Issue: February 2017
 
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Cover Story
When the Prime Minister announced demonetisation of 500 and 1000 rupee notes on the night of 8th November 2016, the first reaction all over the countr...
  read more...
  Demonetisation – A look back at the last two months by Shri Arun Jaitely
  The lead article is by Minister of Finance and Corporate Affairs, Government of India.
  From a Cash Economy to a Less – Cash Economy by Pravakar Sahoo and Amogh Arora
  The Second lead article is by Associate Professor, Institute of Economic Growth (IEG)
  Demonetisation- Impacting Elections – by S.Y.Quraishi
  The Focus article of the issue talks about the impact of Demonetisation on Elections and the author is hopeful that cashless transactions will ensure higher level of transparency and scrutiny.
  Less Cash Economy: India Vis-à-vis the World by Arpita Mukherjee, Tanu M.Goyal
  The Special Article talks about the benefits of less cash economy for India and the Global scenario.
  Achieving a Cashless Rural Economy – by Sameera Saurabh
  This article is by Director, (Plan & Policy) Ministry of Rural Development
 
 
  ROLE OF TEXTILE IN MANUFACTURING AND SERVICE SECTOR
Dibakar Lenka
Introduction

Textile industry of our country is one of the oldest industries. This sector is one of the largest contributors to exports. It contributes around 11 per cent of total exports. The export earning was 41 billion dollar in 2015-16 with average annual growth rate of 5.4 per cent. This industry operates from cottage, handloom, and other unorganized sectors to the adoption of modern high technology. It is a labor intensive sector and one of the major employers of the country. Directly and indirectly, this sector employs 40 million and 60 million workers respectively. Handloom, handicrafts and sericulture operate on a small scale through traditional tools and orthodox methods. The organized sector consists of spinning, apparels and garments segments, which apply modern capital intensive technologies. These industries have very close linkage with agriculture for supply of raw material like cotton, jute, silk,, wool, hemps etc. The textile industry has the capacity to produce a wide variety of products suitable for different market segments, both within India and across the world.

What is MSME?

The Micro, Small and Medium Enterprises Development Act, 2006 defines MSMEs on the basis of investments in plant and machinery/equipments.

For enterprises engaged in the manufacture of goods:
Micro Enterprise - Investment in plant and machinery less than Rs 25 lakh
Small Enterprise - Investment in plant and machinery over Rs 25 lakh but not exceeding Rs 5 crore
Medium Enterprise Investment in plant and machinery upto Rs 10 crore For enterprises engaged in providing services:
Micro Enterprise - Investment in equipments not exceeding Rs 10 lakhs
Small Enterprise - Investment in equipments over Rs 10 lakhs but not exceeding Rs 2 crore
Medium Enterprise Investment in equipments upto Rs 5 crore

Any activity either in manufacturing or service sector pertaining to textile with in above investment in plant and machinery or equipment are classified under MSME sector.

Contribution of Textile sector to GDP

Indian textile industry largely depends upon manufacturing and export of textile. It also plays a major role in the economy of the country. India earns about 37 percent of its total foreign exchange through textile and apparel exports. Further, the textile industry of India also contributes nearly 14 per cent of the total industrial production of the country. It also contributes around 5 per cent to the GDP of the country. Indian textile industry is also the largest in the country in terms of employment generation. It not only generates jobs in its own industry, but also opens up scopes for the other ancillary sectors. Indian textile industry currently generates employment to the extent of 40 million directly .Textile sector has vast potential to create job opportunities both in manufacturing and service sector on expansion of activities relating to textile. This MSME sector has the potential to spread industrial growth across the country and can be a major partner in the process of inclusive growth.

Structure of Indian Textile Industry

Cotton textiles continue to form the predominant base of the Indian textile industry, though other types of fabric have gained share in recent years due to consumer preference. This industry is fully vertically integrated across the value chain, extending from fiber to fabric garments. At the same time, it is a highly fragmented sector, and comprises small-scale, non-integrated spinning, weaving, finishing, and apparel-making enterprises. The unorganized sector forms the bulk of the industry, comprising handlooms, power looms, hosiery and knitting, and also readymade garments, khadi and carpet manufacturing units. The organized mill sector consists of spinning mills involved only in spinning activities and composite mills where spinning, weaving and processing activities are carried out under a single roof.

Business potential in textile sector

Current estimates of the countrys textiles industry is around 108 billion US dollars. It is expected to touch 223 billion US Dollar by 2021. The industry is the second largest employer after agriculture. It provides job to over 10 crore people directly and indirectly. Current domestic sale of textile is 68 billion US dollars with expected projection of 315 billion US Dollars. Present export is 41 billion US dollars with a realistic projection of 185 billion US dollars. Over all, the industry has a potential of 500 billion US dollars.

Current Initiatives by Government

1. Government has come up with a number of initiatives for encouraging export in textile sector. It has also allowed 100 per cent FDI (Foreign Direct Investment) in this sector under the automatic route.
2. The Union Cabinet has cleared a Rs 6,000 crore package for the textile sector, aimed at attracting investments worth Rs 74,000 crore
3. The objective of the package is to generate 1 crore additional jobs and incremental exports of 30 billion US dollars in the next three years.
4. The Department of Handlooms and Textiles has tied up with nine e-commerce players and 70 retailers to increase the reach of handlooms products in the Indian market.
5. The Union Ministry of Textiles has set a target of doubling textile exports in 10 years, plans to enter into bilateral agreements with Africa and Australia.
6. Government is also finalizing guidelines for the revised Textile Upgradation Fund Scheme (TUFS).
7. The Government of India has started promotion of its India Handloom initiative on social media like Facebook, Twitter and Instagram with a view to connect with customers.
8. The Ministry of Textiles launched Technology Mission on Technical Textiles (TMTT) with a total fund outlay of Rs 200 crore to encourage research through 8 Centres of Excellence.
9. The new policy aims at creating 3.5 crore new jobs by way of increased investments by foreign companies.
10. Subsidies on machinery and infrastructure
a) The Revised Restructured Technology Up gradation Fund Scheme (RRTUFS) covers manufacturing of major machinery for technical textiles permits 5 per cent interest reimbursement and 10 per cent capital subsidy.
b) Under the Scheme for Integrated Textile Parks (SITP), the Government of India provides assistance for creation of infrastructure in the parks to the extent of 40 per cent with a limit up to Rs 40 crore .
c) The major machinery for production of technical textiles receives a concessional customs duty of 5 per cent.
d) Specified technical textile products are covered under Focus Product Scheme. Under this scheme, exports of these products are entitled for duty credit scrip equivalent to 2 per cent of freight on board (FOB) value of exports
e) The Government of India has implemented several export promotion measures such as Focus Market Scheme, Focus Product Scheme and Market Linked Focus Product Scheme.
f) Under the Market Access Initiative (MAI) Scheme, financial assistance is provided for export promotion activities on focus countries and focus product countries.
g) Under the Market Development Assistance (MDA) Scheme, financial assistance is provided for a range of export promotion activities.
h) The government has also proposed to extend 24/7 customs clearance facility at 13 airports and 14 sea ports resulting in faster clearance of import and export cargo.
i) A Memorandum of Understanding (MoU) has been signed between India and Kyrgyzstan seeking to strengthen bilateral cooperation in three fields -Textiles and Clothing, Silk and Sericulture and Fashion technology.

Investments

The Textile industry attracted Foreign Direct Investment (FDI) worth 1.85 billion US dollar during April 2000 to March 2016.There has been a spurt in investment in this sector.

Challenges Faced by Textile based MSME

Cost of Credit: Timely, adequate credit at a reasonable cost is the critical issue faced by this sector. Banks have high risk perception for this sector, which limits banks for restricted credit delivery with additional risk premium in interest rate which is adding to the cost of credit. It is observed that the credit is declining day by day to this sector.

Collateral requirements: All genuine Players in MSME/textile sector are not in a position to provide collateral in order to avail loans from banks and hence denied credit access. CGTMSE coverage is also optional beyond loan limit of Rs 10 lakh.

Restriction in equity capital: Specially, first-generation entrepreneurs with the requisite expertise and knowledge are unable to enter into this sector for want of equity capital. As this is a knowledge based industry, adequate equity capital should be arranged by Government on soft terms.

Problems in supply to government departments: Government tenders require criteria based eligibility such as turnover, past experience, previous supplies etc, which affects entrepreneurs.

Problem in Procurement of raw materials: Procurement of raw materials is carried out locally due to financial constraints. Competitive advantage of cost cannot be enjoyed by the entrepreneurs. They also procure in small quantity which can not avail transportation and price advantages.

Problems of storage, designing, packaging and product display: These industries face problems of storage, display and designs of products. Non availability of selling outlets is a serious constraint. In addition to this, inadequate infrastructure, marketing are added constraints.

Lack of access to global markets: Under liberalization and globalization of economy, access to global market has offered vast business opportunities of new markets, technological advantage, etc. Obsolete technologies, lack of institutional credit and intense market competition is deterrent issues in this sector.

Inadequate infrastructure facilities, including power, water, roads, etc: It is essential that the availability of infrastructure, power and water supply, technology and skilled manpower should be in tune with the global trends.

Low technology levels: Low level of technology acts as a handicap in the emerging global market. As a result, the sustainability of a large number of MSMEs is jeopardized in the face of competition.

Dearth of skilled manpower for manufacturing, services, marketing, etc.: Though our country has the advantage of a large pool of human resources, this sector continues to face deficit in skilled manpower for manufacturing, marketing, servicing, etc.

Revival of viable sick units: Lack of suitable mechanism and efforts for quick revival of viable sick enterprises which cause close down of many units.

Branding and Marketing: Low media budget, non participation in International events affect the visibility of the brand.

Preparedness for the road ahead The future of the textile industry of our country looks rewarding due to both strong domestic consumption as well as export demand. With rising disposable income and consumerism, this sector has seen a rapid growth in the past few years.The organized apparel segment is expected to grow at a Compound Annual Growth Rate of more than 13 per cent over next 10-year period.
To face the challenges and to gain maximum share of textile industry in MSME segment we should ensure preparedness as follows:
1. Cost of power is the major cost components of this industry. So it is necessary to subsidized the energy cost or encourage the use of low cost viable non conventional energy sources.
2. Establishment of Innovation Centre for MSMEs and apparels industries for the expansion of entrepreneurship.
3. Setting up of adequate number of Special Economic Zones for Textile Industries.
4. Labor laws, tax and other benefits of a SEZ need to be liberalized.
5. Expansion and enhancement of possible market for MSME/ textile products.
6. Granting tax incentives for this sector
7. Prepare strategies to involve private sector for development.
8. Strengthen capacities to improve their competitiveness in domestic, regional and global markets.
9. Efforts to percolate management skills and knowledge from multi-national enterprises to local weavers.
10. Empowering women in this sector by skill development and participation.
11. Continuous communication and dialogue between the stakeholders (public sector, private sector and civil society) fosters ownership and helps to develop strategies to make them credible and sustainable.
12. Integration of local, national, and global markets require substantial investments, physical infrastructure and service delivery in all areas.
13. Vocational training through ITIs, Textile Design & Management Institutions especially in the area of Apparel Manufacturing, Quality Control and Designing needs to be encouraged.
14. Inter-state tax regime should be simplified for movement of textile goods to avoid additional costs and burden.
15. Quality and cost of production are the key factors for sustaining competitiveness in the sector. Modernization of the units and up gradation of technology is imperative.
16. There is need to work out time bound refund mechanisms from Technology Up gradation Fund (TUF) provided by Government for the modernization of the units.
17. To remain engaged in international competitiveness in the Indian Textile and garments sector, to avoid loss due to the exchange rate fluctuations, Government needs to carry on with reimbursement schemes such as duty drawback, market development assistance etc.
18. Existing support measures available to textile garments manufacturers and traders for attending, showcasing and publicizing Indian textile at the international trade fares needs to be strengthened further.
19. Government Departments, State Governments and Regulatory bodies need to control raw material exports and availability with a view to regulate stable yarn prices in the country and to make the SMEs in the sector more competitive and productive.
20. Existing textile design centers need to be strengthened and more such institutes need to be opened.
21. There is need to streamline the export tax structure for making the sector more competitive

Conclusion

The Indian textile industry has strength across the entire value chain from natural to man-made fiber to apparel to home furnishings. Our global export growth is only 5% per cent where as countries like China, Vietnam and Bangladesh have global export growth rate of 39 per cent,30 per cent and 18 per cent respectively. Taking innovative measures in partnership with the industry and learning from experience, India could aspire to achieve 20 per cent growth in exports over the next decade. In the domestic market, sustaining an annual growth rate of 12 per cent should also not be difficult. This implies that with a 12 per cent CAGR in domestic sales the industry should reach a production level of US$ 350 billion by 2024-25.With a 20 per cent CAGR in exports India would be exporting about US$ 300 billion of textile and apparel by 2024-25.Considering the targeted growth in exports, India should by then have a market share of 15 per cent to 20 per cent of the global textile and apparel trade from the present level of 5%.During this period India should also attempt a structural transformation there by it will be a leading exporter of finished products. This would maximize employment generation and value creation within the country and the fulfillment of the Prime Ministers Vision of Make of India.

Readings:

\Indian Textile Journal, Department of Industrial Policy and Promotion, Press Information Bureau, Ministry of Textiles,
Textile industry at a glance 2015-16 from internet site


About the author Dibakar Lenka, post graduate in Agricultural Economics and Certified Associate of Indian Institute of Bankers, has 28 years of banking experience. He is presently working as Chief Manager, Union Bank of India, Staff Training Centre, Bhubaneswar

Email: E-Mail: dibakarlenka1960@gmail.com

 


 
 
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