A

STUDY ON

FUTURE OF

INDIAN TEXTILE

EXPORT DURING

RECESSION

1

EXECUTIVE SUMMERY

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EXECUTIVE SUMMERY

Unemployment, Financial crises are the major issues for every body. These days people

are frequently going through the words like Global economic meltdown, International

financial slowdown, Recession etc. Many of the people are highly affected by the results

of all these. This fire dragon is burning everything by throwing the fire all around. These

resulting drastic changes in lifestyle of many in score of ways.

Currently we are going frequently through the sentences telling the peril effects of this

global economic slowdown on numerous company employers of various sectors. This

downturn, of course left negative marks on business too. Many businesses are going

through and facing effects of this economic evil, commonly named as ‘Global

Meltdown’. The effect of this slowdown on business sector is resulting directly in a

negative way on its various phases including export-import sector, which is one of the

crucial parts of any kind of business.

Regarding this, the report of Federation of Indian Export Organisation (Fieo) tells that the

manufacturing Industries here, have recorded steepest decline in the sector of export-

import. This proved correct when we take a look of exports done in some industries. This

reveals that the handicraft export stepped down by 54 per cent in December 2008 as

compared to that in December 2007. While Gems& Jewelry, one of the segments most

affected by economic slowdown and the textile industries are contracted by 27 & 21 per

cent respectively. This gives us broader idea about the effects of economic meltdown on

export-import trade.

While talking about the worldwide export-import trade in the current scenario of

meltdown, ‘The exporters need to diversify to Asia & Africa to escape from the recession

in traditional markets in the west’ – are the words of Director-General of Research and

information systems for developing countries. This reveals that exporting goods or

products from Asian & African countries could be proved as the helping hand for getting

free from the recession in western traditional markets to some extent. This obviously is

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excellent for the countries in Asia & Africa, which in tern is the chance for them to

broaden their horizons in the export sector.

Among all the Asian countries if we talk particularly about India then according to the

Union Commerce Secretary, Mr. Pillai, India’s export performance is much better as

compared to the rest of Asian countries. The two countries with major economies have

released their January export figures, which are extremely lower than those of India.

‘Vietnam’, which is one of the countries having major economies has a negative growth

rate of 24.2 per cent and ‘South Korea’, another country having major economies has 32

per cent of negative growth rate. While in case of India, in October the merchandise

exports were decline by 12.1 per cent which was improved to 9.9 per cent in November

and just dropped down by 1.1 per cent in December. This shows India’s excellent export

performance in comparison with other Asian countries.

At here, the government needs to pay the crucial role by taking some major steps. It

needs to provide some social security to the retrenched workers in the export sector, as

exporters were loosing out because competing countries like China, which referred as a

global export powerhouse. China had provided additional concession to their exporters,

which has had beneficial for them to price their products more competitively.

Government needs to fulfill the demands of global exporters. It should continue the

stimulus packages to boost the economy in the year 2009-10, for getting rid of global

slowdown. During the coming fiscal the public expenditure needs to be stepped up to

counter the slowdown.

4

INTRODUCTION

TO

TEXTILE EXPORT

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Introduction

The Multi-Fiber Arrangement (MFA) has governed international trade in textiles and

clothing since 1974. The MFA enabled developed nations, mainly the USA, European

Union and Canada to restrict imports from developing countries through a system of

quotas.

The Agreement on Textiles and Clothing (ATC) to abolish MFA quotas marked a

significant turnaround in the global textile trade. The ATC mandated progressive phase

out of import quotas established under MFA, and the integration of textiles and clothing

into the multilateral trading system before January 2005.

The Agreement on Textiles and Clothing

ATC is a transitory regime between the MFA and the integration of trading in textiles and

clothing in the multilateral trading system. The ATC provided for a stage-wise

integration process to be completed within a period of ten years (1995-2004), divided into

four stages starting with the implementation of the agreement in 1995. The product

groups from which products were to be integrated at each stage of the integration

included (i) tops and yarns; (ii) fabrics; (iii) made-up textile products; and (iv) clothing.

The ATC mandated that importing countries must integrate a specified minimum portion

of their textile and garment exports based on total volume of trade in 1990, at the start of

each phase of integration. In the first stage, each country was required to integrate 16

percent of the total volume of imports of 1990, followed by a further 17 percent at the

end of first three year and another 18 percent at the end of third stage. The fourth stage

would see the final integration of the remaining 49 percent of trade.

Global Trade in Textile and Clothing

World trade in textiles and clothing amounted to US $ 385 billion in 2003, of which

textiles accounted for 43 percent (US $ 169 bn) and the remaining 57 percent (US $ 226

bn) for clothing. Developed countries accounted for little over one-third of world exports

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in textiles and clothing. The shares of developed countries in textiles and clothing trade

were estimated to be 47 percent (US $ 79 bn) and 29 percent, (US $ 61 bn) respectively.

Import Trends in USA

In 1990, restrained or MFA countries contributed as much as 87 percent (US $ 29.3 bn)

of total US textile and clothing imports, whereas Caribbean Basin Initiative (CBI), North

American Free Trade Area (NAFTA), Africa Growth and Opportunity Act (AGOA) and

ANDEAN countries together contributed 13 percent (US $ 4.4 bn). Thereafter, there has

been a decline in exports by restrained countries; the share of preferential regions more

than doubled to reach 30 percent (US $ 26.9 bn) of total imports by USA.

The composition of imports of clothing and textiles by USA in 2003 was 80 percent (US

$ 71 bn) and 20 percent (US $ 18 bn), respectively. Asia was the principal sourcing

region for imports of both textiles and clothing by USA. Latin American region stood at

second position with a share of 12 percent (US $ 2.2 bn) and 26 percent (US $ 18.5 bn),

respectively, for textiles and clothing imports, by USA. In most of the quota products

imported by USA, India was one of the leading suppliers of readymade garments in USA.

Though China is a biggest competitor, the unit prices of China for most of these product

groups were high and thus provide opportunities for Indian business.

Import Trends in EU

EU overtook USA as the world’s largest market for textiles and clothing. Intra-EU trade

accounted for about 40 percent (US $ 40 bn) of total clothing imports and 62 percent (US

$ 32.5 bn) of total textile imports by EU. Asia dominates EU market in both clothing and

textiles, with 30 percent (US $ 30 bn) and 17 percent (US $ 8 bn) share, respectively.

Central and East European countries hold a market share of 11 percent (US $ 11.3 bn) in

clothing and 7.5 percent (US $ 4 bn) in textiles imports of EU.

As regards preferential suppliers, the growth of trade between EU and Mediterranean

countries, especially Egypt and Turkey, was highest in 2003. As regards individual

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countries, China accounted for little over 5 percent (US $ 2.8 bn) of EU’s imports of

textiles and over 12 percent (US $ 12.4 bn) of clothing imports.

In the EU market also, India is a leading supplier for many of the textile products. It is

estimated that Turkey would emerge as a biggest competitor for both India and China.

However, with regard to unit prices, India appears to be lower than both Turkey and

China in many of the categories.

Import Trends in Canada

Amongst the leading suppliers of textiles and clothing to Canada, USA had the highest

share of over 31 percent (US $ 8.4 bn), followed by China (21% - US $ 1.8 bn) and EU

(8% - US $ 0.6 bn). India was ranked at fourth position and was ahead of other exporters

like Mexico, Bangladesh and Turkey, with a market share of 5.2 percent (US $ 0.45 bn).

Potential Gains

It may be noted that clothing sector would offer higher gains than the textile sector, in the

post MFA regime. Countries like Mexico, CBI countries, many of the African countries

emerged as exporters of readymade garments without having much of textile base,

utilizing the preferential tariff arrangement under the quota regime. Besides, countries

like Bangladesh, Sri Lanka, and Cambodia emerged as garment exporters due to cost

factors, in addition to the quota benefits. Thus, it may be concluded that these countries

are likely to lose their market share in the future scenario.

Estimated Gains in USA and EU For China and India

(US $ Billion)

Markets

Textiles Clothing Total

Present

(2003)

Future

(2014)

Present

(2003)

Future

(2014)

2014

Gains in China India China India China India China India China India

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USA 3.6 1.5 13.0 5.0 12.0 2.3 67 13 80 18

(20) (8.4) (32) (13.5) (16.9) (3.2) (42) (8) (40) (9)

EU 2.8 1.9 12 8 12.3 3.0 60 16 72 24

(5.3) (3.2) (12) (8) (12.2) (3.0) (30) (8) (24) (8)

It may be said that countries like China, USA, India, Pakistan, Uzbekistan and Turkey

have resource based advantages in cotton; China, India, Vietnam and Brazil have

resource based advantages in silk; Australia, China, New Zealand and India have

resource based advantages in wool; China, India, Indonesia, Taiwan, Turkey, USA,

Korea and few CIS countries have resource based advantages in manmade fibers. In

addition, China, India, Pakistan, USA, Indonesia have capacity based advantages in the

textile spinning and weaving.

China is cost competitive with regard to manufacture of textured yarn, knitted yarn fabric

and woven textured fabric. Brazil is cost competitive with regard to manufacture of

woven ring yarn. India is cost competitive with regard to manufacture of ring-yarn, O-E

yarn, woven O-E yarn fabric, knitted ring yarn fabric and knitted O-E yarn fabric.

According to Werner Management Consultants, USA, the hourly wage costs in textile

industry is very high for many of the developed countries. Even in developing economies

like Argentina, Brazil, Mexico, Turkey and Mauritius, the hourly wage is higher as

compared to India, China, Pakistan and Indonesia.

From the above analysis, it may be concluded that China, India, Pakistan, Taiwan, Hong

Kong, Brazil, Indonesia, Turkey and Egypt would emerge as winners in the post quota

regime. The market losers in the short term (1-2 years) would include CBI countries,

many of the sub-Saharan African countries, Asian countries like Bangladesh and Sri

Lanka.

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The market losers in the long term (by 2014) would include high cost producers, like EU,

USA, Canada, Mexico, Japan and many east Asian countries. The determinants of

increase / decrease in market share in the medium term would however depend upon the

cost, quality and timely Review of Indian Textiles and Clothing Industry The textiles and

garments industry is one of the largest and most prominent sectors of Indian economy, in

terms of output, foreign exchange earnings and employment generation. Indian textile

industry is multi-fiber based, using delivery. In the long run, there are possibilities of

contraction in intra-EU trade in textile and garments, reduction of market share of Turkey

in EU and market share of Mexico and Canada in USA, and thus provide more

opportunities for developing countries like India.

It is estimated that in the short term, both China and India would gain additional market

share proportionate to their current market share. In the medium term, however, India and

China would have a cumulative market share of 50 percent, in both textiles and garment

imports by USA. It is estimated that India would have a market share of 13.5 percent in

textiles and 8 percent in garments in the USA market. With regard to EU, it is estimated

that the benefits are mainly in the garments sector, with China taking a major share of 30

percent and India gaining a market share of 8 percent. The potential gain in the textile

sector is limited in the EU market considering the proposed further enlargement of EU. It

is estimated that India would have a market share of 8 percent in EU textiles market as

against the China’s market share of 12 percent.

Review of Indian textiles and Clothing Industry

The textiles and garments industry is one of the largest and most prominent sectors of

Indian economy, in terms of output, foreign exchange earnings and employment

generation. Indian textile industry is multi-fiber based, using cotton, jute, wool, silk and

mane made and synthetic fibers. In the spinning segment, India has an installed capacity

of around 40 million spindles (23% of world), 0.5 million rotors (6% of world). In the

weaving segment, India is equipped with 1.80 million shuttle looms (45% of world), 0.02

million shuttle less looms (3% of world) and 3.90 million handlooms (85% of world).

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The organised mill (spinning) sector recorded a significant growth during the last decade,

with the number of spinning mills increasing from 873 to 1564 by end March 2004. The

organised sector accounts for production of almost all of spun yarn, but only around 4

percent of total fabric production. In other words, there are little over 200 composite mills

in India leaving the production of fabric and processing to the decentralised small

weaving and processing firms. The Indian apparel sector is estimated to have over 25000

domestic manufacturers, 48000 fabricators and around 4000 manufacturer-exporters.

Cotton apparel accounts for the majority of Indian apparel exports.

Textiles and Garments Exports from India

The share of textiles and garments exports in India’s total exports in the year 2003-04

stood at about 20 percent, amounting to US $ 12.5 billion. The quota countries, USA, EU

and Canada accounted for nearly 70 percent of India’s garments exports and 44 percent

of India’s textile exports. Amongst non-quota countries, UAE is the largest market for

Indian textiles and garments; UAE accounted for 7 percent of India’s total textile exports

and 10 percent of India’s garments exports.

In terms of products, cotton yarn, fabrics and made-ups are the leading export items in

the textile category. In the clothing category, the major item of exports was cotton

readymade garments and accessories. However, in terms of share in total imports by EU

and USA from India, these products hold relatively lesser share than products made of

other fibers, thus showing the restrain in this category.

Critical Factors that Need Attention

Though India is one of the major producers of cotton yarn and fabric, the productivity of

cotton as measured by yield has been found to be lower than many countries. The level of

productivity in China, Turkey and Brazil is over 1 tonne / ha., while in India it is only

about 0.3 tonne / ha. In the manmade fiber sector, India is ranked at fifth position in terms

of capacity. However, the capacity and technology infusion in this sector need to be

further enhanced in view of the changing fiber consumption in the world. It may be

mentioned that the share of cotton in world fiber demand declined from around 50

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percent (14.7 mn tons) in 1982 to around 38 percent (20.12 mn tons) in 2003, while the

share of manmade fiber has increased from 44 percent (13.10 mn tons) to around 60

percent (31.76 mn tons) over the same period.

Apart from low cost labour, other factors that are having impact on final consumer cost

are relative interest cost, power tariff, structural anomalies and productivity level

(affected by technological obsolescence). A study by International Textile Manufacturers

Federation revealed high power costs in India as compared to other countries like Brazil,

China, Italy, Korea, Turkey and USA. Percentage share of power in total cost of

production in spinning, weaving and knitting of ring and O-E yarn for India ranged from

10 percent to 17 percent, which is also higher than that of countries like Brazil, Korea and

China. Percentage share of capital cost in total production cost in India was also higher

ranging from 20 percent to 29 percent as compared to a range of 12 to 26 percent in

China.

In India, very few exporters have gone in for integrated production facility. It is noted

that countries that would emerge as globally competitive would have significantly

consolidated supply chain. For instance, competitor countries like Korea, China, Turkey,

Pakistan and Mexico have a consolidated supply chain. In contrast, apart from spinning,

the rest of the activities like weaving, processing, made-ups and garmenting are all found

to be fragmented in India. Besides, the level of technology in the Indian weaving sector is

low compared to other countries of the world. The share of shuttle less looms to total

loomage in India is 1.8% as compared to Indonesia (10%), Bangladesh (10%), Sri Lanka

(12%), China (14%) and Mexico (29%).

The supply chain in this industry is not only highly fragmented but is beset with

bottlenecks that could very well slow down the growth of this sector. As a result the

average delivery lead times (from procurement to fabrication and shipment of garments)

still takes about 45-60 days. With international lead delivery times coming down to 30-35

days, India needs to cut down the production cycle time substantially to stay in the

market. Besides, erratic supply of power and water, availability of adequate road

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connectivity, inadequacies in port facilities and other export infrastructure have been

adversely affecting the competitiveness of Indian textiles sector.

Conclusions

It is believed the quota regime has frozen the market share, providing export

opportunities even for high cost producers. Thus, in the free trade regime, the pattern of

imports in the quota countries would undergo changes. The issues that would govern the

market share in the post quota regime would eventually be productivity, raw material

base, quality, cost of inputs, including labour, design skills and operation of economies of

scale.

It is believed that quotas, by limiting the supply of goods have kept export prices

artificially high. Thus, it is estimated that there would be price war in the post quota

regime, with competitive price cuts. The price and quantity effects would depend on the

efficiency in production process, supply chain management and the price elasticity of

demand.

Due to the expected fall in prices, developing countries with high production cost have

little choice but to compete head-on with the biggest low cost suppliers. In this process, it

is presumed that there would be better resource reallocation in these economies.

It is assumed that quota restrictions would continue beyond 2005 in various forms. It is

also widely recognized that removal of quota may not directly provide easy and

unrestricted access to developed country markets. There would be non-tariff barriers as

well. Standards related to health, safety, environment, quality of work life and child

labour would gain further momentum in international trade in textiles and clothing.

Strategies and Recommendations

Cost competitiveness in Indian garments sector has been restrained by limited scale

operations, obsolete technology and reservation under SSI policies. While retaining its

traditional cost advantages of home grown cotton and low cost labour, India needs to

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sharpen its competitive edge by lowering the cost of operations through efficient use of

production inputs and scale operations. Besides, there are needs for rationalization of

charges, levies related to usage of export logistics to remain cost competitive.

As fallout to the quota regime, there would be consolidation of production and restriction

on supplying countries, which would necessarily mean improved scale operations. Indian

players should also integrate to achieve operating leverage and demonstrate high

bargaining power.

It is reported that Chinese textile firms have already invested heavily to expand and grab

huge market share in the quota free world. In India, organised players in this sector would

require huge investments to remain competitive in the quota free world. These players

need to expand and integrate vertically to achieve scale operations and introduce new

technologies. It is estimated that the industry would require Rs. 1.5 trillion (US $ 35

billion) new capital investment in the next ten years (by 2014) to lap the potential export

opportunities of US $ 70 billion. It is estimated that USA and EU together would offer a

market of US $ 42 billion for Indian textiles and garments in 2014.

Technology would play a lead role in the weaving and processing, which would improve

quality and productivity levels. Innovations would also be happening in this sector, as

many developed countries would innovate new generation machineries that are likely to

have low manual interface and power cost. Indian textile industry should also turn into

high technology mode to reap the benefits of scale operations and quality. Foreign

investments coupled with foreign technology transfer would help the industry to turn into

high-tech mode.

Internationally, trading in textile and garment sector is concentrated in the hands of large

retail firms. Majority of them are looking for few vendors with bulk orders and hence

opting for vertically integrated companies. Thus, there is need for integrating the

operations in India also, from spinning to garment making, to gain their attention. This

would also bring down the turn around time and improve quality. Indian players should

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also improve upon their soft skills, viz., design capabilities, textile technology,

management and negotiating skills.

Garment manufacturing business is order driven. It would be difficult for the players to

keep the workforce full time, even in lean season. This calls for changes in contract

labour laws.

Logistics and supply chain would also play a crucial role as timely delivery would be an

important requirement for success in international trade. The logistics and supply chain

management of Indian textile firms are relatively weak and needs improvement and

efficiency. China has already created a world class export infrastructure. Given the

volume of projections for exports by India, it may be necessary to create additional

export infrastructure, especially investment for modernization of ports. In addition, India

needs to invest for creating brand equity, supply chain management and apparel industry

education.

To sum up, the ability of Indian textile industry to take advantage of quota phase-out

would depend upon their ability to enhance overall competitiveness through exploitation

of economies of scale in manufacturing and supply chain. The need of the hour therefore

is to evolve a well chalked out strategy, aimed at improvement in the levels of

productivity and efficiency, quality control, faster product innovation, quick response to

changes in consumer preferences and the ability to move up in the value chain by

building brand names and acquiring channels of distribution so as to outweigh the

advantages of competitors in the long run.

Cotton Textiles India

Highlights of the Foreign Trade Policy

The Hon’ble Union Minister of Commerce & Industry, Government of India, had

announced the Foreign Trade Policy on 8th April’05. Some of the Salient Features /

Highlights of the proposals pertaining to Textile Industry in general and Handlooms in

particular are.

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1. Formulation of Inter-State trade Council to engage State Governments in

providing an enabling environment for promotion of international trade.

2. Proposed removal of export cess on export of all agricultural and plantation

commodities levied under various Commodity Board Acts.

3. Realizing that great potential and opportunities exist in the manufacturing

sector, Annual supplement introduces a number of measures to enhance the

competitiveness of manufacturing sector.

a. No safeguard and antidumping duty to be levied on inputs under advance

licence for deemed export supplies made to ICB (International

Competitive Bidding) projects.

b. To promote accelerated export performance, balance export obligation

will be waived for the exporters completing 75% of their export obligation

in half the prescribed export obligation period.

c. Reduced export obligation and enhanced time available for exports under

the EPCG Scheme for the imports made by the agriculture sector.

d. Reduced obligation at six times the duty saved amount as against the

normal eight times for imports made by the SSI sectors under the EPCG

Scheme.

e. EPCG Scheme will facilitate the modernization of retail sector by

allowing concessional duty imports. For this the retailer should have a

minimum covered shopping area of 1000 square meters.

4. Export of poultry and dairy products and their value added products facilitated

by granting them duty credit @ 5% of the FOB value of the exports under the

Vishesh Krishi Upaj Yojna.

5. Package has been developed for modernizing the marine sector Package allows

duty free import of inputs based on the past export performance, import of mono

filament long line system for tuna fishing at concessional duty and establishes a

self removal for clearance of waste of perishable commodities.

6. Gems & Jewellery exports –

a. Entitlement of duty free imports of samples enhanced to Rs. 3 lakhs.

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b. Supply of gold of 0.995 and above purity allowed for release for export

purposes.

7. Package for EOU sector : For units debonding from EOU’s, a simplified

procedure is being worked out. Similarly, capital goods can be transferred to other

units by simply intimating Central Excise & Development Commissioner. EOUs

can claim IT exemption within a period of 12 months from the date of exports.

8. Reducing congestion at the major ports. The facility for export obligation

discharge in rupee payment under the EPCG has been extended to the minor

ports, ICDs and CFS also.

9. Procedural simplification :

a. Single common application form called Aayaat Niryaat Form introduced

reducing the size of the form by more than 60%.

b. Thee categories of advance licences merged into a single category

c. Annual advance licence, which was available only to status holders, will

now be available to all the exporters with some export performance.

d. Export obligation extension for five years under advance licence based on

BIFR rehabilitation package.

e. Bank guarantee thereshold reduced for units in Agri export zones and

established service providers and a category of manufacturer exporters.

f. Simplified clubbing norms under the advance licence and EPCG Scheme

will help exporters in regularizing their cases.

g. Chartered Engineer Certificate in lieu of Central Excise Certificate for

non-excisable units and those importing spares will be accepted as

installation certificate. This will reduce the transaction time.

h. Imports made under Served from India Scheme can be transferable within

the group companies and managed hotels. The provision will allow bulk

sourcing and better utilization of the entitlement.

10. Handlooms :

a. Government has decided to develop a trademark for Handloom on lines

similar to ‘Woolmark’ and ‘Silkmark’ . This will enable handloom

products to develop a niche market with the distinct identity.

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b. All Export Promotion Council shall open a separate Cell to involve and

encourage youth and women entrepreneurs in export effort.

c. Minister of Commerce and Industry invited Suggestions on a proposal to

change the names of Export Promotion Councils to ‘Trade Promotion

Council.

d. All actions by Income Tax authority on DEPB benefits have been stopped

by Prime Minister with immediate effect. The matter is to be decided at

economic advisory council headed by Prime Minister in the next 30 days

Silk

Silk is a natural protein fiber that can be woven into textiles. It is obtained from the

cocoon of the silkworm larva, in the process known as sericulture. The shimmering

appearance for which it is prized comes from the fibres triangular prism-like structure,

which allows silk cloth to refract incoming light at different angles.

Early History

The coveted secret of silkworm cultivation began 5000 years ago in China. The credit of

all this goes to a Chinese Empress Xi Ling-Shi, the 14-year-old wife of Chinas third

emperor, Huangdi (Huang-Ti). One day, as she was making tea in the palace garden,

Xilingji accidentally dropped a silkworm cocoon into a cup of hot water and discovered

that the silk fiber could be loosened and unwound. By twisting together fibers from

several cocoons, she made a thread that was strong enough to be woven into cloth. No

one is certain how much of this delightful story is true, but the practice of sericulture

(rearing silkworms for the production of raw silk) is certainly older than recorded history.

For centuries, it was the Chinese nobilitys most closely guarded secret. Only members of

the royal family were permitted to wear garments made of silk. But as the laws regulating

sericulture were gradually relaxed, explorers and traders began to acquire enough

samples of the fabric to create a demand for it in the West. Though first reserved for the

Emperors of China, its use spread gradually through Chinese culture both geographically

and socially. The Chinese used silk since the 27th century B.C. During the Roman

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Empire, silk was sold for its weight in gold. The Chinese domesticated silk worms and

fed them with mulberry leaves. They unwound the silkworms cocoons to produce long

strands of silk fiber. Farm women in China at that period were supposed to raise such

silkworms as one of their chores. Silk was used in China and exported along the Silk

Road (the ancient trade route linking China and the Roman Empire). This trade brought

China great wealth, but the Chinese did not give away the secret on how silk was formed.

During the eleventh century European traders stole several eggs and seeds of the

mulberry tree and began rearing silkworms in Europe. Christian monks finally broke

Chinas monopoly of the silk production by smuggling silkworm eggs out of the country,

and soon other countries started to produce their own silk. Sericulture was introduced into

the Southern United States in colonial times, but the climate was not compatible with

cultivation. Silk rapidly became a popular luxury fabric in the many areas accessible to

Chinese merchants, because of its texture and lustre. Because of the high demand for the

fabric, silk was one of the staples of international trade prior to industrialization.

Production of silk

Silkworms are cultivated and fed with mulberry leaves. Some of these eggs are hatched

by artificial means such as an incubator, and in the olden times, the people carried it close

to their bodies so that it would remain warm. Silkworms that feed on smaller, domestic

tree leaves produce the finer silk, while silkworms that have fed on oak leaves produce

the coarser silk. From the time they hatch to the time they start to spin cocoons, they are

very carefully tended to. Noise is believed to affect the process, thus the cultivators try

not to startle the silkworms. Their cocoons are spun from the tops of loose straw. It will

be completed in two to three days time. The cultivators then gather the cocoons and the

chrysales are killed by heating and drying the cocoons. In the olden days, they were

packed with leaves and salt in a jar, and then buried in the ground, or else other insects

might bite holes in it. Modern machines and modern methods can be used to produce silk

but the old-fashioned hand-reels and looms can also produce equally beautiful silk.

Silk Trade

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Perhaps the first evidence of the silk trade is that of an Egyptian mummy of 1070 BC. In

subsequent centuries, the silk trade reached as far as the Indian subcontinent, the Middle

East, Europe, and North Africa. This trade was so extensive that the major set of trade

routes between Europe and Asia came to be known as the Silk Road.

Secret

The Emperors of China strove to keep the knowledge of sericulture secret from other

countries, in order to maintain the Chinese monopoly on its production. This effort at

secrecy had mixed success. Sericulture reached Korea around 200 BC with Chinese

settlers, about the first half of the 1st century AD in Khotan, and by 300 AD the practice

had been established in India. Although the Roman Empire knew of and traded in silk,

the secret was only to reach Europe around 550 AD, via the Byzantine Empire. Legend

has it that the monks working for the emperor Justinian were the first to bring silkworm

eggs to Constantinople in hollow canes. The Byzantines were equally secretive, and for

many centuries the weaving and trading of silk fabric was a strict imperial monopoly; all

top-quality looms and weavers were located inside the Palace complex in Constantinople

and the cloth produced was used in imperial robes or in diplomacy, as gifts to foreign

dignitaries. The remainder was sold at exorbitant prices.

Today, silk is cultivated in Japan, China, Spain, France, and Italy, although artificial

fibers have replaced the use of silk in much of the textile industry. The silk industry has a

commercial value of $200-$500 million annually. One cocoon is made of a single thread

about 914 meters long. About 3000 cocoons are needed to make a pound of silk. To

gather silk from cocoons, boil intact cocoons for five minutes in water turning them

gently. Remove them from water. And using a dissecting needle or similar tool, begin to

pick up strands. When you find a single strand that comes off easily, wind the silk onto a

pencil. Several of these strands are combined to make a thread.

Wild Silks are produced by a number of undomesticated silkworms. Aside from

differences in colours and textures, they all differ in one major respect from the

domesticated varieties. The cocoons, which are gathered in the wild, have usually already

20

been chewed through by the pupa or caterpillar ("silkworm") before the cocoons are

gathered and thus the single thread which makes up the cocoon has been cut into shorter

lengths.A variety of wild silks have been known and used in China, India and Europe

from early times, although the scale of production has always been far smaller than that

of cultivated silks.

Wild silks are produced by caterpillars other than the mulberry silkworm (Bombyx mori).

The term "wild" implies that these silkworms are not capable of being domesticated and

artificially cultivated like the mulberry worms. Commercially reared silkworms are killed

before the pupae emerge by dipping them in boiling water or they are killed with a

needle, thus allowing the whole cocoon to be unravelled as one continuous thread. This

allows a much stronger cloth to be woven from the silk. Wild silks also tend to be more

difficult to dye than silk from the cultivated silkworm. There is ample evidence that small

quantities of wild silk were already being produced in the Mediterranean and Middle East

by the time the superior, and stronger, cultivated silk from China began to be imported.

The beautiful and expensive golden-coloured "wild" silk called "Muga" is produced only

in the Brahmaputra Valley - mainly Assam and adjoining parts ofBurma. This silk has

always been highly prized - not only for its beautiful natural golden sheen, which actually

improves with aging and washing - but for the fact that it is the strongest natural fibre

known. Garments made of it outlast those made of ordinary silk - commonly lasting fifty

years or more.

In addition, it absorbs moisture better than ordinary silk and is, therefore, more

comfortable to wear. Nowadays, it is mainly sought after for the highest quality saries

given as presents to brides in India.

Silk in India Today Varanasi is one of the most important silk-weaving centers in India.

Originally it was known for its cotton weaves. Today no other center can match the

standards set by Varanasi. It has perfectly specialized the art of weaving and there is no

style of weaving, which it cannot reproduce.

21

A specialty of the area is the heavy gold brocade, which has an extra weft of rich gold

thread running right across the warp threads, with the motifs picked up in silk thread and

jewel-like colors worked in the style of meenakari, a term used for gold enamel jewellery

and there it is applied to woven gold brocades where the rich gold patterns are enlivened

by introducing silk threads very much like richly colored enamel designs worked in gold.

The all-over gold brocade was known as kimkhab, which has been interpreted to mean no

less than a dream, generally carried patterns of jal, a trellis, enclosing stylized buta, or

traditional circular roundel, known as ashrafi. Besides, there are the more complicated

all-over patterns of shikargah, the hunting scene. The complex pattern would often depict

a flowing creeper intermingling with animals, birds and elephants with howdahs, carrying

a hunting party. These designs can only be prepared by master jala workers, the designer

and creators of the master pattern, since they successfully camouflage the repeat in the

pattern.

Another variety of gold cloth was the fine tissue, which had warp and weft of gold thread,

with patterns worked in silk and gold thread. Often the background material would be

woven in silver thread and the patterns in gold or vice-versa. These were known as

Ganga-Yamuna: Ganga standing for the gold thread and Yamuna for the silver. Varanasi

has also woven for the past many years the varying requirements of different countries.

Rich brocades, with Central Asian designs and even Tibetian character signifying

happiness and long life, known as gyasar, were woven by particular families of weavers

of the Tibetian market.

Special weaves were also made by a few weaver families for South East Asia and Sri

Lanka. Here again they use the color and designs adopted from the traditions of that area.

The most exotic brocades, however, are those woven for Saudi Arabian royalty with large

bold patterns of flowers and the sun.

Another important weave is the tissue or the gold-and-silver lame. Sashes and scarves of

tissue used to be exported from Varanasi to other parts of India and even abroad.

22

Examples of this work dating back to the seventeenth century have been found in some

museums and churches.

The silk brocades of Varanasi are no less rich and varied. The pure silk brocades use a

variety of silk threads for creating numerous complicated patterns. The Amru silk

brocades of Varanasi are famous. The Amru sarees are the butider once enclosed by a

border and a heavy pallu of flowering bushes or the kalga, the flowing mango pattern.

The Baluchar technique of weaving brocaded with untwisted silk thread was developed in

the Murshidabad district of West Bangal. It is perhaps the only form of weaving where

the patterns are based on miniature paintings. The woven scenes are framed and

sometimes depict a woman riding a horse, or a traditionally dressed man seated against a

large cushion smoking a huqqa, with a maid -servant offering him a wine, or the scene of

a boat arriving at a harbor and Portuguese faces mingling with the Indians. There is also

depiction of lovers seated in a pleasure boat with two love birds above. The outline

appears to be made from a khaka, the outline drawings, on which miniatures were based.

The sarees appears to tell the story of past era.

The high cost of weaving the fabric and lack of patronage led to the decline of this

technique in West Bangal. The last of the weavers of the Baluchari saree, Dhrub Raj was

an old man. In 1890 with his death, the tradition also died. Subsequently, it was

successfully revived by the Handicrafts Board at Varanasi in 1956 by a great master

designer Ali Hassan. Although West Bangal began to produce Baluchar in Murshidabad,

the Varanasi weavers were weaving Baluchari sarees so well that the West Bengal sarees

could not complete with them either in texture or in quality. They continue to be woven

in Varanasi by Ali Hasans great-grandson, Naseem, who is a brilliant young man.

Gujarat was an important brocade center with a distinctive style of its own. It is believed

that the extra weft brocade began in Gujarat with the help of weavers who migrated from

Central Asia. Here the extra weft patterns were woven with the use of the twill weave.

The design traditions were based on the Western Indian style of painting, and figurative

design was common. Some of the oldest silk brocades carry riders on horseback.

23

Brocaded ghaghras, dating to the beginning of this century, carry stylized forms of

dancing woven, mingling with peacocks, or women holding fans in their hands, or

complicated lotus patterns. Today only few centers in North Gujarat continued this

tradition. Some weaving continue to be done in Ridrol in the Mehsana district and in

Jamnagar in Saurashtra.

Besides weaving material for ghagras, long skirts, sarees, ordhnis, and cholis, a variety of

objects for religious purposes were also woven. These were the gaumukhi, which covered

the hand of the devotee carrying his rosary. They carried motifs of the sun, the swastika,

the symbol of Ganesha, and sometimes the sacred-cow associated with Krishna. Also

small torans were made depicting scene from Krishna Leela. These were possibly meant

to be hung outside the family temples. Another special item produced was the Nathdwara

pechwai, depicting Shrinathji, meant to be hung behind the image.

One of the most exquisite techniques combining gold and silk is known as Paithani, after

the name of the village where it survived. The technique is most complex. The patterns

are created by non-continuous colored threads wrapped on bamboo needles, which are

woven in to the warp only where a particular color is needed and then interlocked with

the thread of the next color. This technique is known as the tapestry technique. This was

also revived in Yeola in Maharashtra.

The silk sarees of southern India are a class by themselves. They use heavy Iustrous silk

and broad borders and elaborate pallus, with contrasting color combinations, which result

in harmonious color blends. Traditionally the patterning is part of the woven fabric and

not an extra weft. The checks and stripes are woven into the warp and weft. The delicate

buds known as mallimogu, jasmine buds, form a part of the weave itself and accentuate

the texture, and woven into the body of the saree in contrasted colors.

Kancheepuram, Tanjore and Kumbakonam, which are the important pilgrim centers, are

also important textile centers of Tamil Nadu. Sangarneddy and Dharmaswaram in Andhra

Pradesh, Kolegal and Molkalmoru in Mysore are also famous silk-weaving centers.

24

Tanjore specialized in weaving the all over gold-work sarees used for weddings and for

offering to temples. These carried rich broad borders in gold work and pallus with

patterns derived from temple frieze. The youli, the stylized lion form, the hamsa, swan,

and the shardul, tiger were common motifs. Molkalmoru in Mysore had its own

distinctive tradition of simple ikat weave, combined with a rich silk or gold border

carrying stylized motifs of parrots. The ikat was always in white.Care of your silk

garment It is best to dry clean your silk garment either by individual or bulk method, in

order to maintain the characteristic of the silk.

Dry clean: Sending it to the dry cleaners may be done but make sure that you inform the

dry cleaner that your garment is made of silk.

Hand wash

Make sure you wash in cool water.

Use a small amount of soap or mild detergent to wash the silk.

After washing it, rinse in cold water.

Hang it or lay it flat in a shaded area to dry.

If pressing is needed, use an all cotton iron board cover, a low or moderate steam

setting, and press on the wrong side of the fabric while ironing.

Other Tips

To keep white silk white, add peroxide and ammonia to the wash.

Do not use bleach or any washing detergent with bleach

To remove yellow from white silk, add a few teaspoons of white vinegar to the

wash.

Properties of the silk

It is versatile and very comfortable.

It absorbs moisture.

It is cool to wear in the summer yet warm to wear in winter.

25

It can be easily dyed.

It retains its shape and is relatively smooth.

It has a poor resistance to sunlight exposure.

It is the strongest natural fiber and is lustrous.

26

Uses of Silk

Silk is used to make blouses, dresses, scarves, pants and ties. It can also be made into

curtains, draperies, cushion covers and sofa covers. In addition to this, silk is also used

for items like parachutes, bicycle tires, comforter filling and artillary gunpowder bags.

Early bulletproof vests were also made from silk in the era of blackpowder weapons until

roughly World War I. Silk undergoes a special manufacturing process to make it

adequate for its use in surgery as non-absorbable sutures. Chinese doctors have also used

it to make prosthetic arteries. Silk cloth is also used as a material to write on.

Jute is a long, soft, shiny plant fiber that can be spun into coarse, strong threads. It is

produced from plants in the genus Corchorus.

Jute is one of the cheapest natural fibres, and is second only to cotton in amount produced

and variety of uses. Jute fibres are composed primarily of the plant materials cellulose

and lignin. Jute is a rainy season crop, growing best in warm, humid climates. Worlds

finest Jute is produced in Bengal Delta Plain, mostly in Bangladesh and India.China also

produces large number of Jute while Pakistan grows relatively small number.

To grow jute, farmers scatter the seeds on cultivated soil. When the plants are about 15-

20 cm tall, they are thinned out. About four months after planting, harvesting begins. The

plants are usually harvested after they flower, but before the flowers go to seed. The

stalks are cut off close to the ground. The stalks are tied into bundles and retted (soaked)

in water for about 20 days. This process softens the tissues and permits the fibres to be

separated. The fibres are then stripped from the stalks in long strands and washed in

clear, running water. Then they are hung up or spread on thatched roofs to dry. After 2-3

days of drying, the fibres are tied into bundles.Jute is graded (rated) according to its

colour, strength, and fibre length. The fibres are off-white to brown, and 1-4 m long. Jute

is pressed into bales for shipment to manufacturers. Jute is used chiefly to make cloth for

wrapping bales of raw cotton, and to make sacks and coarse cloth.

27

The fibres are also woven into curtains, chair coverings, carpets, hessian cloth, and

backing for linoleum. However, jute is being replaced by synthetic materials for many of

these uses, though the importance of biodegradation in some situations where artificial

fibres are unsuitable leaves some uses open to jute. Examples of such uses include

containers for planting young trees which can be planted directly with the container

without disturbing the roots, and land restoration where jute cloth prevents erosion

occurring while natural vegetation becomes established.

The fibres are used alone or blended with other types of fibres to make twine and rope.

Jute butts, the coarse ends of the plants, are used to make inexpensive cloth. Conversely,

very fine threads of jute can be separated out and made into imitation silk. Jute fibres can

also be used to make paper, and with increasing concern over forest destruction for the

wood pulp used to make most paper, the importance of jute for this purpose may

increase.

Some features of Jute

Jute is 100% bio-degradable & recyclable and thus environment friendly.

Jute is a natural fibre with golden & silky shine, and hence nicknamed as The

Golden Fibre.

Jute is the cheapest vegetable fibre procured from bast of the Jute plant and it falls

into the category of bast fibres (other bast fibres are Flax, Hemp, Ramie, etc.).

Jute is the second most important vegetable fibre after cotton. Jute has high tensile

strength, and low extensibility.

Jute is one of the most versatile natural fibres that has been used in raw materials

for packaging, textiles, non-textile, and agricultural sectors.

Jute stem has very high volume of cellulose that can be procured within 4-6

months, and hence it also can save the forest and meet cellulose and wood

requirement of the world.

The best varieties of Jute are Bangla Tosha - Corchorus olitorius (Golden shine)

and Bangla White - Corchorus capsularis (Whitish Shine), and Mesta or Kenaf

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(Hibiscus cannabinus) is another species with fibre similar to Jute with medium

quality.

Raw Jute and Jute goods are interpreted as Burlap, Industrial Hemp, and Kenaf in

some parts of the world.

The best source of Jute in the world is the Bengal Delta Plain, which is occupied by

Bangladesh and India.

Production of Wool

The processing of wool involves four major steps. First comes shearing, followed by

sorting and grading, making yarn and lastly, making fabric. In most parts of the world,

sheep are sheared once a year, in early spring or early summer. The best wool comes

from the shoulders and sides of the sheep. Grading and sorting, where workers remove

any stained, damaged or inferior wool from each fleece and sort the rest of the wool

according to the quality of the fibers, follow this. Wool fibers are judged not only on the

basis of their strength but also by their fineness (diameter), length, crimp (waviness) and

colour. The wool is then scoured with detergents to remove the yolk and such impurities

as sand and dust. After the wool dries, it is carded. The carding process involves passing

the wool through rollers that have thin wire teeth. The teeth untangle the fibers and

arrange them into a flat sheet called a web. The web is then formed into narrow ropes

known as silvers. After carding, the processes used in making yarn vary slightly,

depending on the length of the fibers. Carding length fibers are used to make woolen

yarn. Combing length fibers and French combing length fibers are made into worsted

yarn.

Woolen yarn, which feels soft, has a fuzzy surface and is heavier as compared to worsted

wool. While worsted wool is lighter and highly twisted, it is also smoother, and is not as

bulky, thus making it easier to carry or transport about. Making worsted wool requires a

greater number of processes, during which the fibers are, arranged parallel to each other.

The smoother the hard surface worsted yarns, the smoother the wool it produces,

meaning, less fuzziness. Fine worsted wool can be used in the making of athletics attire,

29

because it is not as hot as polyester, and the weave of the fabric allows wool to absorb

perspiration, allowing the body to "breathe". Wool manufacturers knit or weave yarn into

a variety of fabrics. Wool may also be dyed at various stages of the manufacturing

process and undergo finishing processes to give them the desired look and feel. The

finishing of fabrics made of woolen yarn begins with fulling. This process involves

wetting the fabric thoroughly with water and then passing it through the rollers. Fulling

makes the fibers interlock and mat together. It shrinks the material and gives it additional

strength and thickness. Worsteds go through a process called crabbing in which the fabric

passes through boiling water and then cold water. This procedure strengthens the fabric.

Care of your woolen garment

It is better to hand wash your woolen products. Shampoos can be used to wash such

garments. Use a good shampoo not one containing "crème rinse". If shampoo can clean

your hair without leaving residues, it can clean your woolen products too. Be careful of

what softener you use because softeners may add products to your wool. Some types of

softeners may leave a coating on the fiber making it feel softer and smoother, but at the

same time causing your wool to lose its absorbency.

Properties of the wool

It is hard wearing and absorbs moisture.

It does not burn over a flame but smolders instead.

It is lightweight and versatile.

Wool does not wrinkle easily.

It is resistant to dirt and wear and tear.

Uses of Wool Fabric

Wool is used to make sweaters, dresses, coats, suits, jackets, pants and the lining of

boots. It can also be made into blankets and carpets.

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OBJECTIVE

OF THE

STUDY

31

OBJECTIVE OF THE STUDY

The research project is mainly divided into two parts first one is introduction to recession

and Indian textile export and the second is the study of impact of recession on Indian

textile export..

The subjects under these two parts are

1. Introduction about recession and Indian textile export

a. Introduction of recession

b. Causes and general impact of recession

c. Introduction of Indian textile export

d. Impact of recession on Indian economy.

2. Impact of recession on textile export from India

a. Collection of data about the export of textile from India to other country of

last three year.

b. Analyzing the data on the basis of data findings

c. Making a conclusion on the data analysis..

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INTRODUCTION

TO

RECESSION

33

RECESSIONS ARE the result of reduction in the demand of products in the global

market. Recession can also be associated with falling prices known as deflation due to

lack of demand of products. Again, it could be the result of inflation or a combination of

increasing prices and stagnant economic growth in the west.

Recession in the West, especially the United States, is a very bad news for our country.

Our companies in India have most outsourcing deals from the US. Even our exports to

US have increased over the years. Exports for January have declined by 22 per cent.

There is a decline in the employment market due to the recession in the West. There has

been a significant drop in the new hiring which is a cause of great concern for us. Some

companies have laid off their employees and there have been cut in promotions,

compensation and perks of the employees. Companies in the private sector and

government sector are hesitant to take up new projects. And they are working on existing

projects only. Projections indicate that up to one crore persons could lose their jobs in the

correct fiscal ending March. The one crore figure has been compiled by Federation of

Indian Export Organizations (FIEO), which says that it has carried out an intensive

survey. The textile, garment and handicraft industry are worse affected. Together, they

are going to lose four million jobs by April 2009, according to the FIEO survey. There

has also been a decline in the tourist inflow lately. The real estate has also a problem of

tight liquidity situations, where the developers are finding it hard to raise finances.

IT industries, financial sectors, real estate owners, car industry, investment banking and

other industries as well are confronting heavy loss due to the fall down of global

economy. Federation of Indian chambers of Commerce and Industry (FICCI) found that

faced with the global recession, inventories industries like garment, gems, textiles,

chemicals and jewellery had cut production by 10 per cent to 50 per cent.

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Definition of recession

Recession is not to be confused with depression. Recession means a slow down or slump

or temporary collapse of a business activity. In its early stage it can be controlled in a

methodical manner. Experience helps to avert total collapse. Unchecked, it leads to

severe depression. Depression is a dead end. It is time to close shop completely. It is a

total state of irrevocable economic failure. When a country is doing well all round its

Gross Domestic Product (GDP) is on the rise.

Overall economy is bullish; it is not only the stock exchanges that tell riches to rags

stories but even small businesses. It all adds to the national exchequer. An economist is

likely to give a detailed, comprehensive definition of recession. But for the layman who

has been affected knows it only one way-when he loses his job and has no money to pay

his credit and loans. Recession is when the consumer faces foreclosure and the banker

comes knocking for his pound (or dollar) of flesh. Many companies and whole countries

go bankrupt for want of liquid funds and cash flow for even daily requirements.

If you look at it from the point of view of a businessman, recession is a transitory phase.

The Business Cycle Dating Committee of the National Bureau of Economic Research has

another definition. It profiles the businesses that have peaked with their activity in one

season and it falls naturally in the next season. It regains its original position with new

products or sales and continues to expand. This revival makes the recession a mild phase

that large companies tolerate. As the fiscal position rises, there is no reason to worry.

Recession can last up to a year. When it happens year after year then it is serious.

Are we facing a recession or not? Yes, for the simple reason that not only our neighbors

but our friends are unemployed. There is less of business talk and more billing worries.

Transitory recessions are good for the economy, as it tends to stabilize the prices. It

allows run away bullish companies to slow down and take stock. There is a saying, ‘when

it’s tough the tough get going’. The weaker companies will not survive the brief recession

also. Stronger companies will pull through its resources. So when is it time to worry?

35

When you are facing a foreclosure, when the chips are down and out and creditors file

cases for recovery.

Firms face closures when they go through recession and are not able to recover from

losses. If, at this time, they are not able to sustain their prices and stocks then there is

more trouble. Even when the recession period gets over, they will not be able to do well.

If a business survives a recession period they should be able to survive a depression. But

how many recession proof businesses are there? Who will eventually survive the

recession?

1. Those that have been able to save their funds.

2. Those who have not invested in fly-by-night companies.

3. Those who remain clam till the storm passes.

4. Those that take stock immediately and decide to reinvest in a recession proof

business.

Identifying

In a 1975 New York Times article, economic statistician Julius Shiskin suggested several

rules of thumb to identify a recession; these included the rule of 'two successive quarterly

declines in GDP. Over time, the other rules have been largely forgotten, and a recession

is now often identified as the reduction of a country's GDP (or negative real economic

growth) for at least two quarters. Some economists prefer a more robust definition of a

1.5% rise in unemployment within 12 months.

In the United States the Business Cycle Dating Committee of the National Bureau of

Economic Research (NBER) is generally seen as the authority for dating US recessions.

The NBER defines an economic recession as: "a significant decline in [the] economic

activity spread across the country, lasting more than a few months, normally visible in

real GDP growth, real personal income, employment (non-farm payrolls), industrial

production, and wholesale-retail sales." Almost universally, academic economists, policy

36

makers, and businesses defer to the determination by the NBER for the precise dating of

a recession's onset and end.

Attributes

A recession has many attributes that can occur simultaneously and can include declines in

coincident measures of activity such as employment, investment, and corporate profits.

A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to

as an economic depression, although some argue that their causes and cures can be

different.

Causes of recessions

Currency crisis

Energy crisis

War

Under consumption

Overproduction

Financial crisis

Price of Fuels

Effects of recessions

Bankruptcies

Credit crunches

Deflation (or disinflation)

Foreclosures

Unemployment

Stock market and recessions

37

Some recessions have been anticipated by stock market declines. In Stocks for the Long

Run, Siegel mentions that since 1948, ten recessions were preceded by a stock market

decline, by a lead time of 0 to 13 months (average 5.7 months), while ten stock market

declines of greater than 10% in the DJIA were not followed by a recession.

The real-estate market also usually weakens before a recession. However real-estate

declines can last much longer than recessions.

Since the business cycle is very hard to predict, Siegel argues that it is not possible to

take advantage of economic cycles for timing investments. Even the National Bureau of

Economic Research (NBER) takes a few months to determine if a peak or trough has

occurred in the US.

During an economic decline, high yield stocks such as fast moving consumer goods,

pharmaceuticals, and tobacco tend to hold up better. However when the economy starts to

recover and the bottom of the market has passed (sometimes identified on charts as a

MACD), growth stocks tend to recover faster. There is significant disagreement about

how health care and utilities tend to recover. Diversifying one's portfolio into

international stocks may provide some safety; however, economies that are closely

correlated with that of the U.S. may also be affected by a recession in the U.S.

There is a view termed the halfway rule according to which investors start discounting an

economic recovery about halfway through a recession. In the 16 U.S. recessions since

1919, the average length has been 13 months, although the recent recessions have been

shorter. Thus if the 2008 recession followed the average, the downturn in the stock

market would have bottomed around November 2008.

Recession and politics

Generally an administration gets credit or blame for the state of economy during its time.

This has caused disagreements about when a recession actually started. In an economic

cycle, a downturn can be considered a consequence of an expansion reaching an

38

unsustainable state, and is corrected by a brief decline. Thus it is not easy to isolate the

causes of specific phases of the cycle.

The 1981 recession is thought to have been caused by the tight-money policy adopted by

Paul Volcker, chairman of the Federal Reserve Board, before Ronald Reagan took office.

Reagan supported that policy. Economist Walter Heller, chairman of the Council of

Economic Advisers in the 1960s, said that "I call it a Reagan-Volcker-Carter recession.

The resulting taming of inflation did, however, set the stage for a robust growth period

during Reagan's administration.

It is generally assumed that government activity has some influence over the presence or

degree of a recession. Economists usually teach that to some degree recession is

unavoidable, and its causes are not well understood. Consequently, modern government

administrations attempt to take steps, also not agreed upon, to soften a recession. They

are often unsuccessful, at least at preventing a recession, and it is difficult to establish

whether they actually made it less severe or longer lasting.

History of recessions

Global recessions

There is no commonly accepted definition of a global recession, IMF regards periods

when global growth is less than 3% to be global recessions. The IMF estimates that

global recessions seem to occur over a cycle lasting between 8 and 10 years. During what

the IMF terms the past three global recessions of the last three decades, global per capita

output growth was zero or negative.

Economists at the International Monetary Fund (IMF) state that a global recession would

take a slowdown in global growth to three percent or less. By this measure, three periods

since 1985 qualify: 1990-1993, 1998 and 2001-2002.

According to economists, since 1854, the U.S. has encountered 32 cycles of expansions

and contractions, with an average of 17 months of contraction and 38 months of

39

expansion. However, since 1980 there have been only eight periods of negative economic

growth over one fiscal quarter or more, and four periods considered recessions:

January-July 1980 and July 1981-November 1982: 2 years total

July 1990-March 1991: 8 months

March 2001-November 2001: 8 months

December 2007-current: 15 months as of March 2009

From 1991 to 2000, the U.S. experienced 37 quarters of economic expansion, the longest

period of expansion on record.

For the past three recessions, the NBER decision has approximately conformed to the

definition involving two consecutive quarters of decline. However the 2001 recession did

not involve two consecutive quarters of decline, it was preceded by two quarters of

alternating decline and weak growth.

Current recession in some countries

Official economic data shows that a substantial number of nations are in recession as of

early 2009. The US entered a recession at the end of 2007, and 2008 saw many other

nations follow suit. United States

The United States housing market correction (a consequence of United States housing

bubbles) and sub prime mortgage crisis has significantly contributed to a recession.

The 2008/2009 recession is seeing private consumption fall for the first time in nearly 20

years. This indicates the depth and severity of the current recession. With consumer

confidence so low, recovery will take a long time. Consumers in the U.S. have been hard

hit by the current recession, with the value of their houses dropping and their pension

savings decimated on the stock market. Not only have consumers watched their wealth

being eroded – they are now fearing for their jobs as unemployment rises.

U.S. employers shed 63,000 jobs in February 2008, the most in five years. Former

Federal Reserve chairman Alan Greenspan said on April 6, 2008 that "There is more than

40

a 50 percent chance the United States could go into recession.". On October 1, the Bureau

of Economic Analysis reported that an additional 156,000 jobs had been lost in

September. On April 29, 2008, nine US states were declared by Moody's to be in a

recession. In November 2008 Employers eliminated 533,000 jobs, the largest single

month loss in 34 years. For 2008, an estimated 2.6 million U.S. jobs were eliminated.

Although the US Economy grew in the first quarter by 1%, by June 2008 some analysts

stated that due to a protracted credit crisis and "rampant inflation in commodities such as

oil, food and steel", the country was nonetheless in a recession. The third quarter of 2008

brought on a GDP retraction of 0.5% the biggest decline since 2001. The 6.4% decline in

spending during Q3 on non-durable goods, like clothing and food, was the largest since

1950. A Nov 17, 2008 report from the Federal Reserve Bank of Philadelphia based on the

survey of 51 forecasters suggested that the recession started in April 2008 and will last 14

months. They project real GDP declining at an annual rate of 2.9% in the fourth quarter

and 1.1% in the first quarter of 2009. These forecasts represent significant downward

revisions from the forecasts of three months ago.

A December 1, 2008, report from the National Bureau of Economic Research stated that

the U.S. has been in a recession since December 2007 (when economic activity peaked),

based on a number of measures including job losses, declines in personal income, and

declines in real GDP.

Other countries

A few other countries have seen the rate of growth of GDP decrease, generally attributed

to reduced liquidity, sector price inflation in food and energy, and the U.S. slowdown.

These include the United Kingdom, Canada, Japan, Australia, China, India, New Zealand

and the Euro zone. In some, the recession has already been confirmed by experts, while

others are still waiting for the fourth quarter GDP growth data to show two consecutive

quarters of negative growth. India along with China is experiencing an economic

slowdown but not a recession.

41

Current crisis in the US

The defaults on sub-prime mortgages (home loan defaults) have led to a major crisis in

the US. Sub-prime is a high risk debt offered to people with poor credit worthiness or

unstable incomes. Major Banks have landed in trouble after people could not pay back

loans.

The housing market soared on the back of easy availability of loans. The realty sector

boomed but could not sustain the momentum for long, and it collapsed under the

gargantuan weight of crippling loan defaults. Foreclosures spread like wildfire putting the

US economy on shaky ground. This, coupled with rising oil prices at $100 a barrel,

slowed down the growth of the economy.

Past recessions in the US

The US economy has suffered 10 recessions since the end of World War II. The Great

Depression in the United was an economic slowdown, from 1930 to 1939. It was a

decade of high unemployment, low profits, low prices of goods, and high poverty.

The trade market was brought to a standstill, which consequently affected the world

markets in the 1930s. Industries that suffered the most included agriculture, mining, and

logging.

In 1937, the American economy unexpectedly fell, lasting through most of 1938.

Production declined sharply, as did profits and employment. Unemployment jumped

from 14.3 per cent in 1937 to 19.0 per cent in 1938.

The US saw a recession during 1982-83 due to a tight monetary policy to control

inflation and sharp correction to overproduction of the previous decade. This was

followed by Black Monday in October 1987, when a stock market collapse saw the Dow

Jones Industrial Average plunge by 22.6 per cent affecting the lives of millions of

Americans.

42

The early 1990s saw a collapse of junk bonds and a financial crisis.

The US saw one of its biggest recessions in 2001, ending ten years of growth, the longest

expansion on record.

From March to November 2001, employment dropped by almost 1.7 million. In the 1990-

91 recessions, the GDP fell 1.5 per cent from its peak in the second quarter of 1990. The

2001 recession saw a 0.6 per cent decline from the peak in the fourth quarter of 2000.

The dot-com burst hit the US economy and many developing countries as well. The

economy also suffered after the 9/11 attacks. In 2001, investors' wealth dwindled as

technology stock prices crashed.

43

RESEARCH

METHODOLOGY

44

RESEARCH METHODOLOGY

Research methodology is considered as the nerve of the project. Without a proper well-

organized research plan, it is impossible to complete the project and reach to any

conclusion. The project was based on the survey plan. The main objective of survey was

to collect appropriate data, which work as a base for drawing conclusion and getting

result.

Therefore, research methodology is the way to systematically solve the research

problem. Research methodology not only talks of the methods but also logic behind the

methods used in the context of a research study and it explains why a particular method

has been used in the preference of the other methods

Research design:

Research design is important primarily because of the increased complexity in the market

as well as marketing approaches available to the researchers. In fact, it is the key to the

evolution of successful marketing strategies and programmers. It is an important tool to

study buyer’s behavior, consumption pattern, brand loyalty, and focus market changes. A

research design specifies the methods and procedures for conducting a particular study.

According to Kerlinger, “Research Design is a plan, conceptual structure, and strategy of

investigation conceived as to obtain answers to research questions and to control

variance.

Types of research is:

Descriptive Research

The type of research adopted for study is descriptive. Descriptive studies are undertaken

in many circumstances when the researches is interested to know the characteristic of

certain group such as age, sex, education level, occupation or income. A descriptive study

may be necessary in cases when a researcher is interested in knowing the proportion of

45

people in a given population who have in particular manner, making projections of a

certain thing, or determining the relationship between two or more variables. The

objective of such study is to answer the “who, what, when, where and how” of the subject

under investigation. There is a general feeling that descriptive studies are factual and very

simple. This is not necessarily true. Descriptive study can be complex, demanding a high

degree of scientific skill on part of the researcher.

Descriptive studies are well structured. An exploratory study needs to be flexible in its

approach, but a descriptive study in contrast tends to be rigid and its approach cannot be

changed every now and then. It is therefore necessary, the researcher give sufficient

thought to framing research.

Questions and deciding the types of data to be collected and the procedure to be used in

this purpose. Descriptive studies can be divided into two broad categories: Cross

Sectional and Longitudinal Sectional. A cross sectional study is concerned with a sample

of elements from a given population. Thus, it may deal with household, dealers, retail

stores, or other entities. Data on a number of characteristics from sample elements are

collected and analyzed. Cross sectional studies are of two types: Field study and Survey.

Although the distinction between them is not clear- cut , there are some practical

differences, which need different techniques and skills. Field studies are ex-post-factor

scientific inquiries that aim at finding the relations and interrelations among variables in a

real setting. Such studies are done in live situations like communities, schools, factories,

and organizations.

Another type of cross sectional study is survey result, which has been taken by me. A

major strength of survey research is its wide scope. Detail information can be obtained

from a sample of large population .Besides; it is economical as more information can be

collected per unit of cost. In addition, it is obvious that a sample survey needs less time

than a census inquiry. Descriptive research includes survey and fact finding enquiries of

different kinds of the major purpose. Descriptive research is description of the state of

affairs, as it exists at present. The main characteristic of this method is that the researcher

has no control over the variables; he can only report what has happened or what is

46

happening. The methods of research utilized in descriptive research are survey methods

of all kinds including comparative and co relational methods. The reason for using such

needs to be flexile in its approach, but a descriptive study in contrast tends to be rigid and

its approach cannot be changed ever now and then.

Data collection methods:

After the research problem, we have to identify and select which type of data is to

research. At this stage; we have to organize a field survey to collect the data. One of the

important tools for conducting market research is the availability of necessary and useful

data.

Primary data: The primary data is collected from department of commerce

Government of India and handicraft export Promotion Corporation of India. This data is

export data of last few years of handicraft export.

Secondary Data - The Company’s profile, journals and various literature studies are

important sources of secondary data.

Data analysis and interpretation

1. Pie chart and Bar chart

47

Pie chart:

This is very useful diagram to represent data , which are divided into a number of

categories. This diagram consists of a circle of divided into a number of sectors, which

are proportional to the values they represent. The total value is represented by the full

create. The diagram bar chart can make comparison among the various components or

between a part and a whole of data.

Bar chart:

This is another way of representing data graphically. As the name implies, it consist of a

number of whispered bar, which originate from a common base line and are equal widths.

The lengths of the bards are proportional to the value they represent.

Preparation of report:

The report was based on the analysis and presented with the findings and suggestions.

The sample of the questionnaires is attached with the report itself.

48

IMPACT OF AN

AMERICAN RECESSION

ON INDIA

49

Impact of an American Recession on India

Indian companies have major outsourcing deals from the US. India's exports to the US

have also grown substantially over the years. The India economy is likely to lose between

1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big

tickets deals in the US would see their profit margins shrinking.

The worries for exporters will grow as rupee strengthens further against the dollar. But

experts note that the long-term prospects for India are stable. A weak dollar could bring

more foreign money to Indian markets. Oil may get cheaper brining down inflation. A

recession could bring down oil prices to $70.

The whole of Asia would be hit by a recession as it depends on the US economy. Even

though domestic demand and diversification of trade in the Asian region will partly

counter any drop in the US demand, one simply can't escape a downturn in the world's

largest economy. The US economy accounts for 30 per cent of the world's GDP.

Says Sudip Bandyopadhyay, director and CEO, Reliance Money: "In the globalised

world, complete decoupling is impossible. But India may remain relatively less affected

by adverse global events." In fact, many small and medium companies have already

started developing trade ties with China and European countries to ward off big losses.

Manish Sonthalia, head, equity, Motilal Oswal Securities, says if the US economy

contracts much more than anticipated, the whole world's GDP growth-which is estimated

at 3.7 per cent by the IMF-will contract, and India would be no exception.

The only silver lining is that the recession will happen slowly, probably in six months or

so. As of now, IT and IT-enabled services, textiles, jewellery, handicrafts and leather

segments will suffer losses because of their trade link. Certain sections of commodities

could face sharp impact due to the volatile nature of these sectors. C.J. George, managing

director, Geojit Financial Services, says profits of lots of re-export firms may be affected.

50

Countries like China import commodities from India do some value-addition and then

export them to the US.

The IT sector will be the worst hit as 75 per cent of its revenues come from the US. Low

demand for services may force most Indian Fortune 500 companies to slash their IT

budgets. Zinnov Consulting, a research and offshore advisory, says that besides

companies from ITeS and BPO, automotive components will be affected.

During a full recession, US companies in health care, financial services and all

consumers demand driven firms are likely to cut down on their spending. Among other

sectors, manufacturing and financial institutions are moderately vulnerable. If the service

sector takes a serious hit, India may have to revise its GDP to about 8 to 8.5 per cent or

even less.

Lokendra Tomar, senior vice-president, Integreon, a BPO firm, says the US recession is

likely to have a dual impact on the outsourcing industry. Appreciating rupee along with

poor performance of US companies (law firms, investment banks and media houses) will

affect the bottom line of the outsourcing industry. Small BPOs, which are operating at a

net margin of 7-8 per cent, will find it difficult to survive.

According to Dharmakirti Joshi, director and principal economist of CRISIL, along and

severe recession will seriously affect the portfolio and fixed investment flows. Corporates

will also suffer from volatility in foreign exchange rates. The export sector will have to

devise new strategies to enhance productivity.

10 Indian industries to do well during recession

In the current global economic slowdown, every sector of business is being affected and

is witnessing a hard time. But IKON Marketing Consultants reports that in India there are

few sectors which will grow in this adverse situation.

51

AS EVERY business sector is affected by present global crisis and everybody is talking

of slow down in business, still in India there are few sectors which will grow in this

adverse situation. Let’s have a look.

52

1. Food

No one can survive without basic food material like milk, vegetables and drinking water.

Food processing companies will not be affected much and rather will earn profits by

increasing the prices. These are the basic needs which we as a common man can not

produce by our self.

According to Ministry of Food Processing Industry (MFPI), the food processing industry

in India was seeing growth even as the world was facing economic recession. According

to the minister, the industry is presently growing at 14 per cent against six to seven per

cent growth in 2003–04.The Indian food market is estimated at over US$ 182 billion and

accounts for about two thirds of the total Indian retail market. Further, the retail food

sector in India is likely to grow from around US$ 70 billion in 2008 to US$ 150 billion

by 2025.

2. Railway

As the aviation sector has been affect much badly and resulting in sharp rise in the air

ticket rates the frequent travelers’ will prefer railways to cut the cost of traveling and this

will result in increased traffic in railways and long queues at railway booking counters.

The freight traffic of Indian Railways has continued to grow in the last few months, albeit

at slow pace, indicating only marginal impact of the global recession on the Indian

economy.

The railways registered 13.87 per cent growth in revenue to Rs 57,863.90 crore in the

first nine months ended December 31, 2008. While total earnings from freight increased

by 14.53 per cent at Rs 39,085.22 crore during the period, passenger revenue earnings

were up 11.81 per cent at Rs 16,242.44 crore. The railways have enhanced freight

revenue by increasing its axle loading, improving customer services and adopting an

innovative pricing strategy.

53

3. PSU Banks

As seen in the private sector much of the job cuts due to global slowdown, it’s the public

sector undertaking (PSU) banks which gained much confidence due to job safety and

security. More and more people are likely to turn towards government institutions,

particularly banks in the quest for safety and security.

A report "Opportunities in Indian Banking Sector", by market research company,

RNCOS, forecasts that the Indian banking sector will grow at a healthy compound annual

growth rate (CAGR) of around 23.3 per cent till 2011.

4. Education

As education is considered as the basic necessity and in India it is seen as a long term

investment by parents and with respect to the demand still there is a huge supply gap. The

craze to study in foreign university among the Indian youth still alive which will prompt

foreign education institute to target India provided vast young population willing to join.

We will see more and more foreign educational institutions coming up in India in recent

coming years.

Huge government as well as private investment is likely to flow into the Indian

educational system. D E Shaw, a US$ 36 billion, global private equity firm is planning to

invest around US$ 200 million in the Indian education sector.

5. Telecom

People will not stop to communicate with each other due to global crises rather it has

been seen that it will increase much particularly with mobile communication. With cheap

cell phones available in the Indian market and cheaper call rates, the sector has become

the necessity and primary need of everyday life.

Telecom sector, according to industry estimates, year 2008 started with a subscriber base

of 228 million and will likely to end with a subscriber base of 332 million – a full

54

century. The telecom industry expects to add at least another 90 million subscribers in

2009 despite of recession. The Indian telecommunications industry is one of the fastest

growing in the world and India is projected to become the second largest telecom market

globally by 2010.

6. IT

Recent news shown that Indian IT sector will grow 30 to 40 per cent next year. And on

the other side to survive in current slowdown, industries have to decrease the cost and for

that they will resort to customised IT solutions which will further boost up the software

solution demand.

India is fast becoming a hot destination for outsourced e-publishing work. As per a

Confederation of Indian Industry (CII) report, the industry is growing at an annual rate of

35 per cent and India’s outsourcing opportunities in the value-added and core services

such as copy editing, project management, indexing, media services and content

deployment will help make the publishing BPO industry worth US$ 1.46 billion by 2010.

7. Health care

India in case of health care facilities still lakes the adequate supply. In health care sector

also there is huge gap between demand and supply at all the levels of society. Still there

are so many urban areas were you could hardly find any multi specialty hospital. And in

case of metros the market sentiments itself created a need of psychological consultation.

Healthcare, which is a US$ 35 billion industry in India, is expected to reach over US$ 75

billion by 2012 and US$ 150 billion by 2017. The healthcare industry is interestingly

poised as it strives to emerge as a global hub due to the distinct advantages it enjoys in

clinical excellence and low costs.

8. Luxury products

The high and affluent class of society will not be affected much by this global crises even

if their worth is reduced significantly. They will not change their lifestyle and will not

55

stop spending on luxurious goods. So luxurious product market will not be affected and

in fact to maintain the lifestyle those affluent will spend more for it. Luxury car makers

are pouring in to woo the nouveau riche (Audi, BMW are the most recent entrants).

9. M&A & Marketing Consultants

As in the current business slow down survival will be the main focus, the marketing and

management consultants will be called for to reduce the costs and to show the ways to

survive and stay in market. Others may join hands to fight with this situation together will

call for the Marketing & M&A consultants. In a booming market there are growth

strategies and M&A opportunities to advise on. When businesses are cutting back,

consultancies will be right there to help clients decide where to wield the axe.

According to Ministry of Commerce and Industry’s estimation, the current size of

consulting industry in India is about Rs 10000 crores including exports and is expected to

grow further at a CAGR of aproximately 25 per cent in next few years.

10. Media and Entertainment

In current bad times, where people are losing jobs and getting enough time to watch TV,

they will seek entertainment at home and hence advertising revenues will increase for the

commercial channels. Also businesses like production of religious texts and religious

materials, religious channels will do well. The TRP of religious channels will increase

compare to the other entertaining/commercial channels.

According to a report published by the Federation of Indian Chambers of Commerce and

Industry (FICCI), the Indian M&E industry is expected to grow at a compound annual

growth rate (CAGR) of 18 per cent to reach US$ 23.81 billion by 2012. According to the

PWC report, the television industry was worth US$ 5. 48 billion in 2007, recording a

growth of 18 per cent over 2006. It is further likely to grow by 22 per cent over the next

five years and be worth US$ 12. 34 billion by 2012.

56

The spectacular collapse of Lehman Brothers, 150-year-old company, when it applied for

bankruptcy surprised everyone. The crisis arose due to a host of small banks which had,

for several years, been sanctioning housing loans without, or inadequate, securities. There

is no doubt that the Wall Street crisis will only have a marginal effect on India, thanks

largely to the cautious regulatory system in place.

It would be naïve to imagine that a recession in the United States would have no impact

on India. The United States accounts for one-fourth of the world GDP and any significant

slowdown is bound to have reverberations elsewhere. On the other hand,

interdependencies between the US economy and emerging economies like India and

China has reduced considerably over the last two decades.

India has sharply criticized the United Nations (UN) and its affiliated organizations for

sitting on the sidelines as the current financial crisis unfolded, saying the International

Monetary Fund remained helpless despite the economic meltdown impacting the

developing nations.

India called on the world body to use its universality to coordinate an international

response, which is crucial to overcoming the crisis.

Indian Software Industry : Turbulence in the global financial markets could

translate into nasty surprises for the Indian Software Industry. The Indian IT

vendors have been facing challenging times as a result of uncertainty in the US

and Europe for well over a year now.

The crisis though is not going to be restricted to the vendors exposed to these

companies alone. The heat will be felt across the industry as the crisis leads to an

overall slowdown in IT spends. Overall, the market will don a more conservative

approach toward any spending, including IT spending, as the companies want to

wait and watch whats going to happen to the business. When the whole industry is

57

in turmoil, companies become cautious and step back to think how and where to

spend, explains Arvind Thakur, CEO, NIIT Technologies.

Preliminary analysis of the current scenario indicates an impact on discretionary

spend on IT due to the uncertainty and customer decisions being postponed .In the

short-term the vendors will continue to get the same growth rate. While non-

discretionary spend is not going to get much impacted, the discretionary spend

(on new technologies and integration of new technologies) is going to be limited.

Non-discretionary IT spend will typically include existing work, live projects and

maintenance kind of work.

Demand Slowdown: Six months after Bear Sterns went under and was acquired

by JP Morgan, the latest series of events in the US financial sector would further

slow down the demand for IT services. Most IT companies, however, did not

offer any comment citing ‘silent period before quarterly results. In IT budgets, the

non-discretionary spend, which is about 70 per cent, will continue. In a downturn,

discretionary spend on new projects, innovation or up gradation gets affected. The

impact, if any, will be on the latter. Unfortunately, the economic slowdown has

been catching up with the other verticals as well, namely telecom, retail and

manufacturing, especially the automobile segment. Some of the damage control

measures by the US may make matters worse for Indian IT companies.

Disinvestment : The immediate effect has been the disinvestment in Indian Share

Market by Foreign Institutional Investors. during the past few years, foreigners

have pumped in about 60 odd billion dollars in order to buy shares in Indian

companies. the resource crunch and liquidity problems in Wall Street forced them

to liquidate their Indian share holdings. This led to the crash of the SENSEX and

the artificial hue and cry over it. But as the foreign investors withdrew their

investments, we had a net outflow of foreign funds, depressing the exchange

value of the Rupee against the Dollar and other currencies.

Banking System: We have a chain of banking system based still on concept of

welfares rather than profits. The urban (52) and state cooperative banks (16) have

58

been playing significant roles in making 'fundamental our economy' strong.

We have had developed 'a scientific fiscal mechanism of consistent monitoring'

system for our banking system which would keep our economy safe in extensor,

when the world's economy is in extremis.

Common men, pensioners and small domestic savings still prefer post offices for

one simple reason, the high rates of interest rates in comparison with any other

financial institutions.

Export Businesses: Export Businesses will suffer because of fall in foreign

demand, but the depressed Indian Rupee will set it off to some extent. The rest of

us in rural India should not suffer much - but alas! our capitalist-oriented

Government will make us suffer. Because their greatest blue eyed pets, the

capitalists who suffer losses due to depression of the value of the shares of their

companies, will raise pressure on the Ministers of the Government. Even the

prices of petrol and diesel will not be corrected down wards, because

Government's pet boys may suffer loss of excess profits. So, the government will

make us suffer.

Rural Economy : Economic crisis that is now “crushing” the poor around the

globe and for lacking any vision for the future or how the organization could help

developing countries deal with the serious looming challenges. The upheavals in

the financial markets have very little to do with rural economy. Indian financial

market especially banks have always been under RBI scanner, even during normal

times.

Mass Layoffs : Indians are not used to mass layoffs. The recent economic boom

has conditioned them to expect big companies to announce big profits, not

wholesale sackings. India's rigid industrial relations system has also long

discouraged corporations from making big retrenchments. India’s biggest private

airline, Jet Airways, found out how deeply the community resents this industrial

strategy when it "released" 1900 workers.A crowd of newly retrenched cabin

59

crew, dressed in uniform, stormed the airline's headquarters in Mumbai to vent

their anger.

Handicraft Sector : The handicrafts sector will be the most severely hit, followed

by gems and jewellery. There has been a massive decline of 40-50 percent in

handicraft exports from last year.That’s because this market is almost completely

US-driven. In gems and jewellery, growth was projected at 20 percent, but due to

the dwindling value of the dollar and the slowdown in the US, the growth rate is

down to 10 percent.

In light of the historical significance of the crisis it is too early to predict all its

consequences. What we can be sure about, though, is that the world economy in general

and the developing countries in particular will suffer from it in the future.

60

IMPACT ON INDIAN TEXTILE EXPORT

'Excerpts from the presentation given before Deputy Chairman of the Planning

Commission Mr.Montek Singh Ahluwalia'

Global textile & clothing industry is worth US$ 584 billion where clothing share

accounts for 60% of share. Global trade is expected to grow to US$ 710 billion by 2010.

Whereas, bulk of the increase is expected to be in Clothing, projected to grow to US$ 470

billion. The US market alone accounts for US$ 84.85 billion of apparel exports.

Textile & apparel sector, alone, accounts for 14% of the total industrial production. This

sector holds the second largest position after agriculture in employment generation.

Apparel sector alone employs 60 lakhs people directly and indirectly. Apparel exports

contribute around 8% to India's overall exports and 48% to textile exports.

Indias apparel exports to top six countries:

Destination % Share

USA 33

U K 11

France 8

Germany 7

UAE 6

Italy 5

Immediate Challenges and Impact of Recession:

Nearly 5, 00,000 people have already lost jobs due to falling sales and Global

Economic Recession.

Another lot of 5, 00,000 will lose work by March 09 as per the survey in select

clusters.

In the next 2 months, the job losses will total of upto 1.5 million.

61

Some exporting companies are reducing working hours, implementing 5 days a

week instead of 6 days which resulted in reduced income levels of workers.

Tirupur Exporters Association (the initiator of Knitwear technology Mission) too

found out that the slowdown may lead to a decline of 30% in orders resulting in

job losses.

As per the survey done by Okhla cluster shows 84% units register fall in export

orders and employment.

The survey did during the month of November 2008 within the 50 units. The

findings are as follows

A. 9084 workers employed

B. 1258 job loss

C. 13.84% extent of layoff

D. 4593582 pcs. Order booked in Nov'07 to Jan'08

E. 3464812 pcs. Order booked in Nov'08 to Jan'08

F. 25% reduction in order booked during the same period

Garment Export expanding despite global recession

Bangladesh becomes an exception that it is challenging India in apparel sector.

Bangladesh's export of apparel is more than the India's export of apparel. During the

period of 2007-08 Bangladesh's export accounted for US$ 10700 million.

Bangladesh's export is projected to grow during June'08 to July'09 is US$ 16.30 billion.

Employment increased to 2.5 million, terminal handling by customs improved down to 3

days from 12-13 days. Also price offered by Bangladesh to buyers for T-Shirts down by

20% from US$ 1.63/pc in 2000 to US$ 1.30/pc in 2007.

The reasons: Why are we losing out?

Power cost: India's tariff for power is 250% higher than Egypt. In Egypt the power tariff

is 4.00 US cents per kilowatt, in Pakistan and Vietnam 6 to 7 US cent/kwh, in Indonesia

6.3 US cent/kwh, in Bangladesh 6.7 US cent/kwh, in China 8.5 US cent/kwh and in India

10 US cent/kwh.

62

Labour cost: The labour costs are 229% higher in India than in Bangladesh. Below the

table is given for some countries

Country US cents per hour

Bangladesh 27

Vietnam 29

Pakistan 39

Indonesia 52

China 57

Egypt 60

India 62

India' position in the important apparel categories

Total imports of women cotton trousers of US accounted for US$ 6291.223 million in

which US$ 433.533 million imports accounted from Bangladesh and US$ 262.514

million imports from India.

In men' cotton trousers total import of US accounted for US$ 4970.652 million. In which

US$ 757.201 million imports accounted from Bangladesh and US$ 210.115 million from

India. Imports of Cotton sweaters of US accounted for US$ 820.82 million in which US$

25.67 million imports accounted from Bangladesh and US$ 4.23 million imports from

India.

But the growth rates indicate a gradual takeover of these categories by Bangladesh. In

women' shirts India is growing at 3.4%, while Bangladesh at 11.35%. In men' knitted

shirts, India recorded decline of 10%, while Bangladesh increased by 20%.

In men' cotton trousers, India recorded decline of 5%, while Bangladesh increased by

29%.

63

India losing out on both high and low ends items

India' cost breakdown for total fabric cost including credit is $1.89, while Bangladesh'

cost breakdown is $1.86 for boy' woven bottom low-end item.

In specialty wear (high value item) India's cost break down is $6.49 while the

Bangladesh's cost breakdown is $5.87.

The higher fabric cost is due to higher transaction and credit rates. Higher cut and make

cost is due to higher labour cost and higher trim cost is due to higher duties.

Moreover Bangladesh is duty free for EU and Canada so the landed cost works out much

cheaper. In the case of the high end fabrics, Bangladesh uses Chinese knit fabric which is

cheaper than even our vertical set up's and Bangladesh's costing are more competitive.

Most of the Indian factories are not in EPZ's - the domestic goods fabric and trims attract

an array of domestic taxes (service tax, VAT, excise etc.) - e.g. Zippers, thread etc.

Government support to countries

China has incorporated a phase wise increased refund of VAT from 11 to 17% on exports

and additional 2% drawback from January 09 on manmade fibre and garments.

Pakistan has reintroduced 6% R&D assistance. Cambodia's corporate tax rate is less than

a third of India's as also exemption of up to 8 years in some cases. A 12% government

cash grant for wages in Singapore during 2009 valuing Singapore $4.50 billion to sustain

jobs.

Indonesia announced fiscal stimulus of 72 trillion Rupiah (US$ 6.5 billion) on

infrastructure projects, besides 51.3 trillion Rupiah of stimulus measures. Also introduced

VAT exemption, import duty exemption and tax relief on investment.

When the policy incentives were introduced in Bangladesh, its exports have significantly

increased since 2005. Also Bangladesh has some export benefits that are as follows:

64

1. Income tax exemption

2. Subsidy on electricity, water, gas

3. Export loan 90% amount with letter of credit

4. Exemption from insurance premium

5. Refund of VAT on services like C&F, service, telephone, telex, electricity,

shipping agent commission.

6. Duty free import of machinery

7. 80% exports of production considered as export orient industry for availing all

export benefits.

Also in comparison to Bangladesh, India is lacking in the procedures like

1. Shipment time less 3 day (India 10 days)

2. Easy access to bank credit (India access and procedural time a problem)

3. Excellent infrastructure support in Export processing zones

Indian textile and apparel industry

Indian textile and apparel industry accounts for US$ 58 billion with potential to grow

rapidly.

Out of US$ 58 billion, India exports USD 23 billion in which USD 10 billion accounts

for clothing and USD 13 billion accounts for Textile exports.

Remaining USD 35 billion market is domestic market. Out of which USD 23 billion

accounts for clothing and USD 12 billion for textile.

India has strength of strong fibre base, flexibility in production of small order lots, design

and development creativity, presence of integrated companies that is concept to

consumer, ability to handle value additions; embellishments etc. and also has good

cultural comfort with US and Europe.

65

Vision Document 2012

As per the vision document 2012 textile ministry:

Stitching machines required 14.15 lacs, investment required in garment making Rs.21800

crores, investment required in back value chain Rs.128800 crores and investment

required for product development Rs.250 crores.

66

DATA ANALYSIS

AND

INTERPRETATION

67

Do you export textile goods to other countries?

a. yes

b. no

12

0

yes no

68

Which textile you are exporting?

cotton 7

wool 5

silk 6

jute 4

others 6

7

5

6

4

6

0

1

2

3

4

5

6

7

8

cotton wool silk jute others

69

To which your export business is most related to.

Australia 5

Canada 6

France 4

Germany 7

Italy 2

Japan 6

Nether-land 4

Uae 3

U.s.a. 8

U.k. 4

Other countries 3

3

4

8

3

4

6

2

7

4

6

5

0 2 4 6 8 10

Australia

Canada

France

Germany

Italy

Japan

Nether-land

Uae

U.s.a.

U.k.

Other countries

70

Do you think that recession affected your business?

a. yes

b. no

12

0

yes no

71

If yes then what is the impact on the business

a. profit 1

b. loss 11

1

11

profit loss

72

What is the percentage change in export

a. 10% increase

b. 20% increase

c. 30% increase

d. More than 30 % increase

e. More than 30 % decrease

f. 30% decrease

g. 20% decrease

h. 10% decrease

1

0

0

0

4

4

2

1

a. 10% increase

b. 20% increase

c. 30% increase

d. More than 30 %increase

e. More than 30 %decrease

f. 30% decrease

g. 20% decrease

h. 10% decrease

73

Did any Government policy help you to overcome from shock of recession?

a. yes some how

b. yes by very extent

c. not at all

1

4

7

a. yes some how b. yes by very extent c. not at all

74

How much time you think that you need to overcome your losses in business

a. more than two year

b. less than two year but more than one year

c. less than one year

3

8

1

0

1

2

3

4

5

6

7

8

9

a. more than twoyear

b. less than twoyear but more than

one year

c. less than oneyear

75

What you think who are Responsible for this all drama (financial crisis)

a. USA

b. Europe

c. China

d. India

12

000

a. USA b. Europe c. China d. India

76

Recommendations

Immediate:

1. Immediate ad hoc increases in all industry Duty draw back rates by at least 2%.

2. 2% additional subvention in export credit

3. Exemption of fringe benefit tax as applicable to IT sector may be extended to

apparel export sector

4. 80 HHC benefit should be re-introduced for at least 5 years

5. Interest free loans for investment in machinery should be introduced along with

zero duty import of capital goods scheme.

Short term:

1. Moratorium of two years for repayment of principal amount against term loan

2. A part of funds under rural employment guarantee scheme be earmarked for

apparel sector, since absorbs agriculture labour.

Long term:

1. Benefits available in SEZ are extended, at par to units in domestic tariff area, if

exports are at least 90% manufacturing.

2. Higher allocation of funds to apparel export industry for capacity building

3. Rs.250 Crore allocations for brand building exercise.

If recommendations are accepted

Over 71% employment generation is in garment sector

Aims at 75% achievement in textile ministry's target for new jobs of 8 million by

2012

Direct employment generation in garmenting will be 3.34 million

Weaving, knitting and processing will be 1.14 million

Spinning 0.2 million

77

Indirect employment generation will be 6.05 million.

Questionnaire for exporter

Name of exporter

Address of exporter

Dear Sir

Do you export textile goods to other countries

c. yes

d. no

Which textile you are exporting?

cotton

wool

silk

jute

others

To which your export business is most related to.

Australia

Canada

France

Germany

Italy

Japan

Nether-land

Uae

78

U.s.a.

U.k.

Other countries

Do you think that recession affected your business.

c. yes

d. no

If yes then what is the impact on the business

c. profit

d. loss

What is the percentage change in export

i. 10% increase

j. 20% increase

k. 30% increase

l. More than 30 % increase

m. More than 30 % decrease

n. 30% decrease

o. 20% decrease

p. 10% decrease

Did any Government policy help you to overcome from shock of recession?

d. yes some how

e. yes by very extent

f. not at all

79

How much time you think that you need to overcome your losses in business

d. more than two year

e. less than two year but more than one year

f. less than one year

What you think who are Responsible for this all drama (financial crisis)

e. USA

f. Europe

g. China

h. India

80