Government's latest package for the textile sector is likely to improve the competitiveness of the country's exports but achieving the target of USD 43 billion of apparel exports by 2018 remains a challenge, ratings agency ICRA said.
The Centre yesterday approved a Rs 6,000 crore special package for textiles ICRA apparel sector to create one crore new jobs in 3 years, attract investments of USD 11 billion and generate USD 30 billion in exports.
"These steps will lead to increased competitiveness of India's apparel exports and improve employment generation in the garment sector given its labour intensiveness.
"While the fiscal incentives under the package will improve capacity additions and increase the competitiveness of India's exports, however, achieving the target of USD 43 billion of apparel exports by CY 2018 appears to be a challenge," Icra Assistant Vice President Anil Gupta said.
In the agency's view, the increased benefit of 25 per cent of capital subsidy under amended Technology Upgradation Fund Scheme (TUFS) for new garment units will further reduce the investments requirements for new units by 7.5 per cent.
In addition, the proposal would also benefit new garment units by way of savings of up to 3.7 per cent on labour costs and 1 per cent on total manufacturing cost of apparel due to government's contribution towards employer's share of EPF contribution, the report said.
India's garment exports grew at 4 per cent in 2015, whereby they increased to USD 17.1 billion from USD 16.5 billion in the previous year.
The annual growth for the period 2010 to 2015 stood at 10 per cent, in which the exports increased from USD 11 billion to USD 17 billion.
"Demand slowdown from key importing countries in Europe and the US, which is reflected in our estimates of year-on-year de-growth of 4 per cent in global garment trade in CY 2015, can be a major challenge for growth in India's exports," Gupta added.
Icra opined that the country's textile exports are highly skewed towards cotton-based sectors whereas the global fibre consumption is largely skewed towards man-made fibre.
Besides, the domestic textile sector suffers from lot of structural inefficiencies, where the garment manufacturing clusters are located away from fabric manufacturing clusters, which in-turn are away from yarn manufacturing and cotton growing clusters, it added.
"Fragmentation of Indian textile industry leads to lot of systemic inefficiencies and competitive disadvantage for the India's textile exports. Unless these issues are addressed, the competitiveness of India's export will always remain under threat," it added.
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