TEXTILE SECTORS GROWTH WITH FREE TRADE AGREEMENTS
ABOUT TEXTILE SECTOR OF INDIA
- Textiles sector includes all products in the value chain. From fibre, yarn, and fabric to garments.
- Indian textile sector and apparel market is currently estimated at over $160 billion, out of which export constitutes over $45 billion.
- Sector contributes 3% to Indian Gross Domestic Product, 7% of Industrial Output, 12% to the export earnings of India and employs more than 21% of total employment.
- India ranks 6th largest producer of Technical Textiles with 6% Global Share, largest producer of cotton & jute in the world.
- The share of the textile sector in the total Indian merchandise exports declined from 24 per cent in 2001 to 11 per cent in 2020.
- Cotton yarn contribution in Indian export basket declined during the same period from 2 per cent to approximately 1 per cent, and Ready Made Garments (RMG) share of exports declined from 11 per cent to 4 per cent.
- As per a CRISIL report, lack of free trade agreements (FTAs) and significant improvement in peer competitiveness are the main causes for this dip.
- An analysis by CRISIL points out that India has lost market share in cotton yarn over the past decade to countries such as Vietnam and China due to high cost and lack of FTAs (Free Trade Agreements) amid intensifying competition.
- The CRISIL report highlights that despite the EU and the US being the largest Ready made garments(RMG) export destinations from the country with 32 per cent and 27 per cent share in 2020 respectively, India was unable to increase its presence there.
REASONS FOR MODEST EXPORT PERFORMANCE OF INDIA’S TEXTILE SECTOR
- High import duties in developed countries :The duty in the EU and the UK on most garments imported from India is 12 per cent. The duty in the US may reach 32 per cent.
- Indian firms gets less competitive with firms from Vietnam and Bangladesh, whose products enter the EU and the US at zero duty.
- Shortage in supply of raw materials: Because of pollution issues some unit of china and Europe has been shut down due to which rise in the prices of basic raw material has resulted and there are many other factors like weather etc which are influencing the raw material supply.
- Lack of Foreign Investment: One of the concerns is that there is a lack of foreign investment in the textile sector.
- The GST (Goods and Service Tax) tax structure also makes clothing expensive and uncompetitive in both domestic and foreign markets. The threat of growing labor and worker salaries is another.
- Infrastructure bottlenecks: The low quality of India’s infrastructure continues to lag behind that of many other Asian countries.
HOW TO PROMOTE INDIA’S EXPORTS TO DEVELOPED COUNTRIES POST FTA?
- Start engaging with buyers now: Indian CEOs must start discussing with counterparts how FTA-led duty elimination will allow them to offer better terms.
- Set up design studios in partner countries: This will enable a direct interface with buyers. Japanese buyers almost insist upon such investments.
- Invest in high fashion branded apparel: 70 per cent of clothing bought by developed countries is made of mixed synthetics. Their share in Indian exports is less than 40 per cent.
- Publicise the FTA benefits: This year, many UK apparel brands have increased retail prices citing high inflation while paying at old rates for imports.
- Do not incentivise the export of fibre or yarn. The drawback or RoDTEP (Remission of Duties and Taxes on Exported Products)benefits allow firms to export at a price lower than domestic.
- Strengthen the weaving and processing segments: The yarn sector has large units, while weaving and processing happen in small informal units. Not surprisingly, while India is thenumber one yarn exporter (India 23 per cent share, China 13 per cent) when it comes to fabrics, performance falls (India 6 per cent, China 52 per cent).
- Liberalise labour laws: This will free the sector to invest in large units with 1,000 workers or more under one roof.
INITIATIVES TAKEN BY GOVERNMENT
- The government has allowed 100% FDI in the sector under the automatic route.
- Recently announced PLI scheme for man-made fibres (MMF) and technical textiles is expected to improve the potential of MMF-based Ready made garments(RMG) exports where India’s share has been weak.
- Along with the integrated textile parks scheme, the PLI scheme may help the sector enhance its export share over the medium to long term, if implemented well.
- India-Japan pact on cooperation in textiles will facilitate Indian exporters to meet the requirements of Japanese importers as per the latter’s technical regulations.
- A National Technical Textiles Mission is proposed for a period from 2020-21 to 2023-24.
- The New Textiles Policy 2020 for the overall development of the sector was released by the Ministry of Textiles.
- Cabinet Committee on Economic Affairs (CCEA) approved mandatory packaging of food grains and sugar in jute material for the Jute Year 2019-20.
- Amended Technology Up-gradation Fund Scheme (A-TUFS), estimated to create employment for 35 lakh people and enable investment worth Rs. 95,000 crores by 2022.
- Integrated Wool Development Programme (IWDP) to provide support to the wool sector, starting from wool rearer to end consumer, with an aim to enhance quality and increase production during 2017-18 and 2019-20.
- CRISIL says that Vietnam and Bangladesh enjoy lower duties and India needs to seep in trade agreements and low import duties in key export destinations.
- We need to focus on technology up-gradation and expand weaving capacity to scale-up operations for making the textile industry competitive in the global market.
- India will have to revamp its product portfolio, restructure incentive schemes and reduce cost.
- State governments should provide all the approval in place, including the provision of common effluent treatment plants for rapid scaling up of business.
SOURCE : THE HINDU BUSINESS LINE
SYLLABUS : MAINS, GS-3, INDIAN ECONOMY