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

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

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

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

5. 5 Mills And Installed Capacity In Organised Sector Year 2005-06 No Of Mills2953 Spindles Installed (MN)37.51 Rotors (000) 395 Shuttle Looms (000) 73 Shuttle Less Looms9788

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

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

8. 8 Share of Cotton v/s Man Made Fibers

9. 9 Consumption of Textile Fibers (in 000 Tons) CottonNon – Cotton TotalPercentage Share CottonMMF ( Thousand Tons) 2001-20022701183345346040 2002-20032699200347025743 2003-20042652209247445644 2004-20052886213350195842 2005-20063222213653586040 2006-20073580234159216040 2011-20125914 1182850

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

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

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

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

14. 14 Area ( in mn hectares )

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

16. 16 Yield ( in kg. / hec. )

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

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

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

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

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

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

23. 23 Cotton Balance Sheet ( in mn bales of 480 lbs each ) 2002-03 (Oct-Sept) 2003-04 (Oct.–Sept) 2004-05 (Oct.-Sept) 2005-06 (Oct.-Sept) 2006-07 (Oct.-Sept) 2007-08 (Oct.-Sept) % worldWorld 2007-08 Supply: Opening Stock as on 1 st October 3.1251.8751.6405.6254.0623.80456.79 Estimated Crop10.62513.82818.98418.82821.87524.57620.9%117.18 Imports1.3800.5070.9500.3900.4290.54640.08 Total Availability15.13016.21121.57524.84326.36728.928214.65 Demand: Consumption : By Mills11.12611.73812.81114.06215.62517.18713.5%127.78 Non-Mill user1.1540.7811.1311.4841.5621.171 Small Scale Units0.9081.0151.2941.5621.1711.562 Exports0.06510.3510.7143.6714.2964.68711.8%39.7 Total Off-take13.25514.57015.95020.78122.65624.609167.48 Carry over as on 30 th September 1.8751.6405.6254.0623.7114.3208.4%51.56

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

25. 25 Future Trends

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

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

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

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

30. 30 Thank you