The incentives are attractive, but for exports to take off, infrastructure needs to be upgraded
The production-linked
incentive (PLI) scheme for textiles, an initiative aimed at boosting the output
of man-made fibres and high-value technical textiles, has been reasonably
well-framed. To begin with, companies will be given enough time to up their
production units—these have to be housed in new subsidiaries—which will allow
them to sort out Covid-related issues. The incentives worth Rs 10,683 crore
will be provided over a period of five years, with priority accorded to
investments in aspirational districts and tier-3 or tier-4 towns.
The draft scheme
envisaged an 11% incentive for investments of Rs 500 crore or more. These
conditions have been made more lenient. For an investment of over Rs 300 crore,
the incentive in the first year will be 15%, but the business needs to achieve
a turnover of Rs 600 crore. The incentive is graded and falls each year; so, in
the second year, it would be 14% on an incremental turnover of 25%. For
investments of between Rs 100-300 crore, the incentive is 11%, again falling
each year. If the business doesn’t achieve the requisite turnover in year one,
but does so in year two, the incentive remains 11%. The incentives will be
available across 40 tariff-lines of ready-made garments.
The terms are
attractive, though, given the importance of the textiles sector as a big
exporter as also its employment-generating capacity, the outlay should probably
have been bigger. Indeed, while the scheme is intended to increase production
and has been named accordingly, the larger objective would undoubtedly be to
boost exports. One is not sure the local market can absorb the estimated
additional production of Rs 3 lakh crore.
That cotton textiles
have been excluded from the purview of the scheme—despite India being a big
producer—is not surprising. Globally, man-made fibres are far more popular
today and account for roughly two-thirds of the demand, but India’s share in
this segment is relatively small. Cotton fabrics, in contrast, are a smaller
market, which is possibly why requests to incorporate cotton textiles into the
scheme were not entertained. Framing the scheme for man-made fibres makes sense
and a fresh investment of Rs 19,000 crore, which is what the government is
hoping for, does not sound too ambitious. The scheme should enhance the
potential for man-made fibre-based readymade garments and give India a leg-up
in the export market. If the incentives are well structured, the additional
production turnover of Rs 3 lakh crore over five years should come through.
However, for that to
happen, the infrastructure must be upgraded and investors must find it easier
to do business. Moreover, if the aim is to boost exports, India’s trade
negotiations must extract good terms for exporters. India’s share of cotton
yarn exports in the global market, shrank 600 basis points, to 23% in 2020,
from 29% in 2015, while in readymade garments, the share has languished at 3-4%
over the past decade. Experts at CRISIL attribute the loss of market-share by
India’s textile exporters to the absence of free trade agreements (FTAs) as
also the substantial improvement in the competitiveness of peer nations. The
government’s stance on FTAs has been a cautious one, it doesn’t want to rush
into them without being completely sure the benefits are mutual. But the fact
is Vietnam has taken away share. In the readymade garments segment, too, rivals
Bangladesh and Vietnam have done better to cash in on China’s falling share.
The mega textile parks must get off the ground soon.
source: Financial Express
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