Last Updated : 12 February 2013 at 18:20 IST
India’s textiles and clothing industry is one of the mainstays of the national economy. It is also one of the largest contributing sectors of India’s exports worldwide. The textiles industry accounts for 14% of industrial production, which is 4% of GDP; employs 45 million people and accounts for nearly 11% share of the country’s total exports basket.
Now, given that Chinese labour costs and power costs are going up, does India holds a chance of trumping the Middle Kingdom and gaining additional market share in global textile markets?
“With cost of production going up in China, the man made fibre based textiles industry of India has an opportunity opening up for expansion of its market share, if competitive raw materials can be ensured” says the pre-budget memorandum of CITI or Confederation of Indian Textile Industry.
In fact, India is already in a far better position than China in terms of raw material availability according to the National Fiber Policyreleased by the nation in 2010. China--the largest manufacturer of man-made fibres in the world--is highly dependent upon imports for its raw materials requirements. While China accounts for around 62% of global polyester production, its share in global production of MEG is mere 11.4% and in PTA, it is only 26.5%, data says.
But there are areas where India should improve:
According to South India Cotton Association Vice President, V.Vishwanathan, “textile industry needs financial assistance very badly.”
He pointed out the demand destruction brought forth by economic slowdown that hit US and Europe imports. “A piecemeal approach will not work out...” he said.
So where does India stand on various other counts.
Lending rates
“I don’t know where it will end up...” the state of textile industry finances was evident in his voice. He was referring to lending rates in India.
“When we set out with a plan in 2007, there was an interest rate of 7.5%. Now in 2013, it stands at around 14%.” said Dr. K Selvaraju, Secretary General of SIMA (Southern India Mills Association); at present 375 textile mills spread over the States of Andhra Pradesh, Karnataka, Kerala, Pondicherry and Tamilnadu are members of SIMA.
Power costs and transaction costs
Indian industries (including textile industry) face a major disadvantage against countries like China and countries in South East Asia in terms of power costs and availability.
“Electric power is an issue for us.” said Selvaraju. “Especially after the diesel prices have gone up for the bulk users, costs have gone up.” he pointed out. He also mentioned the issue of transaction costs.
Indian exporters are faced with huge transaction cost burden in comparison with exporters in competing countries.
For instance, transaction costs for exports in India stands at $945 per container as compared to $500 per container for China.
Duty structure
The excise duty structure in most of the other competing countries is uniform across different fibres as well as the value chain. For instance, China levies a uniform VAT of 17% on all fibres as well as textile products.
But in India, dusty structure is still complicated. Besides excise duty, the mills have to pay mandatory duty, customs duty and SAD (Special Additional Duty) in addition to service tax.
Though the current stipulation of duty payment with the facility of cenvat credit (or duty exemption without cenvat credit) has been working well and has led to growth both in investments and production in the textiles sector, a reduction in the excise duty rate for man-made fibres has been put forth by CITI (Confederation of Indian Textiles Industry).
It is one of the suggestions among many other tax related issues from the sector.
Selvaraju mentioned that certain proposals by former commerce minister Kamal Nath on levy refunding and others did not take off.
Labour cost and productivity
Chinese labour cost is low at around $125 per month as of April 2012.
Also, China has a greater advantage against other low-cost countries as labour productivity is very high. Further, the entire textile value chain is well integrated in China, which ensures a highly efficient supply chain in the industry. China’s infrastructure is also well developed in comparison with other competing countries.
“Now the labour cost in China is on an upward trajectory. But their scale of operations is huge. We may be number one in spinning, but China adds more value than us in every other sector.” Selvaraju noted. “That's where we fall behind.” he said.
India's twelfth five year plan (2012-17), seeks to address the issue of value addition. “In the plan, weaving sector is going to have added importance.” Selvaraju said.
The report of the Working Group constituted by the Planning Commission on boosting India’s manufacturing exports envisages exports of Textiles and Clothing at $64.41 billion by the end of March, 2017.
Bon Voyage!
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