GS Paper III

News Excerpt: Rising Chinese imports of Man-Made Fiber (MMF) fabrics have severely impacted India's textile sector, severely affecting local manufacturers and prompting calls for stricter custom measures.

What is a Man-made fiber?

• Fibers that undergo considerable modifications to their chemical composition, structure, and qualities during the production process are referred to as man-made fibers. 
• Numerous consumer and commercial items, such as clothing like shirts, scarves, and hosiery; home decor like carpets, upholstery, and draperies; and industrial components like drive belts, tire cable, and flame-proof linings are all manufactured from man-made fibers that are spun and woven. 

Decline of Indian MMF:

• The influx of Chinese imports has led to a rise in competition, causing local industries to struggle with higher domestic fiber prices and an inability to supply at competitive rates.
• In the last three years, man-made fiber (MMF) imports, which attract mostly 20% duty, have doubled.
• Quality concerns arise due to under-invoicing of imported finished fabrics, prompting calls for stricter Customs measures.
• The government's introduction of Quality Control Orders (QCOs) on MMF fibers faces industry criticism, affecting the entire value chain. 
• MSMEs face financial strain, with declining orders, high prices, and increased operational costs, leading to potential closures. 
• Weavers demand GST refunds and reimbursement of GST paid under an inverted duty structure for financial relief.
• Quick trade estimates for November 2023 from the Confederation of Indian Textile Industry (CITI) show that exports of man-made yarn, fabrics, and made-ups were 7.33% lower year-on-year. For April-November, 2023, the decline was 23.2%.
• In 2017-18, fabrics dominated India’s total MMF exports with a 33% share, while yarn made up 32%, as per a study on the Ministry of Textiles website. India’s share in global MMF trade was 2.7% in 2019.

Underlying Domestic Issues:

• Rise in prices: The sudden upward trend for man-made fiber or fabrics started in 2022 which was largely on account of last year’s skyrocketing cotton prices.  This pushed many domestic small and medium units to compromise on quality to meet the domestic textile demand at a lower cost. 
• Inverted Duty Structure: The manmade fiber (MMF) value chain in the textile industry faces an inverted duty structure, where taxes on final products are lower than taxes on inputs. This leads to an accumulation of input tax credits, causing working capital flow issues for businesses and a revenue outflow for the government.
• Limited Market Access for Exports: India faces a disadvantage in international markets due to duties imposed by importing countries. India does not enjoy duty-free access, making our textiles less competitive on the global stage.

Way forward:

This sector urgently needs a review of the Quality Control implementation, added Export Promotion and financial support for MSMEs, and GST refund streamlining to simplify and expedite the GST refund process.

Mains PYQ

Q. Analyse the factors for highly decentralized cotton textile industry in India . (UPSC 2013)