Outlook for Indian synthetic textile sector

Published July 21, 2015
The President of the Volvo Bus Corporation Hakan Agnevall (R) and the Chairman of Volvo Buses in India Akash Passey address a press conference in Bangalore on July 14. The Swedish bus manufacturer announced India will start exporting buses manufactured by Volvo India to European markets as part of the Indian government’s ‘Make in India’ initiative.—AFP
The President of the Volvo Bus Corporation Hakan Agnevall (R) and the Chairman of Volvo Buses in India Akash Passey address a press conference in Bangalore on July 14. The Swedish bus manufacturer announced India will start exporting buses manufactured by Volvo India to European markets as part of the Indian government’s ‘Make in India’ initiative.—AFP

THE sharp slowdown of the Chinese economy is also having its impact on India. The synthetic yarn sector, for instance, has seen a sharp decline in supplies to China.

The Indian synthetic yarn business was heavily dependent on China, which used to import large quantities of the yarn. Chinese importers would convert the yarn into fabric and garments, and export them to Europe and the US.

Industry experts predict a bleak future for the synthetic textile sector in financial year 2015-16. A recent report by India Ratings & Research, a Fitch group company, warned that polyester fibre prices will continue to decline because of oversupply of cotton and cotton yarn.

“Unfavourable cotton-polyester staple fibre (PSF) spreads have hurt domestic synthetic yarn demand. Lower export competitiveness of Indian synthetic yarn also contributes to the subdued outlook as import and central excise duty continue on man-made fibres,” said the report.

Besides the slackening demand from China, global demand for synthetic yarn has fallen by a hefty 60pc. Indeed, Indian synthetic units have been forced to cut production by almost 40pc.

Another factor that is hurting the Indian synthetic sector is the high import duties and domestic taxes on manmade fibres. The synthetic textiles industry last month sought an overhaul in the excise and customs regime to enable it to compete with countries such as Bangladesh, China and Vietnam.

According to Anil Rajvanshi, chairman, Synthetic and Rayon Textiles Export Promotion Council, the tax regime has distorted the textile sector. While an affluent individual buying an expensive cotton shirt does not pay any excise or taxes, a poor person buying a cheap synthetic shirt has to pay the highest amount of taxes.

“This has fragmented and weakened the industry,” Rajvanshi recently wrote to Santosh Kumar Gangwar, the textiles minister. “You have to save this industry or else we will not be able to sustain and give way to countries like China, Vietnam and Bangladesh.”

Rajvanshi referred to the distortions that have happened in the Indian textile sector because of the disparities in taxes. While globally manmade textiles account for 70pc of consumption, with cotton accounting for only 30pc, in India it is a different story. High duties on synthetic fabrics – and huge concessions to the cotton industry – have made domestic products prohibitive and imports cheaper. Synthetics attract 12.5pc excise duty, while cotton is exempted from all duties and taxes.

Not surprisingly, India’s imports of fibres, filament and spun yarn have soared and so too have fabric imports. Rajvanshi says that imports have gone up by 20pc in 2014-15.

Last week, C. Vardarajan, president, South India Spinners’ Association, said that mills were unable to import polyester fibre because of high import duty (of 23pc), and there was limited production capacities within India.


IRONICALLY, though crude oil prices have tumbled in recent months, synthetic textile makers complain about the high cost of two key raw materials – purified terephthalic acid (PTA) and mono-ethylene glycol (MEG) – which are used to make synthetic yarn. While PTA and MEG prices have been depressed in many countries because of the decline in crude oil prices, in India they have shot up significantly.

Jitu Vakharia, president, south Gujarat Textile Processors Association, complains that failure to pass on the benefits of lower crude oil to the synthetic textile industry has resulted in their margins being squeezed.

But O.P. Lohia, chairman, Indo Rama Synthetics, firmly believes that synthetic yarn will be able to emerge successful in the battle with cotton yarn. While cotton prices are soaring, synthetic yarn prices have fallen by 30pc over the past one year, he says.

Many others are also bullish about the prospects for the synthetic yarn sector in the long run. Philips Gibbs, group managing director, PCI Xylenes and Polyesters, an international polyester consultancy, notes that India’s polyester production is expected to double to 10m tonnes over the next five years.

He believes that in the longer term, cotton will not be able to keep pace with the growing demand for synthetic textiles and will be overtaken by polyester staple and filament.

PTA and MEG production in India is expected to rise in the future as petrochemicals majors take up new projects. State-owned Indian Oil Corporation, for instance, plans to invest Rs130bn to set up PTA and MEG units near its refinery at Paradip in the eastern state of Odisha.

The new units, to come up at the Petroleum, Chemicals and Petrochemical Investment Region hub near the port city, are expected to be operational by 2020.

But in the current scenario, the shortage of raw materials such as PTA and MEG for making synthetic yarn is affecting India’s synthetic yarn exports. Both these raw materials are in short supply and they are being sold at a premium to international prices.

India’s textile industry – both manmade and natural fibres – is expected to grow phenomenally over the next decade. According to an independent research report, it is likely to touch the $500bn mark by 2025, up from the present level of less than $110bn.

“If the Indian textile industry takes the right steps and gets adequate policy support from the government, it could cross $500bn by 2025 from its present size of $108bn,” said the report by Wazir Advisors and PCI Xylenes & Polyesters. “This will also catalyse another 35m jobs and $200bn of investments.”

Exports would add up to $185bn and the remaining $315bn would be accounted for by the domestic market. Though India’s textile sector ranks second in the world, after China’s, there is a huge gap between the two nations.

Published in Dawn, Economic & Business ,July 21st, 2015

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