A deep dive into the textile industry

**Akshara** (0:04)
In today's episode, we'll break down two important stories. First, we'll do a deep dive into the textile industry, and then we'll talk about whether we can find jobs for the next billion workers. Welcome back to The Daily Brief by Zerodha, where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara, and today is Tuesday, 30th June. Coming to the first story. So pull out a cotton t-shirt from your almirah, and look at the tiny tag stitched inside the collar. Chances are, it probably says, made in Bangladesh or made in Vietnam. The chances that it will say made in India are much lower. Now, this should be strange. We have more land under cotton than any country on earth, more spindles running than almost any country on earth, and more textile workers than most countries have citizens. Our textile industry is enormous in scale, and the textile and apparel industry is India's second largest employer after agriculture. 45 million people work in it directly, and many millions more depend on it for their livelihoods, especially in small towns across Gujarat, Tamil Nadu, Uttar Pradesh, and West Bengal, where formal industrial work is otherwise hard to find. This sector brings in about $37 billion in export earnings every year. So when it slows down, the effects show up in the larger economy.
And yet, it doesn't make the t-shirts in your almirah. Now to understand why we are missing from the world's closets, it helps to understand the chain that connects a cotton field to a finished t-shirt. So this is a value chain that flows through five stages. And it all begins with raw fibre, either cotton from a farm or synthetics from a chemical plant. This fibre goes first into a spinning mill where it's cleaned, combed, and twisted into yarn. That yarn is then sent to a weaving unit where it becomes cloth. At this point, the cloth is coloured a neutral beige. But before it becomes something you would like to wear, it must go to a dyeing and processing unit where it's bleached, washed, and coloured. Finally, that coloured cloth reaches a garmenting unit where workers cut and stitch it into clothing. So at each of these stages, it picks up value. A kilo of raw cotton is worth about ₹170, and over the course of its journey, it turns into two to three finished garments worth ₹800 to ₹1000.
That is a five to six-fold multiplication. But most of that appreciation happens at the very last stage, garmenting. And this is also where most human labour comes in.
Until this point, things are largely mechanised with spinning mills and weaving units doing most of the work. But garmenting is almost entirely manual. Hundreds of workers at sewing machines assembling each piece by hand. The economics here are driven by labour cost and skill, not machinery.
And that is where our issue lies. India is genuinely strong at the earlier stages. We run more than 43 million active spindles and are the world's second largest spinning hub. But we are weak at garmenting. Only that's where the most money is made and where most jobs are created. And we've been stuck here. India's share of global apparel exports has barely moved for nearly 20 years. And over the same period, Bangladesh went from 2.2% to nearly 10%.
Vietnam went from 1% to nearly 8%.
Both were behind us in 2000 So this is the outcome of two factors. One, the fibre we chose to build our industry around. And two, specific policy decisions that kept our factories small. So the clothing world runs on two types of fibre. Cotton and man-made fibres or MMF. Now cotton comes from farms. Its supply moves with weather, harvests and pest cycles. Man-made fibres like polyester, nylon or viscose come from chemical plants. And these run at a predictable cost year round. So over the last 20 years, past fashion, active wear and athleisure drove a massive global shift towards synthetic cloth. Globally, 70% of all fibre consumed for any purpose today is man-made. Even when it comes to apparel specifically, cotton and synthetics are at a roughly equal footing.
India, meanwhile, has stuck steadfastly to cotton.
60% of the yarn we make is cotton, and this has made us the world's largest cotton yarn exporter. But we're nowhere close in the global man-made fibre trade. And this is reinforced by a structural tax problem for anyone working with synthetic fibre. So MMF fibre is taxed at 18% and yarn at 12%.
But the fabric woven from it, meanwhile, is taxed at only 5%.
So if you want to try your hand at making synthetic yarn or fabric, you must pay the higher rate up front and wait months for a refund, locking crores of working capital in the system.