Achieving garment exports target remains a challenge: Icra

Government's latest package for the textile sector is likely to improve competitiveness of the country's exports but achieving target of $43 billion of apparel exports by 2018 remains a challenge, ratings agency Icra said.

The Centre on Wednesday approved  Rs 6,000 crore special package for textiles and apparel sector to create one crore new jobs in 3 years by attracting investments of $11 billion and generate $30 billion in exports.

"These steps will lead to increased competitiveness of India's apparel exports and improve employment generation in the garment sector given its labour intensiveness. While the financial year incentives under the package will improve capacity additions and increase the competitiveness of India's exports, however, achieving the target of $43 billion of apparel exports by 2018 appears to be a challenge," Icra Assistant Vice President Anil Gupta said.

In the agency's view, the increased benefit of 25% of capital subsidy under amended Technology Upgradation Fund Scheme (TUFS) for new garment units will further reduce investments requirements for new units by 7.5%.

In addition, the proposal would also benefit new garment units by way of savings of up to 3.7% on labour costs and 1% on total manufacturing cost of apparel due to government's contribution towards employer's share of Employees Provident Fund contribution, the report said.

India's garment exports grew at 4% in 2015, whereby they increased to $17.1 billion from $16.5 billion in the previous year.

The annual growth for the period 2010 to 2015 stood at 10%, in which the exports increased from $11 billion to $17 billion.

"Demand slowdown from key importing countries in Europe and the US, which is reflected in our estimates of year-on-year de-growth of 4% in global garment trade in 2015, can be a major challenge for growth in India's exports," Gupta added.

Icra opined that the country's textile exports are highly skewed towards cotton-based sectors whereas the global fibre consumption is largely skewed towards man-made fibre.

Besides, the domestic textile sector suffers from lot of structural inefficiencies, where garment manufacturing clusters are located away from fabric manufacturing clusters, which in turn are away from yarn manufacturing and cotton growing clusters, it added.

"Fragmentation of Indian textile industry leads to lot of systemic inefficiencies and competitive disadvantage for India's textile exports. Unless these issues are addressed, the competitiveness of India's export will always remain under threat," it added.