India's textile and apparel industry has long been a foundation of its economy, contributing significantly to employment and export revenues. However, in recent years, the sector has faced a series of challenges that have impeded its growth and competitiveness on the global stage. Despite government initiatives and the industry's inherent strengths, India's textile and apparel exports have remained around the $20 billion mark for an extended period. This stagnation raises critical questions about the underlying issues and the strategies needed to revitalize the sector.

Current state of India’s textile and apparel exports

In the fiscal year 2023-24, India's textiles and apparel exports, including handicrafts, grew by 7% to reach $21.35 billion during the April-October period, up from $20 billion in the same period the previous year. Ready-made garments led this growth, accounting for 41% of the exports at $8.73 billion, followed by cotton textiles at 33% ($7.08 billion) and man-made textiles at 15% ($3.1 billion). In the Fiscal Year (FY) 2022-23, India earned $16.19 billion exporting apparel items.

India's position in the global textile market is being challenged by neighboring countries. For instance, Bangladesh has become a preferred sourcing destination for many international brands due to its cost advantages and favorable trade policies. However, recent political instability in Bangladesh presents an opportunity for India to capture a larger market share.

Notably, between April and December 2024, apparel exports increased by 11.6% to $11.31 billion, driven by demand from markets such as the United States, the United Kingdom, and Germany.

However, this growth in apparel exports has not been sufficient to offset the overall decline in the broader textile sector.

Future outlook

Projections indicate that India's textile and apparel industry could grow to a value of $350 billion by 2030, potentially creating 35 million new job opportunities. This growth is contingent upon implementing supportive policies, investing in technology and innovation, and enhancing the ease of doing business. Aligning with the '5F' vision—encompassing the entire chain from farm, fiber, fabric, fashion to foreign exports—India aims to strengthen its supply network while preserving its artisanal heritage.

The upcoming Budget presents a critical opportunity for the government to address longstanding challenges and set the industry on a path to sustained growth. By implementing the recommended measures, India can enhance its competitiveness in the global market, increase export revenues, and solidify its position as a leading player in the textile and apparel sector.

Challenges hindering growth

Several factors contribute to the stagnation and challenges faced by India's textile and apparel industry:

High raw material costs: Domestic prices for raw materials, particularly man-made fibers (MMF), are elevated due to Quality Control Orders (QCOs) and other non-tariff barriers. These restrictions limit the availability of specialized yarns and fibers, leading to shortages and increased costs for local manufacturers. Industry leaders have called for the liberalization of import policies and the reduction or elimination of customs duties on essential MMF fibers and chemicals to create a more competitive market.

Limited scope of incentive schemes: The Production-Linked Incentive (PLI) scheme currently focuses primarily on synthetic fibers. Industry stakeholders argue that expanding the PLI to encompass the entire textile and apparel sector would encourage broader investment and growth. Additionally, the discontinuation of the Technology Upgradation Fund Scheme (TUFS), which provided subsidies for modernizing machinery, has left a void that hampers technological advancement.

Cotton price volatility: The existing Minimum Support Price (MSP) system for cotton procurement often leads to price volatility, affecting the stability of raw material costs. Proposals have been made to replace the MSP with a Direct Benefit Transfer (DBT) program to provide farmers with immediate liquidity and to establish a Cotton Price Stabilization Fund to ensure consistent pricing for manufacturers.

Regulatory and Compliance Burdens: Complex labor laws and compliance requirements discourage manufacturers from scaling up operations. Many factory owners prefer to keep operations small to manage overheads, which limits economies of scale and competitiveness. In contrast, countries like Bangladesh and Vietnam have more streamlined regulations, enabling rapid scaling and cost-effective production.

Global economic factors: The global textile industry has been adversely affected by increased inflation, economic slowdowns, and geopolitical tensions, leading to decreased demand for textile and apparel products. These external factors have also impacted India's export performance.

Industry expectations ahead of the union budget 2025-26

As Finance Minister Nirmala Sitharaman prepares to present the Union Budget on February 1, 2025, industry leaders have articulated several key expectations to address the prevailing challenges:

Reduction in GST rates: One of the industry's most pressing demands is a reduction in the Goods and Services Tax (GST) on clothing, particularly in the lower and mid-priced segments. The current GST structure is perceived as a burden on both manufacturers and consumers, affecting demand and discouraging price-sensitive buyers. Lowering GST rates can make apparel more affordable, stimulate domestic consumption, and create a more level playing field for small and medium enterprises (SMEs) in the sector.

Support for sustainable manufacturing: Incentives to encourage sustainable practices within the industry, promoting eco-friendly production methods and products.

Simplification of compliance processes: Streamlining regulatory requirements to ease the operational burden on manufacturers and facilitate business expansion.

Investment in technology upgradation: Reinstating or introducing schemes similar to TUFS to support the modernization of machinery and adoption of advanced technologies.

Establishment of a national textile fund: Creating a fund to support and grow investments in the textile sector, fostering innovation and competitiveness.