Sops required for textile exports

BS Corporate Bureau

The textiles industry in India accounts for around 20 per cent of the country's industrial production and 26 per cent of exports. Besides, it provides employment to around 15 million people.

Cotton textiles is the most important segment of the industry, accounting for around 65 per cent of the domestic fibre consumption and exports.

With over 9 million hectare under cotton cultivation (the largest in the world) and an annual production of around 2.40 billion kg, India is the third largest producer of raw cotton, after China and the US.

The textiles sector has a dual manufacturing structure, dominated by a fast-expanding decentralised small-scale manufacturing segment and a declining vertically-integrated, large-scale composite mill segment.

For instance, the apparel industry has 27,700 domestic manufacturers, over 48,000 fabricators, and 1,000 manufacturer-exporters.

As much as 80 per cent of apparel manufacturers have small operations (with less than 20 sewing machines) while 99 per cent of them are individual proprietorships or partnerships.

The technologies for processing cotton textiles and apparel have a broad range -- from hand-operated equipment to sophisticated automated facilities.

Key issues:

Integration of World Textile Trade with WTO framework: The Agreement on Textiles and Clothing envisages the complete integration of the textiles sector with the multilateral framework of the WTO at the end of the 10-year transition period with the quota system in the sector expected to be over by January 1, 2005.

Although this will result in an increased market for the developing nations (including India), competition is expected to increase. The competition will a pose a threat to domestic producers.

The Indian textile industry, especially the weaving sector, will have to increase its productivity.

The new textile policy (announced in November 2000) is a step in the right direction because it encourages manufacturers to modernise. Further, the technology upgradation fund scheme provides for soft loans to improve productivity.

Finished textiles and clothing industries need a boost: Although Indian yarn exports are highly competitive, the market for yarn is small, compared to the overall textile and apparel market.

Besides, the yarn market appears to be stagnating, considering the very high growth rates of value-added products, mainly apparel.

This is primarily because developed countries are increasingly sourcing finished apparel from the developing world because of the advantage of lower labour costs.

The Indian weaving and garment manufacturing industry, on the other hand, is decentralised and consists of small firms.

Moreover, it has inconsistencies in quality. These factors have hurt export growth though India enjoys a considerable labour cost advantage.

Factors that can be addressed in the Budget:

Rationalisation of excise duties across various stages: The government sets different excise duties at various stages of manufacture.

Further, there are exemptions, resulting in evasion. This has resulted in a poor performance by large organised fabric manufacturing textile mills (by enhancing competitiveness of small manufacturers). The organised composite mills might have an edge over others in the export markets because of a better ability to modernise.

Notably, they have accounted for an increase in exports in 2000-01 and 2001-02, as against other segments that mostly reported stagnant performance. Further, in contrast to the international trend, the Indian industry consists of very few, if any, integrated companies.

Therefore, simplification of the excise duty structure (with appropriate safeguards to protect the handloom industry) may help in improving not only the domestic competitiveness of the organised sector but also increase integration in the entire textiles value chain. This will be vital for strong export growth.

Bias against manmade fibres: Manmade fibres were used by the affluent sections of society during the 1970s. However, reduction in production costs, especially polyester, has resulted in their becoming the least-cost and the most popular fabric among the poor. On the other hand, cotton has become increasingly acceptable to the richer sections because of being comfortable and lost out on the poor on account of higher price. However, the government continues to impose high excise duties on manmade fibres. Further, if India wants to gain a larger market share in clothing, manmade fibre needs to be used in greater quantities. This may receive attention in this year's budget.

Fiscal incentives for modernisation of looms: The weaving machinery needs to be modernised. Thus, during the budget of 2001-02, the government announced the following measures: Increased budget provision under Technology Upgradation Fund Scheme (TUFS). Increased depreciation rate for those availing TUFS. Reduction in customs duty on import of shuttle-less looms. The government may announce further measures to quicken technological renovation.

Reduction in customs duties: The government is expected to reduce the peak customs duty from 35 per cent to 20 per cent in a phased manner to bring them in line with other Asian countries.

Thus, customs duties on most textiles products and raw materials (those with customs duty from 20 per cent to 35 per cent) are expected to decline over the medium term.

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