Textile industry plays a significant role in the economy contributing to over 13 per cent of the industrial output, over 2 per cent to the GDP of India. The industry employed more than 4.5 crore citizens and contributed approximately 15 per cent to the export earnings of India FY19.
In addition to this, the support from the government has aided the industries effort to grow and contribute further. Government has been extremely responsive and have been listening to the industries and taking measures on real time basis like reshuffling of GST rates, allowing refund accumulated taxes in case of textiles etc. With the bold reforms taken by government in the recent past including tax reforms, Skill India mission, RoSCTL Scheme for textile sector to defray / rebate the embedded taxes, etc. has helped the industry to remain hopeful on the announcements in budget to be presented on February 1, 2020.
However, the sector has been experiencing a pressure on exports across segments in the past few years resulting into fall in exports. Apart from global slowdown witnessed recently, there are few other factor affecting Indian Textile industry which renders exports from India un-competitive vis-à-vis other countries like Bangladesh, Pakistan, Vietnam, China. These are high cost of working capital and power, low average productivity from un-skilled operators, challenges in infrastructure, logistics costs as well as longer turnaround time at port.
Fragmented and smaller size of operations deters Indian manufacturers to capitalize on economies of scale. Clusters in India are often 1/5th of the size of competing nations. Countries like China, Bangladesh and Vietnam enjoy comparative advantage given the scales of operation they operate in.
Recent withdrawal of MEIS at 4 per cent on Made-ups and garments with retrospective effect has added to the woes of Indian textile manufacturers and will hit the textile exports.
The government can support the Indian textile manufacturers by taking measures like swift execution of FTA with UK, EU and USA, remove cap on benefit under the TUF scheme in order to encourage large scale projects, bring relaxation in labour laws, improve infrastructure and provide plug and play mega textile zones near port cities to enhance textile export, and introduce an alternative to MEIS to provide level playing field for Indian exporters. The government can facilitate financing against government receivable from banks at benchmark rates with low margin of say 10 per cent without any restriction on the tenor/aging.