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Published on: Aug. 9, 2022, 7:10 p.m.
Weaving a strategy for an impressive future
  • Our lopsided policy interventions in favour of cotton have not allowed market forces to play their true role; Photo: Sanjay Borade

By Arbind Gupta. Assistant Editor, Business India

The textile industry in India is traditionally the only industry that has generated huge employment for both skilled and unskilled labour. Moreover, it offers employment to a large pool of women (in the garment sector). It has a unique position as a self-reliant industry, from the production of raw materials to the delivery of finished products. With its rich heritage, the textile industry enjoys favourable conditions such as the easy availability of abundant raw material from natural fibres like cotton, wool, silk and jute to manmade fibres like polyester, viscose and others. In fact, India has emerged as the largest producer of cotton in the world. It is also the largest jute producing country. 

As it celebrates its 75th year of independence, India’s textile sector has also undergone a transition over the decades. In fact, the process of transition is still taking place, backed by the government’s recent policy initiatives which are aimed at removing fiscal and structural anomalies, making the textile value chain more competitive and robust.

Experts believe that the domestic textile industry is currently very favourably placed and is set to leave a mark on the global market. As per the report of Wazir Advisors, the $140-billion textile industry, which has grown at a CAGR of 8.3 per cent in the last few years, is expected to grow at a CAGR of 11 per cent to reach $225 billion by 2026. 

The recently-announced Production-Linked Incentive (PLI) scheme for the textile sector has the potential to transform the industry into a vibrant setup. With a total budgeted outlay of Rs10,683 crore, the Union government has designed the scheme with a view to provide a much needed fillip to the man-made fibre and technical textile segments of the industry. 

The PLI scheme, in conjunction with RoSCTL (Rebate of State and Central Taxes and Levies), RoDTEP (Remission of Duties and Taxes on Exported Products) and other government facilitated initiatives in the industry such as providing raw materials at competitive prices by removing anti-dumping duties on PTA (the raw material for polyester) and viscose staple fibre; skill development, like the National Technical Textile Mission and PM-MITRA textile parks (which will bring scale to the sector) and so on, will definitely usher in a new era in textile manufacturing and help create a more robust production base to meet the requirements of the global market. 

Skewed policies

Currently, manmade fibre-based textiles and apparel production account for just 30 per cent of the total textile and apparel production in India. As against this, the global textile trade is dominated (65 per cent) by manmade fibre-based products, even as India’s textile production continues to be heavily skewed in favour of cotton.

Over the years, while global trade has shifted in favour of manmade fibres, in India, our lopsided policy interventions in favour of cotton have not allowed market forces to play their true role, leading to the creation of a production base which is failing to produce textile products at competitive prices, especially since demand for these products has dropped in the present market scenario. 

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    Schemes like PLI will not only help our manufacturing base move up in the value chain but also help enlarge our share in the global market

    Sanjay Jain, Chairman, ICC National committee on Textiles & MD, TT Ltd

As a result, the Indian share of global trade is restricted to only 5.5 per cent. In fact, in spite of India being the second largest producer of manmade fibres in the world, the country’s share in MMF garments is a mere 2 per cent. It is dominated by China (34 per cent, followed by Vietnam and Bangladesh).

Recently, Vietnam has overtaken Bangladesh in RMG exports. India loses out to other countries due to lack of cost-competitiveness and the absence of trade agreements with major trade blocks like the EU and US.

“Our skewed policies in favour of cotton have adversely impacted our textile manufacturing base. While over 60 per cent of global textiles is manmade fibre-based, we have continued to manufacture cotton-based goods and that has severely blunted our competitive edge in the global market. Now with this PLI scheme and other fiscal incentives in place, we are going to see more investments taking place towards the creation of large capacities for the production of relevant and value-added textiles. This will not only help our manufacturing base move up in the value chain but also help enlarge our share in the global market,” says Sanjay Jain, chairman, ICC National Committee on Textiles and managing director, TT Ltd.

“By focusing on these two high potential segments, the PLI scheme for textiles is expected to bring about structural changes in the textile sector. With the introduction of such a scheme, the foremost intention of the government is to boost the country’s export value by building large-scale production of downstream products, which has higher value-addition potential. The PLI scheme will enhance India’s manufacturing capabilities by increasing investment and production in the textile apparel sector, especially in the MMF segment and technical textiles,” states Gurudas Aras, former director, ATE Group and strategic advisor to ITA Group (Germany), Rabatex Industries, and Piotex Ventures.

All these years, Indian exporters have been at a disadvantage in the EU and UK markets in terms of import duty treatment as compared to countries like Turkey, Vietnam, Sri Lanka, Bangladesh, Pakistan and Cambodia. Bangladesh, Sri Lanka and Vietnam enjoy duty-free access to the UK and the EU, whereas Indian textiles attract an import duty of 9.5 per cent. India has been doing much better than other textile exporters in markets such as the US where it is not at a duty disadvantage. 

In the last couple of years, the Indian government has been actively pursuing free-trade agreements (FTAs) with its major export destinations. The India-UAE CEPA came into effect in 1 May, 2022, while the India-Australia ECTA (interim trade pact) was signed into force on 2 April, 2022. Meanwhile, India-UK FTA negotiations entered a third round in April this year and new industry and business taskforces were created in May to support a trade deal by the year-end.

Finally, the EU has sought to reach a trade deal with India by 2024, before the next electoral cycle. The first round of India-EU FTA negotiations concluded in New Delhi on 1 July, 2022 and will be followed by another round at Brussels in September this year.

  • Due to the duty disadvantage, India’s apparel exports have grown rather slowly over the years

“Due to the duty disadvantage, our apparel exports have grown rather slowly over the years, even as countries like Bangladesh, Sri Lanka and Vietnam have increased their share significantly in the global apparel market. Now with these FTAs getting signed we, as a country, should gain quite considerably at a time when many of our export destination countries are following the China Plus One policy,” says Rahul Mehta, past president, Clothing Manufacturers’ Association of India.

Positive results

Meanwhile, the recent efforts have already started showing positive results as India recorded its highest-ever textile and apparel exports in the financial year 2021-22 at $44.4 billion. The exports tally, which also includes handicrafts, indicates a substantial increase of 41 per cent and 26 per cent over the corresponding figures in FY21 and FY20, respectively. 

Backed by the China Plus One sentiment globally, India’s textile exports are expected to grow 81 per cent to $65 billion by 2026 from the pre-Covid level of around $36 billion in 2019, says a report by the Confederation of Indian Industry (CII) and global consulting firm Kearney. This jump is likely to generate 7.5-10 million new jobs.

A large chunk of this targeted increase, or around $16 billion, may come from the China Plus One sentiment due to India’s relatively large strategic depth compared with Vietnam or Bangladesh. “We believe that with the right actions of the industry majors and robust execution of government schemes, India can hit $65 billion in exports by 2026. This, coupled with growth in domestic consumption, could propel domestic production to reach $160 billion,” says Siddharth Jain, partner, Kearney.

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    The PLI scheme would enhance India’s manufacturing capabilities by increasing investment and production in the textile apparel sector, especially in the MMF segment and technical textiles

    GURUDAS ARAS, Former director, ATE group and strategic advisor to ITA Group

“Covid-19 has triggered the redistribution of global trade shares and a recalibration of sourcing patterns (China Plus One sourcing), providing a golden opportunity for Indian textiles to stage a turnaround and regain a leadership position as a top exporting economy. We believe India’s textile industry should target 8-9 per cent CAGR during 2019–2026, driven by domestic demand growth and a significant growth in annual exports, reaching $65 billion by 2026,” says Neelesh Hundekari, Partner and APAC Head of Lifestyle Practice at Kearney.

However, experts believe there is a lot left to be desired. The textile industry employs almost 45 million people in the farming and manufacturing sectors. However, the country’s recent performance in global trade has not been commensurate with its abilities. Exports declined by 3 per cent during 2015-2019 and by 18.7 per cent in 2020. And yet during the same period, other low-cost countries such as Bangladesh and Vietnam have gained share. 

No doubt things are certainly turning in favour of the Indian textile industry, backed as it is by favourable policy measures and other geopolitical factors. However, for gaining a global share, the industry will have to create world class capacities across the value chain. While India has fairly large and modern spinning capacities, weaving and processing continue to be weaker links and that has not helped the industry produce high-value textiles.

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