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Textiles are important to India’s $313 billion merchandise exports. The sector is also a significant employment generator.
Though India is facing stiff competition from Vietnam and Bangladesh, who are doing better than us in cotton yarn and ready made garments (RMGs), our country is in a favourable position with China facing political backlash globally.
However, capitalising on this opportunity would need continuous and concerted effort. CRISIL’s Director Hetal Gandhi spoke to BusinessLine on the competitive landscape, government’s schemes and growth opportunities for India. Excerpts.
What have been the major reasons for the drop in share of textiles in overall merchandise exports from India?
Share of textile in overall Indian merchandise trade declined to 11 per cent in 2020-21 from 14 per cent in 2014-15 with Indian textile exporters losing to rival economies on price competitiveness. India started losing textile export share specifically in segments like RMGs and cotton yarn to countries with cost advantage such as Vietnam, China and Bangladesh.
Further, these countries continued to offer better incentives to exporters and investors. It led to an increase in share of these countries whereas India was able to only maintain its share in RMG from at 3 per cent and lost share in cotton yarn from 30 per cent in 2013 to 26 per cent in 2020.
Free trade agreements like Bangladesh with the EU and Vietnam with the US also aided countries to maintain significant pricing differences with Indian textile players.
How have Vietnam and Bangladesh upped the game in textile exports in the recent decade?
Both Vietnam and Bangladesh signed trade agreements with key RMG export destinations. Along with trade agreements, both these countries provide support to RMG exporters in terms of better infrastructure, facilities, cost advantage and export incentives.
Bangladesh enjoyed a cost advantage in the EU which led to an increase in its share from 4 per cent in 2005 to 6 per cent in 2020, whereas Vietnam enjoyed the status of most favoured nation in the US and gained share from 4 to 19 per cent during the same period.
How will the recently introduced PLI scheme for MMF (man made fibre) change the scenario on the export front?
A large portion of RMG export from India is based on cotton – 65 per cent. However, in global trade the demand for MMF-based garments and apparels is higher – 70 per cent. So, it restricts Indian exporters in the highly competitive global trade.
Now under the PLI scheme, the focus is on MMF and technical textile sectors. The scheme will incentivise the players which have the capability to increase the MMF-based product volumes rapidly. It will help them to achieve economies of scale and hence cost advantage as well.
Our analysis indicates that at 9 per cent incentive rates the scheme will bring in the additional revenue opportunity of ₹1,50,000 crore which translates into 2.5-3 million tonne capacity addition and 30 per cent increase in export potential.
If the entire benefit is passed-on, it will provide cost competitiveness to Indian exporters and manufacturers. However, this may not be sufficient, hence continuous drive for free trade agreements (FTAs) and successful implementation of the MITRA scheme is inevitable to drive competitiveness in textiles.
How can the government make MITRA programme successful?
MITRA (Mega Investment Textile Park) scheme focuses on developing world class parks for textile manufacturers with plug and play infrastructure.
What remains a monitorable is the size of the parks. Parks developed under the previous textile park scheme, SITP or Scheme for Integrated Textile Parks, were of less than average 100 acre compared to larger parks in Vietnam, China and Bangladesh. Some of the parks announced by countries like Vietnam remain substantially larger in size.
For example, Rang Dong Textile Industrial Park in Vietnam is planned over 5,200 acre, Chengdu Huamao International Garment Industrial Park in China is spread over about 2,500 acre and Chattogram Export processing zones spread over 450 acre.
In India, Brandix India Apparel City Pvt Ltd is the only operational park with an area of about 1,000 acre. MITRA looks at focusing on larger than this size but focus on deeper differentiators with significant incentives will provide unique positioning for Indian exporters.
How will the extension of RoSCTL scheme benefit the sector in the current context?
The government announced to extend the RoSCTL (Rebate of State and Central Taxes and Levies) or rebate on Central and State taxes scheme to provide further support to garment exporters.
Under the scheme, garment exporters, who are not entitled to get benefit under RoDTEP (Remission of Duties or Taxes on Export Products) scheme, will be incentivised as per the previously announced rates for different garment categories till March 2024.
The move will increase the cost competitiveness of Indian exporters in the global trade against rival countries. Revised guidelines on scheme continuation will be announced later and incentives could vary from 2-6 per cent.
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