14/09/2019 - Government Policies

KEY POINTS

Textile Sector

·        Held back by lower competitiveness (owing to higher production costs) and higher import duties in the destination markets (compared to its peers), Indian garment exports have been steadily losing ground to countries such as Bangladesh and Vietnam.

·        In addition, with the ongoing trade tensions of China with the US, and the rising costs of labour, the manufacturing activity is poised to exit China, in the process vacating more space for countries such as India, Bangladesh and Vietnam.

Constraints in the sector

·        Globally, the demand is moving towards man-made fibres, rather than cotton. In India, cotton still dominates, indicating that the country is not moving in conformity with the global demand, and this is hampering the country’s export potential.

·        The current inverted duty structure on man-made fibres is hampering its adoption.

·        In addition, technology adoption is another constraint. For example, according to the data made available to the NITI Aayog, India currently has 23.7 lakh shuttle looms, as compared to 6.5 lakh in China.

·        However, in China, there are 6.3 lakh shuttle-less looms, compared to 1.4 lakh in India (shuttle-less looms are up to six times more productive than shuttle looms). This indicates the huge productivity gap India must bridge to become competitive in the global markets.

·        The final constraint is that of scale. According to some estimates, approximately 95% of the fabric produced in India is produced in small-scale industries.

·        Combined with power cross-subsidisation and high real rates of interest, an inherent cost disadvantage has developed in the Indian garment products, making them more expensive.

For Global Competitiveness

·        The man-made fibre industry can be made more competitive through removing the inverted duty structure (where inputs are taxed at a higher rate than the final product). This will free up substantial working capital and reduce the cost of raw materials.

·        Similarly, with the World Trade Organisation (WTO) norms on the horison, the Merchandise Export from India Scheme (MEIS) may need to be revamped so as to be WTO-compliant.

·        In addition, a time-bound plan for a transition from shuttle looms to shuttle-less looms must be urgently drawn up to boost productivity in the country.

·        Enabling size and scale is perhaps the most important intervention that can be made. Both Vietnam and Bangladesh offer common facilities such as effluent treatment plants, water treatment plants, steady water supply, and low-cost power in their textile industrial parks.

·        Recently, a committee chaired by Baba Kalyani on revitalising SEZs submitted its report to the government. Central to the findings of this report is that SEZs need to be reoriented into Employment and Economic Enclaves (3Es). Investments should be directed towards activities that boost economic activity and job creation, and not just exports.

·        Concerted policy efforts are needed to realise the job-creation potential of the textiles sector. Healthy job creation in this sector also provides an avenue for pulling labour out of the agricultural sector, thereby raising the incomes of both who remain in agriculture and those who exit.

·        The central government should work with state governments with identified comparative advantage to develop plug-and-play facilities. These facilities should provide common resources, ease of doing business in its true sense, along with a well-developed link infrastructure. 

Kindly review. Thank you.

Please review.  Thanks. 

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