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Textile sector needs a vision and mission

Prime Minister Narendra Modi has embraced ‘atmanirbhar’ or ‘self-reliance’ as a development strategy to reboot the Indian economy. It is about tapping India’s inherent strengths to emerge stronger as a nation, economically and otherwise. Policies are being reshaped in line with this philosophy and the most recent are the schemes with incentives worth ₹50,000 crore announced to make India self-sufficient in the electronics sector, especially in the manufacture of mobile handsets.

Though the country can boast that 97 per cent of its mobile phone demand is met locally, the worrying part is that 88 per cent of the components that go into a handset including the display, printed circuit board and the chip sets are imported. The value of these imports has been rising so rapidly that it has began to impact the balance of payment position. The scheme sseek to attract investments from global handset component players and create a strong domestic supply chain which will not only reduce the dependence on imports but also make India a global handset manufacturing hub. Today, a negligible share of the handsets manufactured in the country are exported.

The larger vision of a ‘Atmanirbhar Bharat’, thus, is not just import substitution but to build capacity for manufacturers in India to dominate the global market. While pursuing such a policy will, no doubt, boost the country’s manufacturing and exports, the government should not lose sight of sectors which are already self-reliant and can, with a little help, play a larger role in the global market. The textile sector is a case in point.

If there is one sector in the country that is self-reliant end-to-end, it is textiles. Unlike Bangladesh and Vietnam or for that matter China, which are dominating the global textile market, India has abundant supply of raw material. It is the largest producer of cotton, accounting for 25 per cent of the global output. It is also the second largest producer of man-made fibres — polyester and viscose. Over the years a large spinning, weaving and apparel making capacity has been established to convert the raw material into end-products. Labour availability is plenty and, most importantly, a strong domestic market exists.

Stagnant exports

But the sector, which accounts for seven per cent of India’s manufacturing output, two per cent of GDP, 12 per cent of exports and employing about 10 crore people, has been stagnating in recent years. Its exports 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 per cent in FY16 to 12 per cent in FY 19. 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. On the other hand, India’s apparel exports declined from $18 billion in FY17 to $17 billion in FY19.

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. 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.

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.

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.

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