Question

The otherwise mature Textile industry in India, seems to be struggling to improve the share in the global trade. In this context, while discussing the reasons analyse whether synthetic textiles sector can improve India's share in global trade.

Answer 1

Approach:

• In the introduction, provide some facts regarding textile sector and its overall importance for Indian economy.
• Write why india is struggling to improve its share in the global market.
• After that, write about the synthetic fibre and Why is India weak in synthetics.
• Provide various steps that can be taken to improve Indian textile especially synthetic.
• Write an optimistic conclusion about the Textile sector.

The history of India’s textiles and garments industry dates back several centuries. This sector, comprising yarn, fibre, processed fabric and apparel, is one of the largest in the world.

• With a vast raw material base and manufacturing strengths across all value chains, India’s Textile and Garments Industry contributes to 7% of India’s industrial output in value terms, 2% of the GDP and 15% of the country’s export earnings.
• The textile sector is the second largest provider of employment after agriculture.
• The industry’s strengths lie both in the hand-woven sector as well as the mill sector. Cotton, wool, silk and jute, synthetics and a new array of innovative fabrics, including technical textiles, form the backbone of the industry and offer a wide variety of products to market within India and around the world.
• The country also enjoys a competitive advantage in terms of skilled manpower and cost of production.
• It has strong backward and forward linkages

Despite all these, otherwise mature Textile industry seems to be struggling to improve its share in the global trade. India’s textile industry grapples with multiple issues including

• Outdated technology
• Inflexible labour laws
• High input costs: expensive raw material and transaction costs (high excise and custom duties) made this sector more unviable compared to global competitors like Bangladesh, Vietnam etc.
• Infrastructure bottlenecks like high transportation and electricity costs.
• The fragmented nature of the industry
• The textiles sector in India, primarily dominated by the unorganized and small players, had taken a major hit with demonetization and the implementation of the goods and services tax (GST).
• Lack of finances: Inadequate credit availability affected production and export capacity of these power looms.
• Global Policies - According to the WTO’s Agreement on Subsidies and Countervailing Measures, India is under pressure to end export subsidies for the textiles sector by 2018. This implies that the existing subsidy schemes including the Merchandise Export from India Scheme (MEIS) and the Export Promotion Capital Goods (EPCG) Scheme will get affected by the same.
• International tariff: The tariffs on Indian textiles is very high as compared to tariffs on Pakistan, Egypt, Japanese and Veitnamese textiles. Thus India is losing competence due to almost zero tariff on textiles from Pakistan, being imported in the US.
• Expensive cotton export: Cotton corp of India exported good quality cotton abroad at prices higher than international market that may have led to instant profits but ultimately made Indians lose their textile market.
• Global slowing down is also one of the factors responsible for the decline of Indian textile industry.

A look at last year’s(2018) apparel export figures is chastening. China exported $\$$145 billion, Bangladesh $\$$36 billion, Vietnam $\$$33 billion and India a mere $\$$17 billion. India is far behind China and steadily losing to smaller countries. The biggest reason is India’s near absence from the main product category that accounts for 70% of world trade in apparel – synthetic apparels.
Synthetic fabrics are textiles made from man-made fibres rather than natural fibres.
The global synthetic Apparel trade is witnessing growth at 5.1 times higher than the cotton Apparel trade.

Today, most formal, sports and fashion wear uses synthetic fabrics due to various reasons like:

• They are durable, do not fade, can have any colour.
• Easy blending with wool, cotton, or rubber allows experimentation.
• Low cost.
• Easy supply of artificial fibre.
• Durability and their resistance to shrinkage.
• The diminishing capacity for cultivating cotton due to increased demand of land for food grains and other human needs is leading to the reduction in the cultivating capacity and thus impacting the supply of cotton and other natural fibre. Thus, synthetic Apparel has emerged as a substitute for cotton Apparel.
• It can help us fight plastic pollution with certain textiles using fabrics from PET bottles hence leading to creation of wealth from waste.

With weak synthetics, India’s apparel industry is a horse running with one leg tied. The results are low exports, low wages, and low investments in the sector.

Why is India weak in synthetics? Here are major pain points:

1. Expensive raw material
2. Weak weaving and processing.
3. The textile value chain consists of yarn making, weaving, fabric processing and apparel making. Weaving and fabric processing are the weak links that threaten to fragment this chain, forcing the export of yarn and import of fabric.
4. Most weaving and processing units are small, informal units that lack expertise, scale and technology.
5. Power outage and reduced capacity use doubles the cost of weaving in India, making it as expensive.
6. Low preparedness of Indian exporters to meet the demands of the fast fashion industry (FFI).
7. Globally cotton dominates spring and summer sales seasons. Synthetics and blends dominate autumn and winter seasons. Indian units run six months a year to produce cotton apparels. In the remaining six months, most units are shut or run at a low capacity as they do not have orders for synthetics/ winter wear. This makes anything made in the factory is expensive.
8. Winter wears are more expensive than informal cotton wear. So as compared to synthetic, profitability is low in cotton textiles.

Not surprisingly, while India is the number one yarn exporter (India 23% share, China 13%) when it comes to fabrics, performance falls (India, 6%, China 52%). Yarn sector has large units, while weaving and processing happen in small informal units.

Steps that will help increase in India’s share in Global Trade:
1. Lower import duties on synthetics raw material:
(a) Lower duties will bring down the prices by 30% to 50%, almost at par with global prices.
(b) This would free the apparel industry to scale up and invest in synthetics.
(c) Without low import duties, the synthetics industry and hence exports cannot take off in a big way.

2. Strengthen the weaving and processing segments:
(a) Technology Upgradation schemes will help Indian players to increase both their productivity,competitiveness like SFURTI and TUFS, Bunkar mitra, Usttad scheme ( for traditional weavers)etc.
Schemes like Hunar haat provide the much needed visibility and market access to the traditional weavers.

3. While India has an abundant supply of labour, there needs to be flexibility in labour laws like women should be allowed to work in all three shifts, after taking into account adequate safeguard measures.

4. Adequate skilling will give a big boost to the textiles industry.

5. Take priority action to make more factories FFI compliant.

6. In India, cotton and man-made fibres (MMF) have differential tax treatment( cotton is taxed at 5% and manmade fibers at 12%), here fibre neutrality in tax will give a boost to the industry.

7. Tax breaks and production incentives.

8. In addition to these, the government needs to carefully evaluate the various trade agreement opportunities.

India has a rich textile heritage with thousands of firms and skilled craftsmen. The suggested actions would make us a significant player in the synthetic textile trade.