Industry trade

Textile industry calls for GST reduction and removal of import duties on cotton

The textile sector as a whole has emerged from the post-COVID slump, as also evidenced by the profits reported in recent quarters. The opening of shopping malls, Indian consumer’s revenge shopping and the anti-China factor have enabled Indian manufacturers to grab a higher share of revenue from global markets.

The COVID pandemic has changed business dynamics and the pandemic has also disrupted T&A’s global supply chain, with several apparel brands preferring more than one sourcing destination. In addition, the trade war between the United States and China and the subsequent imposition of additional duties and restrictions on Chinese imports of textiles and apparel have led American importers to seek other destinations such as India. .

China plus One resulted in higher tariffs on Chinese goods and tax breaks that benefited countries like India. India is currently profiting in the Cotton + Cotton Yarn segment and in the Made-up segment, and segment exports for both are at an all-time high.

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The textile and clothing industry believes that now is the time to open up the industry more, provide some concessions and streamline some of the taxes to help the industry grow and grab hold of a higher market share in the global textile market. And keeping this objective in mind as well as the fact that the textile sector is one of the main generators of employment, especially in the unorganized sector, as well as sources of export (2nd largest exporter), industry is seeking a rollback of the GST hike to 5% from the proposed GST rate of 12% effective January 1, 2022.
The prices of cotton, the primary raw material, have skyrocketed and are causing pressure on margins and a decline in corporate profitability and also reducing competitiveness in the global scenario. The industry expects a cotton price stabilization program, interest subsidy, a reduction in monetary margin and an increase in the working capital cycle from 3 to 6 months. The budget may also propose a reduction or elimination of the 10% import duty on cotton imports. High prices for cotton, the main raw material, were one of the main drivers behind the drop in exports last year.

India is one of the largest producers of cotton and with high-tech machinery and the availability of skilled labor can become a major exporter of garments. Even it has the largest yarn spinning capacity (20% of global capacity) and could easily surpass markets like Bangladesh, Vietnam and Sri Lanka that depend on government support.

India has a cost advantage in the availability of cheaper cotton raw materials while Bangladesh enjoys lower labor rates and Vietnam enjoys lower loan rates and lower tariffs on machinery imported for clothing. In summary, the cost of production in India is competitive, however, the favorable agreements that Bangladesh and Vietnam (proposed) in the European Union market give them a cost advantage making Indian RMGs uncompetitive.

The budget is also expected to announce some measures to simplify customs clearance for goods imported from FTA countries. We believe the T&A industry is at an inflection point, and with the government. fiscal support and the right policies, can become a major engine of growth for the Indian economy.

-The author Arun Malhotra is a founding partner and portfolio manager at CapGrow Capital Advisors. The opinions expressed are personal.

(Edited by : Priyanka Deshpande)

First post: STI