Before the colours fade away

Combating international competition and racing against time, the textile industry is looking to the Centre for a leg up

June 25, 2017 09:23 pm | Updated November 11, 2017 12:20 pm IST - COIMBATORE

Seeking foreign shores:  There has been little to cheer on the export front for the textile and clothing industry in 2016-17. Exports increased by a mere 0.9% for the year.

Seeking foreign shores: There has been little to cheer on the export front for the textile and clothing industry in 2016-17. Exports increased by a mere 0.9% for the year.

As the country prepares to migrate to the Goods and Services Tax (GST) regime from July 1, textile and clothing exporters rest their hopes on the continuance of duty drawback taking into account all levies.

“For an international buyer, it is what India brings to the table beyond product, quality, and reliability. The concern of exporters is that they should not be out-priced by competitors,” said an industry insider.

The GST will cover several taxes and the duty paid by exporters for the products they import will come as a refund in the form of a duty drawback. However, there are certain levies that are not subsumed in the GST and these should be refunded, say exporters. Examples of such levies include electricity tax, market committee fees and VAT on fuel. It is critical, said the industry person, that poor clarity on duty drawback against these levies does not impact international competitiveness.

‘Little to cheer’

Analysis of data available for Indian textile and clothing exports during 2016-2017, there is little to cheer about for the industry. Textile and clothing exports increased by a mere 0.9% for the year ended March 2017. Exports were $35.42 billion in 2016-2017 as against $35.11 billion the previous year.

Data from Cotton Textiles Export Promotion Council (Texprocil) shows that export of cotton yarn, fabrics and made-ups declined 3.06% in 2016-17 compared with the previous year. Export of man-made yarn, fabric and made-ups also contracted 2.75 %. However, ready-made garment clothing exports rose 2.31% $17.35 billion.

For a country that has the second-largest integrated textile manufacturing facility globally, next to China, the almost flat growth in the exports is a matter of concern, especially since countries such as Bangladesh and Vietnam have seen exports rising.

China enjoys about 35 % share in the world textile and clothing exports while India, in second position, has a mere 4.89% share. Bangladesh and Vietnam are close behind at 4.62% and 4.05% share respectively and their exports are mainly garments. Significantly, world imports of textile and clothing had fallen 2.39% in 2016 (January-December) as against imports in 2015.

Almost 75% of the units in the weaving and garmenting segments in the country are in the unorganised sector. These units have to adapt to the new tax system and that, industry watchers said, might take time. The revised drawback rates should be announced at the earliest so that exporters can quote prices to the buyers.Hence, there will a short-term impact on exports when GST is introduced, say industry sources.

In the process of adapting to the new system, exporters in the man-made fibre segment (MMF) might face even more challenges because of the inverted duty structure. While it is 18% for MMF fibre and yarn under GST, the rate is 5% for fabric.

For a large-scale MMF garment exporter, the option of importing fabric will be cost-effective, pointed out Durai Palanisamy, executive director of Pallavaa Group, which is into MMF yarn and fabric.

However, the impact of GST on exports will depend largely on duty drawback that will be available, he adds.

Why exports have fallen

While the slow down in global demand and strengthening of the rupee against the dollar in recent months are some of the factors, there seems to be an inherent competitiveness issue for the Indian textile and clothing industry, said an industry insider — an opinion that has popular support in the industry.

Infrastructure challenges that push up costs, preferential tariffs that neighbouring countries such as Pakistan, Sri Lanka, and Bangladesh enjoy with EU markets, the need for economies of scale, and significantly, the China factor are all issues that need to be addressed for textile and clothing exports to leap forward.

“While a bit of the slowdown of Indian exports is market-linked, in the last four or five years, competition has intensified and it is purely cost competition,” said a spokesperson of the Apparel Export Promotion Council.

From fibre upwards in the value chain, the textile and clothing sector is strong in spinning and garmenting segments. But, weaving and processing are weak links, said a source. Similarly, while India is a leading producer of cotton, man-made fibre is not available to the industry at international prices. Globally, 65% of the textile and clothing consumption is man-made fibre-based and the remaining 35% is cotton based. While 80% of Chinese exports are MMF-based, almost 80% of Indian exports are cotton based. Thus, the Indian industry seems to be competing in a limited space. Man-made fibre imports attract anti-dumping duty and there is a need to make available MMF at international prices to be competitive, the source said. “This will give the manufacturers an [alternative] to cotton, and boost production of man-made fibre-based fabric and garments too.”

The global supply chain has also undergone changes since 2012. China is more dependent on Vietnam and ASEAN countries for its needs, Bangladesh and Vietnam are growing leaps and bounds, and Indian costs are going up. “We should be able to leverage on the strengths in the spinning and garment segments by strengthening the processing and weaving segments,” said Siddhartha Rajagopal, executive director of Texprocil.

“We should become a hub for fabric manufacturing. We should look at countries that can source fabric from us and gradually for garments too,” he said.

‘Large units needed’

Last year, the Union Government announced a ₹6,000 crore special package for the apparel sector, a special package for made-ups and a comprehensive scheme for the power loom sector. What is needed is a focused scheme to have at least 30 or 40 large-scale, high-technology processing units, says J. Thulasidharan, chairman of Confederation of Indian Textile Industry.

On the infrastructure front, since the industry is highly segmented and is spread across the country in clusters, movement of goods is high. The need for better road connectivity, operation of vessels to key international destinations, and power, among others, all add to the cost. These are long-term issues and efforts should be at least initiated to address these so that the industry sees the benefits in the coming years, said a source, requesting anonymity.

Textiles is also an industry that sees frequent fluctuations in prices and demand and many units are in the unorganised sector. While a push in apparel exports can be an engine of growth for the other segments, both the industry and the Government should work towards building the international competitiveness of the overall industry, said the source.

This requires substantial incentives to strengthen the weaving and processing segments. “Further, the needs of the small and medium-scale exporters should be met and they should encouraged to expand as just 3% of the industry has economies of scale. The policies meant for the domestic industry should not impede exports.”

Industries need to be encouraged to re-invest their profits in the textile value chain rather than hedging in other sectors and in business innovation. Policies for the garment sector should look at exporters and domestic players separately.

“As a country, we need to be export-oriented in our policy,” says D.K. Nair, a textile sector consultant.

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