Indian textile industry needs a ‘stitch in time’

The sector faces competition from rival textile exporting nations, rising costs of raw materials, and a proposed hike in GST

By Radharaman Hari Kothandaraman

While this year’s budget stayed clear of too many sector-specific announcements, the one sector that should have merited special attention was the textile and apparel industry–the second largest employment generator in the country.

Given the backdrop of the Covid-19 Pandemic and its negative impact on jobs and consumption, one would have felt that Textiles would have received special attention in this Budget from the Finance Minister.

After a dramatic decline in demand in 2020-21, the textiles and apparel industry mounted a steady comeback in the current fiscal on the back of a rebound in exports and renewed domestic demand. The industry is, however, far from out of the woods, facing as it does a long road to recovery on account of several headwinds.

The sector has been facing tremendous competitive pressures from rival textile exporting nations such as Pakistan, China, Vietnam and Bangladesh for many years and has recently been beset with an unprecedented increase in the costs of many input raw materials which have mirrored the rise of global commodity prices.

Add to this, the recent talk of a proposed hike in GST on textiles has acted as a tremendous dampener on sentiment to an industry, which was once easily the most important industrial sector in the country. Coming as this does on the back of weak consumption on account of successive local and national lockdowns–the sector was in dire need of some positive policy measures in this Budget.

As the second-largest source of employment in India after agriculture, the textile industry must be viewed as a strategic sector that could be used to resuscitate both consumption and employment thus creating a multiplier effect on the economy.

Given the focus on infrastructure creation and sustainable development emphasized by the Finance Minister, it might have been worth allotting funds for setting up Centralized Effluent treatment plants in textile clusters across the country to manage dyeing effluents that the industry produces in copious amounts each year. This could in addition to reducing the pollution of our water bodies also enable the industry to position itself as a leader in sustainable fashion in the global fashion industry.

Another initiative that could have had a tremendous positive impact is the granting of enhanced minimum support prices on the agricultural activities linked to the sector such as Cotton and Sericulture. This would have led to long term encouragement to farmers in these sectors thus ensuring the stability of raw material prices in the years to come.

As a temporary measure, at least the Government could have also looked at interest subvention schemes for loans given to this sector for a minimum period of one year–a step that could avert a pile-up of bad loans and a future crisis of confidence amongst lenders towards loans given to the industry.

The Textile Sector in the country is not confined to large apparel units and Mills. A sizeable majority of its capacity emanates from rural semi-organized artisans who remain uncovered by any of the government's schemes. To aid this critical section of the rural workforce, the Government could route some of the funds under its rural employment guarantee schemes (such as MGNREGA) to artisans employed either by private entrepreneurs, NGOs or cooperatives in rural areas thus empowering artisan communities across the country to achieve better wages and dignity of employment, especially in these times of need.

Many artisans in the remote parts of the country find it difficult to stock raw materials ahead of time due to a lack of adequate working capital thus making them vulnerable to sudden price rises in the cost of raw materials. The lack of access to capital thus further incapacitates the handloom sector which faces strong competition from cheap mill made substitutes that are often imported into the country. Providing priority sector status to handloom and handicraft sectors and greater access to credit through Microfinance institutions would greatly benefit these small entrepreneurs.

Finally – given the upcoming deliberations in the GST Council on the proposal to increase GST rates on textiles, one would hope that the Union Government would use its substantial voice in the Council to not only defer the rate hike but reduce GST on labour-intensive textiles such as handlooms to stimulate demand and encourage greater employment in a sector that remains probably one of the largest such sections of the economy that remain uncovered by most of the government’s economic incentives.

Radharaman Hari Kothandaraman is the Founder, CEO, and Principal Designer of The House of Angadi. He is also Creative Director of the design label Advaya, and the recently-launched international luxury ready-to-wear label, Alamelu.