Sunil Khandelwal, chief financial officer of the Rs 2,977-crore textile company Alok Industries, is a happy man these days. Signs of revival in the equity markets have instilled a sense of hope in the CFO. He can now focus his attention on raising money for his projects. ?I am quite relieved,? he says. ?The equity markets are looking up. Banks are jittery, yes. But they are lending even though it is a bit selective. That should help.?

Khandelwal?s optimism is not misplaced. Alok like many other organised textile players has been ramping up capacity aggressively over the last few years. ?Every year, we?ve been undertaking capital expenditure of about Rs 1,000 crore. This has been on for the last five years,? he says. ?This capex has been in different areas such as spinning, weaving and processing. Spinning and weaving don?t add to my turnover, processing does. In totality, however, capacity utilisation will go up from about 50-60% currently to about 85-90%. That should help us log better sales because production will go up,? he adds.

At a time when demand for textile products has softened in the international market, sales are unlikely to zoom. But Khandelwal isn?t fretting too much about it. ?The market will not remain like this. Demand will pick up.?

Exports of key textile items in the last few months highlight the tight situation in which the industry has been. For the April 2008 to January 2009 period, for instance, exports of cotton yarn, fabrics and madeups showed a marginal decline of 3.12% over the corresponding period in 2007-08. It was Rs 358.14 crore in absolute terms for April 2008 to January 2009. In contrast, showing an increase for the same period were commodities like natural silk yarn, fabrics and madeups (0.71%), manmade yarn, fabrics and madeups (8.44%) and woollen yarn, fabrics and madeups (15.39%).

Given the performance therefore, efforts have been on to revive growth wherever needed. The government, for instance, recently announced that the backlog in interest subsidy under the Textile Upgradation Fund Scheme (TUFS) would be released immediately. This works out to about Rs 2,546 crore for the September 2008 to June 2009 period, which comes as a big relief to both organised and unorganised players. ?The scheme started in 1999. It was initially meant to be for five years,? says P R Roy, a textile industry veteran, who was formerly chief executive of Arvind Mills. ?It however got subsequent extensions. And now the scheme will run till 2012,? he adds.

In fact, the TUFS scheme has allowed players such as Alok Industries to ramp up capacity quickly. Apart from providing a 5% interest subsidy on loans for capital expansion, the scheme also provides a 10% subsidy on purchase of equipment for manufacture of hard textiles, garments, even processing of yarn. ?The 5% interest subsidy was brought down to 4% in 2007 for loans taken for spinning-related activities, but weaving and processing were spared,? says an industry insider. Even then the scheme has benefited a number of players. Says Khandelwal, ?We produce about 5 lakh metres of fabric every day. On a per-annum basis, it is about 175 million metres of fabric that we produce. Our garment producing capacity is 15 million pieces per annum. We will be increasing this capacity to 22 million pieces by the end of the current financial year.?

Capacity expansion is taking place in other textile companies as well. The Rs 3,871-crore Century Textiles & Industries, a part of the B K Birla group, has a denim capacity of 20 million metres per annum. In fine-quality cotton textiles, the company has a capacity of 25 million metres per annum. In yarn, the company has a production capacity of 47 lakh kg per annum. ?We recently commissioned a new plant in Baruch, Gujarat. The investment is Rs 850-900 crore,? says R K Dalmia, president (textiles, yarn and denim divisions), Century Textiles & Industries.

Anticipation of future demand, as Khandelwal says, is clearly goading organised players to scale up. The slowdown to a certain extent has highlighted that the dependence on the US and Europe as export markets is not the most-appropriate policy for manufacturers here. Finding newer markets is an imperative. It puts India in direct competition with the likes of China, Bangladesh, Sri Lanka and Vietnam, who are also exploring new markets to export their products.

Says Ramesh Poddar, vice-chairman and managing director of the Rs 530-crore Siyaram Silk Mills Ltd, who is also president of the Federation of the All India Textile Manufacturers? Association (FAITMA), ?If you have to compete with these countries, you have to ramp up your capacity. These countries are able to compete so aggressively in the global market because of the economies of scale they have. That helps.?

China, in particular, say players is the real threat to India on account of the core competence the country has acquired in every segment of the textile value chain, be it spinning, weaving, processing or garment manufacturing. ?Bangladesh, Sri Lanka and Vietnam, in contrast, are basically garment manufacturing countries,? says Khandelwal. ?So, companies there are potential clients for fabric makers here.?

China?s importance in textiles can be gauged from the following figures: Its share in world textile trade is 30% as of now, up from 10% a few years ago. It is running neck to neck with Europe, whose share in the same period has come down from 50% to 30%. ?India?s share, in contrast, has been constant at 3.5%,? says a textile analyst based in Mumbai. By some estimates, China?s share in world textile trade will go up to about 40-45% in the next 5-7 years, while Europe?s will come down to about 5%. ?India?s share is likely to go up 6-7% on account of some incremental share it will gain from Europe,? says the analyst.

Players contend that to increase its share in world textile trade, estimated to be $600 billion or Rs 28,50,000 crore at the moment, Indian exports would have to go up significantly. Currently, India exports $21 billion or Rs 99,750 crore worth of textiles. The government is hoping that by 2012, Indian exports would reach $50 billion or Rs 2, 37,500 crore. It calls for an investment of $10 billion or Rs 47,500 crore every year. ?Organised players would need to organise themselves further while unorganised players would have to get themselves organised to be able to do this. The will to grow has to be there,? says an analyst based in Delhi. Some argue however that the environment has to be favourable for growth. ?Infrastructure needs to be streamlined, labour laws have to be flexible, power costs have to come down,? says Dalmia of Century Textiles. Till that time, it is a catch-22 situation for the industry.