The Indian apparel sector is a dynamic and rapidly expanding industry, making a significant contribution to the economy and employment generation. The garment sector employs over 11 million people, predominantly in MSME sector, and serves as a vital source of employment, particularly for women and marginalized communities. Hence it is important to support this sector for its survival and growth in the challenging macro environment through appropriate policies. Accordingly, Santosh Kataria, President of Clothing Manufacturers Association of India (CMAI) have forwarded few recommendations explained below for your kind consideration for the Union budget 2025-26.
- Need for interest subvention benefits for Domestic Garment Sector
The garmenting sector within the T&A industry faces considerable financial challenges, notably due to its high working capital requirements. Managing funds for MSMEs in this sector has proven to be a persistent challenge, hindering their growth and sustainability. To address this, a government-supported interest subvention scheme is essential for addressing the working capital requirements of the apparel sector. Similar to the existing Priority Sector Lending (PSL)
rate for agriculture sector, a reduced interest rate of 7% per annum, further reduced to 4% for prompt repayment may be extended to the garment industry, recognizing its critical role as a significant employment generator.
Such a mechanism would provide essential relief to apparel sector, easing their financial constraints, fostering operational stability, and ensuring the continued viability of the sector.
- MSMEs in Garment Sector need to be recognized as secured creditors for NCLT cases
When a corporate debtor goes through the insolvency process under NCLT, equal treatment is not meted out to the operational creditors and secured creditors. Due to the categorization of MSME vendors as operational creditors, they suffer inequitable consequences with disputed claims and their protection of interest is limited. There is no provision to benefit the MSMEs and in majority of the cases the operational creditors get NIL or negligible payment which leads to serious debt and permanent closure of the business. Any closure of the MSMEs affects the employment across the textile value chain as they have a significant correlation.
If MSMEs in the garment sector are categorized as secured creditors, it will provide them financial security and make it easier for them to recover their payment. This will also be beneficial for the growth of the industry in the long term as MSMEs are the backbone of the industry and their financial health will be crucial for the industry to sustain and grow.
- Extension of PLI Scheme for Garments (PLI – 2)
While the existing PLI scheme for textiles has made some progress, its focus has been predominantly on synthetic products, an area where India’s garment sector capabilities are limited. To maximize the sector’s potential, it is critical to extend the PLI scheme to encompass all categories of garments. Given below are few key reasons that support extension of PLI for garment sector:
∙ Huge opportunity to increase India’s exports in apparel as buyers are looking to increase their sourcing from India. Currently India exports apparel worth US$15 Bn which is only around 3% of global apparel exports of US$510 Bn. India has potential to double its global share in the next 4-5 years as buyers are looking at India as an important alternate sourcing destination to derisk from countries like China and Bangladesh given the geopolitical climate. Hence there is huge window of opportunity where in PLI support to garment sector can propel the sector at much higher pace of growth
∙ In the existing PLI for textiles, several important garment categories were excluded which made it difficult for industry to invest as generally garment factory can produce multiple types of products with the same technology and also the buyers look for full package from suppliers (including all different types of products from same supplier). Hence under existing PLI many companies did not go ahead with their investment as the eligible products were restricted under the scheme.
∙ PLI will help in neutralizing cost advantage of competitors like China, Bangladesh and Vietnam in export market, which is essential for Indian garment exports to grow. Countries like Vietnam and Bangladesh have FTA with EU which gives them a cost advantage of 9.6% in exports. China also gives 13% VAT reimbursement to its exporters. This gives them an edge in export markets. Hence PLI for garments can help in neutralizing the global competition.
∙ In existing PLI, threshold investments have been set much higher at Rs 100 cr Fixed Capital Investment (FCI). For garmenting sector, a good scale investment can be made for much lesser (for e.g. a world class modern 500 machines factory can be set up with FCI of Rs 12 – 15 crores). Hence lowering the threshold will help attract more investments and hence generate higher employment.
∙ Garment sector is also a high employment generation sector with every ₹1 crore invested creating direct employment for 50 individuals, compared to only 5 in other sectors.
- Withdrawing the 43B(H) clause of the Income Tax
The amendment to Section 43B(H) was introduced as a measure of support to the MSME Sector, by attempting to resolve one of the biggest roadblocks to its progress – delayed payments and cash-flow. However, two aspects were missed out – a) Different Industries follow different business models and practices, and therefore require different solutions. A one size fits all approach has hit the Garment Industry
hard – where the normal terms of trade varied from 90 to 120 days payments, often going to 180 days. To expect these terms to shift to a 45 day cycle is unrealistic, and therefore practiced more in breach; b) Inexplicably, the ‘Medium’ segment within the MSME Sector has been left out of the ambit of the 43(H)B amendment, leaving the Buyers with the option of buying their requirements from the Medium segment without having to adjust their payment cycles.
For both the above reasons, this amendment has actually resulted in the Micro and Small manufacturers losing business instead of helping them to strengthen their businesses.
It is therefore suggested that the 43B(H) be further amended to bring about a gradual reduction to 45 days spread over 3 years – 90 days in Y1, 60 days in Y2, and 45 days in Y3. Also, the ‘Medium’ segment as well as ‘Trader’ category must form part of the rule meant for payments to the MSME Sector.
- DUTY – FREE IMPORTS FROM BANGLADESH
The Domestic Industry has been pointing out the dangers of allowing unfettered duty free imports from our neighbouring country, Bangladesh. it is already occupying 43% of India’s total Apparel imports – and continuing to grow at 40%+ per anum.
In spite of our reservations, considering the geo-political sensitivities of our relations with Bangladesh, and keeping national interests above all else, the Industry had accepted the policy of the Government. However, in view of the current troubled situation and tensions, we would once again draw the attention of the Government to the dangers posed by the duty-free imports from our neighbouring country. There are categories such as innerwear, denims, and woollen garments which are facing massive challenges from such imports and could well have existential crisis if such imports continue. What is equally worrying is that under the guise of imports of Garments from Bangladesh, we are giving a backdoor entry to huge amounts of Chinese fabrics to enter our markets.
CMAI therefore strongly recommends a thorough review of our FTA with Bangladesh to ensure a level playing field to our domestic manufacturers, and permit duty-free imports only for garments made out of Indian Fabrics.
The Indian apparel market is also large with value of US$102 Bn and is expected to reach US$180bn by 2030 growing at 9% CAGR. To achieve this growth and sustain and generate more employment in this sector, it is important that the above critical aspects are addressed. We look forward to your kind understanding and support in this matter.
