But, the infrastructure should be set up by the states and the Centre; roping in private investors may complicate matters
The seven mega textiles-and-apparel parks to be set up under the Pradhan Mantri Mega Integrated Textile Region and Apparel (PM MITRA) scheme should provide the sector much-needed world-class infrastructure. Despite several inherent advantages, especially the large pool of low-skilled labour, India’s textile industry has been left behind in the global market by smaller and niftier nations like Bangladesh and Vietnam.
As economists Arvind Subramanian and Shoumitro Chatterjee pointed out in a recent study, India produces roughly $34 billion in textiles and clothing. If it were to produce in line with its labour force, the size of its domestic textile and clothing sector should be $174 billion. In other words, the country’s missing production in the key low-skill textiles and clothing sector is a whopping $140 billion (~5% of GDP).
Indeed, India’s share in the global textiles trade ought to have been far bigger, given the strong raw material base for both cotton and synthetics. However, its share in global exports of cotton yarn shrank 600 basis points to 23% in CY2020 from 29% in CY2015, while, in readymade garments (RMG), the share has stagnated at 3-4% over the past decade, which must be seen in in the context of the global market itself shrinking.
As analysts at CRISIL have observed, despite the EU and the US being the largest RMG export destinations for India, with ~32% and ~27% share in FY20, respectively, India was unable to increase its presence. One reason for this is the absence of free trade agreements (FTAs), but it is also to the credit of competing countries that they have made enormous strides. Against this backdrop, the proposed mega parks could be useful. However, the infrastructure should be set up by the states and the Centre; roping in private investors may complicate matters. It is true the Centre has promised viability gap funding (provided in the outlay), but one is not sure that private players would be too keen to participate. Indeed, too many stakeholders could result in delays and disputes; it is better to give the states a free hand in the building and running of the park, subject to certain conditions.
The Centre’s outlay of Rs 4,445 crore seems adequate for the moment. It is up to the states to come up with affordable land, electricity and water supply. Ultimately, they must take the initiative and those that have the simplest labour compliance procedures should be given priority. The scheme envisages the parks be set up across 1,000 acres each and be equipped with plug-and-play facilities.
While an SPV structure has been proposed—between the state, Centre and the private investors—this construct could work equally well with just two stakeholders. Justifiably, the capital allocation will be bigger for greenfield parks—as the scheme envisages—and smaller for a brownfield one. The incentive set aside, to the tune of Rs 300 crore, for the early birds who set up the manufacturing units, is a good idea. The integrated parks will complement the recently-approved Rs 10,638-crore production-linked incentive (PLI) scheme for man-made fibre and technical textiles segments where India’s share is relatively small. While infrastructure is critical to achieve economies of scale—the textiles sector has been rather fragmented—trade negotiations also need to be pursued. New Delhi has been against joining trade groups like RCEP, but FTAs can be pursued.