by Dheeraj Tagra
29-August-2019 | 17 mins read
Finally, something from India’s US $ 170 billion textile and apparel industry goes viral!
Thanks to the half-page advertisement (given below), in a leading English daily by Northern India Textile Mills’ Association (NITMA), there is something critical for the industry to think and talk about. The advertisement has distinctly explained why Indian spinning industry is passing through one of its biggest crises (similar to the one seen in 2010-11), which has resulted in huge job losses. The advertisement also presents 4 appeals made by NITMA to the Government of India to come out of this crisis. The impact was there to be seen! The advertisement was tweeted by the many bigwigs not from the industry including the likes of senior journalists of mainstream media and senior Congress leader Priyanka Gandhi, besides many others.
Once the advertisement went viral, Indian and even few International media houses, too highlighted this issue. And why not! India’s struggling automobile industry was already in the limelight and now textile industry’s dismal state was enough to indicate that overall Indian economy is on the verge of being hit by recession. In the light of all this, Apparel Resources explored the ground realities, cause and effects of the state of textile industry and allied aspects….
One of the major highlights of the advertisement was regarding the loss of jobs in the spinning sector. And this is something that needs serious thought! During April to June 2019, the cotton yarn export was US $ 696 million compared to US $ 1.06 billion made during same period last year – an overall slump by 34.6 per cent. Also, interest rates and cost of raw materials are high, not to mention the fact that import of garment and yarn is increasing in India. All this has eventually resulted in the closure of around one-third of spinning capacities across India thereby causing unemployment. Export of yarn has become a major concern as India exports nearly one-third of the yarn it spins.
Following the advertisement going viral, M. Jayabal, President of Tami Nadu Open-end Spinning Mills Association (OSMA) gave a statement, “In the past one year alone, 300 spinning and open-end mills in Tamil Nadu have shut down for various reasons. Some of them have been sold out. Around 1 lakh workers have lost jobs due to the crisis in last one year. Normally, a minimum of 100 million kg of cotton yarn is exported every month but in June, only 57 million kg were exported, the lowest in last 2 years.”
Over 200,000 workers have lost their jobs in the spinning sector itself, a leading business daily quoted Sanjay Jain, Chairman, CITI. It is pertinent to mention here that workers losing their jobs has nothing to do with growing automation in the spinning industry.
One month before this advertisement went viral, NITMA had issued a press release and said that excess capacity prompts Northern India spinning mills to shut down once a week. This news was covered by Apparel Resources (Excess capacity! Spinning mills in northern India to shut down once a week) and few other mainstream media platforms too.
So, the allegations of media not pay attention to this issue is also not right. As the advertisement goes viral, NITMA Secretary General G. Balasubramanian has now said to a website, “We are working along with the Government at different levels but the media is portraying that our association is in conflict with the Government.” Balasubramanian denied sharing much details when Apparel Resources had approached him on this issue a month back after NITMA had issued the above-mentioned press release.
In a TV debate, Mukesh Tyagi, VP, NITMA said that the hike of Minimum Support Price (MSP) of cotton to the tune of 28.11 per cent for medium staple cotton and 26.16 per cent for long-staple cotton for the season 2018-19 was also a reason for their troubles. These rates were announced in the first week of July 2018, so one fails to understand why mills could not take necessary steps at least at their end.
NITMA has now claimed to have submitted a memorandum to the Union Finance Ministry on similar lines in early August. By the time of writing this article, there was no response from the Government on the difficulties of the textile industry, while the Union Textile Minister remained proactive as usual. She recently launched a sustainable fashion project in Mumbai and also visited Meghalaya for textile industry-related work.
It is also important to mention here that other textile associations, who are very vocal on industry’s issues, have not said anything categorically on job crisis. Even after this advertisement, they have not said anything specifically in this regard.
It is not in 2019 that India’s cotton yarn export has gone down, the same has slumped by 25 per cent in last 5 years when it comes to export to European Union and China; notably the fabric export also fell by 7 per cent.
Apart from all the aforementioned development, one has to understand that it could be just the beginning of the end and all stakeholders need to see the larger picture. There are many reasons at various levels for this anticipation.
China changing strategy
Vietnam, one of the main competitors of India in apparel export and which doesn’t have much production of cotton, has become the biggest exporter of cotton yarn to China as China has invested hugely in Vietnam to supply yarn. China has also given duty-free access for import of cotton yarn to Vietnam from April 2019. China was the largest importer of cotton yarn, and apart from Vietnam, it is increasing its yarn import from Indonesia (Indonesia too has duty-free access while Indian yarn carries a 3.5 per cent import duty.)
Things are going to be more challenging for India in future, as Vietnam and EU signed FTA on 30 June 2019. And with the rule of origin for Vietnamese garment industry, fabrics used to make the products must originate from Vietnam or the EU, and so whatever India was exporting to Vietnam, may reduce in future.
Fragmented supply chain and no proper approach
Indian textile industry is fragmented at various levels right from cotton, yarn and fabric to garment and due to lack of integrated textile policy (during previous regime, ministry was very active but still could not announce), most of the segments are struggling like India’s raw cotton is going to various markets at zero duty instead of being converted to yarn or fabric, resulting in the loss of employment and foreign exchange. During 2017-18, India exported raw cotton of US $ 1.9 billion, while apparel export was just US $ 16.72 billion.
Government serious on RoSCTL!
As a solution of its problems, the textile industry has made four major appeals demanding that The Rebate on State and Central Taxes and Levies (RoSCTL) should be extended to cotton and blended yarns too. Cotton yarn exports attract 5-6 per cent of embedded taxes, which are not refunded to the exporters and if RoSCTL covers cotton yarn, this issue will be solved. Currently, the scheme is majorly for the garment sector but here again one needs to understand how the Government is inactive on this front. It is more than 6 months since The Rebate on State and Central Taxes and Levies was announced for the garment sector to reimburse the embedded taxes and levies not covered under GST and unfortunately, till now no online procedure has been implemented to receive the benefit in the form of duty credit scrip. The total pending amount till now for the apparel industry is more than Rs. 1,600 crore.
Apparel import from Bangladesh with Indian fabric
The matter is beyond spinning mills as the textile industry is also impacted by the duty-free garment import (under South Asian Free Trade Agreement (SAFTA) to Bangladesh). As per official data, RMG import from Bangladesh was up 82 per cent to US $ 365 million last fiscal which is growing steadily at a CAGR (compounded annual growth rate) of 52 per cent. The same is further expected to touch US $ 3.6 billion in next 5 years resulting in about 10 lakh jobless people.
This import is also hurting the spinning industry as Bangladesh mostly uses Chinese fabric in its apparels; so indirectly Chinese fabric is consumed in India. Indian textile industry time and again has said to the Government that if India can’t ban duty-free garment import from Bangladesh, at least it should execute the fabric forward policy where duty-free access to the garments shall be provided if the fabric is imported from India. This will give at least some relief to Indian textile mills; however, nothing has happened in this regard too.
If Indian yarn and fabric export to China, Bangladesh and Vietnam will not grow… there is no other hub at international level having a strong consumption.
Quality (not) improving!
Throughout the textile supply chain, quality is one of the major issues. Even in cotton there are quality issues at various levels. Last year, The Southern India Mills Association (SIMA) had urged Union Textile Minister Smriti Irani to intervene and empower the Cotton Corporation of India (CCI) to implement governance and discipline to cut on the alleged misconduct adopted by cotton ginners.
As per the Annual Cotton Contamination Survey that is conducted by the International Textile Manufacturers’ Federation (ITMF), it was being observed that the poor ginning practices adopted by the ginners have put India’s cotton varieties in the list of top 10 highly contaminated and seed coat (trash) content across the world.
Industry stakeholders believe that Indian cotton is good in quality but gets spoiled, thanks to the wrong practices it goes through from farm to bale stage.
On a global level, several top brands and retailers are executing many programmes to train farmers of various countries including India, while Indian spinning mills or any stakeholder of the industry have not taken enough steps in this regard.
States’ compete with each other, to no one’s advantage
To woo the investors and grab their shares, most of the Indian states have their own textile or apparel policies that offer lot of incentives especially for fresh investment. But at the same time, these policies clash with their neighbouring or competitive states, which finally results in the loss for the entire industry. The most recent example is that of Maharashtra, where the State Government planned to impose import duty on cotton to control domestic prices. The textile industry of Tamil Nadu, having accounted for 19 per cent of India’s textile output, has raised its objections and asked Ministry of Textiles to intervene. The Tamil Nadu industry strongly believes that such kind of proposals arrest the growth of the industry and can change the entire dynamics of the textile value chain.
And future isn’t great either! NITMA says that upcoming cotton crop of 40 million bales, which values at Rs. 8,000 crore, will not be able to find any buyer in India and abroad because India has still not moved to globally adopt purely market-driven Agri-commodity markets with Government directly supporting farmers as MSP level. This holds more relevance as international cotton price has plunged 28.3 per cent in the past one year.
Solution (temporary) on the way!
Some of the associations recently met commerce and textile ministers and are expecting some relief; their biggest expectation is an extension of RoSCTL. But will the core issues of textile and apparel industry be resolved? If previous years are anything to go by, chances are very less as rather than looking at the entire textile and apparel supply chain on the whole, the trend is to give special packages or temporary incentives to a particular segment, hurting most others, which is in fact not right as entire supply chain is well interlocked with each other segment.
Despite the special package of Rs. 6,000 crore for apparel export, which was given two years ago, apparel export has not performed well and there is no noticeable expansion or investment. While it was expected to lead to an increase in exports by US $ 30 billion and help attract investment worth Rs. 74,000 crore in three years. Even in the case of long-term policy level support, industry has not got its due. One of the main schemes to support the industry is Amended Technology Upgradation Fund Scheme (ATUF), but under this scheme around Rs. 9,000 crore is pending. The scheme launched in 1999 was extended up to 31 March 2022 by allocating Rs. 17,822 crore.
Apart from the above-mentioned packages and core schemes, several initiatives, subsidies or reforms are done by the Government now and then, but on the whole industry is waning rather than improving as none of the efforts have collectively covered the entire supply chain and, strikingly, there is a lack of effort at each stakeholder’s level too.
There’s still a lot to do!
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