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Indian textiles loses ground to Bangladesh, Vietnam

"Traditionally, India’s textile sector not only employed millions of people directly but also gave the country the lion’s share in global trade. Things have changed in recent years and India’s apparel industry is in tatters. Many of India’s textiles mills are shutting down, new jobs aren’t being created because exports are not growing. And countries such as Bangladesh and Vietnam have convincingly left India behind in their race to the top."

 

Indian textiles loses ground to Bangladesh Vietnam

Traditionally, India’s textile sector not only employed millions of people directly but also gave the country the lion’s share in global trade. Things have changed in recent years and India’s apparel industry is in tatters. Many of India’s textiles mills are shutting down, new jobs aren’t being created because exports are not growing. And countries such as Bangladesh and Vietnam have convincingly left India behind in their race to the top.

The new special package for the sector is expected to create one crore new jobs over the next three years and bring in an additional investment of Rs 74,000 crores. The new measures overhaul labour laws, allowing workers to do overtime of eight hours per week and provide additional subsidy for garment manufacturers to upgrade technology and expand industries.

Indian textiles Bangladesh Vietnam

Industry bodies and experts have hailed the initiative, calling it a ‘comprehensive’ package that addresses the industry's needs. There is optimism that India will be able to regain some lost ground. But, it’s still worth examining how Indian textiles industry ended up where it is now.

Decline of the industry

India’s textile exports declined marginally last year to $36.26 billion from $37.14 billion recorded in the year 2014-'15. In apparel, Bangladesh’s exports to the US grew by a whopping 12 per cent in 2015 while Vietnam did even better as its exports rose by 14 per cent. India, on the other hand, saw its exports grow just by 8 per cent. Even the government has acknowledged this state of affairs. According to the Ministry of Textiles, Bangladesh and Vietnam have surpassed India’s apparel exports and the country is the smallest exporter among these three economies.

Bangladesh’s competitive edge

Both Bangladesh and Vietnam have cut into India’s pie as a preferred manufacturer of clothing, while India’s exports have languished. A recent study attributed this fall to greater competitiveness in factories of Bangladesh. India’s garment factories are too small. They typically have 150 people and about 80 machines while the average factory in Bangladesh has 600 people.

Interestingly while China’s dominance in the trade has been on the wane due to rising labour costs, India has been facing a peculiar problem of trying to expand the scope of its industries. With China’s textile sector slowing down, countries like Russia, which were completely dependent on China have left a vacuum. Indian companies can take advantage of this. However, this is not going to be easy with countries such as Bangladesh offering cheaper alternatives. With the new Textile Policy, the government is trying to give additional incentives to both workers and the businesses to balance the value chain so that the industry can achieve its potential.

The government will provide more money for employees who work at the lowest rung of the ladder through PF accounts, while making the EPF optional to employees who earn less than Rs 15,000 a month to provide them more money to spend. For industries, the government is providing tax incentives and funds through loans and subsidies to speed up the process of industrial expansion.

Loans and subsidies

A key part of it is the additional subsidy provided under the Amended Technological Upgradation Funds Scheme. This scheme provides one-time incentive to owners looking to scale up their ventures by investing in technology or generating employment. Under the new norms, the subsidy has been increased from 10 per cent to 25 per cent and it will only be provided after the ‘expected jobs’ are created. The current scheme will involve an annual expenditure of Rs 400-500 crore according to the ministry estimates and it is expected to generate 12.25 lakh jobs and additional exports of $7 billion.

Problems persist, even as the current package seeks to revive the sector through broad range reforms. Recently, textile mills in Telangana decided to shut down twice a week in protest, taking a cue from Tamil Nadu to highlight their problems. Reportedly, Andhra Pradesh is also set to follow suit as mill owners complain of eroding profits because of raw cotton stocks being allegedly hoarded by large corporations and imports having become expensive because of added duties and taxes.

Shutting down mills further accentuates the extent of the rot facing the mill owners as the official data shows that close to 600 textile mills shut down permanently during the last year itself. That’s about two mills closing down every day – and the number of mills shutting down has been rising for the last decade. The government is yet to find out how it impacts the industry.

 
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