India’s Textile Export Challenges and Growth Prospects

India’s share in global textile exports remains stagnant at 3.9 per cent. Meanwhile, smaller economies like Bangladesh and Vietnam have nearly doubled their share to around 7 per cent. Recent US tariffs threaten to affect nearly one-fourth of India’s textile exports in the coming months. Despite these challenges, the global shift away from China offers India opportunity to expand its textile footprint.

Global Textile Market Dynamics

Global sourcing is moving away from China due to rising costs and trade tensions. China counters this by underpricing exports and routing goods through Vietnam and Bangladesh. These countries add minimal value, while China retains most profits. This strategy undermines India’s domestic producers who face stiff competition from cheap imports.

Impact of Dumping and Trade Policies

Dumping of cheap Chinese goods affects India’s textile supply chain. For example, Beta Naphthol, a vital dye intermediate, is produced domestically at 70 per cent capacity. Yet, dumped imports from China captured 83 per cent of the Indian market in 2024. Similar patterns appear in technical textiles and defence-related materials, threatening domestic production and increasing import dependence.

Inverted Duty and GST Structures

India’s domestic textile industry suffers from policy inconsistencies. Raw materials often attract higher import duties than finished goods. For instance, Dissolving Grade Wood Pulp (DGWP), used to make Viscose Staple Fibre (VSF), faces a 2.75 per cent import duty. However, 80 per cent of VSF imports enter duty-free under the India-ASEAN Free Trade Agreement. This inverted duty structure makes raw material procurement costlier than importing finished products. Additionally, GST rates are inverted, with DGWP taxed at 18 per cent and VSF at 5 per cent, causing cash flow issues due to blocked Input Tax Credit.

Policy Recommendations and Industry Impact

India needs urgent reforms to protect its textile industry. Imposing provisional anti-dumping duties within three months of evidence can prevent market disruptions. Removing the basic customs duty on DGWP alone could safeguard existing capacities and attract ₹1,200-1,500 crore in new investments. Though this may reduce customs revenue, it would likely increase GST and corporate tax collections from expanded production. Correcting inverted duty and GST structures and timely trade measures can help India double its global textile export share by 2030.

Competitive Position and Future Outlook

India’s textile sector is at a crossroads. The global shift from China offers growth potential. However, without policy reforms, domestic industries risk decline. Addressing dumping, tariff anomalies, and tax issues can level the playing field. This will enable India to capitalise on rising global demand and increase its export share in the coming decade.

Questions for UPSC:

1. Critically analyse the impact of inverted duty structures on domestic manufacturing in India’s textile sector with suitable examples.
2. Explain the phenomenon of dumping in international trade and its implications for developing economies like India.
3. Comment on the role of Free Trade Agreements in shaping India’s import-export dynamics and their effects on domestic industries.
4. What are the challenges and opportunities presented by the global shift in textile sourcing away from China? How can India leverage this trend to boost its exports?

Answer Hints:

1. Critically analyse the impact of inverted duty structures on domestic manufacturing in India’s textile sector with suitable examples.

1. Inverted duty means higher import duties on raw materials than on finished goods, increasing production costs domestically.
2. Example – Dissolving Grade Wood Pulp (DGWP) faces 2.75% duty, while finished Viscose Staple Fibre (VSF) imports enter duty-free under India-ASEAN FTA.
3. This discourages local raw material procurement, making domestic manufacturing less competitive than imports.
4. Inverted GST rates (18% on DGWP vs 5% on VSF) block working capital due to Input Tax Credit mismatches.
5. Leads to erosion of domestic capacities, increased import dependence, and threatens long-term industry sustainability.
6. Correcting these structures can reduce costs, attract investment, and strengthen domestic value chains.

2. Explain the phenomenon of dumping in international trade and its implications for developing economies like India.

1. Dumping is selling goods abroad at prices below production cost or domestic prices to capture market share.
2. China’s dumped textile intermediates like Beta Naphthol captured 83% of Indian market despite local capacity.
3. Dumping undermines domestic producers by flooding markets with cheap imports, leading to capacity shutdowns.
4. Developing economies face job losses, reduced investment, and increased import dependence due to dumping.
5. Anti-dumping duties and timely provisional measures are essential to protect domestic industries from such unfair trade.
6. Failure to address dumping weakens industrial growth and economic self-reliance.

3. Comment on the role of Free Trade Agreements in shaping India’s import-export dynamics and their effects on domestic industries.

1. FTAs reduce or eliminate tariffs on goods traded between partner countries, affecting competitiveness.
2. India-ASEAN FTA allows duty-free imports of finished textiles like VSF, disadvantaging domestic producers of raw materials.
3. Zero-duty access encourages imports, sometimes leading to dumping and hurting local manufacturing capacities.
4. While FTAs promote trade volumes and consumer choice, they can disrupt domestic value chains if not balanced.
5. Domestic industries may face challenges due to uneven tariff structures and lack of safeguards.
6. Strategic use of FTAs with complementary domestic policies can enhance exports without harming local sectors.

4. What are the challenges and opportunities presented by the global shift in textile sourcing away from China? How can India leverage this trend to boost its exports?

1. Challenges – China underprices exports and routes goods via Vietnam/Bangladesh, which add minimal value but capture market share.
2. India faces dumping, inverted duty/GST structures, and policy delays, hindering competitiveness.
3. Opportunities – Global buyers diversifying supply chains away from China create demand for alternative suppliers like India.
4. India’s large domestic capacity and skilled workforce can meet growing global sourcing needs.
5. Policy reforms (anti-dumping, correcting duty/GST anomalies, provisional duties) can level playing field and attract investment.
6. With these measures, India can potentially double its global textile export share by 2030.