Context:
The textile industry has urged the government for reimbursement of all the duties and taxes incurred during production to help enhance overall competitiveness of the sector.
Cotton textiles exports declined by 16.50 per cent during April 2019 to February 2020 to USD 9,405 million compared to USD 11,262 million in the same period of the previous financial year, the Textiles Export Promotion Council (TEXPROCIL).
Sharp declines were reported in major export markets like China (51 per cent), Bangladesh (23 per cent), Vietnam (18.5 per cent) and South Korea (28.46 per cent).
Importance of MSME sector in Indian Economy:
MSMEs play a significant role in the Indian economy contribute towards 29 per cent of the gross domestic product (GDP) and 48 per cent to India’s overall exports.
At a time when, India’s textile industry is passing through unprecedented times due to months of nationwide lockdown to prevent spread of coronavirus (Covid-19), the change in MSME definition would provide a major relief for recovery in both domestic and export fronts.
The distressed asset fund of Rs 4,000 crore created to help weaker MSMEs that are struggling through non-performing assets norms due to Covid-19 pandemic, will bring them back into the business and they can start activities afresh.
Revised MSME definition to help ease of doing biz, attract investments: Textile sector:
The textile sector welcomes the Centre’s decision to revise the definition of MSMEs and says that it will not only help the sector grow but promote seamless expansion, ease of doing business as well as attract huge investments.
Increasing sales turnover limit to Rs 250 crore from the recently announced turnover of Rs 100 crore while excluding export sales turnover from this calculation would greatly benefit the highly labour-intensive and fragmented textiles, and clothing sector.
Manmade fibre textile industry would also be the major beneficiary as most of the textile units are under MSME.
Higher threshold will include more units now and will give a huge fillip to the production, domestic supply and exports of manmade fibres textiles. Apart from that spinning and weaving units will also get benefit of this revision.
The government also approved roadmap for implementing the remaining two packages for MSMEs, namely, a Rs 20,000 crore package for distressed MSMEs and Rs 50,000 crore as equity infusion through fund of funds.
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.
- In fact, apparel units in the country have an average size of 100 machines. Compare this with Bangladesh which has on an average of at least 500 machines per factory.
- Apart from lower labour cost and tariff benefits on account of it being a `least developed country’, the better economies of scale makes Bangladesh imports highly competitive vis-a-vis India.
- The only way 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 Indian players scale up faster at lowest cost and maximum efficiency in operations.
Bias towards cotton:
- Indian policymakers have always favoured cotton. Not surprising, as 5.8 million farmers are engaged in cotton cultivation.
- GST on cotton is uniformly 5 per cent for fibre, yarn and fabric. But not so for man-made fibres (MMF), which 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. This explains why it accounts for just $6 billion of the $39-billion textile exports.
- But what has complicated the situation is the global shift in fashion towards MMF. Today, 72 per cent 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.
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.
- They will help Indian players counter Bangladesh which, as a ‘least developed nation’, gets duty-free access.
- 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. Wide differences, especially in opening up the automobile and wine sectors, is the reason.
- 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 are involved in.
- The government should look through the prism of ‘atmanirbhar’ to adopt an appropriate ‘give and take’ policy and sign the FTAs.
- Job creation can be an important metric. Every $1 billion increase in textile exports adds 1.5 lakh jobs.
Way Forward:
- Cooperative societies must be promoted and strengthened in rural and semi-urban areas where there is large concentration of handloom weavers.
- During COVID-19, the textile firms produced personal protective equipment worth 10,000 crore from zero. Technical textiles further need to be promoted.
- Expanding Weaving Capacity: The weaving sector is the backbone of the textile industry.
- On the one hand, promoting the weaving industry gives impetus to the domestic spinning industry and on the other, it makes our garment’ sector globally more competitive.
- Investing in Technology Upgradation: To ensure rapid transformation of the weaving sector in India, under Amended Technology Upgradation Funds Scheme (ATUFS) of the Government of India, the weaving sector may be considered to get capital subsidy at par with garmenting and technical textiles.
- These measures would encourage MSME segment to expand their horizons, strengthen them to be a bigger contributor to the economy and boost exports.
- All these measures will help exporters of cotton textiles to survive and sustain in exports which in turn also enable consumption of cotton, which has been procured and stocked by the Cotton Corporation of India in very large quantities.
Conclusion:
To be a serious player in the global market, India needs to have a fibre neutral tax policy. 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 a fresh blueprint for the textile sector. Once that is drawn up, the country needs to move into mission mode to achieve it.
‘Atmanirbharta’ will not be possible if the government fails those sectors that are already self-sufficient and capable of dominating the global market.
With focused interventions in this sector, we might enhance its performance in terms of more investment, employment generation and export earnings.
