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Business News/ Opinion / Why India must have a new textile policy
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Why India must have a new textile policy

We need a national textile policy document, an articulation much like the national telecom policy of 1999

Textiles, along with agriculture, construction and tourism, has large-scale job creation potential. Photo: Indranil Bhowmik/MintPremium
Textiles, along with agriculture, construction and tourism, has large-scale job creation potential. Photo: Indranil Bhowmik/Mint

India’s textile sector, covering everything from fibre to garments, has the second-largest employment after agriculture, employing an estimated 32 million workers. It has the potential to double this employment in the next seven years as per the vision document of the union textiles ministry. It is a sector which not only provides livelihoods to millions of households, but is a storehouse of traditional skills, heritage, and a carrier of heritage and culture too.

Artisans, weavers, handloom workers are custodians of designs and skills which they have been inheriting and bequeathing for ages. This is also a sector which is undergoing a huge churn due to automation, digital printing and the relentless rise of e-commerce. All these three developments threaten to completely change the face of this industry. What is India’s strategy to ride this disruptive wave? Should we leave it to free market forces to determine who survives, who prospers, who innovates and who perishes? Surely not.

We need a national textile policy document, an articulation much like the national telecom policy of 1999, which was a game changer, and led to the upsurge of India’s telecom revolution, An equally imaginative, bold and futuristic blueprint is urgently needed. The last official national textile policy is from 17 years ago. The one prior to that was in 1985. Talk of a new policy has been in the works for several years. We do have a vision document for 2024-25, from which we got the employment numbers quoted at the beginning of this column.

Consider this. The world operated under a patently unfair quota system called the Multi Fibre Agreement (MFA), which shackled the growth of India’s textile and garment exports. The MFA was dismantled completely in 2005 and India was supposed to surge ahead. Instead we have lost steam. India’s share of textile exports in total exports, at 12%, is half of what it was in 1996. If you think that’s not so bad, because other sectors like petrol and diesel went from zero to 20% of export share, think again!

Bangladesh’s garment exports exceeded India’s in absolute terms back in 2003. Today it exports more than $35 billion worth of garments, twice that of India. Indeed, there are Indian entrepreneurs who have set up operations in Bangladesh for exports to Western markets. Even late starter Vietnam overtook India in 2011, and now exports garments worth $32 billion. The fact that these two smaller nations have preferential access to the European Union and US markets doesn’t quite explain their huge lead over India. Their growth in exports has been at 20% per year, against India’s 8%. In overall textile trade globally, India has a share of merely 5%, against China’s 39%. In the sub-segment of synthetic fibres, India’s share is just 2%, against China’s 66%.

While India has a rich mix of synthetic and natural fibres and yarns, including cotton, jute, silk, polyester and viscose, it remains a cotton-focused country. The presence of cotton in yarn, fibre, fabric and garments is close to 70% of usage within India, which is also reflected in exports. Only 30% is from synthetics and man-made fibres. The global trend is exactly the obverse, i.e. 70% consists of man-made fibres. So India’s domestic and export mix is the opposite of global fashion and demand trends.

Till recently, thanks to the Chinese government’s support for stockpiling cotton yarn, India was also finding it profitable to export raw cotton to China. The inverse skew of fibre usage in India is due to the skewed tax treatment. Until the roll-out of the goods and services tax (GST), the cotton value chain was completely free of indirect taxation. Whereas the man-made fibre suffered a dead-weight tax of 12% excise, which resulted in unutilized VAT (valued-added tax) credit in the chain. That anomaly was supposed to be removed by uniform GST treatment for the textile sector. Instead of a fibre-neutral policy, we have a dual GST structure, with 18% GST on upstream, and 5% on all downstream, leaving an inverted duty structure. In addition, the offsetting credits cannot be used to get a refund by downstream entities.

This has already led to much disruption, as can be seen in shutdowns or strikes in powerloom clusters such as Surat, Bhiwandi or Coimbatore. Some of this is because of the reluctance of the informal sector to step into the limelight of the formal sector with GST. But some of it is also because of the effect of inverted duties and the disallowing of GST refunds.

The other big factor looming large on the sector is the overhang of excess capacity in the fibre and yarn sectors in China. That causes a downward pressure on prices and the flood of imports also remains a constant threat. With rising wages in China, the labour-intensive garment sector is perhaps moving out, and represents a great opportunity for India. But unless that is grabbed soon with a coherent and holistic national policy, we run the risk of losing to countries like Vietnam.

Textiles, along with agriculture, construction and tourism, has large-scale job creation potential. It is a sector dotted with small and medium enterprises, which make up 80% of the units. It is ideally positioned to be a poster child for Make In India. But it needs a national policy and implementation plan, which can address these challenges: changing consumer and fashion trends, a significant demand for investment and modernization of machinery, massive skill upgradation, meaningful export incentives, a fibre-neutral tax policy, a big digital push in design and automation, and lastly, meeting the needs of the e-commerce phenomenon. It’s a tall order, but surely we can untangle this web.

Ajit Ranade is chief economist at Aditya Birla Group.

Comments are welcome at

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Published: 12 Jul 2017, 02:24 AM IST
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