TITLE: TEXTILE MACHINERY EQUIPMENT Market Research Report 2005

SUMMARY The Indian textile industry is expected to play an increasingly significant role in both the domestic and international arenas as the World Trade Organization (WTO) Multi-Fiber Agreement (MFA) approaches termination in the coming decade. Indian textile firms are competing in the global market and setting new targets for trade and exports. Indias demand for textile machinery has risen considerably during the last two years in order to meet the requirements of textile firms. Furthermore, textile machinery imports are expected to increase by 30% before the end of 2005 because investment in Indias textile machinery is directly related to the exports of textile products (cotton, polyester, nylon, tshirts, garments, denim). Secondhand equipment and machinery also offer major opportunities for U.S. exporters. The Government of India (GOI) forecasts an ambitious target for total textile exports of $55 billion by 2010. In order to secure their global market share, the textile industry in India needs to procure the industrys most modern equipment to help improve quality and productivity and to enhance global competitiveness. Given the obsolete or near-obsolete technology level in the Indian textile industry, especially in the weaving and processing sectors, large-scale importation of the latest technology is mandatory. The import duty on complete textile machinery is less than those on components and subassemblies used to assemble machinery, thus encouraging end-users to import complete machinery from foreign suppliers. This import policy combined with a liberal secondhand machinery import policy has greatly benefited the textile companies in India. Though some of the Indian companies are manufacturing quality textile equipment, they lack the expertise and technology to manufacture high-tech textile machinery (e.g. air-jet, water-jet and power-jet looms). These companies require foreign companies for technology transfer or technical collaboration. Opportunities exist for American textile machinery manufacturers to supply the latest machinery and enter into Joint ventures with Indian companies to provide technology.

Market Highlights and Best Prospects The Indian textile industry contributes significantly to the Indian economy in terms of industrial production, employment generation, and foreign exchange earnings. Currently, the sector contributes 4% to the Gross Domestic Product (GDP) and accounts for 35% of Indias foreign exchange earnings. The textile industry is the second largest provider of employment in India after agriculture.

The total demand for textile machinery has grown from $600 million in 2001 to an estimated $1.2 billion in 2005 and is expected to further increase to $1.8 billion by the end of 2006. Imports constitute approximately 75% of the total textile machinery industry in India. Indian Textile Machinery Market (figures in US $ millions) 2003 Total local production Total exports Total imports Total market size 270 50.6 600.3 924.9 2004 312 50.6 750.7 1100.8 2005 (est.) 328 51.8 925.3 1275.9

Indian end-users continue to import the following latest textile machinery: auto cone winders; open-ended spinning units; circular knitting machines; flat and warp knitting machines; dry and wet pretreatment machinery; yarn dyeing machines; fabric dyeing machines; printing machines; water extraction machines; processing machines; finishing machines; testing and measuring equipment; laboratory equipment; software for design, data monitoring and processing (CAD/CAM/CIM); shuttle-less looms; and texturizing machines. The Major exporters of textile machinery to India are USA, Japan, Italy, Germany, Switzerland, Taiwan, Korea and the United Kingdom. The Government of India (GOI) encourages the Indian textile industry to upgrade its manufacturing technologies to remain globally competitive. In April 1999 the GOI established the focused and time-bound Technology Upgradation Fund (TUF) with the objective to encourage textile and apparel manufacturers to modernize their plants. Under the TUF, the GOI offers an interest subsidy of up to 5 %. In addition, the GOI offers other incentives such as import duty waivers for the import of production machinery under its Export Promotion Capital Goods (EPCG) Scheme. The GOI has simplified import procedures by not requiring government approval for the import of textile machinery, which is listed in the "open general" category of the import regulations. The GOI also recently reduced import duties on specific textile machinery. Present import duty is 5% on several items of textile machinery. B. Competitive Analysis Domestic Production Approximately 120 companies in India manufacture a complete range of textile machinery for sorting, carding, processing of yarns/fabrics and weaving, along with the components, spares and accessories. The major Indian companies that have a strong presence in the textile machinery industry sector include: Lakshmi Machine Works (Coimbatore), Textool Ltd. (Coimbatore), Trumac Engineering (Coimbatore), and New

Standard Engineering (Mumbai). The textile machinery equipment industry in India directly employs 50,000 workers and possesses capital investments of $325 million and an installed capacity of about $675 million per annum. The industry is preparing to take full advantage of opportunities surfacing post-MFA by supplying machines required to meet the export targets of garment manufacturers. The Development Council on Textile Machinery has set up a working group comprising of senior officers of the Textile Ministry, manufacturers, and users who suggest enhancements for the production and export capability of this industry. Automatic approval from the Reserve Bank of India (RBI) is permitted for technical collaborations as follows: payment of a lump-sum know-how fee of up to $14 million, royalty payments of up to 5% of domestic sales, and payments up to 8% of sales over a ten year period from the date of the agreement or over seven year period from the start of production. Third Country Suppliers Several other countries also supply equipment or technology. Japanese firms (Tsudakoma Corp, Tajima, Siruba, Yamoto, Juki, and Brother), European companies (Mayer & CIE, Maxim S.A., Ferraro, and Veit), and Taiwanese companies (Palung, AKM, and Siruba) are all active in Indian markets. US Market position American companies who supply the textile machinery equipment and technology include: Tubetex, Morrison Technologies, Gaston Dyeing, McCoy Ellison, Coker International, and Lectra. American machinery is preferred because the finished products, textiles and garments, are exported only to USA. C. End-User Analysis Textile mills located in Western and Southern India are the major users. Several readymade garment manufacturers and export houses are looking for machinery and equipment. Indian textile companies are not particularly brand-oriented, although they are looking for reliable machines, the latest technology and low operational cost. Efficient electric power consumption is an important criterion used in the purchase decision. Initial investment is not a problem for these companies. D. Market Access US companies are recommended to have agencies with a technical team who can provide after-sales service since the majority of Indian textile mills and garment manufacturers require this service. Indias abundant technical manpower can well utilize the knowledge and technology associated with textile machinery and equipment.

Opportunities for U.S. companies also exist in the textile machinery renting/leasing market. Other industries (e.g., mining and construction) are developing this practice, and Indian regulations are adapting to this growing trend. Several Indian firms are looking for agency/distribution opportunities to market American textile machinery equipment and technology. Important Websites: GOI Ministry of Textiles http://texmin.nic.in Ministry of TextilesActs http://apparel.indiamart.com/indian-textile-acts The textile industry in India http://www.economywatch.com/business-and-economy/textile-industry.html www.biztradeshows.com/organizers/itme-society.html http://retailindustry.about.com/cs/textilesofindia/