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Potential and status of the Garment Industry

India’s textile industry is poised for remarkable growth, with expectations to double its contribution to the GDP within the next six to seven years. Currently, it contributes around 2.3% of the GDP, and this is projected to rise to 5% by the end of the decade. Few countries possess such potential. India is the world’s second-largest producer of textiles and garments, as well as the fifth-largest exporter of textiles. The industry accounts for 13% of the country’s industrial production and 10.5% of its exports. India holds a 4.6% share of the global trade in textiles and apparel, according to IBFE data.

On a global scale, the apparel market is expected to grow at a compound annual growth rate (CAGR) of around 8%, reaching $2.37 trillion by 2030. The global textile and apparel trade is anticipated to grow at a CAGR of 4%, reaching $1.2 trillion by the same year. India’s domestic market is projected to grow at a 10% CAGR, reaching $350 billion by 2030. According to Invest India, the domestic textile market was valued at approximately 4125 billion INR, with $125 billion in domestic sales and $40 billion in exports.

Current situation

The textile sector has long been a major employer in India, directly providing jobs to 45 million people, with an additional 100 million in related sectors. Around six million farmers are involved in cotton production, and 40-50 million people are engaged in processing and trade.

Challenges facing the sector

While India has been hoping for higher export growth in garments and related products, the reality has been different. India’s garment exports have actually declined compared to earlier years. In FY 2013-14, India’s garment exports stood at $15 billion, but by FY 2023-24, this figure had dropped to $14.5 billion. Some argue that the decline in demand is due to financial pressures in the USA and other countries that import Indian garments, and that this is a temporary phase that will reverse in the near future. However, it is also noted that demand for garments from other major garment-exporting countries like China, Vietnam, Bangladesh, and Indonesia has fallen as well.

A recent report by the Global Trade Research Initiative (GTRI) highlighted that India’s garment industry is losing ground to competitors such as Vietnam, Bangladesh, and others. If this trend continues, India risks missing its industry targets.

Reasons behind the decline in Garment Exports

The GTRI study suggests that government policy is one of the main factors contributing to this decline. The government’s decision to impose higher import duties on raw materials has made the trade process more difficult. When acquiring raw materials becomes more challenging, it hampers production and increases production costs. Higher costs mean that India loses its competitive edge in the global market.

The GTRI report provides several recommendations to address these issues:

Encouraging Product and Technological Innovations: While this is a time-consuming process, the government needs to take proactive steps, as private spending on R&D in India is relatively low.

Reviewing Government Schemes: There is a need to reassess schemes such as the Production Linked Incentive (PLI) and PM MITRA for textiles. Many economists have criticized the PLI scheme for being arbitrary and poorly thought out.

Simplifying Customs Duties: The customs duty structure should be simplified to reduce production costs. Increasing GST Exemption Limit: The government should raise the GST exemption limit for the textile products of the industry.

A major issue for the garment industry

India is also a significant importer of garments and textiles. In FY 2023-24, India’s textile imports totaled approximately $9.2 billion, though there was a slight decrease compared to the previous fiscal year. The GTRI report warns that this figure could rise if the export slump is not addressed, especially with companies like Reliance Retail planning to launch sales of Chinese brands like Shein in the country.

Rathin Roy, distinguished professor at the Kautilya School of Public Policy, Hyderabad, has critically observed that “India can produce shirts for the rich but imports shirts for the ordinary people; it can find land and capital to build up-market housing, but affordable housing is subsidized. This is because India suffers from shockingly low productivity and lacks scale.” This highlights the need for a comprehensive, long-term government policy to address the sector’s challenges and help it flourish.

Conclusion

India holds immense potential to become a global leader in the garment industry, but for this potential to be realized, the government must adopt policies that support the sector’s growth. Streamlining production processes, reducing trade barriers, and fostering innovation are essential steps toward building a competitive and sustainable garment industry in India. Only with a conducive government policy can India capitalize on its strengths and drive the industry to new heights.