Domestic Textile Sector On The Recovery Path

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The domestic textile industry, which have been languishing for the last few years now following events like demonetization, implementation of GST, rupee appreciation and high domestic cotton prices, has finally showing some signs of revival. As per RBI Financial Stability Report (FSR) – June 2018, the stressed advance ratio of textile sub-sector has improved in March 2018 from the levels of September 2017, even as within the industry, the stressed advances ratio of subsectors such as gems and jewellery, infrastructure, paper and paper products, cement and cement products and engineering registered rise. The gross NPA ratio in the industry sector rose from 19.4 per cent to 22.8 per cent during the same period whereas stressed advances ratio increased from 23.9 per cent to 24.8 per cent.

While as per the report by RBI, the textile sector has reported a high transmission of stress to the banking sector. Recovery is expected owing to rupee depreciation, picking up of domestic demand and progressive policies of the government.

“The sector which saw a major hit due to demonetization, implementation of GST, rupee appreciation and high domestic cotton prices, is finally showing some signs of recovery. The recent RBI report has validated this fact,” says Sanjay Jain, Chairman, CITI.

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CITI chief has also expressed his gratitude to the government for its strong support to the textile sector. All the support extended by the government, including Rs1,300 crore Samarth scheme for skilling, Rs 6000-crore package for apparel & made-ups along with various state Incentives, is expected to create a strong turnaround in the textile sector and put the industry back on growth path. The government has also been very receptive in resolving many GST issues, though there are still a number of issues which industry is hopeful will get resolved very soon.

Jain has pointed out that the only urgently required and missing piece in the success jig saw puzzle is government policy support for stopping excess imports and refund of all duties and taxes on exports across the value chain. In FY 2018, the imports of textiles and apparel touched $7 billion, which is 16 per cent higher than the previous year value of $6 billion. All the categories across the value chain have seen a drastic rise in imports. Fabrics and apparel imports have seen a rise of 27 per cent and 30 per cent, respectively.

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“Moreover, the embedded duties, which are in the range of 4 to 6 per cent  across the value chain are not getting refunded. This is one of the key factors for decline in exports apart from blockage of funds due to delay in GST refunds and rupee appreciation,” adds Jain, according to him that the biggest game changer that could transform the industry and put it at par with its competitors such as Vietnam and Bangladesh is Free Trade Agreement (FTA) with EU, Australia, Canada and Britain for made-ups and garments and reduction of import duty on Indian cotton yarn and fabric by China.

As per The RBI report, domestically, the economy appears to be gathering strength although global commodity price swings and turbulent capital flows are a constant reminder to our fast-growing economy that there can be little scope for complacence, if at all any. Some of the structural vulnerabilities of the banking sector in the form of legacy impairments are finally being tackled headlong. The revised framework of February 12th for dealing with stressed assets issued by the RBI should incentivize early identification and resolution of credit risk. The Insolvency and Bankruptcy Code (IBC), 2016 is emerging as the lynchpin for resolving stressed assets in a time-bound manner. These developments bode well for allocative efficiency and financial stability in the medium term even if there is some short-term pain in the process.

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India’s gross domestic product (GDP) growth at 7.7 per cent in Q42017-18 shows that the Indian economy is well on the recovery track on the back of a sharp pick-up in gross fixed capital formation. Further, there has been an uptick in capacity utilisation with some industries closing the gap. The aggregate demand composition indicates a broad-based growth with revival of investment, says the central bank report.

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