Apparel April 2019 Apparel May 2019 issue | Page 66

INDUSTRY INSIGHTS
THE INDUSTRY GRAPPLES WITH
ISSUES LIKE OUTDATED TECHNOLOGY,
INFLEXIBLE LABOUR LAWS,
INFRASTRUCTURE BOTTLENECKS,
AND THE FRAGMENTED NATURE OF
THE INDUSTRY.
phaseout because of the country’s domestic
issues. The industry grapples with issues like
outdated technology, inflexible labour laws,
infrastructure bottlenecks, and the fragmented
nature of the industry.
WHERE DID WE GO WRONG?
Demand vs supply: India remains a cotton-
focused country with 70 per cent of the usage
within India, though we do have a rich mix of
synthetic and natural fibres and yarns. This
percentage is also reflected in exports. Only
30 per cent is from synthetics and man-made
fibres. The global trend is exactly the reverse, i.e.,
70 per cent consists of man-made fibres. So,
India’s domestic and export mix is the opposite
of global fashion and demand trends. The inverse
skew of fibre usage in India is due to the skewed
tax treatment. Until the roll-out of the Goods
and Services Tax (GST), the cotton value chain
was completely free of indirect taxation. With
the expiry of the MFA in January 2005, cotton
prices in India are now fully integrated with
international rates.
Demonetisation and taxation: That anomaly
was supposed to be removed by uniform GST
treatment for the textile sector. Instead of a fibre-
neutral policy, we have a dual GST structure,
with 18 per cent GST on upstream and five per
cent GST on downstream, leaving an inverted
duty structure. In addition, the offsetting credits
cannot be used to get a refund by downstream
entities. The textile sector in India, primarily the
unorganised and small players, had taken a major
hit with demonetisation and the implementation of
the Goods and Services Tax.
The sector appears to be finally recovering,
as reflected by the improvement in the Index of
Industrial Production (IIP) and exports data over
the last few months.
China: The other big factor looming large on
the sector is the overhang of excess capacity
in the fibre and yarn sectors in China. That
causes a downward pressure on prices, and
the flood of imports also remains a constant
threat. With rising wages in China, the labour-
intensive garment sector is perhaps moving out
and represents a great opportunity for India. But
unless that is grabbed soon with a coherent and
holistic national policy, we run the risk of losing to
countries like Vietnam.
Though the Government has tried to support
the domestic industry by increasing import duty
on several textile items, there are some deep-
rooted problems with the sector. These need to
be addressed to see any long-term sustainable
revival in the sector.
WAY FORWARD
In the midst of the existing challenges, the
industry also needs to gear up for the abolition of
some of the existing export subsidies. According
to the World Trade Organization’s Agreement on
Subsidies and Countervailing Measures, a country
needs to phase out export subsidies for a product
as it achieves export competitiveness—defined
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I APPAREL I
May 2019