Invigorate Incentives and Reduce Duties to Pave Way for US$40 billion Export Target

The Indian textile industry which currently contributes 4% to India’s GDP is poised to attain a size of US$85 billion by 2010 from US$37 billion now, implying a growth rate of 18% per annum. This would comprise US$45 billion of domestic market and US$40 billion of exports. This momentous growth would generate over 12 million new jobs with direct employment opportunities of 5 million jobs and 7 million jobs in the allied activities.

Textiles production increased by 11% in the first eight months of 2006-07 measured in terms of Index of Industrial Production. This was over and above the 8% growth registered in fiscal 2005-06. On export front, the first half of 2006-07 saw exports amounting to US$9.15 billion growing 13% in US$ term and 19% in Indian Rupee term. Cotton textiles are the most preferred world wide accounting for 36% of total textiles exports.

To achieve the growth and export targets, textiles industry expect some key changes in the forthcoming Union Budget. According to YarnsandFibers’ Eighth consecutive quarterly survey on Business Confidence of Indian textile companies survey the industry expect reduction in excise and customs duties, invigorated Duty Entitlement Passbook Scheme rates (DEPB) and refreshed export incentives. This would pave way to achieve the US$40 billion export target by 2010. Some expect extension of Technology Upgradation Fund Scheme (TUFS) beyond March 2007. Reportedly, the extension has also found support of Prime Minister Dr. Manmohan Singh.

The survey also reveals a dismal performance during the quarter ended December 2006. However, in the ensuing quarter the industry expect to put up a much better performance. This is indicated by the Business Confidence Index, a measure of future business prospect, which is at 84.4 while the current performance (for October -December 2006), measured by Current Status Index stands at 54.2. The Business Confidence Index on the scale of 0 to 100, where the highest is 100, and at 50 the confidence is same as today and below 50 imply below current level performance. The March 2007 index is lower than previous quarter’s index which was at 88.3.
Of the respondents, 69% (79% in previous survey) are of the opinion that their performance would be better in the January-March 2007 quarter. Significantly, none of the respondents see their performance worsening in the ensuing quarter. The remaining 31% believe that they would roll over their performance of preceding quarter.

Textile companies in south India seems to be a worried group. These companies had projected good business in the October–December quarter, but have apparently failed to reach their targets. For the quarter, the Business Confidence Index stood at 87.5, up from 66.7 in the preceding quarter (July-September 2006). However, the Current Status Index for the quarter October-December 2006 stand at abysmal 41.7. This low performance has apparently influenced the expectations in the ensuing quarter of January to March 2007. The Business Confidence Index for the quarter stands at only 75.0, the lowest ever of YnFx Surveys

On the export front, Europe and USA seems to have lost their charm. The Eighth survey points towards the emergence of non-USA-European regions as major export destinations. Although Europe continues to be the major market for Indian textiles, the current survey indicates that only 16% of the respondents were targeting Europe for exports. The next preferred destination was Asia (15%) followed by Middle East (10%). Africa would be preferred over USA as 9% of the respondents indicated the continent to be fourth largest market. South America too is preferred over USA by many as close to 8% will export their products to this region. USA, with only 7% respondents, is the least export market.

Inadequate power supply is the major cause of concern for textile companies in coming quarter. It has been a continuous source of hindrance for textile companies in the past one year. The survey of corresponding period of 2006 too had indicated power as major impediment to growth. In this survey, according to the order of responses the other impediments are demand, labour, infrastructure and finance to textiles industry.