• Ensure availability of Raw Materials at international competitive prices
• Indian domestic raw material prices are significantly higher than international prices. While competitors like Bangladesh, and Vietnam have free access to such raw materials, India has imposed QCO on MMF fibre/yarn which is acting as a Non-Tariff Barrier on the imports of such raw materials and thus affecting their free flow. It has resulted in a shortage of some specialized fibre/yarn varieties as also impacted domestic prices. (Annex 1).
•  
• The expensive raw material is severely affecting the cost competitiveness of the downstream textile products. Since the downstream segment has the highest employment elasticity in the entire value chain, it is endangering the livelihoods of the millions of people employed in the sector.
•  
• As India aims to achieve its ambitious target of a US$ 350 billion textile market by 2030, including US$ 100 billion in exports, it is crucial for the government to ensure the ample availability of all raw materials at globally competitive prices. To support this, the government may consider liberalizing import policies and reducing the basic customs duty (BCD) on all MMF fibres, filaments, and essential chemicals like PTA and MEG, which are critical in the production of these raw materials.
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• Removal of import duty from the cotton fibre of all varieties
• Indian cotton industry is importing specialized varieties of cotton such as contamination-free, organic cotton, sustainable cotton, etc. which are not available domestically. These are being imported under nominated businesses to meet the quality requirements of foreign clients. 
•  
• In India, cotton is predominantly grown majorly by small and marginal farmers who sell their cotton during the peak season. Due to the working capital constraints, the industry also can keep only limited inventory with them and the industry has to rely on traders for the supply of the cotton during the off-season. Such traders, during off-season, often supply cotton on the basis of import price parity, thus making domestic cotton more expensive than international cotton.  During the year, Indian cotton fibre prices were largely expensive by 15-20% than international cotton prices, which affected the cost competitiveness of the downstream value-added cotton-based textile products.
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• The import duty that was imposed to safeguard the interest of farmers is not serving its intended purpose, rather hurting the domestic cotton textile value chain.
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• The government has already been kind enough to exclude Cotton of staple length exceeding 32.0 mm from the scope of import duty.  however, it accounts for only about 37% of the total cotton imports by India, and the import duty still affects about 63% of the imported cotton.
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• To ensure the availability of cotton at internationally competitive prices Government may remove BCD from all cotton varieties.
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• Carry out cotton purchase operations on Minimum Support Price (MSP through a Direct Benefit Transfer (DBT) mode
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• At present, the Government announces a Minimum Support Price (MSP) for cotton every year and in case the prevailing market prices fall below the MSP prices, the Cotton Corporation of India (CCI) intervenes in the market and procures cotton directly from farmers at the MSP rate. Such procurement is carried out at different MSP procurement centers and once procured, CCI stores the cotton in warehouses and sells the same through open market or auctions.
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• However, it is proposed that the Government may come up with a DBT scheme wherein a farmer can sell his cotton in the open market at the prevailing market prices and if the selling prices are lower than MSP, then the difference between the prices can be transferred into the bank account of the concerned farmer through DBT mode.
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• Such a scheme will bring more liquidity for the cotton farmers as they will be able to sell their cotton at prevailing market prices without waiting for government procurement to start. Moreover, it will also reduce the burden and carrying charges for CCI and thus will be beneficial for all the stakeholders.
•  
• Additionally, it is also requested that the Government through the Cotton Corporation of India (CCI) may ensure enough availability of cotton at international prices (when domestic prices rule higher than international prices) and any loss to CCI in this regard may be compensated by the Government in the form of a subsidy, the way Government is providing for other commodities.
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• Cotton Price Stabilization Fund Scheme

At present the textile mills are able to avail working capital only for three months from the banks due to which mills usually procure 3 months of cotton stock at the start of the season when the cotton prices are usually cheaper. For the remaining months, the mills source cotton from the traders and CCI, whose cotton prices vary according to the market conditions, thus it becomes difficult for the mills to plan their production schedule effectively. To enable the industry to overcome this issue of price volatility, the Government may consider coming up with a Cotton Price Stabilization Fund Scheme comprising of the following:

5% interest subvention or loan at NABARD interest rate (cotton being an agricultural commodity);

Increase the credit limit period from three months to eight months; and

Reduce the margin money for cotton working capital from 25% to 10%.

The above scheme will help the industry procure its raw material at market-competitive rates at the beginning of the season and will safeguard the industry from price fluctuation during the off season. 

Technology Mission on Cotton – II

Ministry of Textiles has envisaged a target of achieving US$ 350 bn. textile market size (including US$ 100 bn exports) by 2030 from the present level of about US$ 165 bn. To achieve the same, India would need to increase its cotton production base from the present level of 5.5 bn kgs to about 7.5 bn kgs respectively. To achieve the same there is an urgent need to increase cotton production.

The Technology Mission on Cotton announced by the Government during 2000-01 played an instrumental role in upbringing the Indian cotton cultivation. However, the same was closed a few years back citing that necessary benefits would be made available through different schemes of the Ministry of Agriculture. Moreover, with the expiry of BT hybrid cotton technology 12 years ago and the non-development of new technology thereafter, Indian cotton sector is at loss, as cotton productivity is estimated to drop to 325 lakh bales in 2023-24 (from highest of 398 lakh bales in 2013-14) and yield is expected to drop to 436 kg lint/ha (from highest of 566 kg lint/ha), which may drop further in absence of suitable policy intervention.

To deal with the above situation, the Government may announce Technology Mission on Cotton II (TMC II) with a special focus on seed technology and the below missions:

- Advanced seed technology (high yield and international fibre quality parameters - herbicide tolerant, high-density planting, ELS cotton, drought tolerant, sucking pest tolerant, etc.)

- Global best practices for seed sowing, agronomy, harvesting, handling, ginning, and pressing. 

- Mission mode approach with sizeable budget allocation for the following:

- MM I : Seed and agronomy Technology

- MM II: Technology Transfer

- MM III: Clean cotton (least trash, low short fibre content and contamination-free)

- MM IV: Branding Kasturi cotton and its textiles and clothing products

• Exempt varieties of textile raw material (fibre and yarn) which are not available domestically from the scope of Quality Control Orders (QCOs)
• During the last financial year, Government notified several QCOs for textile products ranging from fibre to yarn such as Viscose Staple Fibre from 29th March 2023, Polyester Fibre from 3rd April 2023, Polyester Industrial Yarn (IDY) from 3rd July 2023, Polyester Continuous Filament Fully Drawn Yarn (FDY), Polyester Partially Oriented Yarn (POY) & 100% Polyester Spun Yarn from 5th October 2023.
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• There are a number of varieties of such raw materials which are being used for the manufacturing of value-added textile goods (yarn, fabrics, garments, and made-ups). However, due to the non-availability of such products in the domestic market in terms of required Quality/Quantity, users of such products have to rely on imports of such product categories, some of which are given below:

• - Polyester Mother Yarn Semi Dull and Bright : 210 Denier, 240/12 Denier, 300/10 Denier, 360/12 Denier 
• - Mechanical Strech Yarn (SPH/SSY): 80 Denier
• - Polyester Monofilament Yarn: 20 Denier, 30 Denier
• - Polyester  Low Melt Yarn
• - BSY (Bi-Shrinkage Yarn): 50 Denier and 80 Denier
• - High Tenacity Yarn: 75 Denier to 10000 Denier
• - Polylana
• - Solucell
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• More details about the description, current demand, deficit in domestic availability, and end use are given in Annex 2.
•  
• In order to enable the industry to cater to the Niche market based out of such product categories as also to support the industry in achieving the aspirational target set for the next 5 years and optimally leverage the recently announced schemes aimed at strengthening the MMF sector in India, Government is kindly requested to exempt the requested categories from the scope of QCOs till the time sufficient domestic availability is there.
•  
• Extend the Interest Equalization Scheme for Textiles
•  
• The Interest Equalization Scheme (IES) has been formulated to give the benefit in the interest rates being charged by the banks to the exporters on their Pre and Post Shipment Rupee Export Credits. The scheme was launched in year 2015 for an initial period of 5 years. In the IES, interest equalization @2% was provided to Manufacturers and Merchant Exporters exporting under specified 410 HS lines and 3% to the MSME manufacturers exporting under any HS line.
•  
• Due to the effectiveness of the scheme in increasing India’s exports, the Government continued IES beyond its initially announced period. However, at present the scheme is active only for MSME exporters till 31st December 2024.
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• Considering the fact that the textile industry operates on a wafer-thin margin, the benefits provided under IES play a significant role in increasing the cost competitiveness of our export products.
•  
• It is therefore requested to continue the IES scheme for at least 3 more years for all manufacturer exporters which will catalyze the growth of Indian T&A exports towards achieving the visionary export target of US$ 100 bn by 2030. 
•  
• Alternate Scheme to TUFS
•  
• Technology Upgradation Fund Scheme (TUFS) was launched by the Government of India during the year 1999 with the aim of modernization and technology upgradation of the Indian textile industry. TUFS initially provided interest subsidy to eligible units which in later years also covered capital subsidy and margin money subsidy under its ambit.
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• Under the TUFS scheme, the spinning segment (yarn manufacturing) attracted around 25% of the investments and today India is one the world-class manufacturers of yarn with 2nd highest installed spindle capacity in the world. It also led to a strong ecosystem of spinning machinery manufacturing in India. Thus, looking at its positive impact, the Government continued to extend TUFS with new versions until it was phased out on 31st March 2022.
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• Micro, Small & Medium Enterprises (MSMEs) account for a significant portion of the textile industry. As per the industry estimate, about 85-90% of the production is done by MSMEs. Hence, for the growth of the Indian T&A sector, it is essential that MSMEs are able to invest, modernize, and grow, for which adequate policy support is required especially in the weaving, knitting, processing, and Garmenting sectors.
•  
• It is pertinent to note that since the inception of TUFS, ~85% of the funds have been distributed to large units and only ~15% have been given to MSMEs. Moreover, at present, there are no schemes to support investments and growth of existing manufacturers as also MSMEs. Schemes like PLI and PM MITRA are for new investments only.
•  
• To make the Indian MSME textile sector viable and contribute towards achieving the visionary target of US$ 350 bn industry by 2030, investors must get support for new investments. Accordingly, it is recommended to institute a scheme similar to ATUFS with a mix of an upfront capital subsidy and performance-based incentive to catalyze investment across the value chain.
•  
• The subsidy under the scheme may be released in 3 equal tranches as proposed below:
• - 33% on the commencement of the production (on submission of DPR and other necessary approvals for MSME)
• - 33% on the successful completion of first year
• - Balance to be paid after 3 years of operation
•  
• The scheme may be announced for at least 5 years to make any significant impact.
•  
• The requested Subsidy rates are as given below:

Proposed Investment Subsidy (% of new investment)

Instead of JIT, which used to be conducted during the earlier version of TUFS, below given mitigating measures are proposed to prevent the misuse of the scheme:

- Geo-tagging of machines may be done to track the potential relocation of machinery

• - Floor prices of each benchmarked machinery may be fixed to avoid over-valuation. Such prices may be reviewed by the Office of Textile Commissioner from time to time
• - Use Escrow account to enable monitoring of the fund disbursement, as was done in RR TUFS
• - Use the monthly/yearly GST returns for monitoring the production process
• - Mandatory certification of charted engineers to avoid misdeclaration of the machines
• - Blacklisting of the company or machine supplier from existing and future Government schemes who are found indulging in any malpractices to misuse the scheme
•  
• Benefits of the proposed scheme for MSME
•  
• - This will benefit Start Ups Investors, who start with a Medium Scale of Investment.
• - This will also benefit units that do backward integration or who have a job work-based model.
• - Existing Running Units that replace old machines with new machines will also be benefited. 
•  
• Announcement of PLI with a lower investment threshold and wider product coverage

Production Linked Incentive (PLI) Scheme is one of the flagship schemes announced by the Ministry of Textiles to attract new investments in the textile sector. However, the present minimum investment criterion of Rs 100 crore and Rs 300 crore and the existing product coverage, limits the benefits of schemes to a few big players only.

In order to give the benefit of the scheme to a larger part of the industry, it is requested to announce a new version of the PLI scheme with a lower investment threshold and wider product coverage to enable a larger part of the industry take benefit from the scheme.

Scheme for encouraging the manufacturing of Indigenous textile machinery

Ministry of Textiles has set an ambitious target of achieving a US$ 350 bn market size by 2030 from the present level of about US$ 160 bn. It would require a significant capacity addition and thus the demand for textile machinery is going to increase in the years to come.

While at present India is one the largest exporter of Textile & Apparel products globally, it is largely dependent on imports of textile machinery and is the largest importer of the same globally.  It is pertinent to note that Indigenous textile machinery is available mainly only for the spinning sector and the industry has been highly dependent on imports for certain categories of machines such as:

Since machine manufacturing is majorly a highly capital-intensive industry, the capital requirement for which is often met with loans from banks. To support the industry, the Government may come up with a scheme providing an interest subsidy @7% for at least 10 years to enable the manufacturer to settle down.

Sustainability is the new buzzword across the major markets of textile & apparel products such as EU, UK, etc. To cater to these emerging compliances on sustainability and circularity, it would require a focus on R&D in sustainable technologies that are not just price competitive but can also be benchmarked with international standards in terms of productivity, quality, energy efficiency, level of carbon footprint, etc.

To enable the same, the Government may also announce a special scheme for the R&D in the field of emerging technologies in textile machines, with the collaboration of Research and Academic institutions, the Ministry of Textiles, and Machine manufacturers. The scheme may initially be announced for a period of 5 years with adequate budgetary outlay.

National Textile Fund 

To support and grow investments in the Textiles sector, Government may also create a National Textile Fund with the below-given objectives: 

• - Make strategic investments by the Government that can be leveraged to attract a much larger investment size. 
• - Technology upgradation in the sector, especially the MSME sector
• - Incentivise integration and economies of scale

It is suggested to create an overall textile fund of INR 1.8 lakh crores for debt funding for technology acquisition. This can unlock total investments of estimated INR 4.2 lakh crores with a direct fiscal cost of the Government of only INR 48,000 crores over the next five years while about Rs 1.3 lakh crore may come from scheduled commercial banks.

Source: EY Analysis

Based on the ratio of investment in machinery to total fixed assets for top 10 companies in the textiles and apparel sector

Analysis was done in 2021, for the present scenario appropriate revision can be done

The above fund would result in additional collection of GST to the tune of about INR 3,00,000[1] crores in the next few years.

• - Extend the facility of Duty-free Import of specified item/goods to exporters of Made-ups
•  
• During the Union Budget 2022-23, the Government introduced the facility of duty-free import of specified goods by bonafide exporters of items like handicrafts, textiles & leather garments vide Notification No.02/2022-Customs dated 1/2/2022. However, Made-ups (Home Textiles) have been excluded from the purview of this facility. 
•  
• It is pertinent to note that, duty-free import of trimmings & embellishments and other specified items were earlier allowed on exports of Cotton Made-ups and Garments at the rate of 1% and 5% respectively of the FOB value of exports in the preceding year under Customs Notification No.12/2012 dated 17.3.2012 (as amended by Notification No.50/2017–Customs dated 30.6.2017). This facility was later removed in the Union Budget 2021-22.
•  
• Certain overseas buyers instruct exporters of Cotton Made-ups to import trimmings and embellishments from their nominated suppliers only. With the removal of the facility of duty-free imports, exporters of Cotton made-ups now have to import inputs/trimmings and embellishments on payment of Customs duty which is adding to the cost of the exporters and thus making them uncompetitive.
•  
• It is therefore requested to include Made-ups along with handicrafts, textiles, and leather garments under Notification No.02/2022-Customs dated 1/2/2022 so that they can avail the facility of duty-free imports of inputs/trimmings and embellishments which will incentivize such bonafide exporters.
•  
• - Deferment of the imposition of New Section 43B(h) of the Income Tax Act, 1961
•  
• Finance Act 2023 inserted Section 43B(h) of the Income Tax Act, 1961 according to which if payments due are not received by the MSME unit from the company within 45 days, the due amount will be classified as part of the company’s business income for the current financial year, subjecting it to taxation.
•  
• The bill was introduced to safeguard the interest of the MSME sector, which also fulfills the bulk of the industry requirements for various products and services. Since its announcement, the textile industry has been requesting the Government to withhold the implementation of this section as in textile industry credit period varies at different stages of production and is usually longer than 45 days of time. This abrupt change has been affecting the entire production planning & schedule in the entire textile value chain.
•  
• It is requested that this law may be introduced in a more phased manner with a phased reduction in the credit period to give enough time to the industry to adapt to the changes.
•  

[1] Based on analysis of 2021, for the present scenario, appropriate revision can be done