Shri Sunil Patwari, Chairman, TEXPROCIL and Shri Ravi Sam, Chairman, SIMA in an exclusive interview with our Editor discussed the robust export figures achieved by our country in Textile and Apparel exports for the financial year 2021-2022. They further shared their views on the challenges faced by the industry, initiatives taken by both TEXPROCIL and SIMA at various forums to attract more incentives and exemptions from the government to encourage the stakeholders who, despite facing varied challenges are capable of competing globally and all they need to do is scale up across the entire value chain to continue this growth trajectory.
How was the year 2022 for the Indian textile and apparel industry in terms of business? How do you look forward to 2023 for the same?
Textile and Apparel exports achieved their highest ever level in the financial year 2021-2022, with an export turnover of USD 44.4 billion, growing by 40 percent over the previous year, in a fitting tribute to its strong presence across the entire value chain, from fibre to yarn to fabric to finished goods (apparel, madeups, home textiles, etc.)
During the same period, export of Cotton textiles (including raw cotton) grew by 54 percent reaching a level of USD 16.42 billion which in itself is a landmark achievement in the history of India’s cotton textile exports.
FY 2023 may see the financial stress mounting on several large economies causing a predictable rise in the headwinds to global growth. Normally any kind of pandemic is followed by a recession and experts feel the present one may take a couple of quarters i.e. upto six months to recover. With a strong rebound in FY 2022, experts feel that the Indian economy may continue to recover further in FY 2023 as well. The country’s economy might be able to weather the storm mainly driven by domestic demand and continued improvement in technology and human capital. However, the global economic downturn may hurt India’s exports due to the slowdown in international demand.
What are the main problems & challenges faced by the textile industry?
Currently, orders from India’s key export destinations continue to be affected by issues such as inflationary trends, geo-political disturbances, and high energy prices, amongst others. Despite resolution of supply chain issues to a large extent, the correction in cotton prices has prompted other fibres to lower their price thus causing de-accumulation of inventory.
The crisis seems to be further compounded by the fact that retailers and factories began liquidating current stocks. They are not willing to place new orders and purchases are not being made as they prefer to wait and watch till the prices stabilise. Experts have asserted that as the inventory clears up, the orders will start coming in despite a probably slow third and fourth quarter and may take upto six months for the order recovery.
What are your expectations from the government, for further growth of this industry?
Based on the current scenario, TEXPROCIL is confident that in the coming months, with Government support, the industry would be in a much more comfortable position. While many of the concerns have been addressed, there still remain a few issues which the Council has been taking up at various fora.
For instance, successive reforms aimed at creating an enabling ecosystem to propel India’s Manufacturing Sector are already initiated by the Government. These include the transformational initiatives like Production Linked Incentive (PLI) Scheme. While the Scheme offers prospects to boost domestic manufacturing, attract investments and increase exports, a few critical products seem to have been overlooked. It is suggested that the products included in the PLI Scheme should be “broad banded” to include contiguous and allied products also thereby granting flexibility to the investors in terms of the product lines.
Along with Garments (Chapter 61 & 62) being identified as products for future growth in the textile sector, it is suggested that Made-ups under HS Chapter 63 should also be seen as a thrust area for growth. Focus on Made-ups (Chapter 63) will also result in greater efficiencies in the processing sector and fabric manufacturing. Items like Bed Linen, Towels, Kitchen Linen, Cushion/Contract textiles have tremendous potential for future growth as Consumption and Housing demand expands.
Also, we need to focus on potential products in preferred markets. For example, “Bed in a Bag” covered under 9404 has a retail market in the United States estimated at about US $ 5 billion. China’s share in this market is 85% whereas India’s share is only about 7%. Since these products are covered under 9404 they are not entitled to the benefit of RoSCTL scheme. If RoSCTL is extended to 9404, the share of “Bed in a Bag” along with products such as Pillows/ Cushions/Pouffes etc. that are in great demand in the USA can be increased substantially.
Industry is hopeful that the Government would take suggested measures to boost exports, thus leading to enhancement in the employment prospects and scaling up of production in T&C Industry.
Where do you think our industry lacks in terms of manufacturing capabilities? How to overcome it?
Our industry has to make rapid strides in terms of manufacturing capabilities – especially to meet the quality, scale and speed to market requirements of new-age consumers.
To overcome the deficiencies, the Indian textile industry is rapidly repositioning itself as a global player and ensuring that it leverages its presence in the entire textile value chain. The country is improving the marketing efforts by undertaking initiatives for product diversification and branding.
Towards this end, Indian manufacturers are increasingly integrating, both vertically and horizontally, with an aim to scale up their operations. In terms of diversification, cotton textiles and their blended varieties are finding newer applications in functional and smart application areas like sportswear and athleisure wear.
Also, following the ‘Think Global, Act Local’ ideology – there is a rising awareness regarding the importance of developing and promoting ‘Make in India’ brand. Efforts towards popularizing the “Kasturi” brand of Indian cotton are already underway and it is hoped that in the coming years, it will help to deliver higher value across the textile value chain.
As a combined force, the Government and industry have set the country’s textiles sector on the path to achieve exponential growth in exports.
The country has already signed an FTA with Australia, UAE and trade access with the UK and EU are under negotiation. These will remove duty on our textiles and give us a big additional market. We need to plan and build capacities to encash these opportunities, especially in finished textiles.
India is already a significant player in the global textiles sector and going forward, a combination of increased fiber use, successful branding and up-selling to destination markets where favourable access is negotiated will improve the prospects for growth of cotton and cotton textiles from the country.
How was year 2022 for Indian apparel and textile industry in terms of business? How do you look forward to 2023 for the same?
The Indian textile and clothing industry had been one of the industries to bounce back in the fastest mode, during the post pandemic scenario. The China +1 policy of global buyers and the Government’s support with many industry friendly schemes had put India back on the global textile map as one of the attractive destinations. However, the country’s recent performance in global trade is not commensurate with its abilities. Exports of textiles and apparels during April – November 2022 declined by 13%, at the same time FTA/PTA and low cost countries such as Bangladesh and Vietnam have gained their share. A variety of factors have contributed to India’s recent performance including the high cost of production, yet to be concluded Free Trade Agreements with key importers such as the EU and other leading global textile markets, longer lead time, lack of product diversification, global headwinds, etc. Against this backdrop, India’s textile industry also saw positive developments, such as dominance in home textiles, the China Plus one sourcing strategy, which promises a better future. Moreover, the government’s focus on textile is at an all-time high, which bodes well for the industry’s future.
We expect demand to be significantly better in 2023 with improving consumer sentiments, however, the pressure would be felt on margins, due to cotton prices, which are likely to soften in due course, more so when the new cotton season has just begun. Overall, FY23 is expected to be a positive year for the industry with consumers resuming their normal lives to a great extent and textile exports looking up. The order booking for the Indian manufacturers is expected to be brighter.
The India-Australia CECA permitting duty-free import of cotton to the tune of 3 lakh bales, is yet to reap the benefit, since the import was permitted with effect from 29th December, 2022. Further, the Government of India through amendments in the Foreign Trade Policy has permitted international trade settlements in Indian rupees (INR) to facilitate ease in transactions. Procurement of cotton through futures trading, is also expected to take-off in the near future, since the Textile Advisory Group formed under the directive of the Union government is in the process of unanimously concluding the Model Cotton Contract shortly.
It is also appreciative that the industry is adopting all necessary steps to perform better through cost optimization, investing in sustainable development and product innovation for better margins besides capacity enhancement in all areas of our operations.
What are the main problems & challenges faced by the textile industry?
The biggest challenge is the global competitiveness. Competing countries could achieve substantial growth rate mainly due to the cost advantage in raw materials of man-made fibres and filaments and of course, the duty-free access in all the major markets.
Though Government has taken various initiatives to boost investment in textile and apparel sector in India, the sector has not exploited its full potential. Some of the key challenges faced by the industry today are;
• Production is stagnant or declining across the value chain.
• New entrants like Bangladesh, Vietnam etc have increased their export share by taking advantage of Free Trade Agreements.
• Imports have risen sharply.
• Lack of Preferential Trade Agreements with key importers.
• Longer lead time and high reliance on imports for almost all textile machinery, a scenario where the principle of Aatmanirbhartha is unlikely to replace the EPCG Scheme, in the near future.
• Increasing prices of raw cotton. This has created a critical situation for the cotton textile industry, since it has pushed up the cost of production substantially. The exemption granted from import duty to procure cotton from the international market has been discontinued, which has not only been affecting the financials of the manufacturers but also the capacity to meet the export obligations under various schemes of the Foreign Trade Policy.
• Also there is the shortage of cotton which is now being imported from Egypt, Australia, and USA (Extra long staple cotton).
• Value added products of viscose and its blends is impacted due to the import parity pricing policy adopted by the fibre manufacturer, in addition to the steps initiated by them to levy anti-dumping duty on the fibre.
• The phase I of PLI scheme could not attract growing investors due to the high investment and turnover limit. Phase II of PLI scheme (proposed), though supports home textiles and apparels, certain parameters are yet to be finalised to enable the industry to achieve the intended results.
Obsolete machinery and need for modernization
• Since the cotton textile industry is centuries old in India and a number of mills were set up during the British regime, the machinery and equipment have become old and outdated, requiring fast replacement. Production with the help of such outdated machinery results in higher costs and poor quality of product. Scrapping policy should be strictly implemented, since the discarded machinery enters the manufacturing cycle through second hand market, majorly procured by SME’s.
• Incentivising the modernization through the longawaited National Textile Policy is the need of the hour.
High cost of production and competition in foreign markets
• The Indian cotton textile industry has been facing increasing competition in world markets. This is largely due to low productivity and high cost of production and consequently high prices of Indian cotton cloth textiles. It is paradoxical in a country where wages are low and cotton is internally available.
• Availability of quality cotton in required volume can be made achievable through framing Government Policies for increasing the productivity of cotton on par with international producers.
• Demand for Manmade fibres is ever-increasing, considering the growing importance for technical textiles. Manufacture of the same in the country is inadequate and measures to produce the same to match the requirement of the MSME sector is required to capture the national & international market. Exemption from antidumping duty on import of the raw materials should continue till self-sufficiency through indigenous manufacture is attained.
• Though the mandatory compliance of BIS Standard for several textile products including MMF Fibre, Yarn, Technical Textile products, etc., by way of issuing Quality Control Orders (QCO) is a welcome move and would encourage Atma Nirbhar Bharat, it lacks workable standards. Also, the initial investment towards establishment of lab and its connected mandates is beyond the capacity of the growing MSME sector that accounts over 85% of the entire textile value chain. The industry, industry Associations and the government are actively involved in addressing the issues in complying the QCOs. The Government is in the process of bringing more than 100 QCOs covering the entire textile value chain.
• The principles of sustainability, traceability and circularity have begun to rule the export market. The domestic manufacturers are also working towards incorporating the same in the manufacturing process. However, the cost of certification to prove the same is already on higher side and still escalating.
Sickness and Recession in mill sector
Piling of inventory attributed to the non-availability of required quantity and quality cotton at optimum price and market distortions have severely impacted the financials of the mill sector, resulting in many working mills being classified as NPA’s. The competition from the textile manufacturing nations including China, which
has been exporting its yarn to overcome the restriction placed on the export of its cotton grown in the Xinjiang region due to issue regarding employment of forced labour (discouraged by US and European countries) has greatly affected the spinning sector. The surge in import of cheaper apparels from countries like Indonesia, Vietnam and Bangladesh has badly affected the said sector also.
Although, growth in technical textile sector is remarkable, switching over to new products or manufacturing a product mix is not possible and the banking support extended by the government does not fruition into expected results, thus leading to a number of mills facing recession and turning sick. Therefore, steps have to be initiated to reverse the phenomenon of Low profits and profitability in the mill sector.
What are your expectations from the govt. for further growth of this industry?
We, The Southern India Mills’ Association, act as a bridge between the Industry and the Policy Making Bodies of both Central and State Governments. Our objective is to vent the difficulties faced by the industry before the appropriate forums. The mode of support to be extended by the Government is submitted with appropriate facts and figures.
To enable the industry tide over the difficulties due to the present market dynamics, the industry- demands represented before the Governments and its Authorities include:
• Continuation of the exemption from import duty on cotton
• Implement Technology Mission on Cotton for the benefit of the farmers and the industry
• Correct inverted duty structure under GST for manmade segment
• Regional Foreign Trade Agreements to be reworked, in line with the current developments.
• A level playing field with our top three competitors in the US market in terms of duty
• Product diversification and innovation in the MMF (man-made fibre) space and build scale to attract global buyers.
• To focus on technology adoption and digitalisation with Industry 4.0 strategies, development of an agile mindset and focus on discipline in credit cycles.
• Grant extension of time for fulfilment of export obligations under various schemes to export merchandise, considering the developments in the global scenario.
• Devise industry friendly captive power consumption renewable energy provisions.
• Appropriate alternative scheme in lieu of expiry of TUFS for modernising the manufactory
• Strictly implement filing of Statistical Returns and establish Textiles Committee as the nodal agency for issuing all statutory certificates.
Make cotton available at internationally competitive price
• CCI strategic stock for price stability
• Announce Cotton Price Stabilization Fund Scheme
• 5% interest subvention or NABARD rate, 9 months credit and 10% margin money
Although the parent Ministry and the Authorities are pro-industry, the core support required for the survival of the industry in terms of raw material i.e. availability of required quantum of quality raw cotton at nominal cost, is yet to become a reality. Achievement of the same is possible only if steps are initiated in appropriate manner by the Government coupled with relative action by all the stakeholders including the farmers, ginners, traders including Commodity Exchanges and the consuming industry.
Where do you think our industry lacks in terms of manufacturing capabilities? How to overcome it?
India is not much behind in terms of capability, but we lack scale. The textile value chain is well-developed in India and that is primarily the reason why India has robust textile and apparel exports of USD 44 billion during FY22-23. Availability of quality cotton; besides presence of spinning, weaving, processing units, viscose and polyester fibre mills across several industrial clusters, make India an attractive destination for textile manufacture.
Also, industry’s lack of access to the newest and most advanced technologies, as well as its inability to fulfill global export market criteria, represents a further difficulty. In addition to these concerns, the Indian textile sector also confronts obstacles, through competition from neighboring nations in the area of low-cost clothing and personal safety regulations.
Country needs to encourage large global retailers to buy more from India. Capacities will be built across the value chain when there are right investment incentives, competitive cost of capital and matching logistics infrastructure, some of which take time to deliver. Implementation of Yarn Forward Rule and Fabric Forward Rule can control the struggles of those in the value chain to a great extent, more so, when the government is clear in their thoughts that agreements with international partners would not be encouraged when the same is not favourable for the country. In the meanwhile, free trade agreement with select large countries will spur the industry with a distinctive factor advantage.
