India’s textile sector needs more support to stop the market from contracting

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A view of the complex that houses the office and a garment factory in India. File / Reuters

India’s share of global otton yarn exports declined from 600 basis points to 23 percent in calendar year 2020 (CY2020) from 29 percent in fiscal 2015, while that in ready-to-wear (RMG), its share has stagnated at 3-4 percent over the past decade.

The lack of free trade agreements (FTAs) and the significant improvement in the competitiveness of peers are the main reasons for this decline.

Textiles are important to India’s $ 313 billion in merchandise exports, as they make up 11 percent of the pie. The sector is also an important generator of jobs.

Given its economic importance, the sector has recently seen a series of government measures, including the textile parks announced in the Union budget 2021-2022 and the inclusion of the sector in the allocations under the incentive program. production-related (PLI).

While these are steps in the right direction, an analysis from CRISIL Research indicates that more is needed to solve problems and spur renewal.

In cotton yarn, India has lost market share over the past decade to Vietnam and China due to high costs and lack of FTAs ​​amid intensifying competition.

In RMG, India has been successful in maintaining its share even as world trade in the segment has contracted. But competitors like Vietnam and Bangladesh have done much better – they’ve taken advantage of China’s declining share over the past five years, while India hasn’t.

In addition, Indian textile players were pushed to the brink in 2020 as the Indian government reduced export incentives in line with World Trade Organization guidelines.

CRISIL Research does not expect any significant improvement in incentives with the launch of the mechanism for remitting duties and taxes on export products (RoDTEP), which aims to reduce the tax burden on exporting entities. However, to revive the textile value chain, the government has announced additional structural reforms, the impact of which needs to be assessed.

The recently announced PLI program for Synthetic Fibers (MMF) and Technical Textiles is expected to improve the potential of MMF-based RMG exports where India’s share has been low. Along with the integrated textile parks program, the PLI program can help the sector increase its share of exports in the medium to long term, if properly implemented. However, continued support in terms of trade negotiations, more investment to improve infrastructure on a larger scale may be needed.

India is in a favorable position with China facing a global political backlash, but capitalizing on this opportunity would require continued and concerted efforts.

The share of the textile sector in total Indian merchandise exports fell from 24 percent in 2001 to 11 percent in 2020. The contribution of cotton yarns to the Indian export basket decreased over the same period by 2 percent. cent to about 1 percent, and Ready Made Garments’ (RMG) export share increased from 11% to 4%.

It is estimated that exports accounted for 28 percent of cotton yarn and 25 percent of RMG sector last year. According to a CRISIL report, the lack of free trade agreements (FTAs) and the significant improvement in the competitiveness of peers are the main causes of this decline.

The report points out that textiles are important to India’s $ 313 billion in merchandise exports as it accounts for 11 percent of the pie. The sector is also a major generator of jobs and with 45 million direct employees and 60 million employees in related industries, the sector is the second largest employment generating sector in India.

A CRISIL analysis points out that India has lost market share in cotton yarn over the past decade to countries such as Vietnam and China due to the high cost and lack of FTAs ​​(Accords free trade) in a context of intensifying competition. In RMG, India has been successful in maintaining its share even as world trade in the segment has contracted. But competing countries such as Vietnam and Bangladesh have done much better as they have capitalized on China’s declining share over the past five years when India has failed.

The report says India’s textile players were pushed to the brink in 2020 as the central government slashed export incentives in line with World Trade Organization guidelines. CRISIL Research has indicated that it does not expect any significant improvement in incentives with the launch of the Export Duties and Taxes Remission Program (RoDTEP), which aims to reduce the tax burden on exporting entities. However, to revive the textile value chain, the government has announced additional structural reforms, the impact of which needs to be assessed.

The report observes that the recently announced PLI program for Man-Made Fibers (MMF) and Technical Textiles is expected to improve the potential for exports of MMF-based RMGs where India’s share is small. Along with the integrated textile parks program, the PLI program can help the sector increase its share of exports in the medium to long term, if properly implemented. However, continued support in terms of trade negotiations, more investment to improve infrastructure on a larger scale may be needed. India is in a favorable position with China facing a global political backlash, but capitalizing on this opportunity would require continued and concerted efforts.

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