The situation obtaining in the Indian textiles and clothing (T and C) industry is none-tooencouraging. If anything, it has turned from bad to worse, causing worry for the government and apparel units. Nearly 50 percent of operations in these units has been hampered in recent months as many of them have lay-offs. The single largest factor has been rising garment imports from neighbouring Bangladesh. The negative growth in garment exports seen in June and August this fiscal (2019-20) reappeared in September as well. What is more, textile companies from countries like China are said to provide fibre and fabrics to units in Bangladesh and get them exported as finished goods to countries, including India.
As per the latest government data, apparel exports registered a sharp decline of 2.17 percent to $1,079 mn in September from $1,103 mn in the same month last year. Textiles and apparel exports came down by as much as 8.19 percent to $2,561 mn in April- September 2019 from $2,790 mn in April-September 2018. A silver lining however, was that apparel exports recorded a positive 2.07 percent increase in this period. With the global slowdown in growth, it remains to be seen if the situation will improve in the second half of this financial year.
The data shows that exports of cotton yarn/fabrics/ made-ups handloom products fell by 13.62 percent to $4,983.17 mn from $5,768.88 mn during the period under review. During the same period man-made yarn/ fabrics/mode-ups etc. also declined by 6.57 percent from $2,509 mn to $2,346 mn. Total textiles and apparel exports in total exports of all commodities stood at 10.64 percent in April-September 2019, down from 10.88 percent in the same period last year. All commodities exports declined from $1,63,481 mn to $1,59,573 mn.
Under the South Asia Free Trade Agreement (SAFTA) Bangladesh was allowed to export more than 60 products including garments to India without duty. Its share in global apparel market is next only to China. Industry sources said that the value of apparel imports from Bangladesh was $101.25 mn in 2014-15. It touched $499.09 mn in 2018-19. In the last five financial years, Bangladesh’s garment exports to India grew up by a massive 480 percent, though it did not take advantage of SAFTA. The FTA rules under SAFTA need to be tweaked and enforce rules of origin and Yarn/ Fabric. Forward Rule to safeguard the interests of Indian T and C industry. At present, Bangladesh is importing fabrics from China and routing to India in the form of garments which has zero import duty after implementation of GST.
Further, being a least developed country (LDC), Bangladesh has an edge in cheap labour. It is not therefore surprising that several large players in the Indian apparel industry have found it convenient to set up manufacturing units in Bangladesh and engage in exports to countries including India. Moreover, Bangladesh is set to gain more from the proposed FTA with China enabling it to get tax exemption on more export products. This will reduce the bilateral trade deficit between the two countries and also help the Bangladesh, China, India and Myanmar Economic Corridor.
Indian textiles goods attract GST when sold in the domestic market. But without any duty the products reach our domestic market. The cost difference could be around 10-15 percent between both products. The transportation cost from Bangladesh cannot not be much higher than that from West Bengal.
It is also to be noted that the growth of T and C sector has been restricted due to numerous challenges at home. These include higher prices of cotton and manmade fibre (MMF), higher interest rate on loans, increasing power tariff, leading to rise in production cost and liquidity crunch due to low exports and slowdown in the domestic market.
The other factors are non-refund of embedded taxes for yarn and fabric, making our products internationally uncompetitive, blockage of huge funds under GST, pending cases of TUFs subsidies. All these infirmities are getting reflected in T and C exports.
Focusing on the sector wise performance of the industry, CITI Chairman, Sanjay K Jain says that the T and C industry is currently estimated at $150 bn. In terms of ranking, India is ranked third in textiles exports with a 6 percent share and sixth in apparel exports with a 3.3 percent share in 2018. Overall, India has slipped to the fifth position with a 4.4 percent share of global exports in 2018 compared to the second position in 2017. Total T and C exports were valued at $37.5 bn in 2018-19, of which apparel had a share of 43 percent. Home textiles with about a share of 15 percent was the second largest export item. The biggest market for T and C products continues to be the European Union, which had a share of 25 percent followed by the US with a share of 22 percent in 2018-19. On the other hand, Khan says that imports of T and C products have grown out a CAGR of five percent in the last five years to reach $7.4 bn in 2018- 19. Fabric constituted the biggest imported item with a share of 33 percent in the total imports during the same period. China and Hong Kong continue to remain the largest supplier of T and C products to India. China and Hong Kong had the largest share of 41 percent, followed by Bangladesh and the US with a share of 8 percent and 7 percent respectively.
As has been reported in these columns earlier demand for man-made textiles has been growing worldwide as a substitute for cotton and changes in the global fashion trends. Now MMF dominates the global textile fibre consumption. Currently India has the capacity to produce all types of synthetic fibres, be it polyester, viscose, nylon or acrylic. In the last few years, India has made huge investments in setting up world class manufacturing plants across the different states. “Besides continuous innovation untiring entrepreneurship, new product mix and strategic market expansion is going to help India take center stage in the global arena in the coming days,” says Jain.
India is the second largest producer of MMFs with large plants having the state-of-the art technology. MMF production touched 1,443 mn kg, up 9 percent from the figure in 2017-18. The government has set a vision for a $350 bn T and C industry by 2024-25. For this, the fibre base needs to be doubled. With limitations on growing cotton, T and C industry’s growth in the future depends largely on growth of the MMF sector.
During 2018-19, imports of MMF rose by 15 percent to reach 226 mn kg over the preceding year while exports stood at 370 mn kg during the same period, indicating a negative growth. Consumption and stock showed a 15 percent increase in the same period.
As is known, the fabric segment is highly critical for the growth of the T and C industry. It is also highly job-intensive. Of the total jobs in the industry, 18 mn are from fabric manufacturing, the highest. A large component of this industry as well as exports is from the powerloom sector, which is dominated by small and medium scale units. For every crore invalid in the sector, it creates 30-50 jobs, according to a study.
The strength of the textile value chain is determined by fabric dyeing and processing as it converts greige fabric into fashion fabric for readymade garment and made-ups exports. There are very few large composite units with world class technology and requisite skills to produce fabrics which meet the approval of international buying houses. Moreover, the fabric sector is not growing as it should be due to the absence of certain policy reforms. Fabric exports had a share of about 13 percent in total textiles and apparel exports in 2018-19. During the same year, fabric production increased by 5 percent to touch 70,046 mn sq. mtr over the preceding year.