The draft pledged as much as 11% incentive to large companies for investments over Rs 500 crore in greenfield projects in technical textiles.
New textiles minister Piyush Goyal will soon review a proposed Rs 10,683-crore production-linked incentive (PLI) scheme for products made of man-made fibre and technical textiles, amid clamour for reducing the lofty turnover and investment targets for companies to avail of benefits, sources told FE.
Goyal, who is also the commerce and industry minister, faces a tough task, as the labour-intensive garment sector, comprising mainly MSMEs and dominated by cotton-based players, also wants the inclusion of value-added cotton products in the scheme to benefit a large number of businesses.
But the demands go against the government’s intent of luring mainly large companies to create few champions in key sectors through various PLI schemes. In textiles and garments, it also seeks to correct India’s historical policy bias towards cotton-based value chain that is, in fact, contrary to the global consumption pattern. The idea is to reclaim India’s export markets after ceding substantial ground to Bangladesh and Vietnam in recent years. Goyal took over as the textiles minister on July 8, taking over from Smriti Irani.
In its draft PLI scheme floated earlier, the textile ministry proposed incentives in the range of 7-11% in the first year. But only those firms with annual turnover of at least Rs 100 crore were to make the cut. The benefits in all categories were proposed be reduced by 100 basis points each year after the first year and granted for a total of five years from FY22. “It’s a very important scheme, as it has potential to create a huge number of jobs. So, obviously, the minister’s guidance will be sought and he will review it,” said an official source.
The draft pledged as much as 11% incentive to large companies for investments over Rs 500 crore in greenfield projects in technical textiles. The benefit, however, was linked to an incremental turnover of Rs 1,500 crore in the first year and a 25% rise in turnover each year after that.
It also suggested that firms with an annual turnover of Rs 100-500 crore will be eligible for an incentive of 9% for brownfield projects. This will be subject to an increase in turnover by 50% each year.
Similarly, companies with a turnover of Rs 500 crore or more were to be granted a 7% incentive in the first year. The benefit was tied to the condition that turnover has to be raised by 50% in the first year and by 25% each year after that.
The incentives were proposed to be extended for incremental production in 50 laggard categories (40 man-made-fibre-based garments and 10 technical textiles).
Interestingly, some players, who are struggling to cope with a Covid-induced liquidity squeeze, want the rollout of the scheme to be deferred so that they can take advantage of it.
Raja M Shanmugham, president of the Tirupur Exporters’ Association, the country’s largest garment cluster, hailed the PLI scheme. However, he said, for the large number of MSMEs to reap the benefits of the PLI scheme, the criteria need to be relaxed and cotton products that see substantial value addition need to be brought under its ambit. More importantly, the need of the hour is to prevent the firms from sinking into oblivion by facilitating greater and easier credit at affordable rates, he added. “Unless the MSMEs survive this crisis, how will they be able to gain from the scheme and contribute to exports?” he asked.
According to noted textiles expert DK Nair, the scheme seems well-intentioned, but the targets, especially for incremental turnover, will be hard to meet. Moreover, assessing incremental turnover of companies, especially the unlisted ones, will be a herculean task, given the scope for manipulation between group firms, Nair added.
Even before the pandemic struck, textile and garment exports shrank 8.6% year-on- year to $33.7 billion in FY20. As such, the sector’s share in the overall merchandise exports has been sliding consistently in recent years, having dropped from as much as 13.7% in FY16 to just 10.8% in FY20, the lowest in around a decade. Last fiscal, such exports dropped by 10% to $30.3 billion, worse than a 7% contraction in overall merchandise exports.
Globally, while China remains the most dominant player and leads by a huge margin in both textiles and garments, India has been beaten by both Bangladesh and Vietnam in recent years in apparel exports.