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Wednesday, October 27, 2021

The PLI Scheme to bode well for Bharat’s textile industry

The Cabinet committee on Economic Affairs has approved Production Linked Incentive (PLI) scheme worth Rs.10, 683 crore for Bharat’s textile sector for over 5 years. The scheme aims to boost the high value production of man-made fabric (MMF), man-made apparel and ten segments of technical textiles as an initiative towards self-reliant Bharat.

The scheme would reward the companies with incentives for investing, manufacturing the products domestically and increasing the production every year thereby expanding the value chain of MMF’s and technical textiles in the particular sector.

Provisions of Scheme

  1. Any person, (which includes firm / company) willing to invest minimum ₹300 Crore in Plant, Machinery, Equipment and Civil Works (excluding land and administrative building cost) to produce products of MMF, garments and products of technical textiles will be eligible to participate in the first part of scheme. Investor (which includes firm / company) willing to invest minimum ₹100 Crore shall be eligible to apply for participation in this part of the scheme. Eligible manufacturers will be paid incentives on incremental production.
  2. Companies investing over Rs 300 crore in plant and machinery, civil works to produce the identified products will get an incentive of 15% of their turnover, which needs to be Rs. 600 crore in 3rd year. The companies investing between Rs 100 and 300 crore will be eligible for duty refunds and incentives less than 15% of their turnover.
  3. Priority will be given for investment in Aspirational Districts, Tier 3, Tier 4 towns, and rural areas and due to this priority industry will be incentivized to move to backward area.
  4. It is estimated that over the period of five years, the PLI Scheme for Textiles will lead to fresh investment of more than Rs.19,000 crore, cumulative turnover of over Rs.3 lakh crore will be achieved under this scheme and will create additional employment opportunities of more than 7.5 lakh jobs in this sector.
  5. The scheme may cover 40 products under MMF and 10 in technical textile segment. The incentives would be in the range of 3-11% on YoY depending upon type of investment (Greenfield or brownfield investment). These rate of incentives would be applied on incremental revenue assuming that yearly growth would be maintained.

Competitive Advantage for Bharat

After agriculture, textile industry continues to be the second largest employment generating sector in Bharat. It offers huge employment to both the skilled and unskilled labour. Bharat’s textile sector holds 2% share in Bharat’s GDP.

Bharat has a share of 5% of the global trade in textiles and apparel. The textile exports share in overall Bharat’s exports is 12%. The sector provides employment to 45 million people and 100 million people in allied industries. Bharat is the 2nd largest producer of MMF Fibre after China. It is also the 6th largest exporter of textile and apparel in the world.

Bharat’s technical textiles market shows a promising growth of 20% from $16.6 Bn in 2017-18 to $28.7 Bn by 2020-21, as per the Baseline Survey of technical textile industry by Ministry of Textiles.

Bharat’s spinning industry is very strong. It is a world renowned producer of cotton already and the cotton value chain is very efficient and cotton processing is quite good in the country. Bharat’s strengths have been already defined in traditional and natural fibres globally. It is also second largest producer of polyester in the world and now it is emerging as a key player in technical textiles industry contributing to a market size of $19 bn.

Chart I – Market Size

Chart II – Sector Composition

Chart III – Sector composition

Chart IV – Key Trend

Where does Bharat lag in textiles?

Technical textiles are functional fabrics that have applications across various industries including automobiles, civil engineering and construction, agriculture, healthcare, industrial safety, and personal protection. There is an increasing demand for technical textile across the globe due to rise in industrialisation, technological developments, easy production, low cost of labour and conducive government policy support.

  1. Bharat’s technical textile segment is approximately 6% of global market. Bangladesh, Thailand and Vietnam have switched to technical textiles and MMF’s already. Asia Pacific dominates 40% of global market share by leading in technical textiles while North America and Western Europe stand at 25% and 22% respectively.
  2. We import technical textile from China, Vietnam, Indonesia, South Korea, Malaysia, Thailand, USA and Germany. Bharat’s export market share within total exports by APAC countries is relatively strong in raw materials and yarn spinning but it has lower market share in fabrics and finished goods that have a higher value. Our weakest link is processing MMF’s.
  3. Technical textile accounts for approximately 13% of Bharat’s total textile and apparel market and contributes to Bharat’s GDP at 0.7%. There is a huge potential to fulfil a large demand gap as the consumption of technical textiles in Bharat is still only at 5-10% against 30-70% in some of the advanced countries.

Significance of the scheme

During the pandemic, Bharat had been severely dependent for PPE kits and masks on other countries but it soon rose to manufacturing 2.5 lakh a day in 60 days becoming the second largest manufacturer after China. Today, Bharat stands to produce around 4.5 lakh PPEs and more than 1.5 crore masks a day.

Hence it has becomes quite imperative that Bharat must gain ground in technical textiles segment that calls out for government and industry’s collaboration to boost technical textiles thereby gaining dominance in the sector across the globe. Therefore, PLI scheme in textile sector will pave way for Bharat’s companies to emerge as global champions.

Bharat must become an integral part of international ecosystem across global markets that already have higher market share in MMF’s and technical textiles than Bharat. The PLI would help attract more private investment (domestic and foreign) into this sector thereby gaining global competitiveness by taking advantage of economies of scale.

Growth drivers in textile sector

Abundance of raw materials, presence of entire value chains, competitive manufacturing costs, availability of skilled manpower, large and growing domestic market, rising per capita income, preferences for brands, organised retail landscape and e-commerce, increased focus on technical textiles due to growth of end user industries such as automotive, healthcare, infrastructure, oil and petroleum are the major growth drivers in the sector.

Also, various government initiatives like National technical textile mission has been set up that aims at an average growth rate of 15-20% to increase the domestic market size of technical textiles to $ 40-50 bn by the year 2024 through market development and promotion, international technical collaborations, investment promotions and Make in Bharat initiative. Technotex Bharat, an initiative that encourages participation from stakeholders from across the global technical textile value chain.

The industry attracted FDI worth US$3.75 bn from April 2000 to March 2021. Textile and garments industry is expected to reach $190 bn by 2025-26.

Industry expectations

  1. The scheme does not cover cotton fabric which is a strength. It does not cover synthetic fabrics like viscose, polyester and nylon which is major input for apparels.
  2. Encourage investments in fibres and filaments that are used for making end products and not merely the investments in end products.

However, Welspun Global Brands, Arvind  Mills, Century Textiles and IndoRama Synthetics Bharat are among the known companies which have expressed their interest in investing around Rs.10,350 crore under PLI scheme.

Conclusion

Bharat looks forward to produce and expand export of basket of products. MMF’s and technical materials are growing in non –textile industries where Bharat hasn’t achieved scale while the world is already scaling up their end to end supply chains. With clear signs of visible growth, Bharat’s textile sector is poised for robust growth.

Sources –

https://www.investBharat.gov.in/sector/textiles-apparel

https://www.ibef.org/industry/textiles/infographic

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Criti Mahajan
An MBA graduate in finance with 5 years of working experience in the financial services space. An enthusiastic research writer inclined towards understanding economics and policy making with an experience of diversified writing on professional platforms in economics. A self-starter, perseverant and an ardent learner.

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