What’s ailing the textile sector?

Lack of FTAs, differential tax rates for man-made and cotton fibres are some issues

The challenges facing the Indian textile industry are multi-fold. While on the one hand, it is losing to competition because of a lack of free trade agreements (FTAs) with the EU and the US, on the other, the small scale of business is making it difficult for textile manufactures to compete on cost with players from outside.

Prabhu Damodaran, Convenor, Indian Texpreneurs Federation, a textile entrepreneurs association that works towards improving the competitiveness of the Tamil Nadu textile sector, spoke with BusinessLine on issues plaguing the sector and how the industry is trying to address them. Excerpts:

Why is India’s textile export falling?

India is facing huge competition from other countries in ready-made garment (RMG) exports, particularly cotton. And, while the world of fashion is moving towards blends, India is not making many blended apparel items. So, on the one side, our traditional items are facing competition, and on the other, we are behind in product diversification.

While favourable FTAs and market diversification strategies will help, what is needed to grow our overall textile exports is bringing in a fibre-neutral policy. The tax rate on all textile raw materials should be the same. Now, even after GST, it (tax) is 18 per cent for MMF (man-made fibre) and 5 per cent for cotton.

If this change is brought about, textile companies will make and sell more blended textile items from cotton viscose, cotton polyester and polyester viscose, etc, and our export competitiveness will also improve. Vietnam has a higher market share than us in textile exports because it offers a good product spread to its clients with more MMF and cotton blends.

Textile imports from Vietnam and Bangladesh are cheaper for buyers across the world. What can be done to counter this? Is the absence of FTAs a problem for Indian textile companies?

Lack of FTAs with the EU and the UK is a major differentiator in the India versus Bangladesh competition. But it is not just to do with FTAs. In the past few years, the two countries, Bangladesh and Vietnam, have scaled up the size of their factories, design capabilities, marketing strategies and operational efficiency in a big way.

 

PRABHU DAMODARAN, Convenor, Indian Texpreneurs Federation

 

 

The Centre has doubled the import duty on 300-plus textile products; this should curb imports into India. Is the industry happy?

It is a good move. It will help domestic textile manufacturers, no doubt. But the move leaves out Bangladesh. It will restrict direct flows from China, but China will use the Bangladesh route to dump their textiles here. India allows duty-free import of ready-made garments from Bangladesh under the SAFTA (South Asian Free Trade Area) agreement. So sourcing restrictions have to be introduced.

The Centre should look at tweaking the ‘rules of origin’ in the SAFTA agreement. The benefits under SAFTA should be available only to those countries that mandatorily use yarn and fabrics of Indian origin.

This will prevent China from taking undue advantage of a facility given to LDCs (least-developed countries) and, at the same time, boost India’s yarn and fibre exports to Bangladesh and other LDCs.

Is the problem for the industry in the spinning end or the textile end?

In spinning, India is very competitive. We are able to export yarn to many countries, including China, because we have the technology, size, quality, productivity and the ability to manufacture at a very low cost. The problem today is with the textile industry. Though we have improved reasonably in the past few years, there is still a lot to catch up . The apparel sector should work towards global benchmarks in terms of new techniques in manufacturing, particularly improving operational efficiency.

How is Indian cotton in quality compared with that from other countries? Do we meet the global standards?

Indian cotton is a good one in terms of all quality parameters and comparable with any good cotton in the world. But from farm to ginning, a lot of man-made contaminations get into it. Even African countries are supplying cotton with 1.5-2 per cent trash (impurities), whereas we are still struggling with 3 per cent trash levels.

From the industry side, we have now started working with selective ginners to introduce a new concept in the trade through contamination-controlled cotton, and are trying to introduce some best practices at the farming and ginning stages.

With the minimum support price for cotton increased significantly, is acreage going to rise under cotton this year?

Yes, we are expecting a reasonable increase in acreage with a definite support-purchase mechanism in place and vibrant domestic consumption; more Indian farmers will go for cotton.

But the long-term solution is to increase the average yield. Many countries have crossed 1,000kg/hectare yield. We need to catch up from 550 kg/hectare levels. India should announce a new cotton technology mission to achieve this.

We are hearing of pink bollworm attack in Maharashtra. What is the outlook on cotton output this year?

State governments are working closely on the field. Farmers may be able to manage this issue better this year, and we are expecting a robust crop.

What is the potential for Indian cotton textiles over the next five years in the global market? Will some share from China come to India, given the US-China trade war?

Yes, exports are critical, but Indian textile manufactures should focus on the opportunities in the domestic market too. With increase in disposable income and higher aspirations, India is going to be a faster growing clothing market in the world. In the next seven years, the menswear market size of branded apparels in India will reach a size of $44 billion.

Domestic opportunity aside, through trade agreements such as India-Mercosur PTA (Preferential Trade Agreement) and Eurasia-India FTA, we can bring more volumes to the export trade. If the trade war intensifies further, India may naturally get some more percentage of business from the US. But many Chinese companies are moving to LDC countries to spread the risk of this trade war.

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