Will Ukraine-Russia conflict be a spoiler?

Will Ukraine-Russia conflict be a spoiler?

India’s exports of textiles and garments recover quickly this fiscal from the lows of the pandemic-hit FY21 as shipments continue to be strong due to resurgence in key markets like the US and European Union. Lucrative export orders may elude Indian manufacturers in FY23 due to rising prices of cotton. As a result, manufacturers across the textile value chain – from spinning mills and weaving units to garment makers – have been seeking the abolition of an import duty on cotton. However, Finance Minister Nirmala Sitharaman did not accede to this demand in the budget 2022.

Allocation for the textile sector (at Rs 123.82 billion) in the budget 2022 has been increased by 8.1 per cent in FY23 compared with the revised budget allocation (of Rs 114.49 billion) for FY22. However, the bulk of budgeted allocation will be used to fund Cotton Corporation of India Ltd (CCI) for cotton purchases. While it has raised import duties for fabrics that can be produced domestically, budget has exempted custom duties on import of certain fabrics, embellishments and accessories needed by bonafide exporters – a long-time demand of the industry. This will help fabric, made-up and apparel exports to be more competitive.

Extension of the Emergency Credit Line Guarantee Scheme (ECLGS) for MSMEs by a year will help the apparel industry, since many units are still struggling to overcome the adverse effects of the pandemic. However, industry experts believe that the enhanced outlay for the scheme (currently restricted only for the hospitality industry) should have been applicable to the retail sector also (as offline retailers were badly impacted in the pandemic).

The Union Budget has proposed Rs 6.50 billion allocation for Amended Technology Upgradation Fund Scheme (ATUFS) for 2022-23. Post-budget, the Union Textile Ministry is consulting key stakeholders for drafting a new Technology Upgradation Fund Scheme, which will replace the existing ATUFS, to incentivise the machinery manufacturers. The new scheme will include the spinning sector and machinery manufacturers (which were not included in ATUFS). The approval for the new scheme is expected by March with fresh allocation of funds.

All these developments augurs well for the industry with the government targeting to increase India’s textile exports to $100 billion from the current $40 billion in the next five years. Removal of tariff barriers (via Free Trade Agreements) in key export markets like US, UK, EU, Australia, etc will further enhance the prospect. Recently signed Comprehensive Economic Partnership Agreement (CEPA) between India and the UAE will give Indian companies a competitive advantage in areas such as textiles and garments over other countries such as Vietnam and Bangladesh (who till now enjoyed the benefit of zero duty in the UAE).

Invasion of Ukraine by Russia – which is creating a tailspin in the global markets, particularly in the energy sector (that will have cascading effect on other industries and global trade) – could prove to be a temporary spoiler in this, so far, positive development for the Indian textile industry.

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