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Investment Opportunities in Textile Industry in India for a Foreigner

The Indian Textile industry is the oldest industry in the Indian economy, dating back several centuries. The nation is the 2nd largest producer of garments in the world. The nation’s textile industry is unique with its ancient techniques and cultural traditions. The transition period of the industry through industrialisation has changed the overall structure of the sector. The fundamental strength of the textile sector in India is its stronghold on the production base, as India is a rich nation with many natural resources like cotton, jute, silk, and wool. The nation also holds appropriate technology to produce synthetic or artificial fibres like viscose, nylon, polyester and acrylic. Furthermore, the Indian government is inducing funds in the sector to encourage foreign investments. The present article will demonstrate foreign investment opportunities while investing in this industry.

Scenario of Textile Industry in India

The Indian textile industry is highly diversified, with a wide range of segments covering from traditional handloom, handicrafts, wool and silk products to organised textile industry in India. The organised textile sector in India is characterised by capital-intensive technology. Capital-intensive technology aims for the mass production of textile products and includes weaving, spinning, processing and manufacturing. The Indian textile sector contributes almost 2% to the country’s GDP. Furthermore, India holds a share percentage of 5% in the global trade in Textiles and apparel. India is one of the largest producers of cotton & jute in the world and is the second largest in producing silk. It is further estimated that almost 95% of the world’s hand-woven fabric comes from India.

Moreover, the inducement of the fund in the small industry sector by the Indian government has led to growth in the PPE manufacturing industry. It makes India the 2^nd largest producer in the world. There are more than 600 companies that are allowed to carry on the PPE manufacturing business, whose global market worth is expected to be over 9.2 billion dollars by 2025. Henceforth, foreigners willing to enter India can invest in the Indian textile industry as the forecasted growth for the sector is calculated to be 100 billion dollars in the next 5 years.

Advantages of Investing in India

The foreigner can benefit from investing in the Textile Industry in India in the following ways:

1. Increasing Demand: Due to the increasing demand for cotton^[1], their expectation that cotton production is expected to reach the mark of 7.2 million tonnes by 2030. Given the current figures in the textile exports, the country stands at 44.4 billion dollars in F.Y. 22 and 6.19 billion dollars in F.Y. 22in regard to readymade clothes, including cotton garments. Looking at the rise in cotton production, the foreigner can open a production house in India and export the textile products to Asian countries.

2. Competitive Advantage: India enjoys a comparative advantage in the skilled workforce, which is a significant factor in the cost of production compared to the other textile producers. With the aim to increase the number of textile hubs in India, the government is willing to establish at least 5 textile hubs in the nation. This will increases the supply, which will help to meet the demand of the country. This measure is advantageous for the foreigner as it can benefit from the competitive environment by partnering with the existing players. It can offer its innovative products in the market at reasonable prices due to the low cost of production and can earn a hefty amount.

3. Favourable policies: In order to induce foreign investments in the Textile Industry in India, the government is framing policies that are supportive to the foreigner while entering the Indian market. The government has even allowed 100% FDI in the Textile sector under an automatic route. The government is further looking to invest the production-linked incentive scheme for Rs 10,683 crore in man-made fibre and technical textiles over a period of 5 years. The government of India has notified the uniform GST rate for man-made fabrics, MMF yarns and apparel at the rate of 12%. Henceforth, the foreigner willing to enter the textile industry in India can benefit from the policies and receive funds from the government to establish a manufacturing or production business.

4. Rise in Investment: The inducement of huge funds in the schemes, such as 184.49 million dollars in the Integrated Textile parks and 961.11 million dollars in the technology upgradation fund scheme, will help to encourage private investment in the Textile sector. It will help the private players to establish the manufacturing units by taking funds from the government; due to the rise in foreign investment in the other sectors, the government is notifying various schemes and offering various incentives to the small textile industries to encourage small investors. Henceforth, the foreigner can enter the textile market even though the investment by such an investor is low.

5. Manufacturing Value Chain: India is the only country that possesses all levels of the textile value chain, i.e. from fibre to garment manufacturing, both in natural and synthetic fibres. In contrast, the neighbour countries have discontinued the value chain and given the main focus on the end product, which will lead them to depend on the other countries for yarn and fabric. Due to the presence of prominent players in the country, India holds a strategic advantage in maintaining the complete value chain. Henceforth, the presence of a value chain could be an advantageous factor in investing in the textile industry in India.

6. Abundance of Raw Material:  India is the largest producer of cotton, estimating around 30% of the global cotton production, 2^nd largest producer of polyester and silk, 3^rd largest producer of viscose and 4^th largest producer of acrylic and nylon around the world. The abundance of raw materials has helped India in the development of its manufacturing value chain. In addition, it has also helped India to capitalise on opportunities at the domestic and international levels. Therefore, the foreign entity can benefit from the abundance of raw materials and offer various products, even in the domestic or international markets, by exporting them to the neighbouring countries of India.

Foreign Direct Investment in the Textile Industry

The Indian government has approved 100% FDI in the textile Industry under an automatic route. Out of which, 100% FDI is allowed in Single brand retail and 51% in Multi-brand Retail. The FDI has brought an investment of 1522.23 million dollars in the textile sector from 2017-2022. The highest contributing countries of FDI in the textile sector from April 2016 to March 2021 are Japan, Mauritius, Italy and Belgium. The textile sector in India has seen a significant rise in exports, estimated at 44.4 billion dollars in the financial year 2021-2022, depicting a substantial increase of 41% and 26% as compared to the figures in F.Y. 2020-2021 and F.Y. 2019-2020. Moreover, the Indian Textile industry has seen a rise in collaboration with global majors and domestic companies such as Hugo Boss, Liz Claiborne, Diels and Kanz. The reasons why a foreigner can be attracted to the FDI in the Indian Textile Sector are:

1. Cost Competitiveness
2. Ease of doing business
3. Large size of the Indian textile Industry
4. Consistent and effective performance of the Textile industry
5. Availability of skilled workforce
6. Flexible FDI policy in India

Incentives and Schemes from the Government of India

The Indian government offers the following incentives and schemes in the sector for the benefit of foreign investors and private players:

1. Scheme for Integrated textile Parks (SITP): The aim of the scheme is to provide international and environmental standards by providing common infrastructure and buildings within the parks.
2. Amended Technology Upgradation Fund Scheme (ATUFS): Theaim of the scheme is to provide technology upgradation in the textile sector by offering capital investment subsidies across different segments in the value chain. It helps in augmenting investment and productivity in the sector.
3. Integrated Skill Development Scheme for Textiles & Apparel Sector (ISDS): The aim of the scheme is to provide specific skills with respect to the requirement for a particular apparel and other textiles industry. It further provides employing trained persons in related occupations.
4. Powertex India:  the aim of the scheme is to boost the existing infrastructure and encourage the adoption of modern technology in the power loom sector at a larger scale.
5. Integrated Processing Development Scheme (IPDS): The aim of the scheme is to enable the textile processing sector to meet environmental standards through appropriate technology, including Zero Liquid Discharge, riverine and marine.
6. National Technical textile Mission: The aim of the scheme is to position the country as a global leader in technical textiles. In this regard, the cabinet committee on Economic Affairs has given the approval to set up the National Technical Textiles Mission with a total outlay of 194 million dollars in February 2020.
7. Remission of Duties & Taxes on Exported Products Scheme (RODTEP): The aim of the scheme is to provide a refund of GST taxes and import or customs duties for inputs along with VAT on fuel used in transportation, Mandi tax and duty on electricity used using manufacturing. It would lead to the cost competitiveness of the exported products in the international market.

Conclusion

The investment decisions play an important role for an investor while investing in any sector or industry because many investments are not irreversible. The textile industry is mainly focused on export-oriented and is influenced by the foreign exchange rate at a high level. The Indian textile sector is large in size and contributes almost 2% of the country’s GDP. Due to the advantageous position held by the Indians in the textile sector, foreign investors have various opportunities to earn profit out of the proceeds in the domestic and international markets. Moreover, the projected score of the Indian Textile sector is worth more than 35 billion dollars. The government is also encouraging private investments in this sector to enhance the level of foreign investments. Henceforth, the foreigner willing to enter the textile industry in India can benefit from the policies and incentives.

Read Our Article: GST on Textile Industry – An Impact Overview