The recently announced sops — marginal increase in DEPB and drawback rates — can hardly reverse the declining trend in textile and garment exports. Nor would the commerce ministry’s comparatively more useful proposal to neutralise state-level taxes in export content, which the Cabinet is expected to consider shortly.
Indian textile industry’s principal handicap is that its synthetic raw material base (prices) is globally uncompetitive. If this problem is squarely addressed, then the exporters would even withstand rupee’s appreciation to a considerable extent.
Traditionally, manmade fibres have been subjected to very high levels of tax in India. The upstream industry — the domestic producers of these industrial inputs — used to be ‘protected’ by abnormally high Customs duties.
This had undermined the ability of the downstream users of these goods (textile and garment makers) to compete in the global market. Which is why India’s is a predominantly cotton-based (60:40) textile/garment industry, quite the mirror reflection of the world. This ‘skewed fibre mix’ has reduced India’s playing field in the US and the EU, markets which are synthetics-rich.
Recent years’ rapid increase in cotton output — thanks to the cotton technology mission and Bt cotton — has caused a revolution of sorts, further buttressing India’s global competitiveness in cotton-dominant cloth. (82% of Indian exports are now cotton-based). Last year, India emerged as the second largest producer and exporter of cotton (pipping the US in both cases), with production of 280 lakh bales (of 175 kg each) and exports of 55 lakh bales (lb). The cotton year that has just begun is estimated to be even better with production of 310 lb and export of at least 60 lb.
Note that just four years ago, India exported just 1 lb and imported 25 lb of cotton. Now, India needs to import only 5 lb (which is almost entirely extra long staple variety which is not available domestically and used for production of the finest fabrics). Not only traders but also farmers have benefited out of this agricultural advance. But has the textile industry, the second largest employment provider in India? Looks doubtful.
First, the industry’s scope for expanding exports due to cotton advantage has been limited and even that was further circumscribed by rupee’s appreciation. In 60% of the US and EU markets (of synthetics-dominant cloth), recent years’ tax cuts have barely made an impact. And the strong rupee ensured it won’t.
The industry, however, clamours more about the adverse impact of surging raw cotton exports on its top lines and bottom lines than of the manmade fibre drawback. That is just because it is a more immediate problem than the long-lasting deprivation of global markets of synthetic textiles and garments which it is wont to. But the policymakers must mind that a more sensible and lasting solution for the problems of textile industry would be to further slash the import tax rates on synthetic intermediates (PTA, MEG, DMT), manmade fibres and filaments (polyester, viscose and acrylic).
Why should upstream industries get protection when that is afflicting the more employment-intensive downstream sector? If the upstream industry is vulnerable to fair competition, it doesn’t deserve any protection. The government’s obligation is merely to shield the domestic industry from unfair competition (dumping).
Indian textile industry’s principal handicap is that its synthetic raw material base (prices) is globally uncompetitive. If this problem is squarely addressed, then the exporters would even withstand rupee’s appreciation to a considerable extent.
Traditionally, manmade fibres have been subjected to very high levels of tax in India. The upstream industry — the domestic producers of these industrial inputs — used to be ‘protected’ by abnormally high Customs duties.
This had undermined the ability of the downstream users of these goods (textile and garment makers) to compete in the global market. Which is why India’s is a predominantly cotton-based (60:40) textile/garment industry, quite the mirror reflection of the world. This ‘skewed fibre mix’ has reduced India’s playing field in the US and the EU, markets which are synthetics-rich.
Recent years’ rapid increase in cotton output — thanks to the cotton technology mission and Bt cotton — has caused a revolution of sorts, further buttressing India’s global competitiveness in cotton-dominant cloth. (82% of Indian exports are now cotton-based). Last year, India emerged as the second largest producer and exporter of cotton (pipping the US in both cases), with production of 280 lakh bales (of 175 kg each) and exports of 55 lakh bales (lb). The cotton year that has just begun is estimated to be even better with production of 310 lb and export of at least 60 lb.
Note that just four years ago, India exported just 1 lb and imported 25 lb of cotton. Now, India needs to import only 5 lb (which is almost entirely extra long staple variety which is not available domestically and used for production of the finest fabrics). Not only traders but also farmers have benefited out of this agricultural advance. But has the textile industry, the second largest employment provider in India? Looks doubtful.
First, the industry’s scope for expanding exports due to cotton advantage has been limited and even that was further circumscribed by rupee’s appreciation. In 60% of the US and EU markets (of synthetics-dominant cloth), recent years’ tax cuts have barely made an impact. And the strong rupee ensured it won’t.
The industry, however, clamours more about the adverse impact of surging raw cotton exports on its top lines and bottom lines than of the manmade fibre drawback. That is just because it is a more immediate problem than the long-lasting deprivation of global markets of synthetic textiles and garments which it is wont to. But the policymakers must mind that a more sensible and lasting solution for the problems of textile industry would be to further slash the import tax rates on synthetic intermediates (PTA, MEG, DMT), manmade fibres and filaments (polyester, viscose and acrylic).
Why should upstream industries get protection when that is afflicting the more employment-intensive downstream sector? If the upstream industry is vulnerable to fair competition, it doesn’t deserve any protection. The government’s obligation is merely to shield the domestic industry from unfair competition (dumping).
