By Lekshmi R Nair and D Dhanuraj*
Textile and garment industry with a market size of around US$ 3000 trillion in 2015, as per the data provided by Euler hermes.com, has served as a growth engine for many nations. In India, the textile industry has an estimated market size of US$108 Billion, according to the estimates of India Brand Equity Foundation in 2015.It is the second largest provider of employment after agriculture, accounting for around 4% of GDP, 14% of industrial production and 17% of gross export earnings.
The policy framework in India towards textiles is predominantly biased towards cotton with only an optional excise duty of 6% for cotton fibre, while a high mandatory excise duty of 12.5% for the manmade fibre and yarn. Some raw materials and additives used for producing manmade fibres like Purified terephthalic acid, Monoethylene Glycol,Acrylonitrile and Caprolactum have been imposed with acustoms duty of the range 5% to 8%. On the other hand, in the competing countries like China, Indonesia, Pakistan, Bangladesh, Sri Lanka and Thailand which are the main textile exporters, tax equality is being implemented among cotton and MMF with either exemption or lower duty structures for raw materials.
The assumption that cotton is the fabric of common man and manmade fibre a luxury item got translated into the government policies namely discriminatory tax policies and higher tariffs for the MMF products in India, supposed to protect the agricultural sector producing cotton. The high excise duties were also considered as a source of revenue to the Government. In spite of the recommendation made by the Ministry of Textiles in the National fibre policy 2010 for taxation neutrality on different fibres and the demands made by different industry associations, the anomalies in taxation and tariffs still continue.
The discriminatory tax policies and the higher tariffs, have resulted in the availability of MMF to the manufactures at non competitive prices, compared to the competing countries creating an excessive bias towards cotton. At the same time, this has resulted in restricting the growth and investments in the MMF industry. There is a lack of competitive market for MMF production, dominated by very few big players resulting in the under utilisation of domestic capacity in the industry. There is around 20% capacity which remains unutilized in the industry. The refining capacity of India is very high with the fifth position in the world. In spite of the high capacity, there are only four big players in the synthetic fibre industry. The monopoly of the big players has adversely affected the small and medium players in the industry which showed poor financial performance, resulting in the acquisition of the medium players like Raymonds, ICI and DCL Polyester by Reliance Industries, the big player.
60% of the fibre consumption in India is accounted for by cotton, while only 40% is accounted for by MMF, unlike the global trends. Given the high demand for the MMF and the blended textiles in both urban and rural parts of India than cotton textiles as well the global shift towards MMF textiles, the growth of the MMF industry in India is very much required for meeting the growing clothing requirements in the country. Moreover, in spite of having huge potential, various specialized man-made fibres like acetate/ tri-acetate, cup ammonium filament yarn, nylon 66, nylon 11, spandex, etc are not being manufactured in India and thus have to be imported by the weavers.
The textile exports in India are constrained by the excise duty and customs duty anomalies between cotton and MMF textiles. The high excise and customs duties of MMF have resulted in significant decline in the MMF export price competitiveness of India compared to those of other countries. The consequence is that India’s textile exports are mainly cotton based, while the global textile exports are MMF based. The share of India in the global textile exports has become only 5.2 percent. The competing country China has a share of 39 percent in the global textile exports, being the largest textile exporter, through giving a big push to MMF textile exports.
More players need to be encouraged to the market through making the market more affordable by reducing the high excise duties on MMF and high customs duties on the raw materials. The capacity utilization can thus be increased leading to high growth in the industry. The consumptionof the man made fibres can be increasedthrough making them moreaffordable. For this, thecost of production of the man made fibres need to be reduced through implementing a fibre neutral policy as in the competing countries like China.The excise duties on man made fibres and their raw materials and man made filament yarn need to be made equal to cotton for making them available at competitive prices. Through increasing the mill sector consumption of the MMFs, the per capita availability of man made cloth can be increased. The reduction of excise duty at the primary stage would help across the entire value chain to increase consumption right from the fibre stage to the garment stage thus resulting in more revenues for the government. The revenue losses to the government through are duction in the duties can be compensated through the revenue growth in the industry.
The export price competitiveness of manmade fibre based textile items can be increased through reducing the internal cost of production in terms of reducing the high excise duties on MMF and high customs duties on the raw materials. India’s share in world textile exports can be increased through improving our MMF textile exports.
*Lekshmi R Nair is the Centre Manager at CPPR-Centre for Comparative Studies and D Dhanuraj is the Chairman of CPPR.Views expressed by the authors are personal and does not represent that of CPPR
This article was first published in The Indian Economist Hanging by a ‘Thread’
Featured Image Source: Polyester: the new fabric of our lives. (Reuters/Amit Dave)