In the global market, during the period 2013-19, the exports of India in the T&C sector have been stagnant in the range of $34-39 billion. On the other hand, India’s imports have been increasing rapidly from $5.5 billion to over $8 billion in four years.
India Textile and Apparel Exports and Imports (USD Billion)
Further India’s export market share across T&C segments within the total exports by Asia Pacific (APAC) countries shows that India is relatively strong in the upstream segments of raw material and yarn spinning whereas its market share is much lower in fabrics and finished goods that have a higher value.
This significantly limits the value of India’s export. In comparison, China has higher share than India in all segments, but it has a much higher market share in higher value downstream products – fabrics, apparel and made-ups (especially in 2012 before China started focusing on upstream products).
India and China Market share across T&C segments within APAC exports.
Further the large part of India’s exports in the apparel sector is cotton garments, while globally consumption is geared towards man-made textiles.
India and China market share in APAC exports by fibre type and segments.
Undoubtedly the textile sector has been identified as thrust the sector amongst the selected 13 sectors for which the Production Linked Incentive scheme (PLI) scheme has been proposed by the government of India.
Coverage of the scheme and products proposed
The above statistics clearly indicate the need for specific push for certain segments within the textile sector. Accordingly, the budgeted outlay under the PLI scheme for the textile sector has been provided only for apparels/made ups made from man-made fibres (MMF) and
to an extent of Rs 10,683 crore. This clearly means that the scheme doesn’t cover cotton garments/apparels for instance. The scheme will be implemented by the Ministry of Textiles (MoT) and is expected to be made effective shortly.
With the introduction of such a scheme, the foremost intention of the Government is to boost the country’s export value by building large scale production of downstream products, which has higher value. The scheme would enhance India’s manufacturing capabilities by increasing investment and production in the textile apparel sector, especially in the MMF segment and technical textiles.
Key features of the proposed scheme
It is expected that the scheme may cover approximately 40 products categories under MMF and about 10 in the technical textile segment. The MMF category largely covers garments covered in Chapter 61 and 62 of the Customs Tariff Act like jerseys, pullovers, trousers, socks and shirts of man-made fibres. The technical textile category may cover products like diapers, adhesive dressings, bandages and safety airbags, as covered under some specific HSNs under chapter 30, 39 or 59 of the Customs Tariff Act.
It is likely that benefits under the scheme would be available for both greenfield as well as brownfield investments. However, the sub-conditions for each category would be different. It appears that minimum investment of Rs 500 Crore is expected for a project to be qualified under greenfield category. In addition to the above, the most critical condition of achieving 50% growth on a year-on-year basis, is expected to be set, for claiming the incentives.
Depending on the type of investment i.e. greenfield or brownfield, the rate of incentives would fall in the bracket of 11% to 3% on a year on year basis for 5 years. These rates would be applied on the incremental revenue assuming the condition of yearly growth is maintained.
While the scheme would be a huge impetus for new investments, there is a need to consider some important issues as highlighted by various industry players and experts as under:
Limited product coverage: The proposed list of products covers only the apparels and not the fabric which is still majorly imported. The scheme doesn’t cover synthetic fabrics such as viscose, polyester and nylon, which is a major input for apparels covered under the scheme.
This is also true for Geotextiles, agrotextiles and also the Hygiene segment. In the Technical textiles, a proper boost to the same can be provided only by encouraging investments in the fibres and filaments used for producing the end products like safety air bags in cars, diapers, sanitary napkins, surgical materials etc. Merely including the end-product may not enable more investments in this sector.
Investment threshold: The T&C sector can be forked in multiple segments and each of them contributes to the sector individually. Below figure picturizes value addition of each segment.
Estimated share of value addition by segments.
Generally, no single company in India may invest in the entire value chain from yarn to fabric to apparel unlike a few large players in China. Each process of the manufacturing is done by multiple players in India. Therefore, the condition of investing Rs 500 Crore for greenfield investment seems very difficult to achieve and clearly seems that this condition should be eased out the way it has been done for some other sectors.
It would be difficult to maintain a growth pattern of 50% on a year-on-year basis which would involve more investment in terms of machinery and capturing more market in given time. This is far more than what is envisaged for the PLI schemes of any other sector. The investment to growth in revenue ratio for the textile industry doesn’t justify the expectation of either the investment criterion or the revenue growth criterion.
While the government is discussing various representations from industry in all earnest to make the scheme being successful, it would be interesting to look at the products and the eligibility criteria which gets notified in the final scheme so as to achieve real growth for the sector.
(The writer is Partner – Indirect Tax, EY India)