Textile sector: India needs to grab the opportunity amid tariff turmoil

India needs to reclaim the grounds which it has been losing over the last 15-20 years as one of the market leaders in textiles

Life, they say, is full of surprises. With the election of Trump as the US President, a Pandora’s box of surprises has opened up. Things which were unheard and even inconceivable have happened. The world is in a state of shock – perhaps what President Trump wanted – tariffs and turmoil!

 

However much may be the turmoil, for the optimist there is always a silver lining. For India, it is time to quickly wake up, put the house in order and make the most of the opportunity to reclaim the grounds which we have been losing over the last 15-20 years as one of the market leaders in textiles.

 

 

Global textile industry contributed to US$ 592.8 billion in textile exports in 2024, with China leading the way with US$ 286 billion, followed by Bangladesh at US$ 46.2 billion, Vietnam US$ 43.7 billion, India US$ 41.4 billion and Germany US$ 40.4 billion. This is followed by Turkey, Italy, US, Spain and Pakistan. This list is of the top 10 textile manufacturing countries.

 

Quick look back to 2010, China was still the leader, followed by India, then Vietnam and Bangladesh and Indonesia. In the last 20 years or so, we have lost a lot of ground and are continuing to slide back.

 

This article will analyse the reasons for this slow down and suggest the way forward in the very challenging times.

 

Textiles are produced with three major raw materials. Cotton, which we all understand in India, man-made fibre, -a derivative of petroleum and viscose which is made of wood pulp, specifically derived from trees like beech, pine eucalyptus and bamboo. There are also other fibres like silk, banana, etc, but they are insignificant as compared to these three. India is the second-largest producer of cotton in the world after China. Seventy-five per cent of the world's cotton is grown between China, US, India and Pakistan. Huge amounts of cotton grown locally explains the presence of large scale cotton textile industry in the country.

 

In terms of the global textile manufacturing, man-made fibre (MMF) as a raw material dominates the scene with a 72 per cent share, while other natural fibres like cotton and others make up for the remaining 28 per cent of the market. India’s share of MMF textile is diametrically opposite to the world ratio ie., approximately 70 per cent cotton and 30 per cent MMF. In the global textile market, since our presence in the MMF textile market is very thin, we are being driven out of the market. Our over-dependence on cotton, for which the global market is shrinking and under-presence in the MMF market is the real nemesis of the textile industry of India.

 

India’s thin share in MMF textile market

 

Increasingly, the human preference has moved to MMF textiles because of its easy to wear and easy to maintain features. So, why is it that we have not been able to catch up with the world in the MMF segment, the segment which is the fastest growing segment in the textile market?

 

The hard truth of the stunted growth of Indian textile manufacturing is that the availability of raw materials - PTA (Purified Terepthalic Acid) and MEG (Monoethylene Gylcol) needed for the industry at internationally competitive prices. Similar is the case of viscose. There has been a stranglehold on the supply of raw materials for the domestic industry. A couple of manufacturers control the supply of PTA, MEG and viscose in the country. Anti-dumping duties were brought about and were in play for the last 25 years or so preventing the entry of reasonably priced materials from other countries. Because of the monopolistic nature of domestic suppliers, the raw materials were available to the industry at higher than the international prices. Once the raw material costs were higher, the textile industry found it uncompetitive to produce the products made out of these as they could not compete with Vietnam, Bangldesh, Pakistan etc. These countries availed the benefits of cheaper raw materials at international prices. 

 

The present government took a bold decision to remove these anti-dumping duties in the budget of 2020-21. The industry moved forward quickly, committing Rs 10,000 crore investment by 10 or so manufacturers. However, the restrictions in the raw material supply have been again brought back in the form of Quality Control Orders (QCO’s), thereby making the raw materials again available at higher than the international prices. QCO’s should, in fact, be levied on the value added products to discourage finished products rather than the raw materials. The tragedy is that the country is not self-sufficient in manufacturing the raw materials, yet international supplies have been restricted under the garb of dumping.

 

Another issue which needs to be immediately addressed, in order to boost the growth of textile industry, is the issue of inverted duty structure in the value chain of MMF. While the duty structure is 5 per cent across the value chain in the cotton sector, the MMF value chain suffers from inverted duty structure from PTA, MEG, fibre ranging from 18 per cent to 12 per cent. Ideally, the entire industry should have a fibre-neutral duty structure ie., at 5 per cent across the board. This has been recommended by expert committees set up for suggesting improvement in the sector. If that is not feasible, then the MMF sector should at least have a 12 per cent duty rate across the board. This gives relief to the industry which otherwise leads to working capital getting locked up, making the wafer thin margins in a highly competitive world trade, further stressed.

 

Golden chance to break into the US markets

 

With 46 per cent US tariffs on Vietnam, 37 per cent on Bangladesh, much higher than 27 per cent on India, India has a chance to take advantage of the delta in tariffs. Besides, these countries were so far availing the benefits of being Least Developed Country (LDC) and also the Generalised System of Preferences (GSP ). Since these benefits have been thrown out of the window by the Trump administration, it is our golden chance to break into the US markets in a very big way by removing all restrictions on raw materials needed to manufacture textiles. PLI Scheme focused on MMF has already been approved by the government. We need to take a policy decision about our unambiguous position on raw material availability for the next 15 years at least. Once the position of the country is clear, the industry will come forward in a big way to invest in the MMF industry.

 

Together with the price advantage because of the tariffs delta with our competitors, the existing cotton apparel and made-up industry will also get a big boost. We can consider extending the PLI scheme to this sector also to encourage fresh investments in the cotton sector too. The impending FTAs with the UK and EU should also be seen as a major upcoming opportunity for the Indian textile industry. We need to augment our production capacities to meet the great opportunity given by this tariff turmoil and also be ready to reap the rewards of these impending FTAs. Textile as a sector is going to be a major beneficiary in these FTAs. 

 

There are issues with cotton pricing, production and productivity which also need to be addressed but these are longer term interventions. For now, just making the raw materials of MMF, including viscose, available to the industry will make India the second biggest player in the world. A big nudge and handholding to complete the mega textile parks which have already been approved, will make India the textile giant it was, and, a Goliath it can.

 

One of the major challenges constantly being faced by the country, is the lack of creation of adequate employment opportunities. Textile industry already employs close to 10 million people directly and indirectly, yet it is operating on very sub optimal levels. Here is the industry which can absorb additional millions of new workers. This is the opportune time to resurrect the Indian textile industry as one of our biggest manufacturing industries, employing the largest number of people. This is the time to make India the global textile hub.

 

Let this be the silver lining in the otherwise chaotic world trade situation.

 

(The writer is the former secretary, Government of India)  (Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper)