Man Made Fiber (Ministry of Textiles)

SECTION II: MAN MADE FIBRES
TABLE OF CONTENTS
SUMMARY MAN MADE FIBRES ..................................................................................................... 112 2.1. INDIAN SCENARIO ...................................................................................................................... 120 IMPORTANT MMF PLAYER IN THE WORLD .............................................................................. 120 CHANGING FIBRE COMPOSITION ............................................................................................. 120 POLYESTER ACCOUNTS FOR LARGEST SHARE IN MMF ...................................................... 122 EXCESS CAPACITIES .................................................................................................................. 122 LIMITED NUMBER OF PLAYERS ................................................................................................. 123 RAW MATERIALS AVAILABILITY................................................................................................. 123 PRICE MOVEMENT OF MMF ....................................................................................................... 125 EXPORTS OF MAN-MADE FIBRES RISE SUBSTANTIALLY IN POST QUOTA PERIOD BUT SLOW DOWN IN FY09 .................................................................................................................. 125 POLYESTER STAPLE FIBRE ....................................................................................................... 127 VISCOSE STAPLE FIBRE ............................................................................................................. 127 ACRYLIC STAPLE FIBRE ............................................................................................................. 128 POLYPROPYLENE STAPLE FIBRE ............................................................................................. 129 POLYESTER FILAMENT YARN .................................................................................................... 129 VISCOSE FILAMENT YARN ......................................................................................................... 130 NYLON FILAMENT YARN ............................................................................................................. 131 POLYPROPYLENE FILAMENT YARN .......................................................................................... 131 DYNAMICS OF VALUE ADDED MMF TEXTILES ........................................................................ 132 FUTURE DEMAND FOR MMF ...................................................................................................... 133 2.2. GLOBAL SCENARIO ................................................................................................................... 136 COMPOSITION OF MAN-MADE FIBRES ..................................................................................... 137 REGIONAL COMPOSITION .......................................................................................................... 138 2.3. ISSUES AND CONCERNS ........................................................................................................... 141 EXCISE DUTY ANOMALIES ......................................................................................................... 141 CUSTOMS DUTY ANOMALIES .................................................................................................... 142 DELAY IN GETTING DRAWBACK /EXCISE REBATE CLAIMS ................................................... 143 110
CONCERNS ABOUT ANTI DUMPING DUTIES............................................................................ 144 LOWER EXPORT BENEFITS FOR STANDALONE GARMENT MANUFACTURERS ................ 144 CONCERNS ABOUT GST ............................................................................................................. 145 NIL INDIGENOUS PRODUCTION OF SPECIALISED MMF ........................................................ 145 LIMITED NUMBER OF MMF PLAYERS ....................................................................................... 145 LACK OF COMPETITIVENESS IN EXPORTS ............................................................................. 147 EXPORTS DISADVANTAGE AGAINST COTTON TEXTILES ..................................................... 148 HIGHER EXPORT PRICES OF INDIAN EXPORTERS ................................................................ 150 LACK OF INCENTIVES FOR EXPANSION .................................................................................. 151 RAW MATERIAL AVAILABILITY ................................................................................................... 152 COST RELATED ISSUES ............................................................................................................. 153 HIGH TRANSACTION COSTS ...................................................................................................... 154 SUMMARY ..................................................................................................................................... 156 2.4. RECOMMENDATIONS ................................................................................................................. 157 FISCAL MEASURES ..................................................................................................................... 157 NON-FISCAL MEASURES ............................................................................................................ 161 2.A. ANNEXURE .................................................................................................................................. 164 TEXTILE OVERVIEW AND POLICIES IN MAJOR COUNTRIES ................................................. 164 DEMAND PROJECTIONS ............................................................................................................. 172 DEMAND PROJECTIONS FOR MAN-MADE FIBRES ................................................................. 174 FUTURE DEMAND PROJECTIONS VIS--VIS EXISTING CAPACITIES ................................... 177 ALTERNATIVE SCENARIOS ........................................................................................................ 178 INVESTMENT REQUIREMENT .................................................................................................... 179 STATISTICAL APPENDICES ........................................................................................................ 181 CONSTITUTION OF SUB-GROUP ON MAN-MADE FIBRES ...................................................... 194
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SUMMARY MAN MADE FIBRES

I.
Ministry of Textiles, Government of India constituted a working group to formulate a Comprehensive Fibre Policy for Textiles and Garments sector of India with a view to render Indian textiles and garments sector competitive in the global market in the near, medium as well as long-term. One of the sub-groups formulated under the working group was on synthetic fibres. The scope of the sub-group was extended to man-made fibres as synthetic fibres would exclude cellulosic fibres like viscose. Further, Man-made fibre was understood to include filament yarn along with staple fibres. Speciality fibres for technical textiles have been excluded from consideration as a separate sub-group is looking into the same.
II.
The key objectives of the study done for the sub-group on Man-made fibres were: i. ii. iii. iv. To assess the reasons for consumption pattern of man-made fibres (MMF) in India being different than the world trend To study the reasons for low consumption of MMF in domestic and export market To assess the demand-supply and projections for MMF for year 2015 and 2020 Formulating policy interventions and recommendations
INTRODUCTION
III.
India is the second largest producer of man-made fibres in the world (World Fibre Report 2008) with presence of large plants having state-of-the art technology. MMF textiles constitute almost two-third of the domestic textile market. However, Indias share in global exports of value-added textiles of manmade fibres is miniscule at around 2.25% in 2008 (Indias MMF exports were US$ 3.3 billion as against global exports of US$ 146.7 billion). Further, while textiles made of man-made fibres constitute around 63% of the world trade, it is mere 16.4% (FY09) in case of India as Indian textiles exports are predominantly cotton based.
IV.
The domestic fibre consumption ratio in India at present is 41:59 (FY09) between man-made fibres and cotton, while it is almost 60:40 globally. The global fibre consumption trend in future is likely to further tilt in favour of man-made fibres as there is a limitation to growth of cotton on account of limited availability of land for cotton cultivation. Moreover, the land available for cotton is gradually declining on account of rise in cultivation of food crops. Given the future demand is expected to be largely in favour of man-made fibre based textiles, special attention is required to boost the consumption and production of man-made fibres in India.
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V.
Further, Indian textile industry is an export intensive industry, with almost one-third of domestic production being exported. Thus, in order to maintain high growth of exports in future, Indias textiles exports portfolio needs to have a balanced fibre mix in line with the global consumption pattern.
PRESENT SCENARIO
VI.
Indias capacities for man-made fibres currently stand at 3.4 billion kg, which is around 6.6% of global MMF capacities. Indias total production of man-made fibres stood at 2.5 billion kg in FY09, of which exports constituted 10.3% at 0.25 billion kg. Domestic consumption for man-made fibres during FY09 stood at 2.4 billion kg, of which imports constituted roughly 5% at 0.12 billion kg. Indian man-made fibre industry is largely polyester dominated, which constitutes over 83% of total man-made fibre production. Further, production of man-made fibres in India is characterised by limited number of players having a dominant share in the production of most of the man-made fibres and filament yarns.
VII.
Although Indian players manufacture most of the man-made fibres (PSF, VSF, ASF, PPSF, PFY, VFY, NFY, PPFY), the specialised man-made fibres like acetate fibre/ filament yarn, tri-acetate fibre/ filament yarn, cuprammonium filament yarn, nylon 66, nylon 11, lycra, PVA fibre and filament yarn, PBT yarn, modacrylic staple fibres and PTET are not being manufactured in India.
VIII.
While man-made fibre production is highly concentrated, with limited players engaged in manufacturing of MMF, the value added MMF textiles are primarily being manufactured in the decentralised sector, with presence of large number of small and medium enterprises. Production of MMF fabrics has grown from 21 billion square meters in FY05 to 23.9 billion square meters in FY09. While in the domestic market, MMF textiles and garments are dominant, cotton textiles are predominant in the export markets; MMF garments are predominant to the extent of 65% (estimated) in the domestic market, while in the export market cotton garments are predominant with over 80% share.
FUTURE PROJECTIONS
IX.
A top down approach has been followed to determine the future demand for man-made fibres in FY15 and FY20. Considering future GDP growth of 8%, the domestic demand for man-made fibres/ filament yarns is estimated at 3.9 billion kg in FY15 and about 6 billion kg in FY20. Adjusting to this the likely exports and imports of MMF, the overall MMF requirement is estimated at 4.2 billion kg for FY15 and 6.48 billion kg for FY20. This implies capacity additions of about 1.8 billion kg (FY15) and 4.6 billion kg (FY20), which would require an investment of over Rs 90 billion (approximately US$ 2 billion) by FY15 and Rs 230 billion (approximately US$ 5.1 billion) by FY20.
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ISSUES AND CONCERNS

A. Exclusively affecting MMF and MMF textiles
X.
Excise duty discrimination: A major concern area has been the historical discrimination of manmade fibres and textiles against cotton and cotton textiles in the form of higher excise duties. Although there has been substantial reduction in excise duties on man-made fibres and textiles during the last 10 years, the current duties on MMF and MMF textiles are still high; while cotton is exempt from excise duty, MMF attracts excise duty of 8%. Further, while MMF textiles attract a mandatory CENVAT of 8%, cotton textiles have an optional CENVAT of 4%. Any reduction in excise duties on MMF and MMF textiles will have a highly positive impact on the growth of MMF consumption.
XI.
Lack of global competitiveness: Indian man-made fibres textile industry has not been able to create a mark in the global textiles market post dismantling of textile quotas even though cotton textiles industry has witnessed a substantial growth. Since dismantling of quotas (2005 onwards), Indian cotton apparel exports to the world have grown at about 10.7% CAGR, while MMF apparel exports have witnessed a decline.
XII.
Limited number of players: There are only a few big players manufacturing man-made fibres in India. The industry follows a pricing policy on import parity basis at landed cost. User industry has submitted that MMF producers export man-made fibres at lower prices than in the domestic market. This submission is supported by SRTEPC exports data analysed by FIASWI in respect of polyester fibre and yarn.
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Exhibit I: Share of manufacturers in MMF production Fibre VSF Manufacturer Grasim Industries Others Total PSF Reliance Industries Indo Rama Synthetics JCT Fibre Others Total ASF Indian Acrylic Pashupati Acrylon Vardhman Acrylics Others Total PPSF Zenith Fibre Others Total VFY Century Rayon Indian Rayon Corporation Kesoram Rayon Others Total PFY Reliance Industries Indo Rama Synthetics JBF Industries Others Total NFY Century Enka JCT Gujarat State Fertilizers Others Total
Source: Office of Textiles Commissioner
Installed capacity in T.P.A (as of 31/3/2009) 359,975 58,700 418,675 550,000 263,550 128,612 240,568 1,182,730 45,000 30,000 18,000 60,000 153,000 3,900 4,800 8,700 25,000 16,400 6,500 32,200 80,100 670,900 259,000 144,000 939,588 2,013,488 125,200 14,000 6,000 164,244 309,444
Production M.T. (FY09P) 232,746 232,746 478,959 136,440 55,616 79,094 750,109 34,310 26,512 18,690 79,512 3,430 3,430 17,332 16,624 7,605 858 42,419 639,973 210,092 139,552 342,471 1,332,088 12,519 11,373 4,171 6 28,069
% share (Production) 100.0 100.0 63.9 18.2 7.4 10.5 100.0 43.2 33.3 23.5 100.0 100 100 40.9 39.2 17.9 2.0 100.0 48.0 15.8 10.5 25.7 100.0 44.6 40.5 14.9 0.0 100.0
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XIII.
Levy of anti-dumping duties: Indian MMF textile manufacturers are also faced with higher fibre prices as against their global counterparts on account of levy of anti-dumping duties on imports of majority of man-made fibres. This in turn affects the availability of fibres to MMF textile manufacturers at competitive prices.
XIV.
Lack of indigenous production of specialized MMF: Various specialised man-made fibres (like acetate/ tri-acetate, cuprammonium filament yarn, nylon 66, nylon 11, lycra, etc) are not being manufactured in India despite having huge potential and thus have to be imported by the weavers.
XV.
High customs duty: Another factor that has contributed to higher costs of man-made fibre manufacturers and thus for man-made fibre textile manufacturers is the high customs duty on certain raw materials required for man-made fibre industry. Certain raw materials and additives used in the production of man-made fibres are necessarily imported on account of limited domestic production/ lack of requisite quality. Some of these raw materials and additives like rayon grade wood pulp (used for manufacture of viscose fibre), titanium di-oxide and spin finish oil (used as additives for manufacturing polyester) attract high customs duty, while the same are either exempted or have lower customs duty in major competing countries. To enable a level-playing field with the global counterparts in the international export markets and to reduce the key input costs of man-made fibre manufacturers, it is desired that customs duty on such inputs are exempted. Since these items are largely imported due to shortage in domestic market, reduction in import duties on same is not likely to hurt the domestic manufacturers of these items.
XVI.
High debt servicing cost: Another reason for relatively higher costs of man-made fibre/ filament yarn manufacturers vis--vis the cotton textile manufacturers and global counterparts is the high debt servicing costs of the former. The lending rates in India are in the range of 11% - 13.5% (IBA Website) and are significantly higher in comparison to competing countries like China (5.04 6.12% ; Source : Bank of Communication, China) and South Korea (5.72 6.33%), which contributes to much higher interest costs for Indian MMF manufacturers vis--vis counterparts in competing countries. Further, concessional schemes like TUFS is not applicable for manufacturing synthetic fibres, which puts this capital intensive MMF industry at a great disadvantage vis--vis the cotton textile industry.
XVII.
GST issues for textile industry: Major tax reforms are expected in the form of Goods and Services Tax (GST), which is likely to be introduced next year. However, textile industry has a major concern with respect to GST. The textiles industry involves a lot of inter-state transfers especially at the fabric stage. Due to long supply chain in the textile industry involving traders in various cities, towns, etc, the inter state transactions are likely to take place among the organised players who are above the threshold limit for GST exemption and small decentralised traders who are exempted from payment of GST. Consequently, the regular payee (one above threshold limit) would not get any credit for purchases from small decentralised trader but shall have to pay full duty on the sale price. Thus, the
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tax will multiply and the purpose of VAT principle would be broken. This would have serious cost implications to the Indian textile industry, which is predominantly in the decentralised sector.
B. Industry neutral issues

XVIII.
There are various other factors contributing to higher costs of Indian MMF and MMF textile manufacturers vis--vis global counterparts, including high power costs and high transaction costs. Indian industries (including textile industry) face a major disadvantage against countries like China and countries in South East Asia in terms of power costs and availability. Moreover, Indian exporters are faced with huge transaction cost burden in comparison with exporters in competing countries. For instance, transaction costs for exports in India stands at US$ 945 per container as compared to US$ 500 per container for China. The un-neutralised state taxes such as CST, VAT, Octroi, etc contribute to higher transaction costs for Indian exporters. To mitigate the cost burden of Indian textile players, a long term solution is required with respect to strengthening of physical infrastructure and introduction of tax reforms.
RECOMMENDATIONS
XIX.
To meet the objectives of attaining high growth and increasing the competitiveness of Indian textile industry (including MMF textiles), the national fibre policy needs to lay a special emphasis on improving the competitiveness of Indian man-made fibres and textiles industry as it can drive the growth of the Indian textile industry in the future, both in domestic as well as export markets. This requires addressing of issues and constraints faced by the industry at present and make suitable provisions to avoid any foreseeable hurdles in the future.
XX.
The key recommendations arrived from this study for incorporation in the National Fibre Policy are: 1. Have a fibre neutral excise policy; i.e. all textiles and fibres should attract the same excise duty i.e. 4% optional 2. Excise duty and customs duty exemption for specialised MMF which are not produced indigenously. Such specialised fibres are listed below: a. Acetate fibre (HS code 55049010) b. Acetate filament yarn (HS code 540342) c. Tri-acetate fibre (HS code proposed - 55049011) d. Tri-acetate filament yarn (HS code proposed - 54033310) e. Cuprammonium filament yarn (HS code 54033910) f. Cuprammonium fibre (HS code proposed 55049040) g. Nylon 66 (HS code proposed 55031110, 54025110) h. Nylon 11 (HS code proposed 55031120, 54025120)
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i. j. k. l.
Lycra fibre (HS code proposed- 55039030) Lycra filament yarn (HS code 54024400) PVA fiber (HS code proposed 55039030) PVA filament yarn (HS code proposed - 54026960)
m. PBT yarn (HS code proposed 54026970, 55039040) n. Modacrylic staple fibres (HS code proposed - 55033010) o. Modacrylic filament yarn (HS code proposed 54026940) p. PTET (HS code proposed 54026980, 55039050) 3. Removal of 4% Special Additional Duty (SAD) on imports of man-made fibres to make the same available to domestic consumers at competitive prices. 4. Customs duty exemption on certain raw materials and additives that are primarily imported a. Customs duty on rayon grade wood pulp (HS Code 47020000) to be exempted (from current 5%) b. Customs duty on titanium di-oxide (Anatase grade) with HS code 283230030 to be reduced to nil from current 11%. c. Customs duty on Spin finish oil to be reduced to nil from current 8%. Specific HS codes for Spin finish oil have already been proposed by the industry (HS code 34031200) and endorsed by the Department of Chemicals and Petrochemicals for this purpose. 5. Export oriented incentives should be provided to manufacturers of MMF textiles and garments for a limited period to neutralize the impact of cost-disadvantage vis--vis exporters in competing countries. This could include higher drawback rates and inclusion of processed fabrics, madeups and garments made of man-made fibres under the Focus Product Scheme. (Currently, MMF garments and certain types of woven fabrics of MMF falling under HS Code 5512, 5513, 5514, 5515 and 5516 are covered under Market Linked Focus Product Scheme for limited number of countries.). The proposed scheme is as follows: a. A graduation scheme for three years can be introduced under the Focus product scheme with benefits of 10% in first year, 7% in second year and 3% in third year. b. This scheme may cover man-made textiles and garments. In case financial implications do not permit coverage of textiles and garments then at least garments sector should be incentivised as exports of these are currently very low in value terms. 6. Textile industry should be kept out of GST for at least two years 7. Synthetic fibres should be covered under TUFS with fund support from their administrative Ministry i.e. Department of Chemicals and Petrochemicals.
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a. The machinery for manufacture of synthetic fibres post polymerisation may be covered under TUFS. Since the processes upto polymerisation are primarily chemical in nature polymerisation machineries may not be covered. b. The post polymerisation machinery may be benchmarked by TAMC in consultation with proposed advisory council on MMF. c. To encourage setting up of small size units, particularly from chips the restriction on term loan and also on capital cost may be fixed by IMSC in consultation with TAMC and proposed advisory council. 8. Introduction of anti-dumping proceedings on man-made fibres should involve consultation with the Ministry of Textiles 9. Introduction of an institutional mechanism wherein government support (financial and otherwise) is made available to industry associations/ players to initiate and defend antidumping proceedings, where necessary 10. A MMF advisory council with all the stakeholders may be set up to monitor that the excise duty and other concessions have been passed on by the MMF manufacturers and also to take on integrated approach to solving the problems of MMF producers and users of MMF and to accelerate their growth 11. MMF manufacturing and processing units should be given a priority under the gas allocation policy, at par with the power sector.
XXI.
If the above recommendations are implemented, it would result in high growth of man-made fibres and textiles industry, thereby contributing to higher revenues, increase in employment generation, and higher foreign exchange earnings. Financial implications of these recommendations would be balanced by the intangible benefits and cascading effect in the economy.
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2.1. INDIAN SCENARIO

IMPORTANT MMF PLAYER IN THE WORLD
2.1.1.
India is the second largest producer of man-made fibres in the world (World Fibre Report 2008), with production of 2.50 billion kg of man-made fibres in FY09. The man-made fibres produced in India include polyester (staple fibre as well as filament yarn), viscose (staple fibre as well as filament yarn), acrylic (staple fibre), nylon (filament yarn) and polypropylene (staple fibre as well as filament yarn). India is the second largest producer of PSF, PFY, VFY, third largest manufacturer of VSF and eighth largest manufacturer of ASF. Exhibit 2.1.1: Indian MMF industry: Key statistics (FY09P) Production (mn kg) 751.6 232.8 79.5 3.4 1330.3 42.4 28.1 34.0 2502.1 Exports (mn kg) 136.4 28.4 1.6 0.85 81.5 4.2 2.39 0.69 255.66 Consumptio n (mn kg) 650.7 222.8 90.5 2.6 1336.1 43.6 30.3 35.0 2411.6 Imports (mn kg) 16.50 10.98 10.60 0.16 69.96 5.21 3.45 1.70 118.57 Exports share in production (%) 18.1 12.2 2.0 25.0 6.1 9.9 8.5 2.0 10.2 Imports share in consumption (%) 2.5 4.9 11.7 3.8 5.2 11.9 11.4 4.9 4.9
Fibre type PSF VSF ASF PPSF PFY VFY NFY PPFY* Total MMF
Note: Consumption = Production + Imports Exports + Change in stock Source: Office of Textiles Commissioner, Industry*, D&B India
CHANGING FIBRE COMPOSITION

2.1.2.
The Indian textiles industry is predominantly cotton oriented with cotton accounting for 59 percent share of total fibre consumption. However, globally the fibre consumption ratio is reverse, with MMF constituting 60% of fibre consumption. Globally, consumption of fibres has tilted in favour of MMFs over cotton due to various factors like changing fashion trends coupled with limitations to production 120
of cotton. Even in India, the demand for man-made fibres has grown substantially over the last decade, as it has emerged as a major substitute for cotton. The demand for synthetic textiles has been growing due to its lower cost coupled with convenience and maintenance benefits associated with the usage of synthetic garments. The share of man-made fibres in total fibre consumption (cotton and MMF) has risen from 25% in early nineties to 41% at present. Exhibit 2.1.2: Changing composition of fibre consumption in India (%) Man-made fibres Period FY91 FY96 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09
Source: D&B India 2.1.3.
Cotton 74.3 71.3 59.6 59.0 57.7 54.7 55.1 56.6 59.1 59.2 58.5 59.0
Synthetics 17.0 21.2 34.6 34.8 36.9 39.2 39.1 37.8 35.6 35.8 36.6 36.4
Cellulosic 8.7 7.5 5.8 6.2 5.4 6.1 5.9 5.6 5.3 5.0 5.0 4.6
Total MMF 25.7 28.7 40.4 41.0 42.3 45.3 44.9 43.4 40.9 40.8 41.5 41.0
However, during the last four years (since the quota abolition), the share of MMF in Indias fibre consumption has almost stagnated (at around 40-41%) on account of rising cotton production and increased demand for cotton by textile manufacturers to cater to exports demand from international markets. Demand for cotton has risen from textile manufacturers of not only India but also other competing countries like China in order to take maximum advantage of quota abolition in key import markets, viz. the US and the EU. Due to rising global consumption of cotton, international cotton prices have lowered, which have in turn led to decline in domestic cotton prices as well. This has further contributed in increasing the demand for cotton in the domestic market, higher than the demand for man-made fibres.
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POLYESTER ACCOUNTS FOR LARGEST SHARE IN MMF

2.1.4.
Polyester is the most dominant man-made fibre in India, constituting over 83% of total man-made fibre production and consumption in India; polyester filament yarn (PFY) constitutes over 53% of total MMF production and polyester staple fibre (PSF) constitutes another 30%. The other major man-made fibre produced and consumed in India is viscose (VSF constitutes 9.4% of total MMF production and VFY constitutes another 1.7%). Remaining share is occupied by other fibres like acrylic, nylon and polypropylene. Although India is producing most of the MMF as detailed above, specialized MMF like acetate / tri-acetate fibre / yarn, cuprammonium filament yarn, nylon 66, nylon 11, Lycra, PVA fibre and filament yarn, PBT yarn, modacrylic staple fibre, PTET (Poly-tri-methylene Teryphthalate) are not being manufactured.
2.1.5.
During the last ten years, demand for man-made fibres has grown at a CAGR of around 3% from 1.6 million kg (FY99) to 2.4 million kg (FY09). Amongst all fibres, polyester filament yarn has recorded the highest growth of over 6% per annum. Steadily declining prices of PFY have been one of the major factors pushing its demand in the domestic market. Huge capacity additions during the post quota period have also helped in increasing the supply of PFY in the market, thereby pushing down the prices and hence increasing the demand. Also,rising cotton prices coupled with increasing exports of cotton and cotton based textiles helped polyester industry to capture some of the domestic market share from cotton.
EXCESS CAPACITIES
2.1.6.
Indias manufacturing capacity (functional installed capacities) for man-made fibres at present stands at 3.4 billion kg (FY09), of which polyester accounts for 82.9%, followed by viscose with 11.6% and remaining is of other man-made fibres. Indias manufacturing capacities for all man-made fibres at present is more than adequate to meet the domestic demand. Exhibit 2.1.3: Capacity utilisation (%) Fibre type PSF VSF ASF PPSF* PFY FY07 71.4 93.8 76.2 70.5 71.6 FY08 82.7 102.8 77.4 68.6 82.5 FY09 67.9 69.2 75.7 68.6 75.5 122
Exhibit 2.1.3: Capacity utilisation (%) Fibre type VFY NFY PPFY* Total MMF FY07 85.0 161.3 61.9 74.0 FY08 80.4 138.1 58.1 83.9 FY09 66.4 140.3 53.97 72.3
Source: Office of Textiles Commissioner,* Industry and D&B India
LIMITED NUMBER OF PLAYERS

2.1.7.
Production scenario for man-made fibres/ filament yarn in India is characterised by presence of very few players. For instance, VSF is produced only by Grasim Industries. Reliance Industries produces about 64% of PSF and 48% of PFY. Century Enka and JCT Ltd produce about 85% of Nylon Filament Yarn. Century Rayon and Indian Rayon Corporation produce about 80% of VFY.
RAW MATERIALS AVAILABILITY

2.1.8.
India has had adequate production of raw materials required for manufacturing of major man-made fibres, though some quantity is met through imports. However, the import intensity is high for fibre intermediates like acrylonitrile and rayon grade wood pulp, where there is a clear shortage in domestic production.
2.1.9.
During the last year, there has been a rise in imports of certain key raw materials like PTA and MEG on account of some shortage. However, more capacity additions in the industry are underway. According to industry estimates, over 1,000 kta of PTA capacity and 325 kta of MEG capacity are likely to come up in near future.
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Exhibit 2.1.4: Production of raw-materials (million kg) Year Caprolactam DMT MEG Acrylonitrile Rayon grade wood pulp PTA
Source: ASFI, AMFII 2.1.10.
FY06 116.8 197.4 881.4 33.2 185.8 1,734.2
FY07 121.0 27.5 872.5 37.0 201.9 2,379.2
FY08 86.5 3.6 1078.1 45.1 201.0 2,059.2
FY09 84.5 783.2 30.5 180.0 2,154.0
The availability of rayon grade wood pulp for manufacturing viscose is a challenge in comparison to paper-grade pulp as margins in case of latter are better. Moreover, wood pulp industry is subjected to various environmental regulations across the world and these can be expected to increase in future in the wake of changing climatic conditions. Further, for exports purpose industry players usually import wood pulp as the quality of imported raw material is superior. Thus, future availability of rayon grade wood pulp is an area of concern and could affect the growth of viscose fibre industry.
2.1.11.
India is in a far better position than China in terms of raw material availability. China is the largest manufacturer of man-made fibres in the world, however it is highly dependent upon imports for its raw materials requirements. While China accounts for around 62% of global polyester production, its share in global production of MEG is mere 11.4% and in PTA, it is only 26.5%. Exhibit 2.1.5: Production of polyester and raw materials in select countries (2007) Polyester Country China India South Korea Taiwan Other Asia Other countries Total
Source: ASFI
PTA % 62 7 4 6 9 12 100 Qty (mn kg) 10,056 2,647 5,558 4,524 4,560 10,537 37,882 % 26.5 7.0 14.7 12.0 12.0 27.8 100
MEG Qty (mn kg) 2,051 844 854 1,805 531 11,904 17,989 % 11.4 4.7 4.7 10.0 3.0 66.2 100
Qty (mn kg) 19,177 2,275 1,245 1,813 2,708 3,876 31,094
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PRICE MOVEMENT OF MMF

2.1.12.
Over the last decade, prices of key man-made fibres like PSF and PFY have seen a steady decline, which has contributed to higher demand for same. One of the reasons for reduction in prices is the capacity build-up leading to economies of scale for key MMF manufacturers and gradual reduction of excise duty. Exhibit 2.1.6: Price movement of fibres in India
Source: 2007-2008 Handbook of Statistics on MMF ASFI
EXPORTS OF MAN-MADE FIBRES RISE SUBSTANTIALLY IN POST QUOTA PERIOD BUT SLOW DOWN IN FY09
2.1.13.
Rising capacities and production of man-made fibres since the dismantling of textile quotas have helped in increasing the surplus for exports. Exports of all man-made fibres/ filament yarns (except ASF, NFY and PPFY) witnessed a tremendous growth during the post quota period; exports of PSF and PFY have recorded CAGR of 85% and 47.9% respectively during FY06-FY08, PPSF has recorded CAGR of over 58% during the same period and exports of VSF and VFY have recorded CAGR of 31% and 21.4% respectively during the same period. However, exports of most fibres tumbled in FY09 due to the global economic slowdown.
2.1.14.
On the contrary, Indias exports of value-added MMF products, especially apparel have steadily declined. This can be attributed to lower price competitiveness of Indian exporters as against their Asian counterparts in the international markets. Moreover, the competition has stiffened since the dismantling of quotas, which has put pressure on exporters to lower their prices further. Since Indian fabric and apparel exporters operate on thin margins, they have not been able to match the prices of other Asian counterparts and hence have not been able to garner a larger share even in the post quota regime.
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Exhibit 2.1.7: Indias exports of MMF and MMF products (US$ million) Item MMF/ filament MMF Spun Yarn MMF Fabrics MMF garments
Source: DGCI&S 2.1.15.
FY01 265.3 235.8 496.1 744.8
FY05 377.9 363.1 1046.0 489.0
CAGR (%) 9.2 11.4 20.5 -10.0
FY06 405.7 363.3 970.6 699.6
FY07 641.4 420.1 1013.7 585.7
FY08 841.0 567.9 1319.7 628.4
FY09 686.6 454.4 1630.0 651.4
CAGR (%) 19.2 7.7 18.9 -2.4
As can be observed from the table below, the prices in last year have been much lower for Indian exporters due to increased competition in the wake of global economic crisis. Further, since the dismantling of quotas average export realisations in the US market have dropped from almost US$ 2.9 per sqm in 2001 to just US$ 2.6 sqm in 2008. China has been able to garner almost 43% of USAs MMF garment imports on account of extremely low prices; the average price realisation for Chinese exporters is only US$ 2.4 per sqm as against Indian exporters realisation of US$ 3.0 per sqm. Indias export realisations are higher than the global average and also against other competing Asian countries like Vietnam, Taiwan and South Korea. Exhibit 2.1.8: Exports of MMF garments and realisations in USA for select countries 2001 Country Qty (mn sqm) 6,564.3 129.5 453.4 7.5 317.6 470.1 463.6 Price (US$/ sqm) 2.9 3.2 4.8 1.5 3.4 2.6 3.2 2005 Qty (mn sqm) 8,199.4 149.6 2,596.6 409.0 404.0 289.3 190.3 Price (US$/ sqm) 2.5 3.3 2.2 2.7 3.1 2.5 2.9 2006 Qty (mn sqm) 8,165.1 119.4 2,824.7 433.8 466.6 259.0 146.6 Price (US$/ sqm) 2.6 3.5 2.4 2.8 3.2 2.5 2.7 2008 Qty (mn sqm) 8,252.9 98.3 3,536.3 641.6 451.1 170.6 81.6 Price (US$/ sqm) 2.6 3.0 2.4 2.9 3.2 2.7 2.6
World India China Vietnam Indonesia Taiwan South Korea
Source: OTEXA, D&B India 2.1.16.
The industry dynamics for different man-made fibres and filament yarn have been discussed hereunder.
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POLYESTER STAPLE FIBRE

2.1.17.
The production of polyester staple fibre (PSF) grew steadily from 522.7 million kg in FY99 to 644.2 million kg in FY05 registering a CAGR of 3.5%. The growth has been higher during the post quota period (6.2% CAGR during FY06-FY09). Production of PSF has increased steadily and has always been much higher that the domestic consumption, which has led to substantial growth in the exports of this fibre. Exhibit 2.1.9: Demand-supply indicators (mn kg) CAGR (FY99-FY05) 3.5 -2.0 20.2 3.9 CAGR (FY06-FY09) 6.2 1.5 47.4 2.1
Parameter Production Import Export Consumption
FY99 522.7 17.4 16.6 494.0
FY05 644.2 15.4 50.1 623.0
FY09P 751.6 16.5 136.4 650.7
Source: Office of Textiles Commissioner 2.1.18.
The overall installed capacity levels of PSF currently stands at around 1104.3 million kg (FY09P). The key players manufacturing PSF include Reliance Industries, Indo Rama and JCT Fibre. Reliance Industries is the leading player with almost 64% of total production in the industry (FY09).
VISCOSE STAPLE FIBRE

2.1.19.
The overall production of Viscose staple fibre (VSF) in India has grown at a CAGR of 2.7% from 178.2 million kg in FY99 to 232.8 million kg in FY09. While domestic production of VSF grew at a CAGR of 5.7% during the period FY99-05, the consumption grew at a CAGR of 22.8% during the same period. However, production of VSF has fluctuated in the post quota period. There has been a rise in imports during FY06-FY09 to cater to the domestic demand (CAGR of over 122%). The domestic consumption of VSF grew from 228.1 million kg in FY06 to 250.4 million kg in FY08 registering a CAGR of 4.8% during the same period. The installed capacity for VSF in the industry stood at 336.2 million kg in FY09. Grasim is the only manufacturer of VSF in India at present.
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Exhibit 2.1.10: Demand-supply indicators (mn kg) Parameter Production Import Export Consumption FY99 178.2 2.3 0.9 182.0 FY05 248.0 1.0 7.5 225.0 FY09P 232.8 10.98 28.4 222.8 CAGR (FY99-FY05) 5.7 -12.96 42.39 22.76 CAGR (FY06-FY09) 0.5 122.3 22.6 -0.8
ACRYLIC STAPLE FIBRE

2.1.20.
A reverse trend can be observed in the overall production of acrylic staple fibre (ASF) wherein the period before the abolishment of quotas saw production levels increase from 78.9 million kg in FY99 to 127.6 million kg in FY05 (registering a CAGR of 8.3%) while the production levels dropped by 9.7% in the post quota period (FY06-09). Exhibit 2.1.11: Demand-supply indicators (mn kg) Parameter Production Import Export Consumption FY99 78.9 31.3 0.4 105.0 FY05 127.6 14.2 14.0 126.0 FY09P 79.5 10.6 1.6 90.5 CAGR (FY99-FY05) 8.3 -12.3 80.9 3.1 CAGR (FY06-FY09) -9.7 -3.5 -32.5 -6.8
Dip in production levels in the period FY06-09 led to a 32.5% decrease in exports of the fibre. The installed capacity of the acrylic staple fibre in India stood at 105 million kg in FY09. There are only three key players manufacturing ASF at present, viz. Indian Acrylic Ltd, Pashupati Acrylon Ltd and Vardhman Acrylic Ltd.
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POLYPROPYLENE STAPLE FIBRE

2.1.22.
The overall production of polypropylene staple fibre has grown steadily from 1.9 million kg in FY99 to 3.4 million kg in FY09 registering a CAGR of 6.2%. The production of the fibre grew at a CAGR of 7.3% in the pre quota abolishment period (FY99-05). The consumption of this fibre increased steadily during the period FY99-05 registering a CAGR of 7.6%. In the period post abolishment of quotas, the production levels grew at a CAGR of 3.1% from 3.1 million kg in FY06 to 3.4 million kg in FY09. While the imports of polypropylene staple fibre contracted by 7.2% during the period FY06-09, its exports increased by 28.6% during the same period. Exhibit 2.1.12: Demand-supply indicators (mn kg) Parameter Production Import Export Consumption FY99 1.9 0.1 0.2 2.0 FY05 2.9 0.6 0.4 3.1 FY09P 3.4 0.16 0.85 2.6 CAGR (FY99-FY05) 7.3 34.8 12.25 7.6 CAGR (FY06-FY09) 3.1 -7.2 28.6 -3.6
The capacities in the PPSF industry have remained constant at 5 million kg for last few years. Zenith fibres is the leading player manufacturing PPSF in India.
POLYESTER FILAMENT YARN

2.1.24.
Consumption of polyester filament yarn has risen since FY01. From a level of 727 million kg in FY99, consumption touched 1,336 million kg in FY09. Exports have also witnessed high growth during the period FY04-FY08 - CAGR of 33.1%. However, exports slumped by almost 60% to 90.1 million kg in FY09, due to the overall global economic slowdown, while domestic demand grew by a modest 4.3% in FY09. With rise in domestic production, imports of PFY have come down steadily over the years. From a high of 114.7 million kg in FY05, imports of PFY dropped to 69.9 million kg in FY09.
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Exhibit 2.1.13: Demand-supply indicators (mn kg) Parameter Production Import Export Consumption FY99 745.4 28.7 36.7 727.0 FY05 1003.6 114.7 95.7 1041.1 FY09P 1330.3 69.9 81.5 1336.1 CAGR (FY99-FY05) 5.1 26.0 17.3 6.2 CAGR (FY06-FY09) 7.3 -8.9 -8.3 7.6
The installed capacity of PFY in industry stood at 1763.5 million kg in FY09. There are 43 manufacturing units in the country with functional installed capacity of 1,763 million kg per annum. Reliance Industries is the largest player, accounting for almost 48% of total production of PFY in FY09; the other major players are Indo Rama Synthetics, Garden Silk Mills, and JBF Industries.
VISCOSE FILAMENT YARN

2.1.26.
Consumption of viscose filament yarn has come down since FY05. It has declined from 50.6 million kg in FY05 to 41.8 million kg in FY08. It recovered marginally to 43.6 million kg in FY09. Due to decline in demand, the overall production of viscose filament yarn (VFY) has also been declining in India. Exports of VFY rose in the years following the abolishment of quotas, from 3.9 million kg in FY04 to 14.6 million kg in FY08. Exports however declined sharply to 4.2 million kg in FY09 due to the overall global economic slowdown. Exhibit 2.1.14: Demand-supply indicators (mn kg) Parameter Production Import Export Consumption FY99 60.9 1.0 5.2 51.0 FY05 53.6 2.9 7.7 50.6 FY09P 42.4 5.2 4.2 43.6 CAGR (FY99-FY05) -2.1 19.4 6.7 -0.1 CAGR (FY06-FY09) -7.2 27.7 -24.9 -2.9
There are around 7 manufacturers of VFY with an installed capacity of 63.9 million kg. Some of the key players include Century Rayon and Indian Rayon. Together these two account for almost 80% of total VFY produced in the country. Other players manufacturing VFY include Kesoram Rayon and National Rayon Corporation. 130
NYLON FILAMENT YARN

2.1.28.
Nylon filament yarn production increased steadily from 26.1 million kg in FY00 to 35.4 million kg in FY05. The production has declined to 28.1 million kg in FY09. The post quota period (FY06-FY09) has seen a considerable decline in overall demand and production for NFY. Even exports and imports have seen a negative growth, as can be observed from table below. Exhibit 2.1.15: Demand-supply indicators (mn kg) Parameter Production Import Export Consumption FY99 28.6 1.3 1.6 28.0 FY05 35.4 14.9 7.0 43.2 FY09P 28.1 3.45 2.4 30.3 CAGR (FY99-FY05) 3.6 50.2 27.9 7.5 CAGR (FY06-FY09) -8.6 -32.5 -21.8 -10.7
The major units manufacturing NFY are Century Enka, JCT and Gujarat State Fertilizers Company. The overall level of installed capacity of NFY in the industry currently stands at around 20 million kg.
POLYPROPYLENE FILAMENT YARN

2.1.30.
The production of polypropylene filament yarn has risen from 36.6 million kg in FY01 to 39 million kg in FY07. However, the production of this fibre has seen a dip in the last two fiscals and currently stands at 34 million kg. One of the reasons for this dip has been a decline in demand during this period on account of overall economic slowdown. The domestic consumption of PPFY was high at 44 million kg in FY04 but has gradually come down to 35 million kg by FY09. Exhibit 2.1.16: Demand-supply indicators (mn kg) Parameter Production Import Export Consumption FY01 36.6 0.6 2.2 35.0 FY05 38.1 5.9 1.0 43.0 FY09P 34.0 1.7 0.7 35.0 CAGR (FY01-FY05) % 1.0 77.8 -18.0 5.3 CAGR (FY06-FY09) % -0.2 -33.0 -9.8 -3.5
Source: Office of Textiles Commissioner, Industry
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2.1.31.
In the periods when production has been lower than the overall domestic demand, there has been a rise in imports of this fibre. During the last ten years, imports were highest in FY05 at 5.9 million kg, when production was only 38.1 million kg as against the demand of 43.0 million kg. Exports of PPFY have been very low, throughout the last ten year period and have seen a steady decline.
2.1.32.
The capacity levels for PPFY currently stand at around 63 million kg. There are currently three main players manufacturing PPFY, viz. Sumeet Synthetics, Filatax India and Shree Shyam Filament.
DYNAMICS OF VALUE ADDED MMF TEXTILES

2.1.33.
MMF fabrics are produced primarily in the decentralized power loom sectors. The composite/big Mills are not producing MMF fabrics. In fact, 75% of the polyester filament yarn fabrics are produced in the Surat. Similarly, 65% of the MMF spun yarn fabrics are produced in Bhilwara. Bhiwandi and Ichalkaranji are also major centres for MMF spun and mixed fabrics.
2.1.34.
Indias overall cloth production increased at a CAGR of 4.9% from 45.4 billion square meters in FY05 to 55 billion square meters in FY09. Among the different varieties of fabrics, production of MMF fabrics have grown steadily at a CAGR of 5.4% from 21 billion square meters in FY05 to 24.6 billion square meters in FY08 and then declined by 2.8% y-o-y to 23.9 billion square meters, on account of global slowdown leading to tepid demand from international markets.
2.1.35.
In terms of composition, the share of MMF based fabrics (100% Non cotton and 50% of blended fabrics) in total fabric production has contracted from 47% in FY05 to 44.1% in FY09, while the share of cotton based fabrics has increased from 46.2% to 49.6% in the same period. Exhibit 2.1.17: Production of MMF fabrics in India
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2.1.36.
Major items of MMF produced in the country are sarees, dress materials, shirting, suitings, home textiles etc. In fact, 90% of the total sarees are now made of MMF. Cotton sarees are pre-dominantly made in Handloom sector.
2.1.37.
MMF textiles are cheaper vis a vis cotton and easy to maintain. Therefore, MMF fabrics and garments are consumed mostly in rural, semi-urban and lower income segments in urban areas. There are some local brands famous in the semi-urban, rural areas like Kumar, Cambridge etc. which enjoy huge market share. In India, tailored garments have a huge market share and these are predominantly MMF fabrics based. The major MMF garment producing centres in the country are Kolkata, Delhi and Indore.
2.1.38.
There is a perception that in the domestic market cotton garments are predominant, but this not the case. MMF products are predominantly consumed in the domestic market. MMF garments are predominant to the extent of 65% in the domestic market, while in the export market cotton garments are predominant to with over 80% share. The issues and concerns emanating out of imbalanced fibre based T&G portfolio in Indias exports basket are discussed in detail in Chapter 3.
FUTURE DEMAND FOR MMF

2.1.39.
Currently, India has excess capacities for many man-made fibres/ filament yarns and these are adequate to meet the current and near future demand for man-made fibres. However, given the changing consumer pattern in favour of man-made fibre based textiles, there is a need to assess the medium term and long-term demand for man-made fibres in India. The demand for man-made fibres depends upon the demand for yarns and fabrics, which in turn depends upon the consumption of finished textiles viz. apparel and made-ups. Thus, in order to determine the future requirements for man-made fibres/ filament yarns, we first need to assess demand for fabrics and finished textiles made from man-made fibres, both for the domestic market as well as exports.
2.1.40.
A top-down approach has been followed to determine the demand for man-made fibres in FY15 and FY20. We have considered three scenarios, namely GDP growing at 7%, 8% and 9% respectively for the next ten years. The share of private final consumption expenditure is taken as 67%, in line with the average share over the past five years. The Eleventh five year plan report of the planning commission for Textiles and Garments considers the share of textiles and clothing in PFCE to be around 5.5% for FY08. It has been observed that over the past few years, the relative share of textiles and clothing in total PFCE has come down due to increased private expenditure on transport and communication, education, recreation, etc. Thus, we have considered the share of textiles and clothing in the PFCE to be 5.3% for FY15 and 5.1% for FY20.
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Exhibit 2.1.18: Demand projections for various man-made fibres/ filaments Current Fibre Domestic Demand* (mn kg) 739.1 250.4 94.7 2.8 1,280.7 41.8 28.7 38.0 2,476.1 Existing capacities** (mn kg) 1,104 336 105 5 1,763 64 20 63 3,460 FY15E Demand range (mn kg) 1,066.7 1,147.1 359.3 386.4 128.6 138.3 3.8 4.1 2,053.9 2,208.7 64.3 69.1 45.4 48.8 60.5 65.1 3,782.5 4,067.6 453.9 488.1 151.3 162.7 4,085.1 4,393.1 FY20E Demand range (mn kg) 1,542.9 1,743.6 514.3 581.2 169.5 191.6 5.7 6.4 3,170.6 3,583.1 90.4 102.2 67.8 76.6 90.4 102.2 5,651.6 6,386.9 678.2 766.4 226.1 255.5 6,103.8 6,897.9
PSF VSF ASF PPSF PFY@ VFY NFY# PPFY Domestic demand Exports Imports Net demand/ requirement
E-Estimated, * -FY08 figures (FY09 has not been considered as it was an exceptional year with negative overall growth), ** - FY09 figures, @ Capacity under Board Banding scheme indicated against PFY, # Exclusive capacity of NFY Source: D&B India 2.1.41.
Based on the above estimates, the demand for man-made fibres/ filament yarns in FY15 is projected between 4,085 million kg and 4,393 million kg. Demand for man-made fibres/ filament yarns in FY20 is projected between 6,103.8 million kg and 6,897.9 million kg.
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Exhibit 2.1.19: Future MMF requirements under different GDP growth scenarios (million kg) FY15E 7% Domestic demand (+) Exports (-) Imports Total fibre requirement
E- Estimated Source: D&B India 2.1.42.
FY20E 9% 4067.6 488.1 162.7 4393.1 7% 5651.6 678.2 226.1 6103.8 8% 6000.6 720.1 240.0 6480.6 9% 6386.9 766.4 255.5 6897.9
8% 3921.1 470.5 156.8 4234.8
3782.5 453.9 151.3 4085.1
The future fibre demand for different man-made fibres has been compared with existing capacities. The current level of existing capacities of all man-made fibres would be insufficient to meet the future demand and hence the above MMFs would require capacity additions by manufacturers. Detailed explanation of demand projections is provided in annexure (Annexure 2.A.2).
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2.2. GLOBAL SCENARIO

2.2.1.
Global production of fibres has increased steadily at a CAGR of 4% from 35,438 million kg in 1990 to 68,669 million kg in 2007. The production of MMFs has grown at a faster rate as compared to natural fibres. While production of MMFs has grown steadily at a CAGR of 6% (from 14,409 million kg in 1990 to 41,052 million kg in 2007), production of natural fibres has increased at a CAGR of 2% during the same period. Exhibit 2.2.1: Trend in production of fibres
Source: World Fibre Report 2008 2.2.2.
The share of natural fibres in total production of fibres has rapidly deteriorated from 59% in 1990 to 40% in 2007, while that of man-made fibres has expanded rapidly from 41% in 1990 to the current 60%. This can be attributed to the higher growth of MMF production vis--vis cotton; while MMF production recorded a CAGR of 6.6% during the ATC period (1994-2004). Exhibit 2.2.2: Change in composition of fibres
1990
MMF Natural fibres 40% 41%
2007
Natural fibres 59%
MMF 60%
Source: World Fibre Report 2008
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Exhibit 2.2.3: Trend in global production of MMF
COMPOSITION OF MAN-MADE FIBRES

2.2.3.
Globally, polyester is the most dominant man-made fibre, with a share of around 77% in total production and consumption of man-made fibres. It is followed by nylon, with a share of 9.4% and thereafter viscose, which constitutes roughly 7.7% share. Exhibit 2.2.4: Composition of MMFs production and consumption (2007)
Production
VFY, 1.1 VSF, 6.0 Acetate, 0.2
ASF, 5.9 Nylon, 9.4
Consumption
VFY, 1.2 VSF, 6.6 ASF, 6.0 Nylon, 9.4
PSF, 30.9
PSF, 31.0
PFY, 46.5
PFY, 45.9
Polyester: Polyester accounted for a major share of 77% in the production and consumption of MMFs in 2007. This impressive performance of polyester can be attributed to a rapid increase in capacity of this fibre. Overall capacity of polyester has increased at a CAGR of 8% from 10,837 million kg in 1990 to 40,724 million kg in 2007. The period after the abolition of quotas witnessed a 70.6% increase in capacities of polyester to 36,376 million kg from 21,321 million kg in 2004. Among the varieties of polyester fibre, production of PFY increased by 14.4% y-o-y while that of PSF grew by 12.3% in 2007.
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2.2.5.
Nylon: Nylon is the second largest fibre after polyester in production and consumption of global MMFs in 2007. Nylon held a 9.4% share in both production as well as consumption of MMFs in the same period. However, its production has grown at a CAGR of just 2% from 2,783 million kg in 1990 to 3,848 million kg in 2007. In the period after abolition of quotas (2005-07) the production declined by 1% and consumption declined by 1.2%. Global capacities of Nylon reduced by 1.2% in the same period. The sluggish growth of nylon in terms of production as well as consumption could be attributed to increased competition from other low priced MMFs especially polyester.
2.2.6.
Acrylic Staple Fibre: ASF held a 6% share in production and consumption of MMFs in 2007.Overall capacity of ASF has increased marginally by 0.3% from 2,860 million kg in 1990 to 3,000 million kg in 2007. Capacity additions in ASF have been the lowest amongst all the MMFs. In 2007, around 306 million kg of capacity was reduced as compared to 2006. One of the prime reasons for the overall slow growth in capacity additions is increasing competition from natural fibres like wool in both quality as well as prices. Also, unlike polyester or nylon the usage of ASF is limited. Thin margin is also another major factor which has hampered the growth of this fibre.
2.2.7.
In 2007, the production and consumption of ASF declined by 2.4% and 5.5% respectively. This decline could be attributed to increase in raw material prices coupled with thin profit margins. High input prices (especially acrylonitrile) also compelled many Chinese manufacturers to reduce production and/or shut down manufacturing units.
2.2.8.
Viscose: Industry experts felt the global demand for VSF would reduce during the period 1990-2002 and the fibre would hold a minor share in overall MMFs production finding usage in small specific applications. However, the trend reversed post 2003 when the demand starting rising. Also, during the same period, production base for this fibre shifted from high cost developed markets to low cost emerging markets like China. In 2007, VSF held a 6% and 6.6% share in production and consumption of MMFs. Despite holding a minor share in production and consumption of MMFs, VSF production grew at a CAGR of 7.4% (second largest after polyester filament yarn) in the period after the abolition of quotas.
REGIONAL COMPOSITION
2.2.9.
China is the single largest manufacturer and consumer of MMFs and accounted for a 56% share in global production of MMFs in 2007. Detailed analysis of Chinese MMF industry has been covered in the sub-sequent section.
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Exhibit 2.2.5: Major producer countries of MMF (2007) Fibre PFY PSF Nylon VSF ASF VFY Acetate Country China, India, Taiwan, South Korea, Indonesia China, India, USA, Pakistan, South Korea China, USA, Taiwan, South Korea, Germany China, Indonesia, India, Taiwan, Thailand China, Turkey, Japan, Germany, Taiwan China, India, Japan, USA, Czech Republic USA, Japan, Spain
USA was one the major producers of MMFs till the 1980s. In the period of 1990s, it lost its major share to other low cost Asian nations like China, India and Japan. In early 1990s, USA accounted for a 26% share in global production of textile fibres and this share further contracted to 15% by 2000 and in 2007 USAs share further deteriorated to 6%. USA is the second largest producer of nylon and third largest producer of polyester staple fibre. It ranks fourth and seventh in the global production of viscose filament yarn and polyester filament yarn respectively. In terms of consumption, USA is one of the top ten consumers of all types of textiles fibres/filaments. Exhibit 2.2.6: Region wise break-up of worlds MMF production (2007)
Source: 2007-2008 Handbook of Statistics on MMF ASFI 2.2.11.
Taiwan was the third largest producer of MMFs in 2007 accounting for a 6% share in global production of MMFs. West Europe, comprising of major textile nations like Greece, Germany Spain, Italy and France, accounted for a 4% share in global production of MMFs in 2007. This region is one of major manufacturers of acrylic and viscose fibre/filament. West Europe accounted for 13% of global production of nylon and 2% polyester production in the same period.
139
2.2.12.
South Korea is the fourth largest producer of nylon and polyester filament yarn, fifth largest manufacturer of polyester staple fibre and sixth largest producer of viscose filament yarn. The region accounted for a 4% share in global production of MMFs in 2007.
2.2.13.
Japan, as per industry experts, is phasing out its production of MMFs. In early 1990, Japan accounted for 12% share in global production of MMFs and this share contracted to 5% by 2000. Japan relies on imports for its demand for MMFs. Despite Japans share fast contracting in supply of MMFs, the regions remains one of the top ten suppliers and consumer of many MMFs. The region is third largest producer of acrylic staple fibre and viscose filament yarn, sixth largest producer of viscose staple fibre, eight largest in nylon, ninth largest producer of polyester staple fibre and tenth largest manufacturer of polyester filament yarn.
2.2.14.
The dynamics of man-made fibre industry for major countries and their policies are discussed in detail in the annexure (Annexure 2.A.1).
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2.3. ISSUES AND CONCERNS

EXCISE DUTY ANOMALIES
2.3.1.
There exists a discrepancy in the duty charged on cotton vis--vis man-made fibres and textiles. For instance, cotton is exempt from payment of excise duty whereas MMF manufacturers have to pay an excise duty of 8%. MMF textiles also have a disadvantage vis--vis cotton textiles as the former attract a mandatory CENVAT of 8% while the latter attracts only 4%, which is optional. Since cotton does not attract any excise duty, most of the cotton yarn and fabric manufacturers prefer not to pay any excise duty. Consequently, there is a disadvantage for MMF and MMF textiles manufacturers vis-vis cotton and cotton textiles manufacturers. Exhibit 2.3.1: Excise duty for 2009-10 (%) Item Raw material Fibre/ filament Spun/ blended yarn Fabrics Garments Cotton Nil 4.12* 4.12* 4.12* Polyester 8.24 8.24 8.24 8.24 8.24 Nylon 8.24 8.24 8.24 8.24 8.24 Viscose Nil 8.24 8.24 8.24 8.24 Acrylic 8.24 8.24 8.24 8.24 8.24
Note: Excise duty includes 3% education cess on Basic Excise duty * Optional Cenvat; if no Cenvat then nil duty Source: Office of Textiles Commissioner 2.3.2.
On the contrary, the excise duty structure in most of the other competing countries is uniform across different fibres as well as the value chain. For instance, China levies a uniform VAT of 17% on all fibres as well as textile products. Hence, there is a need to address this issue urgently and to make the duty structure uniform for all fibres. 20 Exhibit 2.3.2: ExCross country duty rates comparison India Cotton Cotton yarn MMF MMF yarn
Note: * - VAT rate Source: WTO, D&B India
China * 17% 17% 17% 17%
Indonesia 10% 10% 10% 10%
Thailand 7% 7% 7% 7%
Nil 4%/ Nil 8% 8%
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CUSTOMS DUTY ANOMALIES

2.3.3.
Historically, customs duty on man-made fibres had been very high. Over the last five years, customs duties have been lowered substantially and currently prevail at about 5% for most man-made fibres. However, the effective customs duty rate (after inclusion of SAD, CVD, etc) can be considered high for certain fibres.
2.3.4.
Certain raw materials for polyester such as Titanium di-oxide and spin finish oil attract a higher duty than polyester fibres/ filaments. This is a clear case of inverted duty structure. According to industry estimates, these additives constitute roughly 2-3% of total cost of production and are largely imported. Thus, a high customs duty on these items increases the cost of production of man-made fibre manufacturers. Exhibit 2.3.3: Customs duty on MMF, raw materials and finished goods (2009-10) Item Raw Materials DMT, PTA, MEG Acrylonitrile Caprolactum Propylene Rayon grade wood pulp Titanium Dioxide Spin finish oil Fibre/ Filament PSF, ASF, VSF PFY, VFY NFY Spun Yarn Blended Yarn Fabrics made of MMF 5.00 5.00 10.00 5.00 10.00 10.00 or Specific duty whichever is higher. 5.00 5.00 10.00 5.00 5.00 10.00 7.50 Basic Custom duty (%)
142
2.3.5.
The customs duty in most competing countries do not have an inverted duty structure. For instance, in South Korea, the customs duty on PTA and MEG is only 4.8% and 3% respectively and that on polyester is higher at around 8%. In case of Thailand, there is no customs duty on basic raw materials like PTA and MEG. Exhibit 2.3.4: Duty structure on raw materials Item PTA MEG Titanium di-oxide PSF PFY RGWP VSF VFY
Source: WTO
India (FY10) 5.0 5.0 11.0 5.0 5.0 5.0 5.0 5.0
China (2008) 6.5 5.5 5.5 5.0 5.0 Nil 5.0 5.0
South Korea (2008) 4.8 3.0 Nil 8.0 8.0 Nil 2.0 2.0
Thailand (2007) Nil Nil Nil 1.0 5.0 Nil 1.0 5.0
USA (2008) 6.5 5.5 5.5 4.3 7.5 Nil 4.3 9.6
DELAY IN GETTING DRAWBACK /EXCISE REBATE CLAIMS

2.3.6.
At present, majority of MMF Textiles exporters are operating under Drawback/DEPB Scheme. Appropriate Drawback Rates are crucial for growth in MMF Textiles Exports as it enables the players to become competitive in the global markets. However, in FY09, there was a 4-5 percentage points reduction in duty drawback rates for MMF without any changes in the duty rates. Exhibit 2.3.5: Delay in reimbursement of drawback/excise rebate claims Union Budget 2007-08 Excise Duty On MMF 8% Custom Duty On MMF 5% Drawback Rates 14.8 % 17.5 % 2008-09 8% 5% 10.2 % 12.1 %
Source: SRTEPC
Export Product
Drawback Rates Effective From 16-07-2007
MMF spun yarns (grey) MMF spun yarns (dyed) MMF spun yarns (grey) MMF spun yarns (dyed)
01-09-2008
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CONCERNS ABOUT ANTI DUMPING DUTIES

2.3.7.
Anti-dumping duties are imposed to neutralise price differential between the normal value of the like article in the domestic market of the exporting country and the export price of the product under consideration. as follows: Import of POY from China, Taiwan, Indonesia, Malaysia and Thailand Import of VFY from China Import of NFY from China, Taiwan, Malaysia, Indonesia, Thailand and South Korea Import of full drawn/fully oriented yarn/spin draw yarn/flat yarn of Polyester from Indonesia, South Korea, Malaysia and Taiwan Imports of Polypropylene Currently, anti-dumping is levied on almost all man-made fibres, details of which are
2.3.8.
There is an argument by the spinning and weaving sectors that imposition of anti-dumping duties on man-made fibres increases their input costs, rendering them uncompetitive in the global markets.
2.3.9.
There is also apprehension amongst the user industry of man-made fibres about the mechanism followed for levying anti-dumping duties; they believe that user community is not adequately consulted while levying anti-dumping duties on man-made fibres/ filaments, which is their key raw material.
2.3.10.
Secondly, the users of man-made fibre generally constitute small players who are not able to initiate anti-dumping proceedings for their products, as it involves huge costs.
LOWER
EXPORT
BENEFITS
FOR
STANDALONE
GARMENT
MANUFACTURERS
2.3.11.
There are very few organised integrated players producing MMF fabrics and garments. Most of the garment manufacturers have to procure MMF fabrics externally and are not able to get cenvat since MMF fabrics producers are in the decentralised sector operating under optional cenvat route. Only integrated organised players are able to get cenvat and DEPB which is more beneficial by 2-2.5% as against stand alone RMG units which get only duty draw back or DEPB.
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CONCERNS ABOUT GST

2.3.12.
The Goods and Services Tax (GST) is to be introduced in the country from April 2010. It would be of similar nature of VAT but would include other indirect taxes such as Cenvat, service tax. It would be dual GST comprising of Central GST and State GST. GST would be destination based, while sales tax and VAT for inter-state transactions are origin-based. On inter-state transactions of goods & services, IGST (Integrated GST) would be applicable which would be equal to C-GST and SCST. The inter-state transactions would include sales of goods and services and inter-state depot transfer of goods.
2.3.13.
The textiles industry involves a lot of inter-state transfers especially at the fabric stage. Due to long supply chain in the textile industry involving traders in various cities, towns, etc, the inter state transactions are likely to take place among the organised players who are above the threshold limit for GST exemption and small decentralised traders who are exempted from payment of GST. Consequently, the regular payee (one above threshold limit) would not get any credit for purchases from small decentralised trader but shall have to pay full duty on the sale price. Thus, the tax will multiply and the purpose of VAT principle would be broken. This would have serious cost implications on the exporters.
NIL INDIGENOUS PRODUCTION OF SPECIALISED MMF

2.3.14.
MMF like acetate, cuprammonium filament yarn, nylon 66, nylon 11, Lycra, PVA fiber and filament yarn, which are required for manufacture of high end fashion garments, lingerie, swimming costumes, Stockings, high end ladies garments are not produced indigenously and have to be imported by the weavers. Thus, there is a need to have policy incentives in place to encourage domestic production of such fibres in India.
LIMITED NUMBER OF MMF PLAYERS

2.3.15.
There are only a few big players manufacturing man-made fibres in India. The industry follows a pricing policy on import parity basis at landed cost. User industry has submitted that MMF producers export man-made fibres at lower prices than in the domestic market. This submission is supported by SRTEPC exports data analysed by FIASWI in respect of polyester fibre and yarn.
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Exhibit 2.3.6: Share of manufacturers in MMF production Fibre VSF Manufacturer Grasim Industries Others Total PSF Reliance Industries Indo Rama Synthetics JCT Fibre Others Total ASF Indian Acrylic Pashupati Acrylon Vardhman Acrylics Others Total PPSF Zenith Fibre Others Total VFY Century Rayon Indian Rayon Corporation Kesoram Rayon Others Total PFY Reliance Industries Indo Rama Synthetics JBF Industries Others Total NFY Century Enka JCT Gujarat State Fertilizers Others Total
Installed capacity in T.P.A (as of 31/3/2009) 359,975 58,700 418,675 550,000 263,550 128,612 240,568 1,182,730 45,000 30,000 18,000 60,000 153,000 3,900 4,800 8,700 25,000 16,400 6,500 32,200 80,100 670,900 259,000 144,000 939,588 2,013,488 125,200 14,000 6,000 164,244 309,444
Production M.T. (FY09P) 232,746 232,746 478,959 136,440 55,616 79,094 750,109 34,310 26,512 18,690 79,512 3,430 3,430 17,332 16,624 7,605 858 42,419 639,973 210,092 139,552 342,471 1,332,088 12,519 11,373 4,171 6 28,069
% share (Production) 100.0 100.0 63.9 18.2 7.4 10.5 100.0 43.2 33.3 23.5 100.0 100 100 40.9 39.2 17.9 2.0 100.0 48.0 15.8 10.5 25.7 100.0 44.6 40.5 14.9 0.0 100.0
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LACK OF COMPETITIVENESS IN EXPORTS

2.3.16.
India is the second largest producer of man-made fibres in the world (World Fibre Report 2008) with presence of large plants having state-of-the art technology. MMF textiles constitute almost two-third of the domestic textile market. However, Indias share in global exports of value-added textiles of manmade fibres is miniscule at around 2.25% in 2008 (Indias MMF exports were US$ 3.3 billion as against global exports of US$ 146.7 billion). Further, while textiles made of man-made fibres constitute around 63% of the world trade, it is mere 16.4% (FY09) in case of India as Indian textiles exports are predominantly cotton based.
2.3.17.
Indias total MMF textiles exports have risen at a CAGR of 15.6% during FY05 to FY09; however, the growth has slowed down during the last fiscal, primarily due to slowdown in the global demand. Exhibit 2.3.7: Indias MMF textile exports
Source: SRTEPC 2.3.18.
During FY09, there has been a decline in exports of several MMF textiles, including majority of MMF yarns, spun fabrics, viscose filament fabrics and blended fabrics like polyester viscose and polyester cotton, MMF based furnishing articles, and also dress materials.
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EXPORTS DISADVANTAGE AGAINST COTTON TEXTILES

2.3.19.
Post dismantling of textile quotas in 2005, India has been able to increase its cotton textiles and garments exports at a higher rate as against MMF textiles and garments. In case of value-added textiles, Indias performance in cotton apparel has been better than that of MMF apparel. Exhibit 2.3.8: Major suppliers of cotton apparels World imports (US$ mn) Cotton apparel Total imports China India Bangladesh Pakistan Sri Lanka
Source: UN Comtrade
2005 147,951.9 39,736.7 9,132.3 8,323.7 2,495.5 2,116.3
2008 185,092.9 62,776.4 12,373.6 14,470.1 3,129.0 2,846.0
CAGR (%) 7.8 16.5 10.7 20.2 7.8 10.4
2.3.20.
During 2005-2008, India has registered a CAGR of 10.7% in case of cotton apparel exports to the world, higher than the average global growth of 7.8%. On the other hand, Indias exports of MMF apparel have witnessed a decline from US$ 1.12 billion in 2005 to 1.08 billion in 2008, while average annual global growth in MMF imports has been 6.9% during the same period. Exhibit 2.3.9: Major suppliers of MMF apparels World imports (US$ mn) MMF apparel Total imports China India Taiwan Pakistan Vietnam Indonesia
Source: UN Comtrade
2005 45,883.7 20,289.2 1,123.3 312.5 127.2 1,643.3 1,375.8
2008 56,093.4 27,853.9 1,076.5 214.3 127.4 2,678.5 1,483.8
CAGR (%) 6.9 11.1 -1.4 -11.8 0.0 17.7 2.6
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2.3.21.
Indian MMF textiles have witnessed dismal performance in both US and EU markets. In the EU market for MMF apparel, Vietnamese exporters have given serious competition to Indian exporters; in 2005, Vietnams MMF apparel exports to the EU were 12% lower than Indias exports, however by 2008, Vietnams exports have reached US$ 538 million, which is almost 40% higher than Indias MMF apparel exports in that year. Chinese exports too have increased at over 13% CAGR in this market during 2005-2008, while India has recorded a CAGR of only 3.9%. Consequently, Indias share in MMF apparel imports of EU has declined from 3.9% in 2005 to 3.2% in 2008.
2.3.22.
Similarly, in the US market too, Indias performance has been dismal due to which its share in MMF apparel imports of the country has declined from 2.2% in 2005 to mere 1.7% in 2008. On the contrary, China has seen a considerable jump in its share in the USAs MMF apparel imports, from 32% in 2005 to almost 43% in 2008. Exhibit 2.3.10: Major suppliers of cotton apparel to EU markets EU imports (US$ mn) Cotton apparel Total imports China India Bangladesh Pakistan Sri Lanka
Source: UN Comtrade
2005 29,193.5 7,475.5 2,789.8 2,963.6 646.4 490.8
2008 42,955.2 15,016.5 4,151.6 5,198.5 863.4 833.4
CAGR (%) 13.7 26.2 14.2 20.6 10.1 19.3
Exhibit 2.3.11: Major suppliers of MMF apparel to EU markets EU imports (US$ mn) MMF apparel Total imports China India Taiwan Pakistan Vietnam Indonesia
Source: UN Comtrade
2005 8,950.1 4,496.3 342.6 32.9 40.7 302.1 273.9
2008 11,892.9 6,502.4 384.5 23.4 42.5 538.2 269.7
CAGR (%) 9.9 13.1 3.9 -10.8 1.4 21.2 -0.5
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Exhibit 2.3.12: Share in USAs imports of cotton products Share in USAs imports (%) Cotton Products India China Pakistan Bangladesh Sri Lanka
Source: OTEXA
2005 6.9 17.0 5.3 3.6 2.2
2006 7.4 20.9 5.8 4.3 2.2
2007 7.4 26.2 5.5 4.6 2.1
2008 7.7 27.7 5.5 5.3 2.0
Exhibit 2.3.13: Share in USAs imports of MMF products Share in USAs imports (%) MMF Products India China Pakistan Bangladesh Sri Lanka
Source: OTEXA
2005 2.2 32.1 0.6 2.1 1.8
2006 2.0 36.4 0.4 2.2 1.6
2007 1.6 41.3 0.4 2.0 1.3
2008 1.7 42.7 0.4 2.2 1.3
HIGHER EXPORT PRICES OF INDIAN EXPORTERS

2.3.23.
The major reason for a decline in Indias competitiveness in MMF apparel is that Indian exporters have not been able to match the export prices offered by key competing countries. An analysis of USAs MMF apparel imports reveals that Indias export realisations in 2008 are 20-30% higher than key competing countries like China, South Korea, Vietnam, and Taiwan. Further, while Chinese and South Korean exporters have been able to bring down their export prices by over 50% and 25% respectively between 2001 and 2008, Indian exporters have been able to lower the prices by only 6% during the same period. This reflects the lack of competitiveness of Indian MMF apparel exporters vis-vis their counterparts in competing countries.
150
Exhibit 2.3.14: Comparative snapshot of USAs imports of MMF apparel USAs imports of MMF apparel 2001 Qty (mn sqm) 6,564.3 129.5 453.4 463.6 7.5 317.6 470.1 Price (US$/ sqm) 2.9 3.2 4.8 3.2 1.5 3.4 2.6 2005 Qty (mn sqm) 8,199.4 149.6 2,596.6 190.3 409.0 404.0 289.3 Price (US$/ sqm) 2.5 3.3 2.2 2.9 2.7 3.1 2.5 2006 Qty (mn sqm) 8,165.1 119.4 2,824.7 146.6 433.8 466.6 259.0 Price (US$/ sqm) 2.6 3.5 2.4 2.7 2.8 3.2 2.5 2008 Qty (mn sqm) 8,252.9 98.3 3,536.3 81.6 641.6 451.1 170.6 Price (US$/ sqm) 2.6 3.0 2.4 2.6 2.9 3.2 2.7
Total imports India China South Korea Vietnam Indonesia Taiwan

Source: OTEXA 2.3.24.
Major reasons cited for Indias higher prices is higher cost of production for the manufacturers/ exporters. Further, discriminatory excise duty on man-made fibres vis--vis cotton can be attributed to non-competitiveness of Indian MMF textiles exporters vis--vis cotton textile exporters.
LACK OF INCENTIVES FOR EXPANSION

2.3.25.
The installed capacities of man-made fibres are currently adequate in India. However, operating rates have been around 73% on account of depressed demand in recent times. Since more capacities are expected to come up in future, operating rates may fall further. The man-made fibre industry is a capital intensive industry with long gestation period. Hence, addition of capacities without adequate demand would lead to drop in operating margins of the industry, which is already under pressure since last year. Under such scenario, it will be difficult for manufacturers to lower the prices and to make any further capacity expansions.
2.3.26.
However, additional capacities are required in the industry in wake of future demand (medium to longterm) for man-made fibres. Thus, it is desired that incentives are provided to the industry to accelerate the process of capacity build-up, to ensure adequate supply of fibres to the user industry.
2.3.27.
At present, TUFS is not applicable to manufacture of synthetic fibres as the sector falls under the ambit of Department of Chemicals and Petrochemicals. If TUFS is available to manufacturers of synthetic fibres as well, it would aid in reducing the capital cost and hence the capital servicing 151
charges such as depreciation and interest on debt taken for capital equipment purchase. Thus, industry players want certain allocation of funds under TUFS for synthetic fibre manufacturing.
2.3.28.
However, due to high capital intensity of such projects, huge funds are required and since the overall allocation under TUFS is often not sufficient to meet the requirements of textile industry itself, the synthetic fibre/yarn industry may be coverd under TUFS with fund support from their administrative Ministry, i.e., Dept. of Chemicals and Petrochemicals to reduce the burden of debt servicing charges.
RAW MATERIAL AVAILABILITY

2.3.29.
India has adequate capacities of raw materials required for manufacturing of polyester, namely PTA and MEG. Although industry had faced some shortage in the past few months, several new projects are underway, which are expected to increase the production of PTA to 3.5 million tpa and of MEG to 1.25 million tpa.
2.3.30.
However, there is a shortage of good quality rayon grade wood pulp in India. Manufacture of one unit of VSF/VFY requires 1.05 units of wood pulp. Indias total requirement of wood pulp stands at 407.4 mn kg (VSF and VFY capacity stands at 334 and 54 mn kg respectively) if full capacity utilisation levels are achieved. In FY09, demand for RGWP stood at 286 mn kg while the actual supply was just 180 mn kg. The industry faced a shortage of wood pulp to the tune of 106 mn kg (37% of demand). This adverse scenario has led to a surge in imports of wood pulp into the country. Exhibit 2.3.15: Demand-supply scenario in availability of RGWP
400 350 mn kgs 324 355 306 323 286 202 201
300
250 200
295
185
182
186
180
150
100 50
0
FY04 FY05 FY06 FY07 FY08 FY09
Demand
Supply
Source: AMFII 2.3.31.
Further, the quality of wood pulp available in the Indian markets is not of superior quality. The pulp is often made up of mixed and immature hard wood which is poor in quality and homogeneity. Usage of this pulp leads to manufacture of fibre that is inferior, yarn that is of poor quality and a subsequent 152
product (fabric/garment) that is of low quality. Quality of imported pulp is much better as compared to Indian pulp. India sources majority of its pulp requirements from the regions of North Canada, Europe and South Africa.
2.3.32.
Currently, the import duty of wood pulp in India stands at 5.28% while it is exempt in competitor countries like China, Taiwan, Thailand, Pakistan, among others. Hence, domestic manufacturers are at a disadvantage as compared to their global counter parts. Reduction in import duty will enable VSF/VFY manufacturers to lower their cost of product by Rs 2 per kg thus enabling them to compete effectively in global markets.
2.3.33.
Import of high quality wood pulp would lead to production of high quality products across the entire textiles value chain. If the government decides to waive off customs duty on wood pulp on 140 mn kg it would result into a loss of revenue to the tune of Rs 280 mn. However, doing so would ensure increase in production throughout the value chain thereby increasing excise duty collections.
COST RELATED ISSUES

2.3.34.
India stands to lose in front of other competitors, as costs of manufacturing man-made fibres and textiles in India are much higher than in competing countries due to a number of factors. These include power cost, transaction costs, amongst others.
2.3.35.
Though in actual terms, labour costs in India may be slightly lower than in other countries, taking productivity into consideration, the effective labour costs in India turns out to be much higher than in other countries. Labour in China is considered to be around 60% more productive than in India. Thus overall labour costs on a per unit basis turn out to be cheaper in China.
2.3.36.
Power costs in India at US $ 0.112 per kwh are much higher than the power cost of US $ 0.062 per kwh in countries like Korea. The power sector in India is in a poor state marred by shortages and fluctuations in voltages, load shedding and others. To tide over the power scenario, a number of larger players in the industry have set up captive power plants, which further adds on to the capital costs of the players.
153
Exhibit 2.3.16: Power cost comparison
Source: ITMF 2.3.37.
Capital interest rate in the range of 11 13.5% in India is still higher compared to countries like China and Korea, but is comparable to the interest rates prevailing in Bangladesh, Pakistan and Indonesia. The higher interest rates affect the competitiveness of the Indian textile industry including MMF industry. Exhibit 2.3.17: Lending rates comparison
Lending rates (%) Indonesia South Korea China 6 6 11 12
Bangaldesh
Pakistan India 0 2 4 6 8 10
13
12 12 14
Source: Central Banks, D&B India
HIGH TRANSACTION COSTS

2.3.38.
Another major concern for the industry in India are the relatively higher transaction costs compared to other countries which whom India is competing in the export markets. Transaction costs for exports in India stands at US $ 945 per container as compared to US $ 500 per container for China.
2.3.39.
These high transaction costs adversely impact Indias cost competitiveness in the export markets. The factors that lead to the relatively higher transaction costs are multiplicity of rules and regulations, 154
inadequate infrastructural facilities and thus higher inland transportation costs and higher port and terminal charges, rule-bound administrative procedures, practices, amongst others. Hence in addition to addressing the various other trade policy issues, reduction of transaction costs is another priority area that needs to be addressed. Exhibit 2.3.18: Transaction cost comparison
Source: World Bank 2.3.40.
Inadequate infrastructural facilities are one of the major factors for higher transaction costs. Inland transportation & handling costs and ports & terminal handling costs account for almost 50% of the total transaction costs reflecting the poor state of infrastructural facilities in the country. Again depending on the location within the country, transportation costs tend to vary drastically. This is captured in the exhibit below, which clearly states that the cost to export from Kochi, a port city is US$ 432 per container, while the cost from an inland location, Jaipur in Rajasthan, is almost thrice at US $ 1,289 per container. Exhibit 2.3.19: Inter country cost comparison
Source: World Bank
155
2.3.41.
The un-neutralised state level taxes such as CST, VAT, Octroi and Entry Tax also contribute to the higher transaction costs. Though there are drawback schemes and excise rebates available for exports, it generally takes a long time for the exporters in getting their drawbacks and excise rebate claims, thus leading to higher transaction costs.
SUMMARY
2.3.42.
From the above analysis, it is clearly evident that MMF and MMF textile industry face several problems that require immediate policy attention if the sector has to be made globally competitive. The next chapter details various policy recommendations that can provide solutions to the issues highlighted in this chapter.
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2.4. RECOMMENDATIONS
2.4.1.
The policy recommendations made by the sub-group on man-made fibres for the national fibre policy can be categorised into two types, namely: Fiscal measures, and Non fiscal measures
2.4.2.
Fiscal measures mainly include rationalisation of the current duty structure, both excise and customs, and removal of anomalies, if any. The objective of these measures is to attain fibre neutral duty regime and do not put any segment of the value chain at any disadvantage. These measures are of utmost importance to boost production and consumption of MMF and MMF textiles in India and also improve competitiveness of players in the global exports markets.
2.4.3.
Non-fiscal measures are also required to provide boost to the production and consumption of manmade fibres and textiles in India. These measures take the form of any institutional support and incentives to encourage domestic production of fibres to ensure adequate supply of fibres to the industry over the long term. Various fiscal and non-fiscal recommendations are discussed below.
FISCAL MEASURES
Excise duty rationalisation
2.4.4.
The sub-group members are of the opinion that there should be fibre neutral excise policy. Thus, members have suggested a reduction in excise duty for man-made fibres and textiles made of manmade fibres to the level of cotton textiles, i.e. 4% optional at present.
2.4.5.
It has been observed that when the excise duty on most man-made fibres was reduced considerably in FY07 from 16.32 % to 8.16% and the excise duty gap between cotton and MMF was narrowed to 8.16 percentage points from 16.32, there was a substantial growth in consumption as well as production of man-made fibres.
157
Exhibit 2.4.1: Growth in MMF consumption
Source: Ministry ofTextiles, D&B India
Exhibit 2.4.2: Effect of excise duties on production and consumption PSF
Source: Ministry of Textiles, D&B India
Exhibit 2.4.3: Effect of excise duties on production and consumption PFY
Source: Ministry of Textiles, D&B India
158
2.4.6.
Recommendations a) There should be fibre neutral excise policy and current discrimination in excise duties between natural and man-made fibres need to be eliminated. Thus, it is recommended that excise duty for man-made fibres and textiles made of man-made fibres be brought down at par with cotton textiles, i.e. 4% optional. b) Excise duty for specialised MMFs which are not produced indigenously should be exempted
Customs duty rationalisation

2.4.7.
There are differences of opinion with respect to import duties on man-made fibres. While the MMF users desire a further reduction in customs duty to get import of man-made fibres at affordable rates, MMF producers desire an increase in customs duty for protection against cheaper imports from competing countries like China, South Korea, etc. MMF attracts basic custom duty of 5% (however, effective customs duty after considering anti-dumping duty becomes as high as 30%). The position is compounded further due to limited number of MMF manufacturers in the domestic market. Thus, there is a suggestion to at least remove the special additional duty (SAD) on the man-made fibres (currently 4%) to bring down the prices to certain extent.
2.4.8.
With respect to import duty structure on raw materials, there is a general agreement amongst members that raw materials and additives with high duties (especially those with higher duties than the finished product) need to be lowered.
2.4.9.
In case of rayon grade wood pulp, most producers of viscose fibre desire an exemption in customs duty on RGWP as high quality wood pulp required for manufacturing VSF/VFY is largely imported and high duties on same increase the cost of production considerably, thereby lowering their competitiveness in the global markets. Since RGWP is exempted from customs duty in most competing countries and is a critical input for manufacturing of VSF/ VFY, customs duty on RGWP needs to be exempted.
2.4.10.
In case of titanium di-oxide (TiO2), the Synthetic Fibres Industry (Manufactured Fibres) need Anatase grade of TiO2, which is not domestically available and since it is a proprietary item in terms of technology, it has to be imported compulsorily from the Machinery / Technology suppliers. It is thus desired that the import duty on Anatase grade of TiO2 (HS code 28230030) should be reduced or brought down to zero.
2.4.11.
Similarly the Spin Finish Oil is not locally available. The import duty on this should not be logically above that in case of the machinery which is 5%. The duties can also be brought down to zero as it does not hurt the local industry. However, at present Spin finish oil is clubbed along with surfactants under the HS codes and hence it is difficult to provide any duty concessions only for spin finish oil used by the textile industry. A separate code, namely 34031200 has already been suggested by the
159
industry association and endorsed by the Department of Chemicals and Petrochemicals for this purpose.
2.4.12.
Recommendations a) Removal of 4% Special Additional Duty (SAD) on import of man-made fibres to make the same available to domestic consumers at competitive prices. b) Customs duty exemption on specialised MMF which are not produced indigenously, namely: Acetate fibre (HS code 55049010) Acetate filament yarn (HS code 540342) Tri-acetate fibre (HS code proposed - 55049011) Tri-acetate filament yarn (HS code proposed - 54033310) Cuprammonium filament yarn (HS code 54033910) Cuprammonium fibre (HS code proposed 55049040) Nylon 66 (HS code proposed 55031110, 54025110) Nylon 11 (HS code proposed 55031120, 54025120) Lycra fibre (HS code proposed - 55039030) Lycra filament yarn (HS code 54024400) PVA fiber (HS code proposed 55039030) PVA filament yarn (HS code proposed - 54026960) PBT yarn (HS code proposed 54026970, 55039040) Modacrylic staple fibres (HS code proposed - 55033010) Modacrylic filament yarn (HS code proposed 54026940) PTET (HS code proposed 54026980, 55039050)
c) With respect to import duty structure on raw materials of man-made fibres that are primarily imported, raw materials and additives with high duties (especially those with higher duties than the finished product) should be lowered. Specifically, customs duty on following items require revision: Customs duty on rayon grade wood pulp (HS Code 47020000) to be exempted from existing 5%. Customs duty on titanium di-oxide (Anatase grade) with HS code 28230010 to be reduced to nil from current 10%. Customs duty on Spin finish oil to be reduced to nil from current 7.50%. Currently import of spin finish oil gets clubbed with surfactants used in other industries under HS code 34031100. The industry has suggested amendment of HS code for spin finish oil used by synthetic fibres to 34031200.
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Textile industry to be kept out of GST

2.4.13.
At present, Cenvat on textile industry is only optional and many manufacturers opt for non-payment of Cenvat. Considering the pattern of manufacturing and trading in decentralised sectors of the industry and finding out solution to avoid double taxation, it is recommended that GST should not be imposed on textiles industry for at least two years.
Export incentives for MMF textiles and garments

2.4.14.
Historically, MMF textiles have had a disadvantage against cotton textiles due to which competitiveness of MMF textile players has been affected, especially against competing neighbouring countries. Thus, it is recommended that various export incentives should be provided to man-made fibre based textiles and garment exporters for a limited period to neutralize the impact of cost disadvantage vis--vis exporters in competing countries. This could include higher drawback rates and inclusion of value added MMF products, viz. processed fabrics, made-ups and garments under the Focus Product Scheme. a) A graduation scheme for three years can be introduced under the Focus product scheme with benefits of 10% in first year, 7% in second year and 3% in third year. b) This scheme may cover man-made textiles and garments. In case financial implications do not permit coverage of textiles and garments then at least garments sector should be incentivised as these currently constitute for low exports value.
NON-FISCAL MEASURES
Schemes for capacity expansion and up-gradation of machinery
2.4.15.
At present, TUFS is available to the textile industry for up-gradation of machinery; however under TUFS, all the segments of the textile industry including VSF and VFY are covered except manufacturing of synthetic fibres and yarn (i.e., PSF, PFY, NFY, ASF, PPSF, PPFY etc.) as the latter is administered by the Ministry of chemicals and petrochemicals. Given that man-made fibres are used by the textiles industry, incentives provided to MMF industry for technological up-gradation will ultimately benefit the user industry.
2.4.16.
It is recommended that synthetic fibres should be covered under TUFS with fund support from their administrative Ministry i.e. Department of Chemicals and Petrochemicals.
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a) The machinery for manufacture of synthetic fibres post polymerisation may be covered under TUFS. Since the processes upto polymerisation are primarily chemical in nature polymerisation machineries may not be covered. b) The post polymerisation machinery may be benchmarked by TAMC in consultation with proposed advisory council on MMF. c) To encourage setting up of small size units, particularly from chips the restriction on term loan and also on capital cost may be fixed by IMSC in consultation with TAMC and proposed advisory council. The coverage under TUFS will result in attracting more investments, entry of more players, increasing the availability of MMF at competitive prices.
Setting up of MMF advisory council

2.4.17.
A MMF advisory council with all the stakeholders may be set up to monitor that the excise duty and other concessions have been passed on by the MMF manufacturers and also to take on integrated approach to solving the problems of MMF producers and users of MMF and to accelerate their growth. The said Council may also impress upon MMF manufacturers to provide the MMF at international prices to the domestic manufacturers.
Consultation with Ministry of Textiles for Anti dumping duties

2.4.18.
At present, there are apprehensions amongst MMF textile players that often anti-dumping duties are levied on man-made fibres without adequate consultation with the concerned user industry. In order to redress the grievances of the user industry, it is recommended that introduction of anti-dumping duties on man-made fibres must involve consultation with the Ministry of textiles to truly reflect the concerns of the user industry. At present this is restricted to Department of Chemicals and Petrochemicals.
Institutional support for initiating anti-dumping proceedings

2.4.19.
The users of man-made fibre generally constitute small players who are not able to initiate antidumping proceedings for their products, as it involves huge costs. Thus, there is a need for introduction of an institutional mechanism to provide support (financial and other) to industry associations to initiate and defend the anti-dumping proceedings / safe guard duties.
162
Priority in gas allocation to processing units

2.4.20.
MMF manufacturing and processing units are generally more energy intensive and thus to ensure cleaner environment, it is recommended that these units should be given a priority under the gas allocation policy, at par with the power sector. This would reduce their dependence on coal and thus contribute towards greener environment.
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2.A. ANNEXURE
2.A.1. TEXTILE OVERVIEW AND POLICIES IN MAJOR COUNTRIES
China
2.A.1.
China is the single largest T&G producer and exporter in the world. It has the largest T&G production capacity and leads in the production of cotton as well as synthetic textiles and garments. It is endowed with a good raw materials base and enjoys the advantage of abundant availability of lowcost labour. Chinese T&G suppliers are able to produce any type of textile and garment item at competitive prices. The Chinese textile industry has also benefited from huge investments from the government as well as from foreign companies, which have boosted its production capacity to massive levels.
2.A.2.
China is the single largest exporter of PFY, VFY and VSF. It is the second largest exporter of PSF and third largest of nylon. In terms of consumption, China consumed around 50% of global textile fibres in 2007.
2.A.3.
China has a greater advantage against other low-cost countries as labour productivity is very high. Further, the entire textile value chain is well integrated in China, which ensures a highly efficient supply chain in the industry. Chinas infrastructure is also well developed in comparison with other competing countries. One of the key reasons for success of Chinese textile industry has been the continuous government support for the industry. During the last decade, textile industry in China has seen huge investments in capacities and technology up-gradation. Currently, China boasts of more than half of worlds MMF capacities.
2.A.4.
On the cost front, Chinese are competitive on most factors. Chinese labour cost is low at around US$ 125 per month; power cost is US$ 0.2 per kwh (Y 0.485 per kwh in 2005), water cost is 0.625 US$ per ton cubic mtr; diesel/ petrol costs around 4 yuan per litre; freight charges are about US$ 2000 for 20 ft container from China to USA; and interest cost is almost half that of India (around 6%).
2.A.5.
Government policies for Chinese textile and MMF industry a) Promotion of MMF: Chinese government recognised that cotton production was not sufficient to meet the textile demand in the long run and thus they actively promoted the MMF industry. b) Cheaper finance: The industry can avail finance at interest rates as low as 5-6% c) Subsidies: Chinese textile industry receives capital subsidies in the form of land grants; wherein the land is provided to industries at cheap rates or free of cost. Textiles sector also gets fuel subsidies (for coal and oil)
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d) Tax exemptions: Chinese government provides tax holidays upto two years for the industry. e) Export incentives: The VAT on Chinese textiles is 17%. But exporting units are eligible to get refund up to 16% (as per the latest revision under the stimulus package of 2009). f) Duty free imports: On certain textile machinery, no customs duty is levied. g) Flexible labour policy: In China, labour can be employed on contractual basis h) Infrastructure support: Chinese government has made huge investments to create world-class infrastructure for its industries in the form of ports, roads, highways, special economic zones, etc. i) Financial support: The Chinese government allocated Y 1.36 billion to the T&G industry in 2006 to improve productivity of which Y 560 million were to promote innovation and the remaining amount to support enterprises to invest in developing and least developing nations.
2.A.6.
On the back of favourable conditions, the exports from Chinese T&G companies have proliferated in the post-quota period. According to a study by the WTO, China has the potential to garner 50% of the US market for garments and 29% share of the EU market for garments.
Taiwan
2.A.7.
Taiwan accounted for 6% of the worlds manmade fibres output with a production of 2.45 million tonnes of manmade fibre in 2007. It is the third largest producer of nylon and polyester filament yarn, fourth largest manufacturer of viscose staple fibre and holds the fifth and sixth position in the production of acrylic staple fibre and polyester staple fibre. Taiwans share in world market has steadily come down since 1990 when China started ramping up its capacity. It accounted for almost 14% of the world fibre production in 1995, however low growth (around 2%) during the ATC period (1995-2004) and decline in production post WTO, led to decline in share of Taiwan in world fibre production.
2.A.8.
Taiwan is a net exporter of fibres, with exports accounting for almost 55% of its total production during 2007. Nearly 78% of ASF production and 71% of PSF production and around 45-50% of its production of nylon and PFY were exported during 2007. However, Taiwan reported a decline in exports of fibres to 1.3 million tonnes in 2007 from 1.5 million tonnes in 2006.
2.A.9.
In terms of consumption, Taiwan ranks as the third largest consumer of nylon and polyester filament and sixth largest consumer of viscose staple fibre.
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2.A.10.
With a total production capacity of around 8,670 tonnes per day, Taiwan ranks third largest in terms of capacity.
21
It ranks second in terms of capacity for polyester fibre.
2.A.11.
Over the years, the industry witnessed many problems in the second half of 1980s, such as labour shortages, rising overhead costs, increasing land prices, amongst others. As a consequence a number of companies relocated/shifted their production capacities to South East Asia and China in order to stay competitive. The companies that did not shift their production capacities undertook a number of cost-effective measures and new management practice to improve quality and productivity. Taiwan has emerged as a leading producer of high-quality textiles and as a sourcing centre in Asia. The textile industry in the country has focused on manmade fabrics as the country does not produce natural raw materials such as cotton, wool, silk, linen and others.
2.A.12.
Taiwan had build up production capacities in man-made fibres and China was one of its major markets. However, with number of MMF units increasing in China, demand for MMF from China reduced, impacting demand from Taiwan. The Asian economic crisis of 1997 hit the industry very badly. MMF production in Taiwan fell in 1998 and a number of firms were hit badly.
2.A.13.
Liberalisation of textiles and clothing trade (on account of expiry of the WTO Agreement on Textiles and Clothing) led to increased competition in export markets as a result of which Taiwans exports of textiles and clothing declined. To help the T&G industry overcome this challenge, the Taiwanese government set up a co-ordination centre to eliminate investment barriers and provide support for technological development.
Indonesia
2.A.14.
Indonesias textile industry is vertically integrated with presence across the entire value chain from production of MMFs, yarn spinning, waving and knitting, dyeing, printing, finishing to garment manufacturing. Out of the 2,661 textile companies in 2004, 28 were involved in manufacture of MMFs, 204 in spinning, 1,044 in weaving, knitting and finishing and 861 in garment manufacturing. The industry provided employment to over 1.8 million workers directly and 3.7 million workers indirectly. Workers in the textiles industry accounted for 1.9% of total employment in the region. The textiles industry is second largest net exporter industry (after mining) in Indonesia. However, a large part of textile products produced in the region is consumed domestically. Around 51% of yarn produced was consumed domestically; in case of weaving and knitting sector the local consumption is around 63% of total production, and for garments 37%.
21
As per Taiwan Man-Made Fiber Industries Association - http://www.e-ruby.com.tw/tmmfa/english/1brief05.asp#1 166
2.A.15.
Indonesias strategic location of being situated between two oceans (Indian Ocean and Pacific Ocean) and continents (Asia and Australia/Oceania) has enabled it to engage in trade with various nations. Indonesia is the fourth largest populated nation in the world. The government, in a bid to increase competitiveness of the textiles industry, has made significant efforts so as to provide requisite infrastructure and facilities. Indonesia was one of the largest exporters of MMF in 2007 .The region was third largest exporter of PFY, fifth largest of VFY and tenth largest of NFY.
2.A.16.
Indonesias domestic industry began to develop only in the late 1960s and since then industry has made progress in terms of overall structure, market orientation and diversification. The initial industrial policies in the rehabilitation and stabilisation period (1967-72) and oil boom period (1973-81), stressed on growth of import substitution industries like textiles and garments. With fall in oil prices during the period 1982-96, Indonesias policy focussed on development of export oriented industries which would be supported by strengthening the overall industry structure.
2.A.17.
The Indonesian government, in a bid to improve foreign investments in the textiles industry, announced an investment policy package. This policy package consisting of 19 policies and 85 action programs, defines the shortening and transparency of investment permits procedures as well as establishment of mechanisms for disputes. The government is also trying to amend its existing labour law. Indonesia economy suffered a major setback in 2008 in form of falling exports (due to tepid demand for textile products in international markets). However, the region depends more on household consumption for growth as compared to exports. Indonesia is developing textiles cluster in the regions of West Java and Yogyakarta wherein focus will be on increasing competitiveness by concentrating on development of value added products and fashion wear products manufactured from indigenously available raw materials.
2.A.18.
As per industry experts, around 70% of PFY manufactured in Indonesia is used for georgette crepe, as a result of which, demand for PFY for weaving remains stagnant. Demand for filament yarn is better relatively better from knitted fabrics as compared to woven fabrics. Indonesias textiles industry contributed around 2.1% to its GDP in 2008.
2.A.19.
Comparison of cost of production of India vis--vis Indonesia reveals hourly labour cost is cheaper by US$ 0.1, cost of power is cheaper by US$ 0.019 per KW and the cost of shipping is also cheaper. The transaction cost for yarn and fabrics in Indonesia account for 1.5-2% and 1.25-1.5% respectively of their selling price.
2.A.20.
Indonesia accounted for 4% of global production of MMFs and 3% in global consumption of MMFs in 2007. The region was the second largest consumer of VSF, fifth largest of PSF and seventh largest consumer of ASF and PFY in 2007. Indonesia produced around 1.6 million tonnes of MMFs in 2007 of which 0.7 million tonnes was PFY, 0.5 million tonnes was PSF and 0.3 million tonnes was viscose staple. Despite this impressive growth adverse factors like outdated technology and machinery
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continue to hamper the growth of textiles industry in Indonesia. Few of these factors have been listed down as follows: a) Entry of illegal textiles products into Indonesian markets b) Emergence of new competitors like Vietnam, Bangladesh and Pakistan c) Limited development of natural fibre raw material d) No development of textile-chemicals industry (dyestuff) e) Limited availability of human resources especially in the field of designing, marketing and research and development f) Amendments in Act of Manpower especially with respect to separation pay, creating unnecessary burden to the industry g) Limited development of supporting industries like accessories, interlining, spare parts and suppliers (like paper cone, bobbin, etc)
2.A.21.
In a bid, to enhance the competitiveness of its domestic textiles industry with other nations and increase employment opportunities, Indonesia strengthened its production capacity across the entire value chain in 2007. Highest growth was witnessed in fibre (6.8% y-o-y growth), followed by yarn (4.3%), garments (3.3%) and fabrics (1.3%).
2.A.22.
Government policies/initiatives for Indonesian textile industry: a) Drawback of import duty paid on import of raw materials required to manufacture finished textiles products b) Domestic manufacturers are exempt from value added tax and sales tax payable on procurement of indigenous raw materials for manufacture of products supposed to be exported c) Restricting imports of textile products to protect domestic manufacturers from cheap imports d) The government is supporting the industry in upgrading machineries used. The government is urging players to replace excitant machineries with new and modern machineries which are more efficient e) The Indonesian government sought help of the Chinese government to restructure its textile policy. The government also proposed to the Chinese government for the provision of export credit licences to textile machinery f) Amend laws and regulations hampering development of textiles industry g) Implement restructuring program for textile products and machinery used h) Increase availability of domestic raw materials i) j) Develop high quality natural and synthetic fibre industry Focus on improving design, technology and product diversification so as to manufacture value added products k) Obtain intellectual property
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South Korea
2.A.23.
South Koreas textile industry ranks fourth globally in terms of production. Textiles output accounted for around 6% of the regions total output in 2003. Various products manufactured in the South Korean textiles industry include wovens, fabric manufacturing, MMFs, dyeing and processing and garments. Manufacture of value added products account for 6.5% of total textiles production in the region. The industry provides employment to over 3 million people accounting for 12% of overall employment in the region.
2.A.24.
As per the country statements provided by ITMF, number of spindles in South Korea stood at 12 million in 2006 and 731 looms in the same period. Exports of textiles products have played a major role in boosting the regions economy. The region ranked seventh for exports of textiles machinery with exports exceeding US$ 1 billion.
2.A.25.
South Korea was the fourth largest manufacturer of nylon and PFY in 2007, fifth largest of PSF and sixth largest of VFY. The region accounted for 3.5% of global supply of MMFs. In terms of consumption, South Korea was the fourth largest consumer of PFY, fifth largest of VFY and seventh largest of nylon. South Korea was a leading exporter of VSF in 2007. The region was sixth largest exporter of PFY, eight largest of nylon and ninth largest of ASF in the same period. On the cost front, power cost (US$ 0.05 per KW) is almost 48% cheaper as compared to India and shipping costs are 25% lower.
2.A.26.
South Koreas MMF production has lately been declining. The region reduced its capacity for manufacture of MMFs by 12.7% in 2007. While capacities of ASF and PSF remained unchanged in 2007, that of NFY reduced by 1.2% in the same period. In the period of early 1990s, the regions MMF production grew by 7% p.a. with production of PFY and PSF growing by 13% and 4% respectively. However, the pace of growth reduced in the ATC period with MMF production growing at 2.5% p.a. and PFY and PSF growing by 5% and 2.5% respectively. In the period of post abolition of quotas, production of all MMFs except VFY declined. Production of ASF declined by 30%, followed by PFY (16.2%), nylon (12.2%) and PSF (1.6%). Production of VFY grew marginally by 0.8% during the same period.
2.A.27.
The South Korean government is now focussing on production of value added products like nanofibres, industrial textiles and smart textiles for growth. The region is also acquiring new technology like digital dyeing and printing processes to enhance its competitiveness in global markets. Government policies for South Korean textile and MMF industry: a) South Korea, in a bid to support various regional industries like textiles and to support the growth of SMEs (small and medium size enterprises), set up a regional industrial promotion project (RIPP). This project encourages development of regional SME focussed industry by
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identifying an industry having attractive growth potentials in regions and thereby assisting in formation of a cluster. The first stage of this programme supported textiles industry in four regions for a period of five years (1999-2003) with an investment of US$ 1.89 million.
Vietnam
2.A.28.
The textiles industry in Vietnam has received a major boost since the regions recent entry into the World Trade Organization. The region which initially restricted itself to cut and sew operations is now investing in areas of spinning and weaving. With its entry into WTO, Vietnam is now in a position to enhance value of its textiles exports. Also, the United States would be removing quotas on imports from Vietnam leading to increased demand from the US for Vietnamese textile products. By the end of 2008, Vietnam became tenth largest exporter of garments valued at US$ 9.05 billion (a 16.3% y-o-y growth over 2007).
2.A.29.
The region has set an export target of US$ 10 billion for 2010 (Vietnams textile exports were US$ 4.8 billion in 2005). Vietnam plans to achieve the set targets by streamlining production and reduce per unit cost and thereby increase its competitiveness in the international arena. Vietnam has made substantial investments in the textiles industry to achieve this target. In 2006, Vietnam added 1.7 million new spindles and 5,840 open-ended rotors. Around 8.4 spindles and 19,784 open-ended rotors were added in the period 1997-2006. In weaving segment, the region added 1,357 shutleless looms in 2006.
2.A.30.
In 2008, textiles industry emerged as Vietnams largest industry comprising of over 2,000 textile manufacturers (of which 50% were state owned, 25% private firms and remaining foreign invested) providing employment to over two million workers.
2.A.31.
Government policies/initiatives for Vietnamese textile and MMF industry: a) The government has announced plans of setting up of textiles and dyeing industrial zones having standard watershed treatment systems, to attract more investments (both domestic and foreign), to invest in the areas of fabric printing and dyeing so as to meet the target set by the government of manufacturing one billion meters of fabric. b) The government has announced plans for setting up of a laboratory at the Textile and Garment Institute which would certify products manufactured and sold/exported were safe.
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Pakistan
2.A.32.
Pakistans T&G industry is vertically integrated with presence across the entire value chain from ginning, spinning, weaving, finishing to garment manufacturing. The industry provides employment to ten million people. The T&G industry accounts for 11 percent of the countrys GDP.
2.A.33.
Pakistans textiles and garments industry is primarily cotton based as this region is one of the leading cotton manufacturers in the world. The country is fourth largest producer and third largest consumer of cotton in the world. Lately, Pakistans T&G industry has diversified its product basket to include MMF based textiles and apparels in order to align themselves with changing global consumption pattern. Abolition of quotas in 2005 was one of the main reasons behind Pakistans shift towards MMFs in order to remain competitive in international markets.
2.A.34.
Pakistans production of MMFs posted an impressive growth in the ATC period especially polyester staple fibre. Capacity of polyester staple fibre grew at a CAGR of 4.1% from 392 mn kg in 1995 to 565 mn kg in 2004. Pakistan started the indigenous manufacture of viscose staple fibre only in 2002 by setting up of a manufacturing unit of 25 mn kg.
2.A.35.
Government policies/initiatives for Pakistani textile and MMF industry as announced in the textiles policy of 2009-14: a) A Textile Investment Support Fund (TISF) will be setup for providing incentives for investments in areas like modernization of technology and machinery, enhancing skill sets of labourers, removal of bottlenecks in infrastructure, effective marketing and usage of information and communication technologies. b) Government, for capital intensive projects, will bear 50 percent of interest costs of investments in plant and machinery with maximum of five percent. For other smaller projects, government will contribute an amount upto 20 percent of capital cost as a grant. Government has earmarked an amount of Rs 1.6 billion for this scheme and the amount will further increase to Rs 17 billion by 2014. c) Development of clusters to enable small investors set up their manufacturing units. Provision of facilities like laboratories, product development centres, research centres, etc to these clusters. d) Assistance in setting up of effluent treatment plants to existing manufacturing units. e) Provision of support for branding , grading, labelling, etc to add vale to the entire T&G industrys value chain f) Government will launch specific schemes, mainly on public-private partnership basis, to upgrade and improve segments like ginning, weaving, knitting, processing, technical textiles, carpets, handloom and handicrafts, fashion designs, etc. g) Provision of incentives for production of contamination free cotton. 171
h) Development of skills and research through SFDAC (Synthetic Fibre Development and Application Centre) for manufacture of finer filaments for production of value added products. i) j) Encouraging investments in rotor technology and specialized attachments like lycra, compact spinning, etc so as to attain economies of scale. Incentivizing power generation by mills so as to overcome problems of power shortage increasing capacities and upgradation of technologies. To encourage investments in shuttle less looms, knitting and power looms sector, government would provide not only financial but also technical assistance. l) In order to boost production of value added products (especially non-wovens) government would develop training modules to impart knowledge and skills. m) Export refinance to be available at 5 percent n) Long term loans to be converted on same price as applicable to LTTF scheme so as to mitigate the burden of financing cost on existing units. An amount of Rs 5 billion has been earmarked for this scheme. o) Provision of duty drawback to offset costs imposed on exporters of value added textiles for a period of two years. Drawback scheme proposed is as follows: 1 percent of FOB value of exports of processed fabric 2 percent of FOB value of exports of home textiles 3 percent of FOB value of exports of garments k) In areas of weaving and knitting, government would provide financial assistance for
p) Provision of additional 1 percent duty drawback to exports who have registered a growth in exports over 15 percent q) Government has earmarked an amount of Rs 5.4 billion to clear previous dues under R&D scheme r) Government is considering monetization of customs duty of PTA so as to increase usage of MMFs and thereby diversify export offerings
2.A.2. DEMAND PROJECTIONS

2.A.36.
The demand for man-made fibres depends upon the demand for yarns and fabrics, which in turn depends upon the consumption of finished textiles viz. apparel and made-ups. Thus, in order to determine the future requirements for man-made fibres/ filament yarns, we first need to assess demand for fabrics and finished textiles made from man-made fibres, both for the domestic market as well as exports.
2.A.37.
The future projection for demand for man-made fibre/ filament yarn is arrived by assessing the demand for future textile consumption by the Indian households and non-households and the export
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demand for fabrics/ garments made of man-made fibres. Demand for domestic household consumption of textiles and garments is derived from the projected private final consumption expenditure based on growth of GDP at about 8% per annum.
2.A.38.
Indias GDP factor cost at constant prices for FY08 stood at Rs31,297.2 billion. Considering the GDP growth of 8% per annum, the GDP is expected to rise to Rs 53,637.8 billion in FY15 and to Rs 78,811.6 billion in FY20. The average share of Private Final Consumption Expenditure (PFCE) in the GDP during the last five years has been 67%. Considering the same share of PFCE in FY15 as well as FY20, the overall private final consumption expenditure would be worth Rs 35,937.3 billion in FY15 and Rs 52,803.8 billion in FY20.
2.A.39.
The Eleventh five year plan report of the planning commission for Textiles and Garments considers the share of textiles and clothing in PFCE to be around 5.5% for FY08. It has been observed that over the past few years, the relative share of textiles and clothing in total PFCE has come down due to increased private expenditure on transport and communication, education, recreation, etc. Thus, we have considered the share of textiles and clothing in the PFCE to be 5.3% for FY15 and 5.1% for FY20. Accordingly, the consumption of textiles and clothing by domestic households in FY15 and FY20 is projected to be Rs 1,904.7 billion and Rs 2,693 billion, respectively. This is equivalent to fabric consumption of 60,466 million sq. mtrs in FY15 and 85,492 million sq. mtrs in FY20.
2.A.40.
Non-household consumption of fabrics (in form of fabrics, garments and made-ups) has been estimated in the eleventh five year plan at 13,158 million sq. mtrs in FY07 and projected to rise at 5% per annum. Considering the same growth estimates for next 5-10 years, the demand for fabrics from non-household is expected to reach 19,440 million sq mtrs in FY15 and 24,811 million sq mtrs in FY20.
2.A.41.
The domestic demand for fabrics (in form of fabric, garments and made-ups) for exports was estimated in the Eleventh Five Year Plan at 12,740 million sq mtrs for FY07. The exports of fabrics and finished textiles have grown at average annual growth of around 9% till FY09. We have considered the demand for fabrics for exports to grow at around 10% per annum for next 5-10 years. On the basis of these growth estimates, the demand for fabrics for exports would be 27,930 million sq. mtrs in FY15 and 44,982 million sq. mtrs in FY20.
2.A.42.
The total demand for fabrics would thus be 107,836 million sq mtrs in FY15 and 155,285 million sq. mtrs in FY20.
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Exhibit 2.A.1: Projections for fabric demand Parameter GDP PFCE share in GDP PFCE Clothing share in PFCE T&G consumption domestic a) T&G fabric consumption domestic household b) Fabric consumption by Non households c) Fabric consumption for export of finished textiles Total fabric consumption (a+b+c)
E- Estimated Source: D&B India
Unit Rs million % Rs million % Rs million million sqm million sqm million sqm million sqm
FY15E 53,637,849 67 35,937,359 5.30 1,904,680 60,466 19,440 27,930 107,836
FY20E 78,811,598 67 52,803,771 5.10 2,692,992 85,492 24,811 44,982 155,285
CAGR % 8
7.3 5 10
2.A.3. DEMAND PROJECTIONS FOR MAN-MADE FIBRES

2.A.43.
The total fabric demand estimated above can be segregated in terms of various fibres based on the average past proportion of fabrics production in terms of different fibres. Exhibit 2.A.2: Composition of fabric production by fibre type (%) Fabric type Cotton Blended 100% Non cotton Khadi, Wool, Silk FY00 48.4 15.1 35.0 1.5 FY01 49.0 15.8 33.8 1.4 FY02 47.0 15.0 36.5 1.5 FY03 46.0 14.0 38.4 1.6 FY04 42.6 14.3 41.6 1.6 FY05 45.5 13.3 39.7 1.5 FY06 48.2 12.7 37.6 1.6 FY07 49.1 12.9 36.6 1.4 FY08 48.5 12.3 37.8 1.4
Note: FY09 was an exceptional year as it saw a decline in fabric production due to recession. Thus, it has not been considered for projections Source: Office of Textiles Commissioner, D&B India
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2.A.44.
It can be observed that while share of cotton fabrics is declining, that of MMF based fabrics is rising. Based on the past trend, we have arrived at likely future composition of fabric in terms of different fibres. On the basis of this, the demand for blended fabrics is estimated at 13,480 million sq mtrs in FY15 and 19,721 million sq mtrs in FY20 and demand for 100% MMF based fabrics is estimated at 45,507 million sq mtrs for FY15 and at 70,189 million sq mtrs in FY20. Exhibit 2.A.3: Projected composition of fabric by fibre type in India (%) Fabric type Cotton Blended MMF Silk/wool
Source: D&B India
FY15E 44.0 12.5 42.2 1.3
FY20E 40.8 12.7 45.2 1.3
Exhibit 2.A.4: Projected composition of fibre in World (%) Fibre Cotton MMF Wool 2007 36.3 62.0 1.7 2013 32.1 66.3 1.5 2015 31.9 66.6 1.4 2018 31.4 67.3 1.3
Source: PCI, ASFI-Handbook of Statistics 2008-09(Part 2)
Exhibit 2.A.5: Projected composition of fabric by fibre type (million sq. mtrs) Fabric type Cotton Blended MMF Silk/wool
E- Estimated Source: D&B India 2.A.45.
FY15E 47,448 13,480 45,507 1,402
FY20E 63,356 19,721 70,189 2,019
Utilising the average conversion rates for different fibres, we have arrived at requirements for manmade fibres for FY15 and FY20 as 3,921.1 million kg and 6,000.6 million kg, respectively. 175
Exhibit 2.A.6: Conversion ratio for textiles value chain Fibre Cotton MMF Fibre to Yarn (kg) 0.80 0.95 Yarn to Fabric (sqm) 12.4 13.0
Source: Official Indian Textiles Statistics, Industry
Exhibit 2.A.7: Demand projection for man-made fibres Fibre MMF yarn from blended fabric* MMF yarn from MMF based fabric Total MMF yarn Demand for man-made fibres FY15E 626.9 3,500.5 4,127.5 3,921.1 FY20E 917.3 5,399.1 6,316.4 6,000.6
E- Estimated; * - Assuming blended ratio to be 40:60 for cotton and MMF Source: D&B India 2.A.46.
From the above projections for man-made fibres, we have further arrived at future demand for different man-made fibres by projecting future composition of various fibres in total MMF/ filament yarn consumption based on past trends. Exhibit 2.A.8: Demand projections for various man-made fibres/ filaments FY15E MMF/ filament yarn PSF VSF ASF PPSF PFY VFY NFY PPFY Total
E- Estimated Source: D&B India
FY20E Mn kg 1,105.8 372.5 133.3 3.9 2,129.2 66.7 47.1 62.7 3,921.1 Proportion 27.3 9.1 3.0 0.1 56.1 1.6 1.2 1.6 Mn kg 1,638.2 546.1 180.0 6.0 3,366.3 96.0 72.0 96.0 6,000.6
Proportion 28.2 9.5 3.4 0.1 54.3 1.7 1.2 1.6
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2.A.4. FUTURE DEMAND PROJECTIONS VIS--VIS EXISTING CAPACITIES

2.A.47.
The future fibre demand for different man-made fibres has been compared with existing capacities. While the existing capacities for all man-made fibres are higher than the current domestic demand for same, there is a shortfall in capacities of man-made fibres/ filaments if we consider the future demand for same. Exhibit 2.A.9: Future fibre demand and current capacities (million kg) Present Domestic Demand in FY08* (mn kg) 739.1 250.4 94.7 2.8 1,280.7 41.8 28.7 38.0 2,476.1 Existing capacities** (mn kg) 1,104 336 105 5 1,763 64 20 63 3,460 FY15E Demand ( mn kg) 1,105.8 372.5 133.3 3.9 2,129.2 66.7 47.1 62.7 3,921.1 CAGR (%) FY20E Demand (mn kg) 6.9 6.8 5.9 5.9 8.8 8.1 8.6 8.7 8.0 1,638.2 546.1 180.0 6.0 3,366.3 96.0 72.0 96.0 6,000.6 6.9 6.7 5.5 6.6 8.4 7.2 8.0 8.0 7.7 CAGR (%)
Fibre PSF VSF ASF PPSF PFY VFY NFY PPFY Total
E- Estimated; * FY09 has not been considered as it was an exceptional year ** Functional Installed capacities by FY09 Source: D&B India
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2.A.5. ALTERNATIVE SCENARIOS

2.A.48.
The above projections for fibre demand have been derived under the assumption of GDP growth of 8%. However, if we consider two alternative scenarios for GDP growth, namely 7% and 9%, the demand for man-made fibres would be in the range of 3,782 4,067.6 million kg for FY15 and 5,6516,386.9 million kg for FY20. The detailed break-up of each fibre demand under the two alternative scenarios has been provided in the tables below.
2.A.49.
It can be clearly observed that under both scenarios, current MMF capacities will fall short of demand for most fibres in a few years. Exhibit 2.A.10: Future fibre demand and current capacities (million kg) at 7% GDP Present Fibre PSF VSF ASF PPSF PFY VFY NFY PPFY Total Domestic Demand in FY08* (mn kg) 739.1 250.4 94.7 2.8 1,280.7 41.8 28.7 38.0 2,476.1 Existing capacities** (mn kg) 1,104 336 105 5 1,763 64 20 63 3,460 FY15E Demand ( mn kg) 1066.7 359.3 128.6 3.8 2053.9 64.3 45.4 60.5 3782.5 CAGR (%) 6.3 6.2 5.2 5.3 8.2 7.4 7.9 8.1 7.3 FY20E Demand (mn kg) 1542.9 514.3 169.5 5.7 3170.6 90.4 67.8 90.4 5651.6 CAGR (%) 5.8 5.7 4.6 5.6 7.2 6.1 6.8 6.9 6.6
178
Exhibit 2.A.11: Future fibre demand and current capacities (million kg) at 9% GDP Present Fibre PSF VSF ASF PPSF PFY VFY NFY PPFY Total Domestic Demand in FY08* (mn kg) 739.1 250.4 94.7 2.8 1,280.7 41.8 28.7 38.0 2,476.1 Existing capacities** (mn kg) 1,104 336 105 5 1,763 64 20 63 3,460 FY15E Demand (mn kg) 1147.1 386.4 138.3 4.1 2208.7 69.1 48.8 65.1 4067.6 CAGR (%) 7.6 7.5 6.5 6.5 9.5 8.7 9.2 9.4 8.6 FY20E Demand (mn kg) 1743.6 581.2 191.6 6.4 3583.1 102.2 76.6 102.2 6386.9 CAGR (%) 6.8 6.7 5.6 6.6 8.2 7.1 7.8 7.9 7.6
2.A.6. INVESTMENT REQUIREMENT

2.A.50.
The future fibre requirements arrived above is with respect to domestic demand for man-made fibres. To estimate the future capacity and investment requirements, we also need to consider future exports and imports of fibres. Based on the historical data trend on exports and imports as a proportion of domestic demand, we have considered man-made fibres exports to constitute 12% of future domestic demand and imports to constitute 4% of future domestic demand. Exhibit 2.A.12: Targeted proportion of MMF trade Trade Exports Imports
Source: D&B India
Targeted Share in domestic demand (FY15 and FY20) 12% 4%
2.A.51.
After adjusting expected exports and imports to demand projections, the future MMF requirements are in the range of 4,085-4,393 million kg for FY15 and 6,103.8 6,897.9 million kg for FY20. Considering 80% utilisation of capacities, additional capacities are required to the extent of 1,646.7 2,031.3 million kg by FY15 and around 4,169.7 5,162.3 million kg by FY20. This implies investments worth Rs 82.3 101.6 billion by FY15 and Rs 208.5 258.1 billion by FY20. 179
Exhibit 2.A.13: Future MMF requirements under different GDP growth scenarios (million kg) FY15E 7% Domestic demand (+) Exports (-) Imports Total fibre requirement
E-Estimated Source: D&B India
FY20E 9% 4067.6 488.1 162.7 4393.1 7% 5651.6 678.2 226.1 6103.8 8% 6000.6 720.1 240.0 6480.6 9% 6386.9 766.4 255.5 6897.9
8% 3921.1 470.5 156.8 4234.8
3782.5 453.9 151.3 4085.1
Exhibit 2.A.14: Future investment requirements for man-made fibres FY15E 7% MMF demand Required capacity (assuming 80% utilisation) Current capacity Additional capacity required Approx. investments (Rs bn)
E- Estimated Source: D&B India 2.A.52.
FY20E 9% 4393.1 5491.3 3460 2031.3 101.6 7% 6103.8 7629.7 3460 4169.7 208.5 8% 6480.6 8100.8 3460 4640.8 232.0 9% 6897.9 8622.3 3460 5162.3 258.1
8% 4234.8 5293.5 3460 1833.5 91.7
4085.1 5106.4 3460 1646.4 82.3
Besides investments in man-made fibre capacities, huge investments (almost twice the investments for man-made fibres) would also be required for the raw material manufacturing. Adequate availability of man-made fibres in the future thus requires huge investments by current and new players, which can be facilitated by government support in the form of incentives and schemes for accelerating capacity expansion.
180
2.A.7. STATISTICAL APPENDICES
Exhibit 2.A.15: MMFs snapshot of Indias major competing countries (2007) (million kg) Fibre Acrylic Staple Fibre Parameter Capacity Production Export Import Consumption Nylon Capacity Production Export Import Consumption Polyester Filament Yarn Capacity Production Export Import Consumption Polyester Staple Fibre Capacity Production Export Import Consumption Viscose Filament Yarn Capacity Production Export Import Consumption Viscose Staple Fibre Capacity Production Export Import Consumption
Global 3000 2436 883 907 2460 3856 3848 1373 1388 3856 23874 19082 2918 2719 18903 16840 12677 2433 2457 12859 650 465 174 194 485 3080 2461 481 752 2732
China 885 822 3 281 1100 937 862 113 237 1,121 15343 12177 633 253 12,901 9708 7000 418 201 6,783 300 227 88 13 152 1650 1140 119 39 1060
India 153 81 0 7 88 30 27 8 11 31 1973 1408 220 91 1663 1078 868 138 16 746 82 65 23 3 44 252 277 25 6 258
USA 2
West Europe 507 423 273
South Korea 58 51 42 4 13 216 184 65 22 102
Taiwan 165 157 109 2 50 189 570 211 28 227 1831
54 54 1,262 940 96 154 1103 464 379 72 152 459 934 782 121 393 1,054 25 25 1 5 29
46 196 552 424 382 437 472 547 403 301 589 721 383 335 187 733 881 85 71 18 70 123 420 380
709 216 127 1005
1231 550 12 1029 906
536 439 4 101
535 385 6 156
9 0.1 13 22 161 136 0 37 37 91 15 61
2 84 90
56 178 502
181
Exhibit 2.A.16: Demand supply indicators for China (million kg) Fibre Acrylic Staple Fibre Parameter Capacity Production Exports Imports Consumption Nylon Capacity Production Exports Imports Consumption Polyester Filament Yarn Capacity Production Imports Exports Consumption Polyester Staple Fibre Capacity Production Imports Exports Consumption Viscose Filament Yarn Capacity Production Imports Exports Consumption Viscose Staple Fibre Capacity Production Imports Exports Consumption
2000 606 475 1 353 827 651 390 22 150 518 3584 3152 414 19 3546 2349 1949 602 2 2548 108 87 6 24 68 392 466 41 1 505
2001 665 519 1 374 892 683 406 22 166 550 4980 3892 290 22 4160 3095 2417 511 6 2923 138 125 3 29 99 525 483 45 0 528
2002 726 594 1 434 1027 697 471 41 217 647 7065 4755 352 32 5074 3835 2951 594 70 3475 175 154 5 47 112 537 528 40 2 566
2003 729 628 1 495 1122 725 559 55 250 755 8122 5643 415 47 6012 4455 3491 574 113 3951 223 184 9 56 137 760 616 56 2 671
2004 689 663 2 460 1121 773 667 58 273 882 11745 6805 369 137 7038 5800 4347 505 140 4712 250 200 10 54 156 900 766 55 12 810
2005 900 865 2 465 1328 867 680 82 264 862 12443 8903 296 261 8938 7951 4853 344 205 4991 265 198 9 63 144 1020 858 50 17 891
2006 1165 839 3 337 1174 887 834 101 282 1014 12367 10295 272 400 10166 7951 5960 261 285 5936 270 211 13 85 138 1250 968 39 61 946
2007 885 822 3 281 1100 937 997 113 237 1121 15343 12177 253 633 11797 9708 7000 201 418 6783 300 227 13 88 152 1650 1140 39 119 1060
182
Exhibit 2.A.17: Demand supply indicators for Taiwan (million kg) Fibre Acrylic Staple Fibre Parameter Capacity Production Imports Exports Consumption Nylon Capacity Production Imports Exports Consumption Polyester Filament Yarn Capacity Production Imports Exports Consumption Polyester Staple Fibre Capacity Production Imports Exports Consumption Viscose Staple Fibre Capacity Production Imports Exports Consumption
2000 162 106 28 69 65 271 436 23 149 310 2224 1525 22 532 1015 1079 932 24 671 284 161 139 16 76 80
2001 162 126 14 83 57 274 419 20 141 298 2236 1536 12 541 1007 1117 835 13 587 260 145 126 11 53 84
2002 162 130 11 94 47 272 454 30 189 296 2241 1515 21 628 907 1093 888 17 678 227 145 114 10 103 21
2003 142 135 8 104 39 212 463 29 231 261 2220 1555 20 628 947 1023 874 17 680 211 145 120 9 95 34
2004 142 153 7 125 35 205 458 31 228 261 1930 1495 15 670 840 1014 841 14 660 195 145 134 9 82 61
2005 165 138 5 102 41 199 417 25 209 233 1760 1275 15 597 693 906 705 12 567 151 145 115 13 68 60
2006 155 155 1 121 34 186 423 30 224 230 1715 1085 12 567 530 900 640 9 494 155 150 132 14 114 33
2007 165 140 2 109 33 189 410 28 211 227 1831 1231 12 550 692 906 535 6 385 156 161 136 15 91 61
183
Exhibit 2.A.18: Demand supply indicators for Indonesia (million kg) Fibre Acrylic Staple Fibre Parameter Capacity Production Imports Exports Consumption Nylon Capacity Production Imports Exports Consumption Polyester Filament Yarn Capacity Production Imports Exports Consumption Polyester Staple Fibre Capacity Production Imports Exports Consumption Viscose Staple Fibre Capacity Production Imports Exports Consumption
2000
2001
2002
2003
2004
2005
2006
2007
113 1 112 122 59 16 34 40 1020 730 14 303 441 675 421 64 45 440 285 207 23 51 179
134 0 134 122 106 16 42 80 878 645 12 281 376 649 440 46 57 429 215 205 14 37 182
104 0 104 128 55 15 50 20 878 650 14 300 364 649 428 32 94 366 220 214 19 67 166
82 0 82 78 86 11 42 55 928 626 14 231 409 674 432 27 62 398 250 223 11 35 199
88 0 88 68 53 10 45 18 928 620 39 239 420 674 391 71 42 421 260 234 6 62 178
72 0 71 68 64 11 37 38 928 641 37 287 391 555 411 44 60 395 260 245 4 83 166
59 0 59 68 76 16 35 57 844 616 59 289 386 569 416 21 77 360 310 280 27 91 216
64 0 64 68 75 7 36 46 766 678 15 257 436 569 512 33 75 470 347 325 53 94 284
184
Exhibit 2.A.19: Demand supply indicators for Malaysia (million kg) Fibre Acrylic Staple Fibre Parameter Capacity Production Exports Imports Consumption Nylon Capacity Production Imports Exports Consumption Polyester Filament Yarn Capacity Production Imports Exports Consumption Polyester Staple Fibre Capacity Production Imports Exports Consumption
2000
2001
2002
2003
2004
2005
2006
2007
18 18 91 25 8 10 24 237 180 11 250 59 170 109 23 52 80
17 17 91 23 4 7 20 320 171 10 203 22 61 111 15 47 79
17 17 91 20 4 9 15 320 150 12 260 98 61 91 10 51 50
18 18 37 20 3 9 15 320 243 10 279 26 120 109 14 54 69
18 18 37 20 6 21 5 320 230 11 284 43 120 103 21 53 71
8 8 37 24 5 24 4 320 255 10 324 59 115 94 28 58 64
16 16 37 20 6 20 6 320 257 9 309 43 97 70 33 65 38
19 19 37 20 5 15 10 320 262 14 233 44 115 113 23 52 84
Exhibit 2.A.20: Demand supply indicators for South Korea (million kg) Fibre Acrylic Staple Fibre Parameter Capacity Production Exports Imports Consumption Nylon Capacity Production Exports Imports Consumption 2000 150 106 100 13 31 358 297 58 31 270 2001 150 126 68 26 34 358 238 43 23 218 2002 150 130 103 14 47 224 246 53 26 219 2003 150 135 104 12 42 244 241 65 21 197 2004 150 153 113 7 43 222 214 60 23 176 2005 158 138 86 8 17 221 175 59 23 139 2006 158 155 38 7 16 219 156 63 25 118 2007 158 140 42 4 14 216 145 65 22 102
185
Exhibit 2.A.20: Demand supply indicators for South Korea (million kg) Fibre Polyester Filament Yarn Parameter Capacity Production Exports Imports Consumption Polyester Staple Fibre Capacity Production Exports Imports Consumption Viscose Filament Yarn Capacity Production Exports Imports Consumption Viscose Staple Fibre Capacity Production Exports Imports Consumption
2000 1681 1479 358 95 1216 830 731 533 3 201
2001 1701 1355 334 63 1085 837 673 503 5 174
2002 1654 1318 358 69 1029 699 601 430 5 176
2003 1541 1275 434 46 887 700 601 447 3 157
2004 1338 1205 353 68 920 608 562 432 2 132
2005 1138 857 275 79 661 608 523 417 3 108
2006 925 737 234 109 611 585 506 418 3 91
2007
709 216 127 620
536 439 4 101
6 1 35 40
6 0.4 26 32
6 0.3 26 32
7 0.3 21 28
9 0.3 18 26
8 0.3 15 23
9 0.2 14 23
9 0.1 13 22
30 30
26 26
25 25
26 26
28 28
33 32
32 32
37 37
Exhibit 2.A.21: Demand supply indicators for Vietnam (million kg) Fibre Polyester Filament Yarn Parameter Imports Exports Consumption Polyester Staple Fibre Imports Exports Consumption
2001 69 9 60 21 0 21
2002 80 6 73 36 1 35
2003 80 3 77 10 1 9
2004 89 5 84 120 0 120
2005 93 13 80 134 9 126
2006 101 27 73 122 19 103
2007 80 27 52 129 45 84
186
Exhibit 2.A.22: MMFs snapshot of Indias major competing countries (2007) (million kg) Fibre Acrylic Staple Fibre Parameter Capacity Production Export Import Consumption Nylon Capacity Production Export Import Consumption Polyester Filament Yarn Capacity Production Export Import Consumption Polyester Staple Fibre Capacity Production Export Import Consumption Viscose Filament Yarn Capacity Production Export Import Consumption Viscose Staple Fibre Capacity Production Export Import Consumption
Global 3000 2436 883 907 2460 3856 3848 1373 1388 3856 23874 19082 2918 2719 18903 16840 12677 2433 2457 12859 650 465 174 194 485 3080 2461 481 752 2732
China 885 822 3 281 1100 937 862 113 237 1,121 15343 12177 633 253 12901 9708 7000 418 201 6,783 300 227 88 13 152 1650 1140 119 39 1060
India 153 81 0 7 88 30 27 8 11 31 1973 1408 220 91 1663 1078 868 138 16 746 82 65 23 3 44 252 277 25 6 258
USA 2
West Europe 507 423 273
South Korea 58 51 42 4 13 216 184 65 22 102
Taiwan 165 157 109 2 50 189 570 211 28 227 1831
54 54 1,262 940 96 154 1103 464 379 72 152 459 934 782 121 393 1,054 25 25 1 5 29
46 196 552 424 382 437 472 547 403 301 589 721 383 335 187 733 881 85 71 18 70 123 420 380
709 216 127 1005
1231 550 12 1029 906
536 439 4 101
535 385 6 156
9 0.1 13 22 161 136 0 37 37 91 15 61
2 84 90
56 178 502
187
Exhibit 2.A.23: Demand supply indicators of Viscose Staple Fibre (India) (million kg) Parameter Production FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09P CAGR (FY99-FY05) CAGR (FY06-FY09)
Import 2.3 1.0 1.2 1.7 2.7 2.7 1.0 1.0 6.5 7.0 10.98 -13.0 122.3
Export 0.9 1.6 2.4 1.5 5.9 9.8 7.5 15.4 19.6 26.42 28.4 42.4 22.6
Consumption 182.0 205.0 221.0 191.0 225.0 221.0 225.0 228.1 237.1 250.4 222.8 3.6 -0.8
178.2 202.0 236.2 185.3 224.6 221.0 248.0 229.0 246.8 279.9 232.8 5.7 0.5
Exhibit 2.A.24: Demand supply indicators of Acrylic Staple Fibre (India) (million kg) Parameter Production FY99 FY00 FY01 FY02 FY03 FY04 FY05 78.9 79.3 99.4 94.8 105.3 117.0 127.6 Import 31.3 14.4 14.1 9.7 21.7 12.8 14.2 Export 0.4 0.7 0.5 0.3 5.2 13.8 14.0 Consumption 105.0 99.0 104.0 114.0 115.0 119.0 126.0
188
Exhibit 2.A.24: Demand supply indicators of Acrylic Staple Fibre (India) (million kg) Parameter Production FY06 FY07 FY08 FY09P CAGR (FY99-FY05) CAGR (FY06-FY09)
Import 11.8 11.7 7.4 10.61 -12.3 -3.5
Export 5.2 2.7 1.0 1.6 80.9 -32.5
Consumption 111.9 107.4 94.7 90.5 3.1 -6.8
107.8 97.1 81.2 79.5 8.3 -9.7
Exhibit 2.A.25: Demand supply indicators of Polyester Staple Fibre (India) (million kg) Parameter Production FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09P CAGR (FY99-FY05) CAGR (FY06-FY09)
Import 17.4 13.8 21.3 27.0 25.8 12.1 15.4 15.8 14.2 16.1 16.5 -2.0 1.5
Export 16.6 51.1 29.2 17.9 29.3 31.8 50.1 42.6 124.2 145.8 136.37 20.2 47.4
Consumption 494.0 534.0 562.0 556.0 572.0 596.0 623.0 610.9 675.4 739.1 650.7 3.9 2.1
522.7 551.5 566.4 551.4 582.1 612.6 644.2 628.2 792.0 879.6 751.6 3.5 6.2
189
Exhibit 2.A.26: Demand supply indicators of Polypropylene Staple Fibre (India) (million kg) Parameter Production FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09P CAGR (FY99-FY05) CAGR (FY06-FY09)
Import 0.1 0.2 0.3 0.5 1.0 0.1 0.6 0.2 0.3 0.3 0.16 34.8 -7.2
Export 0.2 0.3 0.4 0.6 0.5 0.4 0.4 0.4 0.6 1.0 0.85 12.2 28.6
Consumption 2.0 2.0 2.0 2.0 3.0 3.0 3.1 2.9 3.3 2.8 2.6 7.6 -3.6
1.9 2.1 2.3 2.4 2.5 2.7 2.9 3.1 3.5 3.4 3.4 7.3 3.1
Exhibit 2.A.27: Demand supply indicators of Viscose Filament Yarn (India) (million kg) Parameter Production FY99 FY00 FY01 FY02 FY03 FY04 FY05 60.9 49.5 55.3 48.4 50.8 53.2 53.6 Import 1.0 0.8 0.5 1.6 6.8 3.4 2.9 Export 5.2 8.4 11.1 8.4 10.5 3.9 7.7 Consumption 51.0 45.0 47.0 45.0 45.0 50.0 50.6 190
Exhibit 2.A.27: Demand supply indicators of Viscose Filament Yarn (India) (million kg) Parameter Production FY06 FY07 FY08 FY09P CAGR (FY99-FY05) CAGR (FY06-FY09)
Import 2.5 2.0 2.8 5.21 19.4 27.7
Export 9.9 11.9 14.6 4.2 6.8 -24.9
Consumption 47.7 42.4 41.8 43.6 -0.1 -2.9
53.1 54.0 51.1 42.4 -2.1 -7.2
Exhibit 2.A.28: Demand supply indicators of Polyester Filament Yarn (India) (million kg) Parameter Production FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09P CAGR (FY99-FY05) CAGR (FY06-FY09)
Import 28.7 75.3 57.6 81.0 110.8 93.8 114.7 92.7 91.3 85.8 70.0 26.0 -9.0
Export 36.7 49.2 92.1 66.8 91.2 70.7 95.7 105.7 175.4 228.6 81.5 17.3 -8.3
Consumption 727.0 809.0 789.0 877.0 993.0 1052.0 1041.1 1073.0 1161.6 1280.7 1336.1 6.2 7.6
745.4 801.0 819.7 866.2 995.4 1013.0 1003.6 1075.8 1270.9 1420.1 1330.3 5.1 7.3
191
Exhibit 2.A.29: Demand supply indicators of Nylon Filament Yarn (India) (million kg) Parameter Production FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09P CAGR (FY99-FY05) CAGR (FY06-FY09)
Import 1.3 3.0 3.6 3.7 3.4 7.9 14.9 11.2 9.2 2.6 3.5 50.2 -32.5
Export 1.6 1.5 3.8 3.3 5.0 12.2 7.0 5.0 1.8 2.4 2.4 27.9 -21.8
Consumption 28.0 28.0 25.0 29.0 28.0 27.0 43.2 42.6 38.3 28.7 30.3 7.5 -10.7
28.6 26.1 26.3 27.8 29.7 31.0 35.4 36.8 32.3 27.6 28.1 3.6 -8.7
192
Exhibit 2.A.30: Demand supply indicators of Polypropylene Filament Yarn (India) (million kg) Parameter Production* FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09P CAGR (FY01-FY05)% CAGR (FY06-FY09)% 36.6 40.8 42.2 41.2 38.1 34.2 39.0 36.6 34.0 1.0 -0.2 Import 0.6 0.7 1.5 5.1 5.9 5.7 3.2 2.5 1.7 77.8 -33.0 Export 2.2 1.5 2.7 2.3 1.0 0.9 1.2 1.1 0.7 -18.0 -9.8 Consumption* 35.0 40.0 41.0 44.0 43.0 39.0 41.0 38.0 35.0 5.3 -3.5
Source: Office of Textiles Commissioner, Industry*
193
2.A.8. CONSTITUTION OF SUB-GROUP ON MAN-MADE FIBRES

S. No 1. 2. 3. 4. Name Shri A. B. Joshi, Textile Commissioner Shri A. N. Jariwala, Chairman, Federation of Indian Art Silk Weaving Industry (FIASWI) Shri S. C. Kapur, Director General, Association of Synthetic Fibre Industry (ASFI), Smt Neel Kamal Darbari, Joint Secretary, Department of Chemicals & Petrochemicals, Ministry of Chemicals & Fertilizers Shri R. L. Toshniwal, CMD, Banswara Syntex Ltd. Com. M. P. Joseph, Secretary General, Association of ManMade Fibre Industry of India (AMFI), Shri Vijay Kaul, Group Executive President, Grasim Industries Ltd., Dr. Anup K. Rakshit, Vice-President PSF/PFF Product Development, Reliance Industries Ltd., Shri V. Kannan, General Manager, Business Development, Reliance Industries Ltd. Designation Convener Co-Convener Co Convener Member
5. 6. 7. 8. 9.
Member Member Member Member Member Member Member Member Member Member Member Member Member Member
10. Shri S. P. Oswal, Chairman, Vardhaman Group, 11. Shri. D. Pulikeshi, Associate Vice President (Strategic Planning), SRF Ltd. 12. Shri S. V. Raut, Vice-President, Nylon and Synthetic Fibre Division, Garware Wall Ropes Ltd. 13. Shri Suresh Kotak, Chairman, Kotak & Company 14. Shri V. K. Ladia, President, Indian Spinners Association 15. Shri Sanjeev Saran, Synthetic and Rayon Export Promotion Council 16. Shri Shishir Jaipuria, Chairman, Confederation of Indian Textile Industry 17. Dr. C. S. Gokhale, Chairman, Global Artha, Mumbai 18. Shri D. K. Nair, Secretary General, Confederation of Indian Textile Industry
194
S. No
Name
Designation Member Member Member Member Member
19. Shri V. Y. Tamhane, Secretary General, Indian Spinners Association 20. Shri R. D. Udeshi, President, Polyester Chain, Reliance Industries Ltd. 21. Shri Madhusudan Bhageria, Managing Director, Filatex India Ltd. 22. Shri Sanjay Thukral, Joint President, Century ENKA Ltd. 23. Smt. Shashi Singh, Joint Textile Commissioner, Office of the Textile Commissioner
195

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SECTION II: MAN MADE FIBRES

SUMMARY MAN MADE FIBRES

ISSUES AND CONCERNS

B. Industry neutral issues

2.1. INDIAN SCENARIO

CHANGING FIBRE COMPOSITION

POLYESTER ACCOUNTS FOR LARGEST SHARE IN MMF

Source: Office of Textiles Commissioner,* Industry and D&B India

LIMITED NUMBER OF PLAYERS

RAW MATERIALS AVAILABILITY

FY06 116.8 197.4 881.4 33.2 185.8 1,734.2

FY07 121.0 27.5 872.5 37.0 201.9 2,379.2

FY08 86.5 3.6 1078.1 45.1 201.0 2,059.2

FY09 84.5 783.2 30.5 180.0 2,154.0

PRICE MOVEMENT OF MMF

Source: 2007-2008 Handbook of Statistics on MMF ASFI

FY01 265.3 235.8 496.1 744.8

FY05 377.9 363.1 1046.0 489.0

CAGR (%) 9.2 11.4 20.5 -10.0

FY06 405.7 363.3 970.6 699.6

FY07 641.4 420.1 1013.7 585.7

FY08 841.0 567.9 1319.7 628.4

FY09 686.6 454.4 1630.0 651.4

CAGR (%) 19.2 7.7 18.9 -2.4

World India China Vietnam Indonesia Taiwan South Korea

Source: OTEXA, D&B India 2.1.16.

POLYESTER STAPLE FIBRE

Parameter Production Import Export Consumption

FY99 522.7 17.4 16.6 494.0

FY05 644.2 15.4 50.1 623.0

FY09P 751.6 16.5 136.4 650.7

Source: Office of Textiles Commissioner 2.1.18.

VISCOSE STAPLE FIBRE

Source: Office of Textiles Commissioner

ACRYLIC STAPLE FIBRE

Source: Office of Textiles Commissioner 2.1.21.

POLYPROPYLENE STAPLE FIBRE

Source: Office of Textiles Commissioner 2.1.23.

POLYESTER FILAMENT YARN

Source: Office of Textiles Commissioner 2.1.25.

VISCOSE FILAMENT YARN

Source: Office of Textiles Commissioner 2.1.27.

NYLON FILAMENT YARN

Source: Office of Textiles Commissioner 2.1.29.

POLYPROPYLENE FILAMENT YARN

Source: Office of Textiles Commissioner, Industry

DYNAMICS OF VALUE ADDED MMF TEXTILES

FUTURE DEMAND FOR MMF

8% 3921.1 470.5 156.8 4234.8

3782.5 453.9 151.3 4085.1

2.2. GLOBAL SCENARIO

Source: World Fibre Report 2008 2.2.2.

Natural fibres 59%

Source: World Fibre Report 2008

Exhibit 2.2.3: Trend in global production of MMF

Source: World Fibre Report 2008

COMPOSITION OF MAN-MADE FIBRES

ASF, 5.9 Nylon, 9.4

Source: World Fibre Report 2008 2.2.4.

Source: World Fibre Report 2008 2.2.10.

Source: 2007-2008 Handbook of Statistics on MMF ASFI 2.2.11.

2.3. ISSUES AND CONCERNS