Introduction:
The Indian textile and apparel industry can be broadly divided into two segments – yarn & fibre, and processed fabrics & apparel. Indian textile industry has some deep-rooted problems which needs to be addressed with long-term sustainable solutions
Challenges faced by Indian textiles sector:
- Market Reality: India’s textile industry grapples with domestic issues including outdated technology, inflexible labour laws, infrastructure bottlenecks, and a fragmented nature of the industry.
- The textiles sector in India, primarily dominated by the unorganized and small players, had taken a major hit with demonetization and the implementation of the goods and services tax (GST).
- Global Policies: According to the WTO’s Agreement on Subsidies and Countervailing Measures, a country needs to phase out export subsidies for a product as it achieves export competitiveness, defined as 3.25% share in world trade, and the per-capita income reaches more than $1,000 per annum.
- As per this agreement, India is under pressure to end export subsidy for the textiles sector by 2018.
- This implies that the existing subsidy schemes including the Merchandise Export from India Scheme (MEIS) and the Export Promotion Capital Goods (EPCG) Scheme will get affected by the same.
- Demand for MMF: Globally, manmade textiles and garments are in high demand, with the ratio of cotton-to-manmade-fibre consumption at 30:70.
- India, despite being the second-largest textiles exporter in the world, lags in this category because of unavailability of manmade fibres at competitive prices.
- Free-trade pacts: like the South Asia Free Trade Agreement (SAFTA) have led to intense competition from countries like Bangladesh which have zero-duty access to the Indian market. The government should take a re-look at such pacts and try to work out a solution.
- The government should aim at driving scale across the textiles value chain by encouraging large investment, consolidation of firms and enlargement of clusters.
- Impact of recent reforms: The sector went through a phase of stagnating exports, demonetisation, bank restructuring and implementation of the Goods and Services Tax (GST).
- India, which was the second largest exporter of Textile & Clothing between 2014 and 2017 after China, slipped to the fifth place losing its position to Germany, Bangladesh and Vietnam.
- Delay in disbursal of subsidies: Fast-track disbursal of subsidies for technology up-gradation under the TUFS scheme to help the industry modernise the operation.
Measures needed:
- Government needs to move away from export-specific subsidy, which violates WTO norms, to focus on regional and cluster subsidies, technology upgradation and skill development subsidies, which benefit all the producers.
- In India, cotton and manmade fibres (MMF) have differential tax treatment, here fibre neutrality will give a boost to the industry.
- Under differential tax treatment cotton is taxed at 5% and manmade fibres at 12%.
- In fact, of the total textiles and clothing exports from India, cotton accounts for around 75%, there is a need to increase production with the global consumption patterns.
- While India has abundant supply of labour, flexibility in labour laws and adequate skilling will give a big boost to the textiles industry.
- For instance, women should be allowed to work in all three shifts, after taking into account adequate safeguard measures.
- Technology upgradation schemes will help Indian players to increase both their productivity and competitiveness.
- In addition, the government needs to carefully evaluate the various trade agreement opportunities Bangladesh and Vietnam benefit from favourable access to some of the big apparel markets.
- The government also needs to re-look at fibre neutrality and evaluate various trade agreement opportunities, while domestically focusing more on technology upgradation and skill development.
Conclusion:
There is a need to expand the production base to non-traditional areas where abundant land and labour are available.
