India’s textile industry: India’s ambitious Make in India initiative seeks to position the country as a global manufacturing hub. The strategy involves manufacturing not just for domestic consumption, but also ‘making for the world’. A key component of this strategy is the Production Linked Incentive scheme, targeting 14 sectors to enhance manufacturing competitiveness and generate employment. Among these, the textile and clothing industry holds particular significance, being the second-largest employer in the country, supporting over 100 million livelihoods.
India’s PLI scheme for textile and clothing focuses on manmade fibre apparel, fabrics, and technical textiles, offering subsidies of 4%-6% on incremental sales over base-year levels. The scheme envisions disbursing Rs 2 lakh crore over five years. However, challenges in global competitiveness persist. India faces stiff competition from Bangladesh, Vietnam, and China which enjoy higher labour productivity and lower costs. Between 2014 and 2020, India’s share in the global textile market declined in both textile and apparel sectors. In manmade fibre apparel, a priority area under the PLI scheme, Bangladesh and Vietnam has been consistently outperforming India.
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Challenges facing India’s textile industry
India’s textile industry faces several fundamental challenges that hinder its growth. Infrastructure and logistics remain significant bottlenecks, with inefficiencies delaying supply chain processes. Limited investment in research and development restricts innovation and the adoption of new technologies. The workforce, though abundant, lacks adequate training, resulting in lower productivity compared to competitors. Fluctuations in raw material prices, coupled with high import duties, further impact cost efficiency. Moreover, currency volatility and high interest rates add to the financial burden, making exports less competitive globally.
India was a leading textile exporter before independence, leveraging abundant raw materials and cheap labour. However, a closed economy post-independence hindered global expansion. Economic liberalisation in the 1990s reignited growth, allowing easier access to machinery and reducing resource costs. The last formal textile policy was introduced in 2000, and a new policy has been pending for years, despite consultations with stakeholders.
Government initiatives for India’s textile sector
The government has implemented several measures to support the textile and clothing industry. Subsidies such as the Interest Equalisation Scheme offer up to 5% subvention to reduce financing costs for exporters, helping them remain competitive. Infrastructure development has been prioritised, with schemes like the Rs 6,000 crore scheme for integrated textile parks (SITP) which has established 56 parks, 34 of which are operational. These parks streamline production processes by consolidating the supply chain in one location. To address tax-related barriers, the RoDTEP scheme was introduced, replacing the WTO-incompliant MEIS. RoDTEP refunds previously unreimbursed central, state, and local duties, reducing export costs.
Institutional mechanisms also play a crucial role in the sector’s growth. Export Promotion Councils, research institutions, and entities like the National Institute of Fashion Technology (NIFT) contribute to market access and innovation. Eleven EPCs work across various segments of the textile industry, organising international textile shows and fostering collaborations. Research institutions such as the Ahmedabad Textile Industries Research Association (ATIRA) and the South Indian Textile Research Association (SITRA) enhance innovation and skill development.
The PLI scheme for T&C, with an outlay of Rs 10,683 crore, targets MMF and technical textiles, attracting significant investment. However, its limited scope excludes major export products like cotton apparel and carpets, raising concerns about its ability to address the needs of the entire industry.
Free trade agreements have been instrumental in expanding market access for India’s textile industry. For instance, the 2022 India-UAE Comprehensive Economic Partnership Agreement (CEPA) has bolstered exports to the UAE, India’s third-largest T&C export destination. Duty-free access to markets like Japan, South Korea, and Singapore further enhances the sector’s global footprint. However, Indian exporters face steep tariffs in ASEAN markets such as Indonesia and Cambodia, highlighting the need to revisit and renegotiate the India-ASEAN FTA.
Balancing subsidies and structural reforms
While subsidies such as those under the PLI scheme provide short-term relief, they place a heavy burden on public finances and benefit only a select few within the industry. A sustainable approach would involve comprehensive structural reforms, including investments in infrastructure and technological upgrades to enhance productivity. Skill development programs could significantly improve labour productivity and reduce costs, aligning the sector with global standards. Bilateral and multilateral trade negotiations, such as FTAs and CEPAs, offer a pathway to reduce tariff barriers and provide Indian exporters with a level playing field.
The government could also consider policies to lower input costs through tax reforms and streamlined regulations. Key recommendations from the ministry of textiles’ strategic plan (2012-17) include reducing power and transport costs, increasing labour productivity, and decreasing VAT rates for apparel.
India’s textile industry needs a paradigm shift from subsidydriven strategies to structural reforms that address systemic challenges. By fostering innovation, improving infrastructure, and creating an enabling environment for exporters, India can regain its competitive edge in the global textile market. Aligning domestic policies with international trade standards and leveraging strategic trade agreements will be critical to fulfilling the vision of Make in India and Make for the World.
Dr Amlan Ray is academic head at Sunstone Education Technology Pvt Ltd. He is also an advisor to Infinite Sum Modeling Inc., USA.