Textile sector: Initiatives to spur growth

• HDFC
• 30 Aug 2018
• Knowledge Centre

HDFC, Tester

The Indian textile sector currently stands at an important juncture. The ongoing trade dispute between the United States, one of the world’s leading cotton exporters, and China, a key importer of the commodity, should ideally benefit the sector. However, this positive is countered by developments that could impede the sector’s growth.

 

The Indian Government announced a 28% increase in the minimum support price (MSP) for important crops, including cotton and paddy, with a view to extending support to farmers. This has been welcomed by the agricultural community. However, the hike in MSP is likely to increase the price of domestic cotton, making this key raw material for the textile sector relatively expensive.

 

In Aug-18, the Government raised import duties on 328 textile products by up to 20%. This is expected to dampen the increase in the import of textile products, which grew by 16% in FY18. This hike was made with the aim to boost the domestic textile sector, in line with the ‘Make in India’ initiative. The sector currently employs ~10.5 crore people in the country.

 

Some Data

 

According to a financial daily, this step was also taken with a view to helping the ailing textile export segment, which witnessed flat growth over the last four years. The size of the textile industry stands at ~US$120 bn, of which exports constituted US$37 bn.

 

The sector was also negatively impacted by the implementation of the GST, rupee appreciation and high domestic cotton price.

 

Exports in the largest segment within textiles (ready-made garments) continued to drop in Jun-18, contracting by 12.34% to US$ 13.5 bn. This was lower than the 16.62% fall in May-18.

 

Mr. Sanjay Jain, Chairman, Confederation of Indian Textile Industries, has been quoted as saying, “A substantial drop in import duty was observed after the implementation of the GST, and this encouraged cheaper imports.”

 

The textile sector is now witnessing signs of recovery. Mr. Sanjay K Jain, Chairman, Confederation of Indian Textile Industry (CITI) says, “The sector, which saw a major hit due to demonetization, implementation of the GST, rupee appreciation, and high domestic cotton prices, is finally showing some signs of recovery.”

 

Referring to the RBI Financial Stability Report of Jun-18, Mr. Jain said that the stressed-advance ratio of the textile sub-sector reflected an improvement vis-à-vis the level in Sept-17 when it stood at 23.7%. It came in at 22.3% in Mar-18.

 

Recovery in Exports

 

The size of the textile industry stands at ~US$120 bn. Of this, exports constituted US$37 bn. “After the implementation of the GST, there was stress in the sector for several reasons. Now, aggregate demand in the domestic market has improved. With the strengthening of the US Dollar, exports will also increase. In April-May-18, yarn exports went up. This trend will be seen soon in fabrics and garments too,” he said.

 

Growth in exports was flat over the last four years. The Government is working on initiatives to boost exports. However, one issue of concern for the industry is the growth in imports, he added.

 

In 2017-2018, imports of textiles and apparel touched US$7 bn, 16% higher than the previous year. The imports are mainly yarn and fabric. In the case of garments, it is from countries with which India has a Free Trade Agreement. The rules of origin should be specified for garment imports, he said.