Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment
Textile Sector and Atmanirbharta
Context: India has embraced ‘atmanirbhar’ or ‘self-reliance’ as a development strategy to reboot the Indian economy in the post-COVID world and this includes relooking at Textile Sector as well
What is the larger vision of ‘Atmanirbhar Bharat’?
It is not just import substitution but to build capacity for manufacturers in India to dominate the global market
This includes building capacity in every step of manufacturing value chain
The Textile Sector in India
If there is one sector in the country that is self-reliant end-to-end, it is textiles.
Over the years a large spinning, weaving and apparel making capacity has been established in India to convert the raw material into end-products.
Unlike Bangladesh and Vietnam or for that matter China, which are dominating the global textile market, India has abundant supply of raw material.
India is the largest producer of cotton, accounting for 25% of the global output.
India is also the second largest producer of man-made fibres — polyester and viscose.
Labour availability is plenty in India which also possess traditional weaving skills
A strong domestic market exists which ensures a good return on investment
Textile Sector in India accounts for
Seven per cent of India’s manufacturing output
Two per cent of GDP
12 per cent of exports
Employs about 10 crore people
Every $1 billion increase in textile exports adds 1.5 lakh jobs.
Stagnant Exports of Textile Sector
Textile exports from India 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.
India’s apparel (finished product) exports declined from $18 billion in FY17 to $17 billion in FY19.
Relatively newer entrants like Bangladesh, Vietnam and Cambodia have gained substantially during this period.
Bangladesh’s apparel exports have risen from $26.60 billion in 2015 to $33 billion in 2019.
Vietnam, in a short span of time, has grown to become the third largest apparel exporter in the world.
What are the factors for stagnation of India’s textile exports?
Internal factors, more than competition, are responsible for the stagnation of India’s textile exports.
Lack of scale:
While India’s spinning capacity is of a global scale, the same cannot be said about weaving and apparel making.
Apparel units in India have an average size of 100 machines. Bangladesh has an average of at least 500 machines per factory.
Bias towards cotton:
Indian policymakers have always favoured cotton. This is because nearly 5.8 million farmers are engaged in cotton cultivation.
GST on cotton is uniformly 5 per cent for fibre, yarn and fabric.
However, GST for man-made fibres (MMF) are taxed at 18 per cent for fibre, 12 per cent for yarn and 5 per cent for fabric.
This inverted tax structure makes MMF textiles costly. Thus it accounts for just $6 billion of the $39-billion textile exports.
However, 72% of today’s global textile fibre consumption is MMF
Lack of trade agreements:
Preferential Trade Agreements, including FTAs, help gain duty-free access to large textile markets such as the EU, Australia and the UK which, otherwise, levy 12-14 per cent import duty.
FTAs will help Indian players counter Bangladesh which, as a ‘least developed nation’, gets duty-free access.
Vietnam has signed an FTA with the EU and its apparel exports will face no duty from September 2020. However, India’s FTA negotiation with the EU has remained suspended since 2013
Way Forward
India should set up mega apparel parks close to ports with `plug and play’ facilities and common infrastructure for effluent treatment, etc. This will reduce the cost of India manufacturers and effectively compete in global market
India needs to have a fibre neutral tax policy to be a serious player in the global market.
Also, there is an imminent need for an MMF Mission to upgrade the industry’s skill when it comes to non-cotton textiles.
India needs to adopt an appropriate ‘give and take’ policy and sign the FTAs so as to increase the stagnated textile exports
Connecting the dots:
India-EU broad-based Bilateral Trade and Investment Agreement (BTIA) – merits and challenges in signing it
