Textile industry is labor intensive. India is one of the largest producers of cotton in the world. Both make India and textile industry made for each other. Progress has been made in the industry, but much more needs to be done. Problems of Textile Industry in India needs to be understood in the context of historical evolution of the sector.

In last few years, India’s textile industry has grown rapidly. According to a report published in UN Comtrade, the industry has potential to overtake China soon. In 2013-14, India left Italy, Germany and Bangladesh behind and is now the second biggest exporter. Overall Indian textile export grew last year by 21 per cent, while garment export grew by 23 per cent.

Textile industry is the biggest employer after agriculture, with 3.5 crore people working in it. Even in terms of overall production, India is now second after China. After India increased minimum wage, minimized child labor and took steps for worker’s security in accordance with international standards, more buyers like Walmart, Gap etc are coming to India. For 2014-15, total export target is set as $50 billion.

Despite all these good news, there are ample of problems with the industry.

Power shortage is the biggest problem of all. On top of that diesel prices are constantly rising, making alternate arrangement costlier. This leads to loss of production hours and increases cost of production.

There is severe shortage of trained manpower. Designers who understand requirements of western customers are scarce in the market. Even among the factory workers, the productivity is dismally low. If productivity of an American worker is 100, then an Indian is only 13 in productivity. On top of that strikes and union hooliganism makes textile a bad investment destination.

Raw materials account 35 per cent of the total production cost in India, much higher than other countries. Despite having largest area under cotton production (26 per cent), India only produces only 9 per cent. High yielding cotton variants need to be introduced, so to increase the production. Fluctuating prices and uncertainty regarding availability of raw material is big headache for the producers.

Most of the India’s textile mills (58 per cent) are working with obsolete machinery, more than 25 years old. The automatic looms are only 20 per cent of the total number of looms. This is much less than the global average of 65 per cent. Problem with obsolete machinery is that they have low efficiency and produce poor and inconsistent quality products. This causes loss of face for the industry in the international market.

Custom and exercise duty on machines, readymade products, and raw materials increase cost of the production. Due to government’s incentives to SMBs in textile industry, consolidation is not happening. The industry is totally decentralized. Consolidation will help in bringing economies of scale and bring standardization.

The short term problems of the industry are high raw material costs, and high interest rates on loans. While the long term problems include outdated machinery, low productivity of manpower, power outages and back breaking taxes.

Right now, Indian products are facing stiff competition from high quality and cheaper products from Taiwan, South Korea and Japan. It is paradox that in a labor intensive industry and raw material is readily available, cost of the production is so high. If these problems are taken care of by the government, then India’s textile industry can also become mega industry just like China’s.