India’s share in global exports of otton yarn shrunk 600 basis points to 23 per cent in calendar year 2020 (CY2020) from 29 per cent in CY2015, while in readymade garments (RMG), its share has stagnated at 3-4 per cent over the past decade.

Lack of free trade agreements (FTAs) and significant improvement in peer competitiveness are the main reasons for this fall.

Textiles is important to India’s $313 billion merchandise exports as it accounts for 11 per cent of the pie. The sector is also a significant employment generator.

Given its economic importance, the sector has seen a slew of measures from the government of late, including the textile parks announced in Union Budget 2021-22 and inclusion of the sector for allocations under the Production- linked Incentive (PLI) scheme.

While these are steps in the right direction, a CRISIL Research’s analysis indicates more is needed to address the issues and spur a revival.

In cotton yarn, India has lost market share over the past decade to Vietnam and China because of high cost and lack of FTAs amid intensifying competition.

In RMG, India has done well to maintain its share even as global trade in the segment contracted. But competitors such as Vietnam and Bangladesh have done much better - they capitalised on China’s falling share in the past five fiscals, while India could not.

Further, Indian textiles players were pushed to the brink in 2020 as the Government of India reduced export incentives in line with guidelines of the World Trade organisation.

CRISIL Research does not expect any significant improvement in incentives with the launch of the Remission of Duties and Taxes on Export Products (RoDTEP) scheme, which aims to reduce tax burden of exporting entities. However, to revive the textile value chain, the government has announced additional structural reforms whose impact needs to be evaluated.

The recently announced PLI scheme for man-made fibres (MMF) and technical textiles is expected to improve the potential of MMF-based RMG exports where India’s share has been weak. Along with the integrated textile parks scheme, the PLI scheme may help the sector enhance its export share over the medium to long term, if implemented well. However, continuous support in terms of trade negotiations, more investments to improve infrastructure at larger scale may be needed.

India is in a favourable position with China facing political backlash globally, but capitalising on this opportunity would need continuous and concerted effort.

The share of the textile sector in the total Indian merchandise exports declined from 24 per cent in 2001 to 11 per cent in 2020. Cotton yarn contribution in Indian export basket declined during the same period from 2 per cent to approximately 1 per cent, and Ready Made Garments (RMG) share of exports declined from 11 per cent to 4 per cent.

Exports are estimated to have accounted for 28 per cent in cotton yarn and 25 per cent in the RMG sector last financial year. As per a CRISIL report, lack of free trade agreements (FTAs) and significant improvement in peer competitiveness are the main causes for this dip.

The report points out that textile is important to India’s $313 billion merchandise exports as it accounts for 11 per cent of the pie. The sector is also a significant employment generator and with 45 million direct employees and 60 million employees in allied industries, the sector is the second largest employment generating sector in India.

An analysis by CRISIL points out that India has lost market share in cotton yarn over the past decade to countries such as Vietnam and China due to high cost and lack of FTAs (Free Trade Agreements) amid intensifying competition. In RMG, India has done well to maintain its share even as global trade in the segment contracted. But competing countries such as Vietnam and Bangladesh have done much better as they have capitalised on China’s falling share in the past five fiscals, while India could not.

The report states that the Indian textiles players were pushed to the brink in 2020 as the Central government reduced export incentives in line with guidelines of the World Trade organisation. CRISIL Research has pointed out that it does not expect any significant improvement in incentives with the launch of the Remission of Duties and Taxes on Export Products (RoDTEP) scheme, which aims to reduce tax burden of exporting entities. However, to revive the textile value chain, the government has announced additional structural reforms whose impact needs to be evaluated.

The report observes that the recently announced PLI scheme for man-made fibres (MMF) and technical textiles is expected to improve the potential of MMF-based RMG exports where India’s share has been weak. Along with the integrated textile parks scheme, the PLI scheme may help the sector enhance its export share over the medium to long term, if implemented well. However, continuous support in terms of trade negotiations, more investments to improve infrastructure at larger scale may be needed. India is in a favourable position with China facing political backlash globally, but capitalising on this opportunity would need continuous and concerted effort.