment of interest on the pending funds results in additional cost to the industry. 267

Other policy related issues (2) Hank Yarn Obligation (HYO), initiated in 1974 was a measure to ensure adequate yarn at competitive prices for the handloom weavers. HYO is an implicit subsidy given to the handloom sector at the expense of yarn producers. Under the HYO, over 25% of the production for domestic sales has to be sold in the hank form for the handloom sector at a significant discount to the prevailing yarn prices thereby constraining profitability. This obligation impacts the competitiveness of T&C sector as Yarn producers are forced to produce a fixed proportion of their yarn of below 40s count, which fetches them lower margins. The obligation prevents yarn producers from upgrading their product portfolio. 268

Interventions by Governments in the competing countries 269

Chinese government has taken several initiatives to drive the growth of T&C industry Particulars Tax Credits and Rebates Reduction in lending rates Textile plan for revamping T&C industry Details Chinese government has raised the export rebate rate for textiles and apparel thrice, from 11% at the beginning of 2008, to 15% by Feb 2009, the highest in 10 years. 1% increase in export rebate is estimated to distribute 7.6 billion yuan (US $ 1.11 billion) to exporting companies* Government is forcing state-owned banks to approve low-interest loans for the T&C industry The Textile plan focuses on the following: Developing new markets like Russia, Brazil, India and Africa as well as domestic market with focus on rural markets Investing in updated technology and developing brands Saving energy Providing financial support in terms of credit guarantees with focus on SME. *Source: Emerging Textiles 270

Vietnamese government has taken several initiatives to drive the growth of T&C industry Particulars Reduction in taxes Export subsidies Reduction in lending rates Details Vietnamese government has announced plans to halve the value-added tax on cotton imports from 10% to 5%. With the country importing virtually all cotton used in Vietnamese mills, this move could have a positive impact on both cotton share and demand in coming months. Vietnamese government has agreed to provide support to the country s T&C industry at a ratio of forty Vietnamese dong per one dollar in exports value i.e. exports valued at US $ 1 million would be given support of VND 40 million from the government. With Vietnamese textile and apparel exports in 2008 exceeding US $ 9 billion, this equates to roughly US $ 21 million in export subsidies. Vietnamese government has assigned the State Bank of Vietnam to grant low-interest loans to Vietnam Textile Corporation (VTC) in order to import cotton. * Details of the support plan, including how the subsidy payments may be made have not been disclosed. 271

Turkish government has taken initiatives to drive the growth of T&C industry Particulars Details In order to push industrial output, the government has Lending rates Protection for domestic yarn industry reduced lending rates by 3.75% over the period of October to December 2008. Government has taken anti-dumping sanctions to protect the spun and filament yarn manufactures from Asian competition 272

Bangladesh government has been responsive to its industry needs and has taken initiatives to drive growth Particulars Industry supportive import duty structure Reduction in taxes Incentives for the development of backward linkages Details No import duty for export oriented industry For other industry, it is @ 5% ad valorem Tax holiday facilities for 5 or 7 years depending on location of the industrial enterprise Industrial undertakings not getting tax holiday enjoy accelerated depreciation allowance at the rate of 100% of the cost of machinery Entire export earning from handicrafts and cottage industries is exempted from income tax. For all other industries, income tax rebate on export earning is given at 50% 15% cash subsidy of the fabric cost to exporters sourcing fabrics locally. Incentives extended to the "deemed exporters" supplying indigenous raw materials to export-oriented industries. 273

Sri Lankan government has taken initiatives to drive the growth of T&C industry Particulars Export incentive program based on maintaining revenues and employment Other incentives to Textile Industry Depreciation of Rupee Textile-processing zones Details Sri Lanka's government is giving a 5% incentive payment in domestic currency to any exporter who shows 5% increase in export proceeds remitted to the country over the same quarter last year. Such exports are required to have prescribed minimum domestic value addition. The payments will befree of tax. Companies which meet certain qualifying criteria set by the government get the following incentives : Concessionary tax Import duty exemption on capital goods as well as raw materials In order to limit the slowdown in export sales, the Central Bank accepted a depreciation of the rupee which fell about 7% in 2008 against the dollar. Establishment of three textile-processing zones in order to enhance the value addition in apparel export 274

Ministry of Textiles has targeted an export turnover of US$ 55 billion and a domestic market of US$ 60 billion for Indian Textile industry by the end of eleventh plan Ministry of Textiles has targeted the growth of Indian textile industry at 16% per annum (in value terms), to US$ 115 billion, by the end of Eleventh Five Year Plan. It was also targeted to secure a 7% share in global textile trade by the end of the Eleventh Five Year Plan. It was estimated that the T&C industry would require an investment of Rs. 1,50,600 crore to achieve the targeted growth. Fig: Investment required during eleventh five year plan to achieve the targeted growth SECTOR INCREMENTAL CAPACITY INVESTMENT (Rs crore) Spinning 29.25 million Spindles (8.25)* 50,200 Weaving 1,97,000 looms 20,200 Knitting 9,400 machines 2,400 Processing 38 billion square meters 56,000 Garment 14.5 lakh machines 21,800 Total 1,50,600 *Including replacement of machinery Source : Ministry of Textiles, Report of the Working Group on Textiles & Jute Industry for the Eleventh Five Year Plan (2007-2012) 276

T&C industry has a significant employment and export potential in case the targeted growth is realised Employment potential of T&C industry As on March 2006, the Textile sector provided employment to 33.17 million* people. Provided the growth targeted during the Eleventh Five Year Plan is achieved, the industry has potential to provide employment to 45 million* people by 2012. Export potential of T&C industry As of 2007-08, exports of T&C industry amount to US $ 22.4 billion, contributing 12% to the country s total foreign exchange earnings. Provided the growth targeted during the Eleventh Five Year Plan is achieved, the exports are expected to surge to US $ 55 billion. * This also includes employment in Handloom, Sericulture, Handicraft and Jute industry Source : Ministry of Textiles, Report of the Working Group on Textiles & Jute Industry for the Eleventh Five Year Plan (2007-2012) 277

During Apr - Feb, FY09 production and exports of T&C have missed the expected growth targets thus, requiring a strategic intervention to realise the envisioned targets Production of majority of textile products could not achieve the expected growth target in 2007-08; the trend worsened during Apr Feb, FY09 with decline in production of manmade fibre (by 15% y-o-y), manmade filament yarn (by 7% y-o-y), Spun yarn (by 3% y-o-y) and fabric (by 1% y-o-y). Exports of T&C also missed the target during Apr Dec 2008 with Garment exports increasing by 7% (y-o-y) as against a target of 27% (y-o-y) and Textile exports declining by 4% (y-o-y). Under these circumstances, the T&C industry is unlikely to achieve the envisioned target unless the sector weaves a strategic shift in the coming year. Fig: Achieved growth rates as against the expected growth rate during the eleventh plan 12% 8% 4% 0% -4% -8% -12% -16% 9% 10% 9% -15% Production of manmade fibre 10% -7% Production of Manmade filament yarn 12% 12% 5% 5% -3% Production of Spun yarn Assumed annual growth rate during the eleventh plan Annual Growth rate achieved in 2007-08 Annual growth rate achieved in 2008-09* 278-1% Production of fabric 30% 25% 20% 15% 10% 5% 0% -5% 21% 17% -4% Exports of Textiles 27% 9% 7% Exports of Garments 22% 15% 0.2% Total Exports Refers to Apr Feb FY09 for production and to Apr Dec 2008 for exports. Source : Office of Textile Commissioner

Major issues faced by the T&C industry Current issues arising because of recent economic slowdown Decline in demand from global markets Liquidity crisis Issues affecting long term growth of industry Lack of skilled labour Significant dependence on Cotton products 279

Current issues affecting the T&C industry Issues Major impediments to growth Decline in demand from global markets Lack of cost competitiveness in majority of T&C products as compared to China, Bangladesh, Vietnam and Sri Lanka* High dependence of T&C trade on EU27 and US markets *Based on the analysis of identified competing countries Liquidity crisis Delay in disbursement of TUFS assistance and other assistance High working capital interest 280

Strategic interventions are required at two levels to ensure the growth of T&C industry Efforts by the industry Strategic interventions required for the Textile and Clothing industry Facilitation by the government 281

Government should take steps to reduce the cost disadvantage of Indian T&C manufacturers Major factors that have caused cost disadvantage in T&C industry High power cost High labour cost Anomalies in taxes and duties High transaction cost High import tariffs by global markets 282

Government should support captive power generation in the regions suffering from acute power shortage High power cost* Power related issues Shortage of grid power^ High cost of captive power generation Government should allow exemption of excise and customs duty paid for liquid fuels used for captive power generation *Power cost in India is on an average around 40% higher than that in the analysed competing countries. ^ Tamil Nadu which accounts for around 40% of India s spinning activity and over 25% of total T&C activities has a declared power cut of 40%. 283

Government should increase labour flexibility especially for the labour intensive sectors of the T&C industry Increase labour flexibility 1. Permit Contract labour* 2. Consider routing the National Rural Employment Guarantee Programme (NREGA) through T&C industry^ Extend labour working hours - increase weekly working hours limit from 48 to 60 hours and daily working hours limit from 8 to 12 hours Relax the norms of Industrial Disputes Act, 1947 -by increasing the limit pertaining to the number of workers *With the condition that T&C units provide employment to contract labourers for a fixed tenure (say 150 days) as well as provide protection of rights of these labourers in terms of health, safety, welfare, social security, etc. ^ If labour flexibility is permitted, T&C industry will be able to provide a longer employment period and higher wage rate as compared to that promised under NREGA. 284

Government should take measures to streamline the anomalies in taxes and duties Current Status State level taxes and duties are not refunded Duty drawback rates are insufficient to neutralize the incidence of all duties Delay in disbursal of duty drawback claims to the level of 40 60 days Implication Additional incidence of 2% to 6% of ex-factory price Central Government should make provisions to refund the State level taxes and duties, the incidence of which is on an average 4%* of the ex-factory price. Government should revise duty drawback rates to completely neutralize the incidence of duties and disbursal of duty drawback claims should be expedited. *Government levies an additional customs duty of 4% on imported goods to countervail the sales tax, value added tax, local taxes and other charges leviable on sale or purchase or transportation of like goods in India. Similarly a refund of 4%, equivalent to the incidence of state level taxes and duties should be provided to the T&C exporters to bring them at par with the global players. 285

Government should take immediate steps to clear TUFS backlog and revise TUFS procedures for future applications Delay in disbursement of TUFS assistance results in significant additional cost Government should allocate sufficient funds to clear the back log of TUFS till date Mills should be permitted to pay interest net of interest compensation to the banks* *Government should arrange to remit interest compensation amounts directly to banks concerned 286

Government should take measures to overcome the working capital related problems of the industry T&C manufacturers pay working capital interest at the rate of 11 13%. Working capital requirement of the Cotton textile industry has increased on account of hike in cotton prices. Government should take following measures for the working capital loan for cotton Reduce interest rate for working capital loan to 7% Reduce margin money requirement to 10% Increase the duration of working capital loan for cotton to 9 months 287

Government should support the industry to reduce the other costs of doing business Negotiate better trade terms with global T&C markets including Japan Indian T&C trade faces comparative disadvantage on account of free market access available to Bangladesh, Sri Lanka and Turkey. Ministry of Commerce should negotiate better trade terms with the global T&C markets including Japan*. Streamline EXIM procedures to reduce the transaction costs Simplify documentary procedures at the ports to reduce transaction costs. Increase port capacity and improve rail/road connectivity to ports. *Japan intends to reduce the share of Chinese textile and clothing in its total T&C imports to around 50% from the current 77%. This is likely to generate significant business opportunity for the other Asian garment exporters. Source: Japan s International T&C Trade Office at Japan s Ministry of Economy 288

Government should support the industry to reduce its dependence on cotton Short Term measures Abolish customs duty on manmade fibres and their intermediates. Abolish excise duty on manmade fibres and their intermediates. Withdraw export incentives for various fibres Long term measures Formulate comprehensive Fibre Policy to : Ensure availability of raw material (especially cotton and polyester) to the domestic T&C industry at competitive prices Reduce the dependence of Indian T&C industry on Cotton which is an agricultural product 289

Joint Working Group comprising of members from the Government and the T&C industry, should be formulated to periodically review the performance of industry Joint Working Group (JWG) comprising of members from the Ministry of Textiles, the Ministry of Finance, the Ministry of Commerce and members from T&C industry associations, should be formulated to periodically review the performance of T&C industry. The Working Group should periodically review the dynamics of the T&C export markets and examine the factors affecting the competitiveness of the T&C industry. The findings of the Working Group should support the Government to make necessary policy interventions in order to ensure long term growth of the industry. 290

Industry should make efforts to ensure long term growth Fabric and Garment sectors of the industry should improve cost competitiveness by upgrading technology and achieving economies of scale Weaving, Processing and Garment sectors of the industry are fragmented thus, lacking economies of scale. Of the total TUFS disbursement upto December 2008, Weaving industry accounted for only 7.7% and Garment industry accounted for only 5% as against 34% of Spinning industry. This indicates limited efforts in technology up gradation in these sectors. Fabric industry and Garment industry should undertake technology up gradation as well as achieve economies of scale to achieve cost competitiveness. Garment industry should explore new markets to reduce trade dependence on EU27 and US Japan which is the third largest garment importer with a share of 6.7% in world clothing imports in 2007, accounts for only 1.1% of India s total garment export value. Similarly, Russia which is the fifth largest garment importer with a share of 4.1% in world clothing imports in 2007, accounts for only 0.6% of India's total garment export value. Garment industry should make efforts to develop business in these markets in order to reduce its trade dependence on EU27 and US. 291

Industry associations should make focused efforts to ensure the availability of skilled labour for the industry Non-availability of trained labour is impeding the long term growth of the T&C industry. Associations should establish Skill Development centres to ensure availability of skilled labour to the industry. Skill Development centres should run Certified training courses focusing on the specific skills required by the industry. Registration of skilled workers should be done at the Skill Development centres to maintain a databank of skilled labour. Skill Development centres should provide human resource service to the industry with the support of databank. 292

Annexure I Indian Textile and Clothing industry 293

Analysis of Indian Textile and Clothing industry and key issues Indian Spinning Industry Indian Weaving and Knitting Industry Indian Garment Industry Indian Made-ups Industry Findings from the primary survey 294

Snapshot of Indian Spinning industry Fig: Structure of Indian Spinning industry 2007-08 Fig: Number of spinning mills Number of spinning mills 2816 Total installed capacity Spindles 39.5 million Rotors 6,01,000 Non SSI, 1597 SSI, 1219 Source: Office of Textile Commissioner, IMaCS analysis Spinning is considered as the most consolidated and technically efficient sector in India s textile industry largely because of deregulation beginning in the mid-1980s. 43% of the mills in the Spinning industry belong to SSI which together account for 12% of the installed capacity and 8% of the employment. 295

Cotton spun yarn is the major product of Indian spinning industry accounting for 74% of total yarn production in FY08 In FY08 Indian Spinning industry produced 5.5 million MT of total yarn of which spun yarn accounted for 72.7%. Indian spun yarn production increased at a 5-year CAGR of 5.4% to 4 million MT in FY08. Cotton yarn constituted 74% of total spun yarn production followed by blended (17%) and non-cotton (9%). In FY08, India produced 1.5 million MT of manmade filament yarn (MMFY). Polyester Filament yarn (PFY) is by far the most popular synthetic fibre/yarn in India, accounting for 94% of MMFY production in FY08. Fig: Share of various varieties in total spun yarn production in India (2007-08) Total spun yarn production: 4 million MT Non cotton 9% Blended 17% Cotton 74% Fig: Share of various varieties in total synthetic filament yarn production in India (2007-08) Total MMFY production: 1.5 million MT Nylon 2% Polyester 94% Viscose 3% 296 Source: Office of Textile Commissioner, IMaCS analysis

US $ Million Spinning industry accounts for 14% of India s total T&C export earnings with exports worth US $ 3.1 billion in FY08 In FY08, Indian Spinning Industry exported US $ 3.1 billion of yarn, accounting for 14% of the total T&C export earnings. Yarn exports from India increased at a CAGR of 18% from FY06 to FY08; cotton yarn accounted for 61% of total yarn exports in FY08. EU is the largest export market for Indian yarn accounting for 17% of the total yarn export value in 2007-08 followed by Bangladesh (12%) and Turkey (10%). Other key export markets are Korea, Egypt, Peru and China. USA and Japan account for 2% each of the total yarn export value of India and UK accounts for 1.5%. Fig: Year-wise total yarn export by India 3500 3000 2500 2000 1500 1000 500 0 65% 2,270 64% 35% 36% 2,638 61% 39% 3,149 2005-06 2006-07 2007-08 Cotton Non Cotton Total Source: Office of Textile Commissioner, IMaCS analysis Sri Lanka 2% Mauritius 2% 297 U S A 2% Fig: Key export markets for yarn (2007-08) Taiwan 2% Japan 2% Other 26% Brazil 6% China 3% Peru 3% EU 17% Bangladesh 12% Egypt 6% Turkey 10% Korea 7% Source: DGFT, IMaCS analysis

During 2008, India s yarn export to EU27 declined significantly combined with drop in price realisation 20% 0% Fig: Yarn export to EU27 in 2008 as compared to 2007 During 2008, yarn exports to EU27 declined 13.2% (y-o-y) by volume (as against an increase of 8.2% (y-o-y) in 2007) and 14.7% (y-o-y) by value as against an increase of 4.5% (y-o-y) in 2007). -20% -40% 60% 40% 20% 0% -20% -40% -60% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec y-o-y % increase in Volume (Kgs) y-o-y % increase in Value (Euros) y-o-y % increase in Price realisation (Euros/kg) Fig: Yarn export to UK in 2008 as compared to 2007 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Eurostat, IMaCS analysis Exports in value terms declined significantly in the month of August (34% y-o-y), October (27% y-o-y) and November (31%). Price realisation in terms of Euros/kg of yarn also declined between March and June 2008 with average price realisation in 2008 being 1.4% lower than that in 2007. Exports to UK during 2008 declined 1.2% (y-o-y) by volume (as against an increase of 9.6% (y-o-y) in 2007) and 2.9% by value (as against an increase of 19.4% (y-o-y) in 2007),. Average price realisation during 2008 was 2.2% (yo-y) lower than that in 2007. 298

During 2008, India s yarn exports to US decreased 11% (y-o-y) by volume and 7% (y-o-y) by value Fig: Yarn export to US in 2008 as compared to 2007 60% 40% 20% 0% -20% -40% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec y-oy % increase in Volume (SME) y-o-y % increase in Value (US $) y-o-y % increase in Price realisation (US $/SME) Source: OTEXA, IMaCS analysis India s yarn exports to US during 2008 declined 11% (y-o-y) by volume and 7.5% (y-o-y) by value. The decline was significant in December 2008 with export volume dropping by 34% (y-o-y) and export value dropping by 28% (y-o-y). 299

Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 During Apr-Feb FY09, spun yarn production declined by 3% (y-o-y) and MMFY production declined by 6% (y-o-y) Fig: India s monthly spun yarn production in million kgs 400 350 300 250 200 150 100 50 0 40% 30% 20% 10% 0% -10% -20% -30% Production (mkg) Growth (yoy) Fig: Year-on-year growth in filament yarn production PFY VFY 25% 20% 15% 10% 5% 0% -5% -10% -15% Spun yarn production has declined since July 2008, with the decline continuing in each successive month. During Apr-Feb, FY09 spun yarn production declined by 2.9% (y-o-y) to 3.6 million MT. Production of Manmade Filament Yarn (MMFY) declined by 6% (y-o-y) in FY09, compared to a growth of 10.1% in FY08. Production of Polyester Filament Yarn (PFY) declined by 6% (y-o-y) in FY09, as against an increase of 12% (y-o-y) in FY08. Source: Office of the Textile Commissioner 300

Million Spindles Indian Spinning industry has undergone capacity expansion in recent years with high leverage Fig: Increase in Spinning capacity over the years (Non SSI) 38 37 36 35 34 33 FY 2004 FY 2005 FY 2006 Million Spindles FY 2007 FY 2008 By Jan 2009 (P) Thousand Rotors 500 400 300 200 Thousand Rotors Fig: Composition of disbursement under TUFS (up to Sep 2008) 6% 13% 17% 11% 20% 33% Spinning Composite Upgradation Weaving / Knitting Processing/Fabric Embroidery Garment/Made-up Others Source: Office of Textile Commissioner, IMaCS analysis Indian Spinning industry has undergone capacity expansion in anticipation of increased demand. With spinning industry accounting for 33% of the total disbursement under TUFS till September, 2008, the capacity build-up has been highly leveraged, primarily driven by interest compensation under TUFS. 301

Profit margins of Indian Spinning Industry have declined during FY09 Fig: Profit margins for a sample of Indian Spinning companies* 20% 15% 10% Annual performance 16% 15% 14% 15% 10% 20% 15% 10% 5% 12% Quarterly performance 11% 5% 9% 5% 5% 0% -5% 3% 4% 5% -3% -4% FY04 FY05 FY06 FY07 FY08 0% -5% -10% -15% -1% -3% -8% -5% -9% -2% Operating Profit Margin Net Profit Margin -20% Q2 FY08 Q3 FY08 Q4 FY08 Q1 FY09 Q2 FY09-18% Q3 FY09 Source: Capitaline, IMaCS analysis Operating margins of the sample of companies dropped significantly from a profit of 11% in Q3FY08 to a loss of 2% in Q3FY09. The analysed companies have made a loss in each of the three quarters of FY09. * Analysis of a sample of 35 cotton spinning companies 302

In conditions of reducing demand, highly leveraged capacity build-up is affecting the financial profile of the industry interest coverage ratio 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1.7 Fig: D/E and interest coverage ratio for a sample of Indian Spinning companies* 1.6 3.0 1.5 3.1 1.6 3.3 3.4 FY04 FY05 FY06 FY07 FY08 D/E ratio Interest coverage ratio 3.1 1.4 D/E ratio of the analysed spinning companies has increased significantly from 1.6 in FY04 to 3.1 in FY08, indicating leveraged capacity expansion. Recent drop in production has resulted in under utilisation of capacities, inadequate absorption of fixed costs and weak debt coverage indicators. The interest coverage ratio declined to below one in Q3FY08 with the performance further deteriorating in succeeding quarters. 303 Fig: Quarterly interest coverage ratio for a sample of Indian Spinning companies* 4.0 3.0 2.0 1.0 0.0-1.0-2.0 0.9 Q2 FY08 0.6 Q3 FY08-0.4 Q4 FY08 0.3 Q1 FY09 Q2 FY09-0.2 Q3 FY09-1.2 Source: Capitaline, IMaCS analysis * Analysis of a sample of 35 Indian cotton spinning companies

US $ million Fabric industry accounts for 14% of India s total T&C export earnings with exports worth US $ 3.1 billion in FY08 India s fabric production has increased at a 3-year CAGR of 7.3% from FY05 to FY08, to 56,031 million square metres (msm) in FY08 of which woven fabric accounted for 79% of total production. India is net exporter of fabric with exports worth US $ 3.13 billion in FY08, accounting for 14% of the total T&C export earnings. Fabric exports by India have increased at a CAGR of 12% from FY06 to FY08; woven fabrics accounted for 97% by value of total fabric exports. UAE and EU are the major export markets for fabric with a share of 17% and 13% respectively. US accounts for 6% of India s total fabric export value. Fig: Year-wise trend of fabric exports Fig: Key export markets for fabric (2007-08) 3500 3000 2500 2000 1500 1000 500 0 2505 2537 98% 97% 3139 97% 2005-06 2006-07 2007-08 Woven Knitted Source: Office of Textile Commissioner, IMaCS analysis Srilanka 6% Turkey 2% Bangladesh 5% Saudi Arabia 4% USA 6% UAE 17% EU 13% Afganistan 3% Other 44% Benin, 2% Togo, 2% Senegal, 2% Egypt, 2% Others 36% *Woven fabrics include special fabrics 305

Indian Weaving industry accounts for 97% of the total fabric exports by value Weaving industry accounts for 79% of total fabric production (by volume) and 97% of total fabric exports (by value) of India. India s weaving sector is small scale and highly fragmented. In FY08, power loom sector accounted for 62% of fabric production and was the primary supplier of fabrics to domestic apparel producers and consumers. Fig: Structure of Indian Weaving industry (2007-08) Number of power loom units 4,69,563 Installed capacity Size of typical power loom unit 2.11 million power looms 12 to 44 looms Source: Office of Textile Commissioner, ICRA report 306

Cotton fabrics have the highest share in woven fabric production whereas exports are dominated by Manmade woven fabrics India s woven fabric production has increased at a 3-year CAGR of 6.9% to 43,464 million square meters (msm) in FY08 of which cotton fabric accounted for 49% of total production. Woven fabric exports* increased at a CAGR of 11% from FY06 to FY08 to a value of US $ 2823 million in FY08. In FY08, woven fabric exports were dominated by Manmade woven fabrics (47% by value) followed by cotton fabrics (37%). Fig: Volume-wise share of various varieties in total woven fabric production $ (2007-08) Blended 12% Non cotton 38% Cotton 49% Khadi, Wool, Silk 1% Total woven fabric production 43,464 msm *Excluding Special fabrics 307 Fig: Value-wise share of various varieties in total woven fabric exports (2007-08) Others 16% Man made 47% Cotton 37% Total woven fabric exports*: US $ 2823 million Source: Office of Textile Commissioner, IMaCS analysis

million msm US $ million Indian Knitting industry accounts for 21% of India s total fabric production (by volume) however, its share in total fabric exports value is only 3% Knit fabrics account for 21% of India s total fabric production (by volume) however, their share in total fabric exports value is only 3%. India s knit fabric production has increased at a 3-year CAGR of 9% to 11,804 msm in FY08 of which cotton fabrics accounted for 84% followed by blended (12%). Knit fabric exports increased at a CAGR of 35% from FY06 to FY08 to a value of US $ 90.31 million in FY08. Fig: Year-wise trend in production of Hosiery fabric (million msm) Fig: Year-wise trend in exports of Hosiery fabric (US $ million ) 12000 10000 8000 6000 4000 2000 0 2004 2005 2006 2007 2008 Cotton Blended 100% NC Total 100 90 80 70 60 50 40 30 20 10 0 2006 2007 2008 Source: Office of Textile Commissioner, IMaCS analysis 308

India s fabric exports to EU27 were severely hit during 2008 with a drop of 8.5% (y-o-y) in export volume 40% 20% 0% -20% Fig: Fabric export to EU27 in 2008 as compared to 2007 During 2008, India s fabric exports to EU27 declined 8.5% (y-o-y) by volume, whereas exports in 2007 grew by 2.1% (y-o-y). Exports declined significantly in the month of November, 2008 (32% y-o-y by volume). -40% 40% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec y-o-y % increase in Volume (Kgs) y-o-y % increase in Value (Euros) y-oy % increase in Price realisation (Euros/kg) Fig: Fabric export to UK in 2008 as compared to 2007 India s fabric exports to UK during 2008 declined 13.4% y-o-y by volume, whereas in 2007 exports declined by 12.6% (y-o-y). Fabric export volume declined significantly in the month of September (35% y-o-y), November (49% y-o-y) and December (28% y-o-y). 20% 0% -20% -40% -60% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Eurostat, IMaCS analysis 309

Though India s fabric exports to US increased in 2008, there was a significant drop in price realisation Fig: Fabric export to US in 2008 as compared to 2007 80% 60% 40% 20% 0% -20% -40% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec y-o-y % increase in Volume (SME) y-o-y % increase in Value (US $) y-o-y % increase in Price realisation (US $/SME) Source: OTEXA, IMaCS analysis India s fabric exports to US increased 27% y-o-y by volume and 23% y-o-y by value during 2008. Though India s fabric exports to US increased during 2008 the average price realisation declined by 3% (y-o-y). Price realisation dropped significantly in May (18% y-o-y), June (15% y-o-y) and December (20% y-o-y). 310

Fabric production declined by 1.4% (y-o-y) during Apr Feb, FY09 Total fabric production declined by 1.4% y-o-y during Apr Feb, FY09 and by 2% y-o-y during Feb, 2009 as against a 3-year CAGR of 7.3% from FY05 to FY08; Fabric production by handloom, power loom and hosiery decreased by around 7% y-o-y, 1% y-o-y and 2% y-o-y respectively during Feb, 2009. 20% 15% 10% 5% 0% Fig: Year-on-year growth in fabric production -5% 2005 2006 2007 2008 Apr - Feb FY09 Mills Powerloom Hosiery Total Source: Office of Textile Commissioner, IMaCS analysis 311

Number of power looms in lakhs Number of power loom units in Thousands Though weaving industry has undergone capacity expansion, the number of units has also increased Indian weaving industry has undergone capacity expansion over the years in anticipation of increase in demand. Capacity in terms of power looms has increased over the years with corresponding increase in the number of units Fig: Weaving capacity in India 22 600 20 550 18 500 16 450 14 400 12 350 10 300 FY02 FY03 FY04 FY05 FY06 FY07 FY08 No of Power looms No. of power loom units Source: Office of Textile Commissioner, IMaCS analysis 312

Net profit margin of the weaving companies has declined during FY09 Fig: Profit margins for a sample of Indian Weaving companies 25% 20% 15% Annual performance 18% 18% 16% 21% 24% 25% 20% 15% 20% Quarterly performance 20% 18% 19% 19% 20% 10% 5% 0% 6% 6% 7% 7% 5% FY04 FY05 FY06 FY07 FY08 Operating Profit Margin Net Profit Margin 10% 5% 0% 7% 7% 5% 4% 4% Q2 FY08 Q3 FY08 Q4 FY08 Q1 FY09 Q2 FY09 3% Q3 FY09 Source: Capitaline, IMaCS analysis The weaving companies* have been able to maintain the operating profit margin however, the net profit margin has declined during FY09 with a significant decline in Q3FY09. * Analysis based on a sample of 26 weaving companies 313

Highly leveraged capacity expansion combined with drop in demand has impacted the performance of the weaving companies interest coverage ratio D/E ratio of the analysed companies increased significantly, from 1.6 in FY04 to 3.5 in FY08, indicating leveraged capacity expansion. Interest coverage ratio of the companies has declined during Q3FY09 as compared to the previous quarters. 5.0 4.0 3.0 2.0 1.0 Fig: D/E and interest coverage ratio for Indian companies* 3.0 1.6 3.4 4.2 3.5 1.7 1.9 2.5 3.5 2.9 Fig: Quarterly interest coverage ratio for Indian companies* 4.0 3.0 2.0 1.0 2.8 2.9 3.1 1.9 2.1 1.8 0.0 FY04 FY05 FY06 FY07 FY08 D/E ratio Interest coverage ratio 0.0 Q2 FY08 Q3 FY08 Q4 FY08 Q1 FY09 Q2 FY09 Q3 FY09 Source: Capitaline, IMaCS analysis * Analysis based on a sample of 26 weaving companies 314

Operating profit and Net profit margin of the Knitting companies have declined significantly during FY09 Fig: Profit margins for a sample of Indian Knitting companies 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% Annual performance 12% 14% 13% 10% 10% 4% 3% 0% 3% -1% FY04 FY05 FY06 FY07 FY08 Operating Profit Margin Net Profit Margin 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% 4% 14% Q2 FY08 10% 3% Q3 FY08 Quarterly performance 12% 14% 3% 3% Q4 FY08 Q1 FY09 Q2 FY09 13% 2% -3% 8% Q3 FY09 Source: Capitaline, IMaCS analysis Operating profit of Indian Knitting companies has declined significantly in Q3FY09. Net profit margin also declined significantly during FY09 with the sample companies registering a loss in Q3FY09. * Analysis based on a sample of 14 Knitting companies 315

interest coverage ratio Financial performance of Knitting companies has been significantly impacted in Q3FY09 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Fig: D/E and interest coverage ratio for Indian companies* 2.9 3.4 6.8 0.3 0.3 0.4 6.1 4.4 0.8 1.2 FY04 FY05 FY06 FY07 FY08 D/E ratio Interest coverage ratio Fig: Quarterly interest coverage ratio for Indian companies* 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 3.1 Q2 FY08 2.3 Q3 FY08 1.8 1.9 Q4 FY08 Q1 FY09 1.5 Q2 FY09 0.0 Q3 FY09 Source: Capitaline, IMaCS analysis Though the sample of knitting companies analysed have low share of debt in the total capital employed, the same has increased from FY04 to FY08. The interest coverage ratio has weakened from 2.3 in Q3FY08 to 0.01 in Q3FY09 * Analysis based on a sample of 14 Knitting companies 316

Snapshot of Indian Garment industry India s garment industry is characterised by a large number of independent, small-scale firms; an average Indian garment exporter has around 119 machines, compared to 698 in Hong Kong and 605 in China. Woven and Knitted garment industry was restricted to SSI sector till 2000 and 2005 respectively which has resulted in the small-scale nature of India s garment industry. Because of the predominance of small-scale fabricators in the garment sector, most garments are produced on a contractual basis for the large manufacturers/exporters. The fabricators specialise in low-wage, labour-intensive sewing and have the flexibility to meet small custom orders but are much less competitive with large orders and those typically involving high levels of automation. Fig: Number of SSI and Non SSI garment manufacturing units in India (2007-08) Non SSI, 1000 318 SSI, 12000 Source: ICRA report

US $ million Garment industry accounts for 43% of India s total T&C export earnings with exports worth US $ 9.7 billion in FY08 Garment exports from India increased at a 3-year CAGR of 13.9% to US $ 9,699 million in FY08, accounting for 43% of the T&C export earnings. Knitted garments accounted for 44% of the exports by value during FY08. EU27 is the major export market for Indian garments accounting for 47% of the export value in FY08. UK is the key export destination in EU27 accounting for 12.3% of India s total garment export value. US is the second largest export market for Indian garments, accounting for 28% of India s total garment export value. Japan accounts for only 1% of India s total garment export value. Fig: Year-wise trend in garment exports from India 10,000 8,627 8,895 9,699 8,000 6,243 6,574 6,000 4,000 2,000 0 2004 2005 2006 2007 2008 Knitted garment Woven garment Total 319 Fig: Major export markets for Indian Garments (2007-08) Canada 3% Japan 1% UAE 7% Others 14% US 28% EU27 47% Source: Office of Textile Commissioner, IMaCS analysis

During 2008, India s garment export volume to EU27 increased by 3.9% (y-o-y) and to UK increased by 1.5% (y-o-y) 20% 15% 10% 5% 0% -5% -10% 30% 20% 10% -10% -20% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec y-o-y % increase in Volume (Kgs) y-o-y % increase in Value (Euros) y-o-y % increase in Price realisation (Euros/kg) 0% Fig: Garment export to EU27in 2008 as compared to 2007 Fig: Garment export to UK in 2008 as compared to 2007 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec India s garment exports to EU27 increased 3.9% y- o-y by volume and 3.2% y-o-y by value during 2008, whereas in 2007, exports grew by 5.8% (y-oy) by volume and 1.1% (y-o-y) by value. In November, 2008 volume-wise garment exports to EU27 registered a marginal increase of 0.3% (yo-y). During 2008, garment export volume to UK increased by 1.5% y-o-y, compared to 2007 exports which grew by 22% (y-o-y). However, there was a drop in average price realisation by 7.3% (y-o-y) resulting in drop in export value by 5.6% (y-o-y) during 2008, as compared to a growth of 13.8% (y-o-y) in 2007. Decline in price realisation of garment exports to UK was significant in the month of November (11% y-o-y) and December (8% y-o-y), 2008. Source: Eurostat, IMaCS analysis 320

During 2008, volume-wise garment exports to US increased by 1.7% (y-o-y) however, the export value declined by 3% (y-o-y) 35% Fig: Garment export to US in 2008 as compared to 2007 15% -5% -25% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec y-o-y % increase in Volume (SME) y-o-y % increase in Value (US $) y-o-y % increase in Price realisation (US$/SME) Source: OTEXA, IMaCS analysis Though India s garment export volume to US increased by 1.7% (y-o-y) during 2008, the export value declined by 3% (y-o-y) which can be attributed to significant decline in average price realisation (5.1% y-o-y). There was a significant decline in price realisation ($/SME) in October (11% y-oy), November (20% y-o-y ) and December (10% y-o-y), 2008. 321

Operating profit and Net profit margin of the garment companies declined significantly in Q3FY09 Fig: Profit margins for a sample of Indian Garment companies* 16% 14% 12% Annual performance 15% 13% 15% 16% 14% 12% Quarterly performance 14% 15% 15% 13% 15% 10% 8% 6% 4% 2% 0% 7% 8% 9% 6% 6% 4% 3% FY04 FY05 FY06 FY07 FY08 Operating Profit Margin Net Profit Margin 10% 8% 6% 4% 2% 0% 7% Q2 FY08 7% 7% Q3 FY08 Q4 FY08 6% Q1 FY09 5% Q2 FY09 9% 1% Q3 FY09 Source: Capitaline, IMaCS analysis Operating profit of Indian Garment companies has declined significantly in Q3FY09 to 9% from 15.3% in Q3FY08. Net profit margin has also declined significantly in Q3FY09 to 0.7% from 7.5% in Q3FY08. * Analysis based on a sample of 23 Garment companies 322

Interest coverage ratio of the garment companies has declined in Q3FY09 interest coverage ratio 7.0 6.0 5.0 4.0 3.0 2.0 1.0 Fig: D/E and interest coverage ratio for Indian companies* 3.9 3.4 3.9 2.6 4.6 5.2 1.2 1.2 4.0 1.2 Fig: Quarterly interest coverage ratio for Indian companies* 6.0 5.0 5.0 4.0 4.5 4.3 3.0 3.4 2.3 2.0 1.0 1.6 0.0 FY04 FY05 FY06 FY07 FY08 D/E ratio Interest coverage ratio 0.0 Q2 FY08 Q3 FY08 Q4 FY08 Q1 FY09 Q2 FY09 Q3 FY09 Source: Capitaline, IMaCS analysis In case of analysed garment companies, the share of debt in total capital employed has reduced from FY04 to FY08. The overall interest coverage ratio has weakened from 4.5 in Q3FY08 to 1.6 in Q3FY09. * Analysis based on a sample of 23 Garment companies 323

Made-ups is a key export product for T&C industry contributing 16% to the export earnings of T&C industry Made-ups constitute an important export product for the T&C industry, contributing 16% to the total export earnings of the T&C sector. In FY08 India exported US $ 3.6 billion of made-ups, up 4% as compared to FY07. USA is the largest export market for Indian made-ups accounting for 43% of the total export value in 2007-08. EU is the second largest export market accounting for 39% of the total made-ups export value of 2007-08 with UK alone accounting for 7.7%. Japan accounts for only 1% of India s total made-ups export value. Fig: Key export markets for made-ups (2007-08) Australia 2% U A E 2% Canada 3% Japan 1% Other 8% EU 39% U S A 43% 325 Source: DGFT, IMaCS analysis

During 2008, volume-wise made-ups exports to EU27 declined by 1.8% (y-o-y) as against a growth of 14.8% (y-o-y) in 2007 25% 15% 5% -5% -15% -25% 20% 10% 0% -10% -20% -30% -40% Fig: Made-ups export to EU27 in 2008 as compared to 2007 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec y-o-y % increase in Volume (Kgs) y-o-y % increase in Value (Euros) y-o-y % increase in Price realisation (Euros/kg) Fig: Made-ups export to UK in 2008 as compared to 2007 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Eurostat, IMaCS analysis India s made-ups export volume to EU27 declined by 1.8% (y-o-y) as against a growth of 14.8% (y-o-y) in 2007. Average price realisation declined by 3.9% (y-o-y) resulting in export value decline by 5.6% (y-o-y). Exports to EU27 declined significantly in November 2008 with 21.1% y-o-y decline in volume and 14.6% y-o-y decline in value. Made-ups exports to UK also declined 9.2% y-o-y by volume and 11.9% y-o-y by value during 2008, compared to a 10.8% (y-o-y) growth in volume and a 10.4% growth in value in 2007. Export volume to UK declined significantly in September (24% y-o-y), October (17% y-o-y) and November (12%y-o-y), 2008. Average price realisation of made-ups exports to UK also declined by 3.3% during 2008. 326

In December 2008, made-ups export to US witnessed a growth of 1.2% y-o-y by volume 40% Fig: Made-ups export to US in 2008 as compared to 2007 20% 0% -20% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec y-oy % increase in Volume (SME) y-o-y % increase in Value (US $) y-oy % increase in Price realisation (US$/SME) Source: OTEXA, IMaCS analysis During 2008, India s made-ups exports to US witnessed a growth of 1.2% y-o-y by volume and 2.1% y-o-y by value. Though, export volume increased in November (by 3% y-o-y) and December (by 1% y-oy), the export value declined by 4% y-o-y and 10% y-o-y respectively on account of drop in price realisation. The price realisation dropped significantly in November (by 6% y-o-y) and December ( by 12% y-o-y). 327

Net Profit margin of Indian made-ups companies declined significantly in FY09 Fig: Profit margins for a sample of Indian made-ups companies Annual performance 25% Quarterly performance 25% 20% 15% 23% 20% 22% 23% 17% 20% 15% 10% 18% 17% 11% 10% 12% 10% 5% 0% 7% 7% 4% 6% FY04 FY05 FY06 FY07 FY08 2% 5% 0% -5% 4% 3% 0% -4% -4% 6% -2% Operating Profit margin Net Profit margin -10% Q2 FY08 Q3 FY08 Q4 FY08 Q1 FY09 Q2 FY09 Q3 FY09 Source: Capitaline, IMaCS analysis Operating profit margin of Indian Made-ups companies declined significantly in Q2FY09 to 6.4% from 18% in Q2FY08 though there was a improvement in Q3FY09. Net profit margin has declined significantly in FY09 with the sample of companies under analysis registering a loss in each quarter of FY09. * Analysis based on a sample of 7 made-ups companies 328

interest coverage ratio Highly leveraged capacity expansion combined with slowdown in demand has impacted the financial performance of made-ups companies 5.0 4.0 3.0 2.0 1.0 0.0 Fig: D/E and interest coverage ratio for Indian companies* 3.5 3.8 0.8 1.2 4.1 1.6 2.0 4.3 3.0 2.6 FY04 FY05 FY06 FY07 FY08 D/E ratio Interest coverage ratio Fig: Quarterly interest coverage ratio for Indian companies* 5.0 4.0 3.0 2.0 1.0 0.0-1.0 2.3 Q2 FY08 1.8 Q3 FY08 0.9 Q4 FY08 0.3 Q1 FY09-0.1 Q2 FY09 Q3 FY09 0.7 Source: Capitaline, IMaCS analysis Made-ups industry in India has undergone significant capacity addition on account of anticipated demand. Analysis of sample companies reveals that capacity expansion has been highly leveraged with D/E ratio of companies increasing over the years from 0.8 in FY04 to 2.6 in FY08. The interest coverage ratio of the companies has declined from 1.8 in Q3FY08 to 0.7 in Q3FY09. * Analysis based on a sample of 7 made-ups companies 329

Less price realisation is the key issue faced in domestic market as well as identified global markets Less price realisation was ranked as the most severe issue faced in both domestic market and the identified global markets. Payment delay was ranked as the second most severe issue faced in the domestic markets followed by Shift of order to competing countries and Cancellation of orders. In case of global markets Shift of orders to competing countries because of price was ranked as the second most severe issue followed by Order postponement. 331

Lack of power and working capital related issues were ranked as the key business constraints by the industry Majority of the domestic manufacturers ranked lack of power as the most severe business constraint. Shortage of skilled labour and working capital issues were ranked as the second most severe business constraints by the industry. High interest rates and delay in refund were also mentioned as the key business constraints impacting the industry. 332

Majority of T&C manufacturers reported to have an order book status of less than one month 30% Order book status 25% 20% 15% 10% 5% 0% 0 months 0-0.5 months 0.5-1 month 1-2 months 2-3 months > 3 months Majority of respondents reported an order book status of 15 days to a month. Garment manufacturers reported to have an order bookstatus ofgreater than two months. Majority of T&C manufacturers who reported less than one month order book status belonged to the spinning industry. 333

Annexure II List of Companies analysed for the financial performance 334

Sample of Spinning Companies A V Cottex Aggarsain Spin. Arvind Products Asahi Fibres Chitradurga Spin Dhanalaxmi Roto Gangotri Textile GPI Textiles Hanjer Fibres Harshni Textiles Hisar Spg. Mills Nahar Indl. Ent. Padam Cotton Pasari Spinning Santaram Spinner STI India United Textiles Vippy Spinpro Abhishek Corpora Bafna Spg. Mills Eurotex Inds. Gem Spinners Ginni Filaments Ginni Intl. Indo Count Inds. Maral Overseas Mid India Inds. Nagreeka Exports Patspin India R M Mohite Text Spentex Inds. T N Jai Bharath Winsome Yarns Niwas Spinning Himachal Fibres * The companies highlighted in blue are those for whom the quarterly updated data was not available 335

Sample of Weaving Companies Adhunik Synth. Alok Inds Arex Inds. Black Rose Indus BSL Donear Inds. Faze Three Flora Textiles Gravity (India) Kamadgiri Synth. Khator Fibre Minaxi Textiles Nutech Global Orbit Exports Premco Global Pushpsons Inds Rajkamal Synth. Ritesh Polyester Sanrhea Tech. Santosh Fin Fab Seasons Textiles Siyaram Silk Tuni Text. Mills Uniroyal Ind Veena Textiles VTM * The companies highlighted in blue are those for whom the quarterly updated data was not available 336

Sample of Garment Companies Bang Overseas Ceenik Exports Chandra Prabhu Evinix Accessori Frontline Busine GIVO Gokaldas Exports Haria Exports House of Pearl Kewal Kiran Clot Kitex Garments Koutons Retail La Mere Apparels Niryat Sam App Orient Craft Page Industries Pearl Global Poddar Developer Richa Industries Rupa & Co Samtex Fashion Spice Islands Ap Zodiac Cloth. Co * The companies highlighted in blue are those for whom the quarterly updated data was not available 337

Sample of Hosiery/Knitwear Companies Acknit Indus Addi Inds. Bhandari Hosiery Eskay K`n'IT(I) Krishna Lifest. KSL and Indus Mangalam Venture Nahar Spinning New Bombay Print Suditi Inds. T T Tatia Global Yarn Syndicate York Exports * The companies highlighted in blue are those for whom the quarterly updated data was not available 338

Sample of Made-ups Companies Abhishek Inds. Anuvin Inds. Modern Terry Towel Riba Textiles S R Inds. Vanasthali Text. Welspun India * The companies highlighted in blue are those for whom the quarterly updated data was not available 339

Annexure III Average IIP for Textiles and Textile products 340

Average IIP for Textiles and Textile products The average IIP for Textile and Textile products has been arrived at by taking a weighted average of the given four Textile categories i.e. Cotton textiles, Wool, Silk and Manmade fibre textiles, Jute and other vegetable fibre textiles and Textile products including apparel. The weights assigned to each product category are those provided by the CSO and are mentioned below: Category Weight Cotton textiles 55.2 Wool, Silk and Manmade fibre textiles 22.6 Jute and other vegetable fibre textiles 5.9 Textile products including apparel 25.4 341

Annexure IV Assumptions about the traded goods for the Doing Business study 342

Assumptions about the traded goods for the Doing Business study Documents All documents required to export and import the goods are recorded. It is assumed that the contract has already been agreed upon and signed by both parties. Documents include bank documents, customs declaration and clearance documents, port filing documents, import licenses and other official documents exchanged between the concerned parties. Documents filed simultaneously are considered different documents but with the same time frame for completion. Time Time is recorded in calendar days. The time calculation for a procedure starts from the moment it is initiated and runs until it is completed. If a procedure can be accelerated for an additional cost, the fastest legal procedure is chosen. It is assumed that neither the exporter nor the importer wastes time and that each commits to completing each remaining procedure without delay. Procedures that can be completed in parallel are measured as simultaneous. The waiting time between procedures for example, during unloading of the cargo is included in the measure. Cost Cost measures the fees levied on a 20-foot container in U.S. dollars. All the fees associated with completing the procedures to export or import the goods are included. These include costs for documents, administrative fees for customs clearance and technical control, terminal handling charges and inland transport. The cost measure does not include tariffs or trade taxes. Only official costs are recorded. Source:DoingBusiness, World Bank

Annexure V Calculation of Effective Taxes and Duties 344

Calculation of effective taxes and duties paid by Cotton fabric manufacturers in India CASE I II III IV Purchase of raw Material 100% Domestic 100% Imported 100% Domestic 100% Imported Sale of finished Goods 100% Exports 100% Exports 100% Domestic 100% Domestic Customs duty paid Nil 11.89 Nil 11.89 VAT paid on RM 0.72 Nil 0.72 Nil VAT recd on FG Nil Nil Nil Nil Anomaly in VAT 0.72 Nil 0.72 Nil CST paid on RM 0.84 Nil 0.84 Nil CST recd on FG Nil Nil 1.07 1.07 Anomaly in CST 0.84 Nil Nil Nil Excise paid on RM Nil Nil Nil Nil Excise on production Nil Nil Nil Nil Anomaly in Excise Nil Nil Nil Nil Octroi paid 1.9 Nil 1.9 Nil Total state levies 3.46 11.89 2.62 11.89 Duty Drawback 0 4.9 Nil Nil Effective duties paid 3.46 6.99 2.62 11.89 Duty as a %age of ex-factory price Figures in Rs. considering total cost as Rs 100 3.25% 6.56% 2.46% 11.16% 345

Annexure VI Details of recent trade defense measures by certain markets 346

In recent months, trade defense measures have been taken by certain export markets which is likely to impact Indian T&C exports in short term Bangladesh, Peru, Turkey and Egypt together account for 31% of India s total yarn export value. In recent months a series of trade defense measures mainly in the form of safeguard action, tariff increases have been taken by Turkey, Peru, Egypt and Bangladesh. MEASURES TAKEN BY TURKEY From July 15 th 2008, safeguard measures ranging from 15-20% have been applied on cotton yarn items belonging to HS codes 5205 for a period of three years. These safeguard measures are additional duties (on top of the prevailing 4% customs duty) for import of cotton yarn. Further, Turkey has issued a notification requiring compulsory registration of all contracts for certain textile and clothing items, requiring confidential and sensitive information. The notification is being viewed as a serious non-tariff barrier. MEASURES TAKEN BY EGYPT Import tariffs in Egypt have been raised from January 10 th 2009. Additional 25% duty is being imposed over and above the normal duty (5% of the CIF value). 347

Annexure VII Rigidity of Employment Index by "Doing Business " 348

Explanation of the various parameters used to rank the economies by "Doing Business 2009 ". 'Difficulty of Hiring Index' measures the flexibility of contracts and the ratio of the minimum wage to the value added per worker. "Difficulty of Firing Index' covers workers legal protections against dismissal, including the grounds permitted for dismissal and procedures for dismissal (individual and collective): notification and approval equirements, retraining or reassignment obligations and priority rules for dismissals and reemployment. 'Firing cost indicator' measures the cost of advance notice requirements, severance payments and penalties due when terminating a redundant worker, expressed in weeks of salary. The 'Rigidity of Employment Index' is the average of three subindices: Difficulty of Hiring, Rigidity of Hours and Difficulty of Firing. Each index takes values between 0 and 100, with higher values indicating more rigid regulations.

Annexure VIII Snapshot of T&C industry of the Competing countries 350

TurkishTextile & Clothing Industry 351

Snapshot of Turkish Textile and Clothing industry Turkey is a key competitor to India in both textile and clothing market. During Jan Dec 2008, Turkish T&C industry achieved an export turnover of US $ 23 billion; Textiles accounted for US $ 9.4 billion of exports whereas Garment exports were valued at US $ 13.5 billion. The industry deals majorly in high value-added fashionable and quality products. Turkey being the 6 th largest producer of cotton and MMF in the world, T&C industry has abundant raw material. The industry uses state of art manufacturing technology and has a well-developed textile finishing industry. EU27 is the key export market for Turkish T&C products accounting for over 75% of exports. Turkish T&C exports have been significantly hit by the recent economic slowdown. Decline in exports can be attributed to drop in demand in major markets. Shift of orders to low cost producing countries has also impacted Turkish T&C exports since the country has higher manufacturing costs as compared to identified competing countries 352

Turkish T&C industry exports both textiles and clothing with EU27 as the major export market Value of T&C domestic production T&C export turnover Fig: Overview of Textile and Clothing industry (2007) US $ 30 billion US $ 23 billion Contribution to Total Export Earnings 21% Contribution to GNP 10% 24% of total Employment 2.5 million (direct), manufacturing 6.5 million (indirect) labour force Source:Export Promotion Center of Turkey, 2008 Turkey T&C industry is an important sector for the economy, contributing 21% to the export earnings and 24% to the employment of manufacturing labour force. Turkey is the 6 th largest producer of cotton and MMF in the world, hence domestic availability of raw material is not a constraint for T&C industry Turkey exports both textile and clothing; Cotton textile products such as cotton fiber, yarn, and woven fabrics constitute about 21.8% of total textile exports. EU27 is the major export market for Turkey T&C industry, constituting 79% of total T&C exports; the key export countries are Germany, UK, France, Netherlands and Italy. Turkey also exports to US and Japan but these are comparatively small markets for Turkish T&C products. 353

Turkish T&C industry produces high value added products and has established indigenous brands in the world apparel market TEXTILE INDUSTRY Turkish Textile industry majorly produces high value-added fashionable and quality products. The industry has medium scale as well as large scale companies with integrated production facilities and has well-developed textile finishing industry which makes production and marketing of high value-added products possible. Despite sufficient raw material Turkey is a net importer of yarn. CLOTHING INDUSTRY Turkish Clothing Industry produces high-end branded apparel, which are sold in leading boutiques and department stores across the world. Turkish clothing companies have established indigenous brands in the world market. The industry has both integrated textile and clothing production facilities as well as thousands of clothing producer/exporter SMEs. Knit fabric Woven fabric Textile Yarn Fig: Import and export of textile products (2008) 239 1,133 1,238 1,995 2,264 2,918 0 1000 2000 3000 4000 Million US $ Import Export Source:Export Promotion Center of Turkey, 2008 354

Turkish textile and clothing exports have been severely impacted by the global slowdown US $ million Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec US $ million Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Turkey textile exports increased at a 3-year CAGR of 10% to US $ 9.4 billion in Jan Dec, 2008 with share of Textile in total export value increasing from 37% in 2005 to 41% in 2008. The clothing exports increased at a 3-year CAGR of 5% to US $13.5 billion in Jan Dec, 2008. During Jan Dec 2008, Turkish T&C exports were significantly impacted by the global economic slowdown, specifically due to the drop in retail sales in EU. In December, 2008, apparel exports from Turkey fell by more than 25% (y-o-y) whereas exports of textiles fell by 27% (y-o-y). 1000 900 800 700 600 500 400 300 200 100 0 Fig: Value-wise monthly Textile exports (US $ million) 2006 2007 2008 Fig: Value-wise monthly Garment exports US $ million 1600 1400 1200 1000 800 600 400 200 0 2006 2007 2008 Source:Export Promotion Center of Turkey, 2008 355

Trade agreements of Turkey with the global markets Global Market EU27 US Japan Trade agreement Zero tariff for all T&C products Turkey being a part of the EU Customs Union since 1995, the country has preferential access to the EU market. MFN duties applied Reduced tariff for most of the textile products Turkey is listed as a beneficiary under Japan s GSP 356

SWOT analysis of Turkish T&C industry STRENGTHS Abundant availability of raw material, both cotton and manmade Geographic proximity to main markets, especially EU which leads to lower logistic costs Qualified and well-trained labour force Customs Union agreement with EU which allows for duty-free access to the EU27 markets Well-developed Textile finishing industry which allows production and marketing of value added products Well developed production technology Well established domestic brands in global clothing market WEAKNESSES Higher cost of manufacturing as compared to identified competing countries THREATS Shift of orders towards low priced products. Removal of US and EU quotas on imports from China from December 31, 2008. Emerging low cost garment exporters such as Vietnam, Sri Lanka and Bangladesh. 357

Bangladesh Textile & Clothing Industry 358

Snapshot of Bangladesh Textile and Clothing industry Bangladesh is a key competitor to India in the Garment exports. During July Nov 2008, Bangladesh T&C industry achieved an export turnover of US $ 5.04 billion, up 30% (y-o-y) as compared to July Nov, 2007. The industry exports both knitted and woven garments and deals majorly in low priced products. Knitted garment industry has attained sufficiency in raw material (knit fabric) whereas the woven garment industry still has significant dependence on imported raw material (woven fabric). EU27 is the key export market for Bangladeshi garments accounting for over 60% of exports by value, followed by US (30%). Despite drop in imports in the global markets, imports from Bangladesh increased during Jan Dec, 2008 thus increasing the market share of Bangladesh in the global clothing markets. Gain in market share of Bangladesh can be attributed to its low cost of production and preferential access to the global markets. 359

Bangladesh is a major exporter of garments with EU27 and US as the major export markets Fig: Overview of Textile and Clothing industry (2007-08)* Contribution to foreign exchange earnings 77% Contribution to GDP 13% Employment 5 million Source: Bangladesh Textile Mills Association Fig: Value-wise break-up of textile and clothing exports (US $ million) Fabric 0% 4% Garment 96% Made-ups Knitwear 52% Woven garments 48% Source: Export Promotion Bureau, Bangladesh, IMaCS analysis Textile and Clothing industry is one of the most important sectors in Bangladesh with respect to foreign exchange earnings and employment. Garment industry is the key foreign exchange earning sector, contributing 75% to country s total export earnings. EU27 and US are the major export markets for Bangladesh followed by Canada and Japan. 360

Woven and knitted garments together account for 75% of the national export earnings of Bangladesh Number of garment factories Million workers Bangladesh Garment industry (2007-08) Number of units 4740 Value of Garment exports (US $ billion) 10.7 Contribution to national export earnings 75% Employment 2.5 3000 million 2500 1 Source: Bangladesh Garment Manufactures and Exporters Association, IMaCS analysis Fig: Growth in garment industry over the years 5000 4500 4000 3500 FY02 FY03 FY04 FY05 FY06 FY07 FY08 Number of garment factories Employment (million workers) 2.6 2.2 1.8 1.4 Garment industry in Bangladesh has grown from 3618 factories employing 1.8 million workers in 2001-02 to 4740 factories employing 2.5 million workers in 2007-08. Initially woven garments were the major export product. With the rise of knitwear exports since mid 90s, both sub-sectors now contribute equally to the export earnings of the country. 361

Local Knitting industry meets 90% of the fabric requirement of export oriented garment units Bangladesh Spinning industry Number of units 341 Total capacity (million kgs) 1600 Bangladesh Knitting & Knit Dyeing industry Number of units 2800 Total capacity (million meters) 4100 Source: Bangladesh Knitwear Manufacturers and Exporters Association, IMaCS analysis Local Knitting industry is capable to meet 90% of the fabric demand of export oriented garment units. Local Spinning industry meets around 75% of the total yarn requirement of the knitting industry. The well established backward linkages in Knitted garment industry allow for duty free entry to EU with clothing exports complying with EU s rules of origin under Everything But Arms rule. 362

Bangladesh woven garment industry has significant dependence on imported raw material Bangladesh Dyeing & Finishing industry Number of units 310 Total capacity (million meters) 2800 Source: Bangladesh Textile Mills Association Bangladesh Weaving industry Number of units 1485 Total capacity* Number of looms 48000 Million meters 1700 Local Weaving industry can meet only 40% of the fabric demand of export oriented garment units. Majority of the fabric demand is met by imports from the countries like China, India, Hong Kong, Singapore, etc. resulting in significant dependence on imports. On account of lack of backward linkages, woven clothing exports from Bangladesh cannot comply with EU s rules of origin. *Excluding handloom 363

US $ Billion % increase in garment exports During July Nov, 2008 garments exports increased by 30% (y-o-y) (ydespite drop in the demand in the major export markets 12 10 8 6 4 2 0 Fig: Export performance of Garment industry Garment exports ($ US million) % increase in Garment exports Source: Export Promotion Bureau (Bangladesh), IMaCS analysis Bangladesh garment exports during July Nov 2008 increased by 30% (y-o-y) in value terms despite drop in demand in the key global markets. EU is the largest export market for Bangladesh accounting for 60% of exports (by value) followed by USA which accounts for 30%; Canada and Japan are the third and fourth major export markets for Bangladeshi garments. EU27 imports from Bangladesh have grown during Jan Dec 2008, with garment import volume increasing by 6% and made-ups export volume increasing by 15% y-o-y. Likewise, US garment imports from Bangladesh increased 6% y-o-y by volume despite a drop in demand thus, increasing its share in US garment imports to 6.3% in 2008 from 5.7% in 2007. 30% 40% 30% 20% 10% 0% Fig: Key markets for garment export (2007-08) 10000 8000 6000 4000 2000 0 US Other 76% 15% Knitwear EU27 44% 47% Woven Garments 61% 30% Total EU US 364

Trade agreements of Bangladesh with the global markets Global Market EU27 US Japan Trade agreement Zero tariff for all T&C products Under the Everything But Arms program (EBA). MFN duties applied ont&c products Zero tariff for all T&C products Bangladesh, being an LDC qualifies for Special Preferential Treatment 365

SWOT analysis of Bangladesh T&C industry STRENGTHS Duty free quota free access to developed countries (except US) Lower labour cost as compared to competing countries Lower energy cost as compared to competing countries Availability of cheap raw material WEAKNESSES Weak backward linkage in woven garment industry as a result such woven clothing exports from Bangladesh cannot comply with the EU rules of origin Double taxation policy * which hampers sector growth Shortage of skilled workers and middle-management staff * 37.5% tax is levied on earnings; in addition the government charges 25% tax on the investment made for expansion of business. 366

SWOT analysis of Bangladesh T&C industry OPPORTUNITIES Shift of orders to low priced products on account of economic slowdown. Modification of EU s GSP rules of origin which could be implemented from Jan 1, 2010. The rules will be more exclusively based on the level of locally added value while no more requiring two production stages in the country. THREATS Removal of US and EU quotas on imports from China from December 31, 2008 367

China Textile & Clothing Industry 368

Study on Impact of Economic slowdown on Indian. Textile and Clothing Industry. June, 2009