Along with the PLI program, the government should focus more on FTAs, the successful implementation of MITRA: director of CRISIL


Textiles are important to India’s $ 313 billion merchandise exports. The sector is also an important generator of jobs.

Although India faces fierce competition from Vietnam and Bangladesh, which do better than us in cotton yarn and ready-to-wear garments (RMG), our country is in a favorable position with China. facing a global political backlash.

However, capitalizing on this opportunity would require continued and concerted efforts. CRISIL Director Hetal Gandhi spoke with Activity area on the competitive landscape, government plans and growth opportunities for India. Extracts.

What have been the main reasons for the declining share of textiles in India’s overall merchandise exports?

The share of textiles in India’s overall merchandise trade fell to 11% in 2020-2021 from 14% in 2014-15, with Indian textile exporters losing to rival economies in terms of price competitiveness. India has started to lose textile export shares especially in segments such as RMGs and cotton yarns to countries with cost advantages such as Vietnam, China and Bangladesh.

In addition, these countries continued to offer better incentives to exporters and investors. This led to an increase in the share of these countries as India was only able to maintain its share in RMG at 3 percent and lost its share in cotton yarn from 30 percent in 2013 to 26 percent in 2020.

Free trade agreements like Bangladesh with the EU and Vietnam with the US have also helped countries maintain significant price differences with Indian textile players.

How have Vietnam and Bangladesh improved the textile export game over the past decade?

Vietnam and Bangladesh have signed trade agreements with major RMG export destinations. Along with trade agreements, these two countries support RMG exporters in terms of improved infrastructure, facilities, cost benefits and export incentives.

Bangladesh enjoyed a cost advantage in the EU which led to an increase in its share from 4 percent in 2005 to 6 percent in 2020, while Vietnam benefited from most-favored-nation status in the EU. United States and gained a share of 4 to 19 percent during the same period.

How will the recently introduced PLI program for Man Made Fiber (MMF) change the scenario on the export front?

Much of India’s RMG exports are cotton-based – 65 percent. However, in world trade, the demand for clothing and clothing made from MMF is higher – 70 percent. Thus, it restricts Indian exporters in the highly competitive world trade.

Now under the PLI regime, the focus is on the MMF and technical textiles sectors. The program will incentivize those players who have the capacity to rapidly increase the volumes of MMF-based products. This will help them achieve economies of scale and therefore a cost advantage.

Our analysis indicates that at incentive rates of 9 percent, the program will generate an additional revenue opportunity of 150,000 crore, resulting in a capacity increase of 2.5 to 3 million tonnes and an increase of 30 percent of export potential.

If the full benefits are passed on, it will provide cost competitiveness for Indian exporters and manufacturers. However, this may not be enough, which is why the continued search for Free Trade Agreements (FTAs) and the successful implementation of the MITRA program are inevitable to boost competitiveness in textiles.

How can the government ensure the success of the MITRA program?

The MITRA (Mega Investment Textile Park) program focuses on developing world-class parks for textile manufacturers with plug and play infrastructure.

What remains controllable is the size of the parks. Parks developed under the previous textile park program, SITP or Scheme for Integrated Textile Parks, averaged less than 100 acres compared to large parks in Vietnam, China and Bangladesh. Some of the parks advertised by countries like Vietnam remain much larger.

For example, Rang Dong Textile Industrial Park in Vietnam is planned for 5,200 acres, Chengdu Huamao International Garment Industrial Park in China covers approximately 2,500 acres, and Chattogram Export processing areas cover 450 acres.

In India, Brandix India Apparel City Pvt Ltd is the only operational park with an area of ​​approximately 1000 acres. MITRA plans to focus on a size larger than this size, but focusing on deeper differentiators with strong incentives will provide unique positioning for Indian exporters.

How will the extension of the RoSCTL system benefit the sector in the current context?

The government announced the extension of the Rebate of State and Central Taxes and Levies (RoSCTL) or the rebate on the central and state tax regime to provide additional support to garment exporters.

Under this program, clothing exporters, who are not entitled to benefit from the RoDTEP regime (remission of duties or taxes on export products), will be encouraged according to the rates previously announced for the different categories of clothing. clothing until March 2024.

This move will increase the cost competitiveness of Indian exporters in world trade compared to rival countries. Revised guidelines on the continuation of the program will be announced at a later date and the incentives could vary from 2 to 6 percent.

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