India’s textile sector is one of the oldest industries dating back several centuries. Today, the industry employs over 45 million workers and 60 million indirectly. It accounts for 15% of the nation’s export earnings in the financial year 2019.
This industry is one of the most important contributors to the economy and accounts for about 13 % of the gross industrial output (GNP). In 2017, the Indian textile industry was estimated at US$ 108 billion and expected to reach US$ 223 billion by 2021.
The textile industry has two broad segments:
- The unorganized sector consists of handloom, handicrafts, and sericulture, which are operated on a small scale through traditional tools and methods.
- The organized sector, consisting of spinning, apparel, and garments applies modern machinery and techniques, such as economies of scale.
Previously we published an article about the “Opportunities and Challenges in Textiles and Apparel in India.“
Revisions in the Budget
Earlier changes like the reshuffling of GST rates and available refunds from accumulated taxes were major steps to try to grow the industry.
There were a number of stringent reforms enacted by the government, such as the skill India mission; rebates on embedded taxes; and RoSCTL (Rebate of State and Central Taxes and Levies) Scheme for the textile sector to provide flexibility in paying taxes (through rebates or embedded taxes.)
A significant fall in export numbers has been recorded over the last few years. Apart from the global slowdown witnessed recently, there are other factors affecting the Indian textile industry: infrastructure, logistics, and size, compared to other countries like Bangladesh, Pakistan, Vietnam, and China. These factors tend to make India non-competitive.
Major difficulties involved, the high cost of investment capital; increasing charges for power; and the lower than average productivity.
Union Budget 2020 in the Apparel and Textile Industry
Manufacturers have made a request for government subsidies to help incorporate global practices to increase production. The industry is challenged to improve without government support.
The union budget for the financial year 2020-21 addressed the critical issues that affect the growth in the textile and apparel industries:
- Anti-dumping duty on PTA (purified terephthalic acid) removed
- Provisions to technical textile mission
- Re-evaluation of the FTAs (free trade agreements) rules
- Duty and import tax adjustments
- Grandfather the procurement of raw cotton
PTA is the most important raw material required for the manufacturing process of filaments and polyester staple fiber’s. Now Indian manufacturers will be able to sell polyester fibers at comparable rates in the international market.
T. Rajkumar, chairman of the Confederation of Indian Textile Industry, said this was one of the long-pending demands of the industry. “Abolition of anti-dumping duty will bring the polyester price in India on a par with international price. Polyester will be the future engine of growth for the Indian textile industry.”
National Technical Textile Mission
Union Finance Minister Nirmala Sitharaman in her Budget at the Beginning of February announced a National Technical Textiles Mission, which is expected to give thrust to the production of a wide variety of textiles.
This program was launched to encourage the production of technical textiles. India imports a significant quantity of polyester/acrylic worth $16 billion every year. The new policy will encourage the production of more specialized varieties of textiles.
A few years ago, in order to focus on this sector, the government created six centers of excellence in various parts of the country. The purposes of these centers were: create a domestic base for raw material production; increase high-end technical textile products; solicit more investments; and increase per capita consumption.
FTA (Free Trade Agreement)
The textile industry welcomed the government’s decision to review the rules of the FTA. Imported products under the free trade agreement are flooding the Indian markets, seriously threatening the growth of domestic products. In the new budget, important changes will be made to the customs act. The FTA will have more control over the import of textile products from other nations.
Duties and tax changes
Provisions are made for revising duties and taxes imposed on exported products. Exporters will be digitally refunded at the various levels of government. Exporters will also be digitally refunded the duties charged at the different levels of the government. The new scheme (NIRVIK) is directed at large volume export credit distributions with enhanced insurance coverage and reduce the premium for small exporters.
The Apparel Export Promotion Council (AEPC) commended the finance minister for addressing issues that were restricting the growth of the textile sector.
The new budget deals with national logistics policies; ease of doing business; support (financial) for MSME (Ministry of Micro, Small & Medium Enterprises) in the competitive market; improve digital connectivity; 5-year tax exemption for small scale manufacturers; all in an attempt to improve the competitiveness of the Indian Textile Industry.