PLI scheme: A step in right direction

In September 2020, Textile Secretary Ravi Capoor informed investors that the Government of India was planning to bring a “focussed product scheme” to incentivise production of synthetic fibre-based apparel and technical textiles. This became a reality when the Production-Linked Incentive (PLI) scheme was extended to textile products – along with nine other new sectors – as part of Aamtanirbhar Bharat 3.0 package announced by the Finance Minister Nirmala Sitharaman on November 12, 2020. For textiles, the PLI scheme, with financial outlay of Rs 106.83 billion, will be applicable for manmade fibre (MMF) segment & technical textiles.

The industry has hailed the announcement as the scheme will help the country to scale up its presence in the two of the world’s fastest growing segments – in which India has miniscule presence. Though India is one of the leading textile manufacturers in the world, it has a market share of just 0.7 per cent and 0.6 per cent in the global manmade fibre and technical textiles respectively.

Historically, government policies have been biased towards the cotton-dominated value chain, which accounts for close to 70 per cent of India’s market. For example, while the GST on cotton and textiles made of it stands at a uniform 5 per cent across the value chain, the rate for synthetic fibre is 18 per cent. Man-made filament/spun yarn is taxed at 12 per cent and fabrics 5 per cent. This is despite the fact that MMF textiles make up for as much as 65-70 per cent of global demand and consequently hold immense export potential. While the GST regime permits a refund in case of an inverted duty structure, the process takes long time – effectively blocking the working capital of companies for months. The industry, which has been urging the government to remove this tax anomaly, was happy when the Budget 2020-21 took a big step by ending an anti-dumping duty on purified terephthalic acid (PTA) – a key raw material used for making polyester staple fibre, filament yarn and film.

Though PLI scheme aims to increase investment to improve manufacturing capabilities and boost exports, experts believe that the optimism should be tempered with caution given the prevailing sentiment in the global textile industry.

The market dynamics of the two segments (MMF and technical textiles) are very different. The incentive under PLI scheme applies only to incremental investment and sales turnover vis-a-vis base year (2019-20). For the nascent technical textiles segment, the gestation period to ramp up the project to an optimum capacity utilisation is longer than conventional textiles due to the production of prototypes, requirement for certification and statutory approvals from buyers. It takes between 12-18 months to ramp up capacity to 85 per cent. The policy guidelines will have to take into account these unique features for incentives to be effective.

PLI scheme is a welcome step, but what the industry needs is a structural change by framing a fibre-neutral tax regime.