Published 2 years ago on Dec 10, 2022
by Sanjay LalView: 1106
In 1985, a small town, Tiruppur in Tamil Nadu exported INR 15 crores worth of textile products.
In 2021, Tiruppur exported around INR 30,000 crores worth of textile products, a staggering growth of almost 23% annually every year for the past 37 years.
This growth story is so astounding that Tiruppur now contributes over 50% of India’s textile exports.
Yet over the few years, India’s textile exports were seeing a fall. The government of India decided to do something drastic to bolster the diminishing textile exports.
It announced plans to set up 7 mega textile parks across the country. Think huge factories encapsulating the entire garment value chain — from spinning yarn, weaving, dyeing, printing, and manufacturing the final product. All in one place.
The government called it the Mega Integrated Textile Region and Apparel scheme (MITRA) and promised to set aside nearly Rs 4,445 crores to get this moving. It invited states to apply for the scheme. And it is now in the final stages of zeroing in on the first few beneficiaries.
With MITRA and to bolster the export growth, the government announced a Rs 10,683-crore production-linked incentive (PLI) scheme in September, aimed at increasing the production of man-made fibers such as polyester, and technical textiles used in making products such as sportswear, fishing nets, and surgical disposables.
Under this scheme, the manufacturers can choose to invest either at least Rs 100 crore or at least Rs 300 crore and generate a turnover that is at least double their investment.
The product lines include 40 in man-made fiber apparel, 14 in man-made fiber fabrics, and 10 in technical textiles products.
Why is the government so keen on setting up mega parks for textiles? Why this PLI?
In the recently concluded GLOCAL Textile Summit 2022, in New Delhi, the officers from the Ministry of Textiles stated that textiles contribute about 2% of the country’s GDP and as an industry, it is the second largest employer right after agriculture and that growing the textile industry could help solve the employment problem plaguing the country to some extent.
A lot of speakers at the summit made it clear that India has lost its sheen when it comes to garment exports.
So, these mega textile parks are envisioned as a way for India to regain its former glory.
But will it help?
To understand, we first need to understand what went wrong with India’s textile industry.
And there is no better way to do it than to compare ourselves with our neighbor, Bangladesh. See, over the past decade, countries like Bangladesh have raced ahead in garment manufacturing. And they have done this primarily due to a lower cost structure. Look at labor, for instance. A couple of years ago, a report showed that the average monthly wage for a worker in India’s garment factories stood at Rs10,000, while Bangladeshi workers only earned half that sum. This is an exploitative practice, but it also means that apparel companies would much rather ship textile products from Bangladesh as opposed to India.
As I said earlier, it is not just about the cost structure. We lack on the productivity front as well. Indian workers produce about 10 to 12 pieces of garments per shift, while workers in Bangladesh delivered nearly 20 pieces.
Another problem faced by Indian garment factories is the overhead. Power in India is almost 30–40% higher than that in Bangladesh. This also feeds into the final cost that garment manufacturers quote.
Then we have the cost of freight. The vastness of India and its different growing regions eat into the profits. For instance, this is how the typical textile value chain in India works.
You have cotton that is primarily grown in Gujarat and Maharashtra, which is then sent to Tamil Nadu. Here, the cotton is spun and shipped back to processing units in Rajasthan. And then the processed fabric makes its way to factories in NCR, Bengaluru, and Kolkata. And finally, export-ready products are packed and dispatched to the ports in Mumbai and Kandla. It’s like an India tour with cotton crisscrossing every part of the country. All this adds to the cost.
Probably one of the reasons for the government to put in mega textile parks is to bring in the entire value chain in one place and reduce factory overheads. The central government is also pushing the state governments to commit to a power tariff with rates locked in for at least 15 years helping manufacturers to plan operations better.
This government is also working with the EU and other countries to lower the trade tariffs.
The UN has accorded Bangladesh the status of a Least Developed Country (LDC). This means they get preferential market access.
EU has accorded the status of Least Developed Country (LDC) to Bangladesh which apparel exported by Bangladesh duty-free to the European Union. On the other hand, Indian exporters face a tariff of nearly 10%. And we all can imagine how beneficial this is.
However, by 2026, Bangladesh is all set to graduate from its LDC status. It will be classified as a “developing country”. With that, it will lose its preferential access to the EU and probably even other regions. It will not have free access anymore.
The Indian government is already working hard to sign Free Trade Agreements (FTAs) with the EU, Australia, UK, Canada, and other countries to give our textile industry unfettered access to these markets. And maybe the economies of scale that these Mega Textiles Parks can bring will finally give a boost that the sector so badly needs.
Remember In 2005, India launched the Scheme for Integrated Textile Parks (SITP) to boost the textile sector. Today they have turned out to be deemed a spectacular failure as manufacturers saw no reason to shift to these parks.
These parks were situated outside the cities and towns, and getting the workforce there posed a formidable challenge. In addition, internationally such parks are spread over 150 acres and more. In India, only five sanctioned and approved parks are of this size. A majority of them are less than 75 acres,
We understand that so far, the decision about the locations has not been taken, but 10-12 states have shown interest as per the Ministry of Textiles.
As per the report, the prerequisite this time is to identify a minimum of 1,000 acres of land. Several other factors would have to be considered such as the availability of raw material, power and adequate water, and labor laws and industrial policies of states.
On the other hand, the industry thinks that this time around, proper implementation of these parks is key.
For making the textile industry a success, four things are required for success of textile parks—man, machine, raw material, and marketing.
But the industry has not heard anything from the government on addressing the labor issues which plague the industry.
Coming to the PLI scheme, manufacturers are not convinced that PLI will be very beneficial. For two reasons. First, the scheme covers only man-made and technical textiles, whereas apparel constitutes about 73 percent of the total market. Even some key man-made textiles are not covered. Second, the scheme’s financial requirements are prohibitive.
Some of the targets are not suitable for the technical textile sector. Minimum Rs 100-crore investments, 25-60 percent value addition—these are not easy targets. This means unless the players get into new segments or start getting significant market share, such investments and turnovers are not possible.
The PLI scheme is for technical and man-made textiles only. The government understands that even though India primarily focuses on cotton textiles, man-made and technical textiles account for about two-thirds of global trade.
The manufacturers point out that many products made using these textiles— such as sportswear, knitted shirts, and woven tops—are not covered in the HSN codes in the scheme. An HSN (Harmonized System of Nomenclature) is a globally accepted six-digit code that classifies over 5,000 products. Most of the codes that India is in are not part of the scheme, hence a manufacturer cannot participate. And do not think India is going to get any benefit.
The scheme does not even look likely to boost the exports of technical textiles. The government has taken 40 HSN codes where the export is less than 5 percent and I believe the various associations have already submitted their feedback.
Upon close study, it comes out that the PLI is not directly going to benefit the MSMEs and particularly the garment apparel export companies as the benefits of these schemes are based on the capital invested and the minimum investment is more than Rs 100 crore. The apparel industry does not require such huge investments in plants and machinery.
So, who are going to be the participants under the PLI scheme?
To make it more friendly, a minimum investment level of around Rs 25 crore could have swayed MSMEs. To be successful, the PLI scheme should be expanded to include fabrics and garments made of natural products too.
Until then the industry watches….
RELATED TOPICS:#NA
Sanjay Lal
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What a well researched and informative article...An eye opener for a novice like me..Such minute details...Though I am not a textile expert..but I personally feel tat v need to take a holistic approach to d present situation...As always Sanjay ..Kudos 2 u..for this interesting and informative article..Bless u..
Anurag ShuklaJan 15, 2023 at 15:37 pm
As I think about it, I feel that light manufacturing generally and textiles in particular, has been an opportunity lost for India. When Nehru came up for his vision of “temples of modern India”, it turned out to be a very capital and resource inefficient industrial strategy. The resources could’ve been more efficiently deployed in light manufacturing sectors, specifically textiles. India’s loss was rest of world’s gain. As globalisation stepped up post WW2, a series of countries – from Japan to SE asia to China to now Vietnam and Bangladesh – climbed onto the Textiles gravy train, becoming export powerhouses and generating mass employment – till they no longer remained competitive and were replaced. India, somehow, never became a serious player. We never seemed to be able to get our act together – then or now. Tirupur, Ludhiana etc have been exceptions, which seem to have dulled with time. I’m no textile expert, so don’t know what needs to be done. Whatever has, has not been enough!