The textile sector as a whole has emerged out of doldrums post-COVID, as also reflected in the profits reported in the just concluded quarters. The opening of malls, revenge buying from the Indian consumer, and the anti-China factor has facilitated Indian manufacturers to grab a higher revenue share of the global markets.

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The COVID pandemic has altered the trade dynamics and also the pandemic has disrupted the global T&A supply chain with several apparel brands preferring more than one sourcing destination. Further, the US-China trade war and the subsequent imposition of additional duties and restrictions on Chinese Textile & Apparel imports have led to importers in USA scouting for other destinations such as India.

China plus One has led to higher duty on Chinese goods and tax advantages that have benefitted countries like India. India currently is benefitting in the Cotton + Cotton Yarn segment and in the Made-ups segment, and the segment exports for both are at an all-time high.

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The Textile & Apparel industry believes that this is an opportune time to open up the industry more, provide some sops, and rationalize some of the taxes to help the industry grow and grab 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 significant employment generators, especially in the unorganized sector, as as well as export earner (2nd largest exporter), the industry is looking for a rollback of the higher GST back to 5% level from the proposed GST rate of 12% effective 1st January 2022.

The prices of cotton, the primary raw material, have skyrocketed and are causing margin pressure and a dent in profitability for companies and also reducing competitiveness in the global scenario. The industry is expecting some cotton price stabilization scheme, interest subvention, reduction in margin money, and an increase in the working capital cycle from 3 to 6 months. The budget may also offer a reduction or scrapping of the import duty of 10% on cotton imports. The high prices of cotton, the major raw material was one of the major drivers of reduced exports last year.

India is one of the largest producers of Cotton and along with high-tech machinery and availability of skilled labour, can become a major exporter of apparel. Even it has the largest Yarn spinning capacity (20% of the world’s capacity) and could easily outperform markets like Bangladesh, Vietnam, and Sri Lanka which have been dependent on the government’s support.

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India has a cost advantage in cheaper raw material availability of Cotton while Bangladesh enjoys lower labour rates and Vietnam enjoys lower lending rates and lower customs duties on machinery imported for the garment. In summation, the cost of production in India is competitive, however, the favourable treaties 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 the clearance of import goods from FTA countries. We believe that the T&A industry is at an inflection point, and with Govt. budgetary support and the right policies, can become a major growth driver for the Indian economy.

-The author Arun Malhotra is Founding Partner & Portfolio Manager at CapGrow Capital Advisors. The views expressed are personal.

Read more from CNBC-TV18's budget coverage here

(Edited by : Priyanka Deshpande)

First Published:Jan 28, 2022 9:58 PM IST