Over the past two decades, India's textile sector exports have experienced contrasting journeys in international markets. Following the dismantling of the quota regime on December 31st, 2004, India's textile and apparel exports surged, achieving a remarkable 11% compound annual growth rate (CAGR) over the next ten years from 2004 to 2014. However, the subsequent decade from 2014 to 2024 saw stagnation, with exports experiencing a decline at a -1% CAGR. Refer to the graph below for a visual representation of this trend.
An analysis of the textile (HS 50 to 60 & 63) and apparel (HS 61 & 62) sectors reveals a similar trend. Please refer to the graph below for further details.
Some optimists might argue that the above graphs only reflect point-to-point returns, suggesting that specific years were chosen to paint a negative picture of India's textile and apparel sector exports. However, a year-by-year analysis of data from the past 20 years tells the same story. Refer to the two graphs below for further details.
India has missed the opportunity to fill the gap left by China's departure from certain markets. Despite numerous subsidy schemes introduced by both the Government of India and various State Governments to incentivize and support the textile and apparel sector, exports have not significantly increased. Consequently, the country has not benefited from the expected boost in foreign exchange earnings.
An analysis of the top five export-contributing sectors reveals a significant shift over the years. In FY 2003-2004, the textile & apparel sector was the highest contributor to the nation's exports, accounting for 21% of the total merchandise exports. However, by 2023-24, its share has dwindled to a mere 8%, highlighting a concerning decline.
The above graphs clearly illustrate a significant shift in the nation’s export mix towards products that are less labor-intensive to produce. This change is driven by the increased deployment of automated processes and technologies, combined with economies of scale.
The labor-intensive sectors, such as textiles & apparel, and gems & jewelry, have lagged behind. These sectors have increasingly become more suited to MSME-scale operations, primarily relying on ill-trained informal contract labor. They often lack the financial resources and willingness to adopt the latest automation technologies to remain competitive in international markets. Consequently, these sectors tend to focus on the domestic market, expanding their operations in a fragmented manner by setting up multiple small units across different locations to comply with inflexible Indian labor laws and take advantage of state incentive schemes.
The government's incentive policies are designed with a socialistic approach to prevent the concentration of wealth in the hands of a few. These policies often include barriers that prevent large-scale units from benefiting fully from these schemes. However, this approach has unintended consequences. Entrepreneurs often create multiple new entities or factories to exploit these incentives, leading to industry fragmentation and the decline of large-scale organized units. These large-scale units could otherwise act as catalysts for sustaining the country's export growth. Unfortunately, this potential remains unrealized.
The much-acclaimed PLI scheme for the textile sector, announced on September 24, 2021, has not successfully spurred investments in the large-scale textile & apparel sector, either from foreign direct investment (FDI) or major domestic industrialists.
Given the current labor laws for large-scale manufacturing units in India, the future of the textile sector's export prospects looks bleak. The oppressive regulations must be dismantled to free large-scale organized units from their shackles. This liberation will not only supercharge productivity and competitiveness but also create quality employment opportunities for the vast rural labor force. It's time to break the chains and unleash the true potential of India's textile industry!
