Conference on “Strategy for Making India a Global Leader in Textiles and

Apparels”

7th April 2015

Stimulating Investments in MMF and Fabrics

Indian Textile Industry Market Size : $110 billion

◦ Domestic Consumption : $70 billion ◦ Exports: $40 billion

Contribution of the Industry◦ 14% of the industrial production◦ 6% of the country’s GDP◦ 13% of export earnings◦ 35 million-strong workforce- 2nd largest employer after agriculture

The National Textile & Apparel Vision document envisions a target of $650 billion by 2025 (domestic $350 billion and export $300 billion), from the current $110 billion.◦ This requires investment of around $180-200 billion and is expected to create 35

million additional jobs

Indian Textile IndustryIndian textile industry is cotton based. In contrast globally, MMF enjoys bigger share as shown below.

Fibre Consumption Pattern Profile (in %)

Non - Cotton

Cotton

World

Non - Cotton

Cotton

India

China- the World LeaderChina- industry size of $532 Billion; exports of

$260 Billion cornering 36% of the global textile trade.

MMF forms a staggering 80% of the total exportsChina Exports

MMF Exports

Other Exports

India Exports

MMF Exports

Other Exports

OPPORTUNITIES- China Factor China is expected to vacate nearly $100 billion of global trade

space over the next 5-6 years due to:◦ Rising labour costs, appreciating currency, energy costs and focus on domestic

market

◦ Countries including India, Vietnam, Bangladesh and Sri Lanka potential gainers

Cotton consumption is expected to fall from the current 40% of the global fiber consumption, to nearly 25%.

To reach the target of $650 billion with exports of $300, quantity of textile fiber needs to be increased multifold

OPPORTUNITIES

In India, Cotton consumption represents around 60% of the total fiber consumption

However, due to some factors, such as frequent fluctuation in cotton prices and push by global brands towards polyester filament, MMF is gaining momentum.

India accounts for less than 0.5% of the global trade of MMF fibres-based textile and apparel products which indicate huge opportunity◦ In domestic market too, preference for apparel made from MMF, is fast changing, in the ladies

wear, active wear, kids wear and uniforms, automotive furnishings, protective and medical applications, etc.

◦ This is expected to boost demand for fiber to around 19 million tons by 2025

7

India Growth PotentialKg/Capita

All Fibre/Ca

pita

MMF/Capita

North America 36.9 22.5

Australasia 28.6 18

South Korea 23.3 16.3

West Europe 23.1 16.2

Taiwan 23 17.3Japan 21 13.2Turkey 14.8 7.6

East Europe 14.1 9.3

China 14 12Latin America 8.9 4.9

South Asia 7.1 4.3India 5.5 3.1Africa/Middle East 4.7 3.3

World 11.2 7.7

Low consumption centres

point at scope to grow

towards the global average

India’s high GDP growth and

rising income levels would

catalyse textile consumption

Young demography and

changing fashion trends

would favour MMF

consumption

Fibre Mix Needs to Change Dramatically

Volume: 10 Bn kg; Value: $110 Bn

Volume: 20 Bn kg; Value: $220 Bn

4.3

5.3

0.12014

MMF

Cotton

Others11.8

8.0

0.3

2020

MMF

Cotton

Others

• Even with conservative growth estimates fibre dynamics have to change dramatically

• Availability of cotton in India with a global best yield of 750 kg/ha will take Indian cotton production to ~8 Billion kg.

REQUISITES

This requires increased investment and MMF production from about 4.3 billion kg to 11.8 billion kg◦ This implies increasing the consumption of MMF from the present 40% to 60%

of total consumption

This target is achievable if provided right fiscal policies to encourage investment in the sector◦ Past experience shows reduction in MMF duty results in increasing the demand

for the same thereby neutralizing the impact on revenue

Key Proposals An intermediate Excise Duty regime of 6% for MMF and Yarns

◦ The present duty of 12% should be reduced to 6% on MMF

Certain excise duty on cotton with entire textiles chain under CENVAT

Duty Rationalisation needed to treat MMF gradually at par with cotton. The growth in revenue collection will be in the range of Rs 8000-10000 crores.

Prepare the industry for GST regime

  India China Pakistan Bangladesh Sri Lanka Indonesia Thailand

Cotton Nil 17% Nil Nil 20% 10% 7%

MMF 12% 17% Nil Nil 20% 10% 7%

Cotton Yarn

Nil 17% Nil 1.5 Tk/kg 20% 10% 7%

MMF Yarn 12% 17% Nil 1.5 Tk/kg 20% 10% 7%

Scenario 1- Only Cotton Yarn Under Excise

Assumptions

Excise duty was calculated based on production . Imports and exports are not considered in this calculation as any excise duty collected in export will be refunded as duty drawback

The volume of cotton fabric has been assumed based on 25% of cotton yarn is exported out of the country

Garment volume has been assumed based apparel market size of USD 40 Billion

 Scenario 1-

Existing Scenario II

  (Current excise rate)( Excise rate @ 2-6% -Cotton Yarn included)

Excise Duty RatesNaptha 14% 14%PX 6% 6%PTA 12% 6%MEG 12% 6%ACN- 12% 6%PSF 12% 6%VSF 12% 6%Asf 12% 6%

Polyester Filament Yarn 12% 6%VFY 12% 6%100 % Non Cotton Yarn 0% 6%PV Yarn 0% 2%

PC Yarn 0% 2%Cotton Yarn 0% 2%Cotton Fabric 0% 0%Blended Fabric 0% 0%100% non cotton 0% 0%Garment 0% 0%Excise collection (Rs-Crs) 7744 8214

Scenario II- Entire Chain Under Excise

Assumptions

Excise duty was calculated based on production . Imports and exports are not considered in this calculation as any excise duty collected in export will be refunded as duty drawback

The volume of cotton fabric has been assumed based on 25% of cotton yarn is exported out of the country

Garment volume has been assumed based apparel market size of USD 40 Billion

 Scenario 1-

Existing Scenario II

  (Current excise rate)

( excise rate @2- 6% -Cotton yarn ,Fabric &

Garment included)

Excise Duty RatesNaptha 14% 14%PX 6% 6%PTA 12% 6%MEG 12% 6%ACN- 12% 6%PSF 12% 6%VSF 12% 6%Asf 12% 6%

Polyester Filament Yarn 12% 6%VFY 12% 6%100 % Non Cotton Yarn 0% 6%PV Yarn 0% 2%

PC Yarn 0% 2%Cotton Yarn 0% 2%Cotton Fabric 0% 2%Blended Fabric 0% 2%100% non cotton 0% 2%Garment 0% 2%Excise collection (Rs-

Crs) 7744 9312

Proposals (contd.)

Customs duty on Catalysts and Chemicals used for manufacture of synthetic fibers/fabrics should be on par with raw materials.

Customs duty structure should be a cascading structure, i.e. the duty differential should be progressive at each stage of value chain. To encourage the domestic industry, following model is proposed:

Thank You