The Indian garment industry is a vibrant, quickly growing sector that makes a substantial contribution to the country’s GDP and job creation. With over 11 million workers, mostly in the MSME sector, the apparel industry is a major employer, especially for women and underrepresented groups. Therefore, it is crucial to implement suitable policies to assist this sector’s survival and expansion in the difficult macroenvironment. In light of this, we have prepared a few suggestions for the Union budget for 2025–2026 that are detailed below for your kind review.
1. Need for interest subvention benefits for Domestic Garment Sector
Due in large part to its high working capital requirements, the T&A industry’s garmenting sector confronts significant financial issues. In this industry, managing cash for MSMEs has shown to be a recurring problem that impedes their sustainability and growth. In order to meet the working capital needs of the clothing industry, a government-backed interest subvention program is necessary. Comparable to the current PSL (Priority Sector Lending)
rate for the agriculture business, a lowered interest rate of 7% annually, further lowered to 4% for timely payback, may be extended to the apparel industry in recognition of its vital role as a major employer.
The garment industry would receive much-needed respite from such a system, which would ease their financial limitations, promote operational stability, and guarantee the industry’s future existence.
2. MSMEs in Garment Sector need to be recognized as secured creditors for NCLT cases
Operational and secured creditors do not receive the same treatment when a corporate debtor goes through the NCLT insolvency procedure. Because MSME suppliers are classified as operational creditors, they face unfair repercussions from contested claims and have no interest protection. There is nothing in place to help MSMEs, and most of the time, operational creditors receive little to no payment, which results in significant debt and the company’s eventual collapse. Due to their strong interconnectedness, employment throughout the textile value chain is impacted by the closure of MSMEs.
MSMEs in the apparel industry can benefit from financial stability and quicker payment recovery if they are classified as secured creditors. Since MSMEs are the foundation of the sector and their financial stability is essential to its survival and expansion, this will also help the industry expand over the long run.
3. 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.
4. 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 – a) Different Industries follow different business models and practices and therefore require different solutions. A one-size-fits-all all approach has hit the Garment Industry
The change to Section 43B(H) was proposed in an effort to assist the MSME Sector by addressing one of the main obstacles to its development: cash flow and late payments. Two things were overlooked, though: a) distinct industries have distinct business structures and procedures, which means they need diverse solutions. A one-size-fits-all strategy has affected the apparel industry.
Instead of assisting micro and small manufacturers in growing their operations, this amendment has actually caused them to lose business for the two reasons mentioned above.
Therefore, it is recommended that 43B(H) be further modified to gradually reduce it to 45 days over three years, with 90 days in year one, 60 days in year two, and 45 days in year three. Additionally, the regulation intended for payments to the MSME Sector must include the “Medium” and “Trader” segments.
5. DUTY – FREE IMPORTS FROM BANGLADESH
The risks of permitting unrestricted duty-free imports from Bangladesh, our neighbor, have been highlighted by the domestic industry. It currently accounts for 43% of all apparel imports into India and is growing at a rate of 40% or more annually.
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.
