- Textile sector
- Stagnant exports
- What are the responsible factors?
- Effects of COVID-19
- Way Forward
Textile sector needs a vision and mission
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The Indian textile industry is one of the largest in the world with a large unmatched raw material base and manufacturing strength across the value chain. The ‘atma-nirbharta’ or ‘self-reliance’ as a development strategy is also about tapping India’s inherent strengths to emerge stronger as a nation.
- The textiles sector in India, is the one which is self-reliant, end-to-end.
- India is the 2nd largest manufacturer and exporter of textiles in the world, after China.
- India is the largest producer of cotton, accounting for 25 % of the global output.
- It is also the second largest producer of man-made fibers — polyester and viscose.
- Over the years a large spinning, weaving and apparel making capacity has been established to convert the raw material into end-products.
- Labour availability is plenty and a strong domestic market exists.
- The sector accounts for 7 % of India’s manufacturing output, 2 % of GDP, 12 % of exports and employs about 10 crore people.
- The textile exports have been stagnating in recent years.
- Its exports have remained at the $40-billion level for the last six years (it briefly touched $42 billion in FY15).
- The share of textiles in India’s overall exports has declined from 15 % in FY16 to 12 % in FY 19.
- Newer entrants like Bangladesh, Vietnam and Cambodia have gained substantially during this period.
- India’s apparel exports declined from $18 billion in FY17 to $17 billion in FY19, whereas that of Bangladesh and Vietnam are on the rise.
- Internal factors, more than competition, are responsible for the stagnation of India’s textile exports.
What are the responsible factors?
1. Lack of scale:
- India’s spinning capacity is of a global scale, but the weaving and apparel making capacity is relatively poor.
- The apparel units in the country have an average size of 100 machines, compared to Bangladesh which has on an average of at least 500 machines per factory.
- Further, the lower labour cost and tariff benefits as it is a `least developed country’, makes Bangladesh imports highly competitive vis-a-vis India.
- India can overcome this challenge is by setting up mega apparel parks close to ports with `plug and play’ facilities and common infrastructure for effluent treatment, etc.
- This will help to scale up faster at lowest cost and maximum efficiency in operations.
2. Bias towards cotton:
- Indian policymakers have always favoured cotton, GST on cotton is uniformly 5 % for fibre, yarn and fabric.
- But the man-made fibres (MMF), are taxed at 18 % for fibre, 12 % for yarn and 5 % for fabric. This tax structure makes MMF textiles costly and explains why it accounts for just $6 billion of the $39-billion textile exports.
- There is a global shift in fashion towards MMF. Today, 72 % of the global textile fibre consumption is MMF.
- From 48.2 million tonnes in 2010, end use of non-cotton fibre across the world is expected to increase to 94.3 million tonnes by 2025.
- To be a serious player in the global market, India needs to have a fibre neutral tax policy.
- There is an imminent need for an MMF Mission to upgrade the industry’s skill when it comes to non-cotton textiles.
3. Lack of trade agreements:
- Preferential Trade Agreements, including Free Trade Agreements, help gain duty-free access to large textile markets such as the EU, Australia and the UK which, otherwise, levy 12-14 % import duty.
- Bangladesh as a ‘least developed nation’, gets duty-free access and Vietnam has just signed an FTA with the EU and its apparel exports will also suffer no duty from September.
- But India’s FTA negotiation with the EU has remained suspended since 2013 after 16 rounds of talks.
- An India-Australia Comprehensive Economic Co-operation Agreement has been in the works for eight years (Australia wants greater access for its agri exports).
- The British government has indicated that the UK-India FTA post-Brexit (a $3- billion opportunity) is not a priority due to high-value trade disputes the two countries.
- The government should adopt an appropriate ‘give and take’ policy and sign the FTAs.
Effects of COVID-19:
- Cotton textile exports plunged 53 % last month to $758 million, against the $1.62 billion logged in May 2019.
- The apparel exports fell 66 % to $1.27 billion ($3.15 billion) as economies across the globe reeled under the pandemic.
- Cotton yarn and fabrics exports slipped 47 % to $465 million ($885 million) in May while readymade garment shipments dropped 66 % to $517 million ($1.53 billion).
- Textile export in the first two months of this fiscal decreased 68 % to $991 million ($3.13 billion) and that of apparel was down 78 per cent to $643 million ($2.94 billion).
- Exporters have urged the government to include cotton yarn under the 3 % Interest Equalisation Scheme.
- The government should cover cotton yarn and cotton fabrics under the present RoSCTL (Rebate of State and Central Taxes and Levies) Scheme and the awaited Refund of Duties and Taxes on Export Products (RoDTEP) Scheme.
- These schemes reimburse all the duties and taxes incurred during the production process.
- It would also enhance the overall competitiveness of the textile industry and give a fillip to India becoming a hub of fabric and yarn production to serve both the domestic and export markets.
- The government should release all the pending claims under ROSL and RoSCTL to exporters of made-ups and garments.
- The further investments in capacity building and fibre neutral tax policy will be of great help in sustaining the heights gained by the sector.
India needs a fresh blueprint for the textile sector and has to revamp the policies, keeping in mind the change in global demand. The country needs to move into the mission mode to achieve new milestone in the already self-sufficient sector. Atma-nirbharta, in the true sense will only be possible if the government supports even those sectors that are already self-sufficient and capable of dominating the global market.