India’s Textile Sector set to become Revitalized & Competitive

The government’s aim to encourage the ‘Make in India’ scheme received yet another boost late last year when the Production Linked Incentive (PLI) Scheme was announced for the textile industry. Currently, the total contribution of India’s textile and apparel industry is less than 5 per cent of its GDP even as it provides employment to almost 100 million people, both directly and indirectly. The PLI scheme is to bring growth in production of manmade fibres and technical textiles for enabling scale, becoming globally competitive and provide employment opportunities for millions of people. 

MMF (man-made fibres), apparel and technical textiles arepart of the over USD 1trillion textile trade industry globally. Over two-thirds of the technical textiles and MMF fabrics industry is commanded by other leading textile producing countries. Through the PLI scheme, India is looking to incentivise production of smart textiles embedded with active devices, which are used in defence, medical, special purposes amongst other industries.  India has traditionally been an active player in the textile sector with some unique selling propositions. However, a host of factors including climatic conditions and focusing on natural fibres have made India lag behind in the emerging area of focus. With the changing market dynamic, MMF and technical textiles are expected to be a vital part of the textile ecosystem globally. Countries with a robust manufacturing base are expected to excel in the global textile market in the immediate future. 

Fine print of PLI Scheme in Textiles

The Rs. 10,683-crore scheme will be eligible to manufacturers across different categories from the Financial Year 2025 to 2029. In Phase 1, manufacturer investing at least Rs 300 crore in plant, machinery, civil work and equipment and achieving turnover of Rs 600 crore will receive incentive under the scheme. In the next phase, producers investing Rs 100 crore and achieving turnover of Rs 200 crore will be eligible. 

While the gestation period will be FY 2022-23 to FY 2023-24, incentives can be claimed from FY26 to FY30. More importantly, the scheme will focus on factories based around aspirational districts, especially in states including Uttar Pradesh, Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh, Punjab and Telangana.

Incentivising production of 14 categories of MMF fabrics, 10 categories of technical textiles as well as MMF apparel, the scheme aims to push India’s overall share of textile trade higher. The PLI scheme aims to encourage investments across the value chain to make a global impact. It is focused at encouraging companies to bring modern technology, large capital and both direct and indirect job creation, especially in smaller towns. According to the government, the PLI scheme for textiles will bring in fresh investments of over Rs 19,000 crore (USD 2.5 billion) and a cumulative turnover of Rs 3 Lakh Crore (USD 39 billion) can be achieved under the scheme. 

The incentive over five years will be provided for manufacturing of man-made fabrics, garments such as jerseys, overcoats, trousers, polyester suitings and shirtings, among others.

Equipment used in defence including fighter aircraft, bulletproof vests, submarine clothing and tents, mobile textiles like safety airbags as well as protective textiles such as personal protective equipment and fire-retardant fabrics and clothing will all play a key role in technical textile. 

Industry Potential

Global Consulting major AT Kearney and industry bodyConfederation of Indian Industry (CII) in a recent report have projected that Indian textile exports could reach USD 65 billion by 2026, ensuring a CAGR of 9-10 per cent. The union textile secretary in a recent address had said that the country’s exports could rise to USD 100 billion in the next 5 years, from just USD 40 billion at present. He had suggested that the country’s apparel industry needed to augment scale and size and the PLI scheme could be beneficial for the same. The senior official had opined that there were significant opportunities especially in the wake of growing clarion for the China plus one sourcing strategy. 

The report had highlighted that the domestic production can reach USD 160 billion, adding over 7.5 million direct jobs just in textile manufacturing. India also accounts for over 7 per cent of the world’s textile production. According to the report, even a 1 per cent market shift from China to India mean a USD 10 billion value for India. This can be a significant game changer for the industry. Furthermore, the government has set an ambitious target of USD 100 billion in the next five years, from USD 34 billion in 2019-10, according to the commerce ministry.  The country’s apparel exports to the EU over the last five years grew by a modest 2.6 per cent while Bangladesh and Vietnam surged by 9.6 per cent. 

Why Vietnam and Bangladesh have moved ahead

Vietnam’s Comprehensive and Progressive Agreement for Trans-Pacific Partnership and Free Trade Agreement with EU are vital reasons for the extensive market access. Additionally, Vietnamese dong being pegged to US dollar makes the exchange rate more stable than the Indian rupee. On the other hand, Bangladesh’s cheaper labour as well as flexibility in labour market laws has reduced the possibility of strikes and unions. Bangladesh also gets preferential treatment by developed countries as it is a lower-middle-income country, resulting in its free access to the European markets. 

Despite India being the fifth-largest exporter in textiles and being an important part of the global value chain, it faces a host of challenges impacting productivity and profitability. Nearly 45 million people are employed directly by the sector, which shows its importance in livelihood creation. The absence of Free Trade Agreements with major regions such as the European Union, the United Kingdom, Canada as well as Bangladesh puts pricing pressure on exporters. Basic challenges such as higher cost of power as compared to immediate neighbour Bangladesh also hinder the productivity and profitability in the country. Additionally, India’s higher lead times than the Chinese manufacturers has so far made the country less competitive. Furthermore, the high import duty on textile machinery and GST has played the spoilsport for the sectoral growth. 

This is where the PLI scheme in textile sector is expected to have a transformative impact and help facilitate a new direction for both the sector and its positive ripple effect on the economy. 

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