If there is one thing that sums up the woes of the Indian textile sector, it’s the buttons. And also thread.
Apparel manufacturers—globally and in India— import buttons from China and Hong Kong, where the more fashionable wooden or engraved ones are made. India mainly makes plastic and nylon buttons. The industrial-grade thread they use comes from one factory that makes it in India—that of Madura Coats in Chennai.
Ravi Kishore, former director of Apparel Export Promotion Council, says this is symbolic of India’s scattered and fragmented textile supply chain, which increases shipping costs, which in turn adds to manufacturing lead times. All these result in the industry struggling to compete with Bangladesh and Vietnam.
An Indian manufacturer takes 90-120 days to ship an order of 20,000-30,000 pieces, say industry experts. In Bangladesh and Vietnam, where the supply chain is more clustered, it takes 14-21 days. For example, Bangladesh’s Chaiti Group, which counts H&M among its clients, has around 5,000 machines under one roof, compared to about 300-500 in factories in Delhi-NCR, Punjab or Tirupur.
No wonder Vietnam and Bangladesh trail only China in textile exports, while India is fifth, as per the World Trade Organization’s latest statistics review. Since 2016-17, India’s exports have fallen 20 per cent to $29 billion in 2020-21, as per the Ministry of Commerce. The domestic market has shrunk 30 per cent to $75 billion in 2020-21 in the past year, as per Wazir Advisors, which estimates that the market will grow to $190 billion by 2025-26. Growth is vital as the textile sector contributes around 2-3 per cent to India’s GDP, 7 per cent to industrial output and 12 per cent to export earnings, besides employing around 45 million people.
To bolster its growth, the government announced a Rs 10,683-crore production-linked incentive (PLI) scheme in September, aimed at increasing the production of man-made fibres such as polyester, and technical textiles used in making products such as sportswear, fishing nets and surgical disposables. 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.
But manufacturers are not convinced that it will be very beneficial. For two reasons. First, the scheme covers only man-made and technical textiles, whereas apparel constitutes about 73 per cent of the total market. Even some key man-made textiles are not covered. Second, the scheme’s financial requirements are prohibitive, as the CEO of Garware Technical Fibres, one of India’s biggest technical textiles manufacturers, points out. “Some of the targets are not suitable for the technical textile sector,” says Shujaul Rehman. “Minimum Rs 100-crore investments, 25-60 per cent value addition—these are not easy targets. Unless we get into new segments or start getting significant market share, such investments and turnovers are not possible.” Garware’s turnover was Rs 1,051.80 crore in FY21.
The government’s second move, announced in October, looks more promising. The plan is to build seven mega integrated textile parks across India. Each will house modern industrial infrastructure and will bring various parts of the value chain in one location, reducing manufacturing time and logistics costs.
But industry insiders are sceptical. The last time the government built such parks, they went from implementation to disaster in 12 years. They say that even if these parks, and the PLI scheme, go as per plan, they would do nothing to solve the two biggest roadblocks the industry faces— labour issues and absence of trade agreements with Europe and the US.
Park the Thought
In 2005, India launched the Scheme for Integrated Textile Parks (SITP) to boost the textile sector. In 2017, a government-commissioned report by Wazir Advisors deemed these parks 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,” says Kishore.
The government report recommended setting up mega integrated textile parks to close these loopholes. Four years later, the plan to build seven such parks was announced.
“So far, the decision about the locations has not been taken, but 10-12 states have shown interest,” says Upendra Prasad Singh, Secretary, Ministry of Textiles. “The prerequisite this time is to identify a minimum of 1,000 acres of land. Several other factors would be considered such as the availability of raw material, power and adequate water, and labour laws and industrial policies of states.” He declines to share the timeline to set up a functioning park.
Most manufacturers say that this time around, proper implementation of these parks is key. “Four things are required for the success of textile parks—man, machine, raw material and marketing,” says Ved Prakash Yadav, President, Operations, Dwarikadhish Spinners. He says lack of proper marketing and skilled manpower were key reasons the earlier parks failed. Besides addressing these factors, he says the new parks should be in states such as Punjab or Maharashtra where raw materials are easily available. “Also, the power cost should be uniform across states,” he adds.
But the new parks don’t address the constant labour issues plaguing manufacturers. The key to make the textile sector less labour intensive is automation. But this would mean job losses and that’s why labour unions have for long opposed major technological upgrades, say manufacturers. China, on the other hand, has a hire-and-fire policy, with wages tied to a labourer’s output. Indian manufacturers say that labour laws need some reforms to strike a fine balance. Neither the plan for integrated textile parks nor the PLI scheme addresses that.
Recall that the PLI scheme is for technical and man-made textiles only. Here’s why: India primarily focusses on cotton textiles, but man-made and technical textiles account for about two-thirds of global trade, textile minister Piyush Goyal said at a recent briefing. “The PLI scheme will make domestic companies global champions.”
However, 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 we are in are not part of the scheme, so we cannot participate. I don’t think we are going to get any benefit,” says Rehman of Garware.
In fact, the scheme doesn’t even look likely to boost the exports of technical textiles. “The government has taken 40 HSN codes where the export is less than 5 per cent and the association has already submitted their (feedback) note on this to the government,” says S.N. Modani, MD and CEO, Sangam Group.
Singh says the government is registering the suggestions but points out that the PLI scheme isn’t meant to be democratic. But that excludes a lot of apparel manufacturers, including MSMEs like Meenu Creation.
“The PLI is not directly going to benefit the MSMEs and particularly the garment apparel export companies,” says Anil Peshawari, MD, Meenu Creation. “The benefits of these schemes are based on the capital invested and the minimum investment is more than Rs 100 crore. The apparel industry doesn’t require such huge investments in plants and machinery. So, we are not going to be participants under the PLI scheme,” he says. A minimum investment level of around Rs 25 crore could have swayed MSMEs, he adds. To be successful, the PLI scheme should be expanded to include fabrics and garments made of natural products, suggested a recent report by industry body CII and global management consulting firm Kearney.
Union Minister of State for Textiles and Railways Darshana Vikram Jardosh on the road ahead
The government has set very ambitious export targets. Are these feasible and achievable?
These targets are very much feasible because they have not been decided unilaterally. We reached these numbers after consulting many stakeholders and industry people. We spoke to industry [players] irrespective of turnovers. We spoke to a company with over Rs 100 crore of turnover and we spoke to a smaller company with less than Rs 50 crore of turnover as well. These are not rosy targets, but reality.
How do you see the potential of the textile sector?
The first basic change we have realised is [that we need a] change in strategy. Earlier, we were planning to boost exports on the basis of cotton because it constitutes a dominant share in textile exports. But the entire world is now using man-made fibre. So we thought if we want to catch the global market, we have to produce things keeping in mind global demand. There is huge demand for fabric, man-made textile and technical textile. We are exploring and trying to boost exports in every way.
There is demand from the industry for free access to markets, FTAs and PTAs. What is happening on this front?
Lots. The ongoing discussions with various countries will yield results soon. We have also involved the National Institute of Fashion Technology for boosting exports of the textile sector. As far as FTAs are concerned, all I can say is that in the coming months, there would be a very good result.
Integrated textile parks have been set up in the past as well. How will you ensure they succeed this time?
States would have to support these parks. They will have a 51 per cent stake in them. The Centre will provide financial support only. Wherever we will find a 1,000-acre stretch of land, we will work in collaboration with the state and industry to set up these textile parks.
The rise of Bangladesh and Vietnam as export hubs is not just due to their lean production times and technological advancements, but also due to free trade agreements (FTAs) and preferential trade agreements (PTAs) they have with western and European countries. “If we had an FTA with Europe, our exports would have doubled by this time. Bangladesh got its FTA with Europe almost 10 years ago. If you see the growth of the Bangladesh apparel industry, it has happened in these 10 years,” says Peshawari of Meenu Creation. The lack of such agreements also raises the landing costs for importers, he points out. “Any product that India sends to Europe is straightaway more expensive by 9 per cent versus the same product produced by Bangladesh. So, a lot of our orders get diverted to Bangladesh. We are competitive in prices and deliveries. But when a buyer adds that 9 per cent to landing cost, we get out of the equation.”
Industry players say that FTAs with the US, the UK, Europe, Australia and Canada are of paramount importance. Singh says there is progress on the trade front, but it is too early to give any details.
The industry is also in dire need of technology upgradation. “We must develop advanced technology. For fabric-making, we are predominantly dependent on import of machines and technology. The government can look at reduction in customs duties for these imports to make it more competitive,” says Updeep Singh, President and CEO, Sutlej Textiles and Industries, a textile and cotton yarn manufacturer.
The government should also support research and development, and skilling the labour force, say industry executives. The latter move will also make workers less resistant to accepting technology.
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