With an eye on job creation, the government is going all out to make the textile sector more competitive by pursuing a lower Goods and Services Tax rate and is even willing to allow automobile and wine imports from the European Union in return for market access for Indian apparel.

“We are at a critical juncture for Indian textiles as China is moving out of global markets due to increase in labour costs and higher domestic demand. It’s the right time for us to occupy the space, especially in countries where China was exporting, besides the EU and the U.S.,” Textiles Secretary Rashmi Verma said in the capital on Thursday.

Other contenders

Conceding that Bangladesh is poised to overtake India on garment exports and others like Vietnam, Kenya and Ethiopia are catching up, Ms. Verma said the government was seeking to nullify the competitive disadvantage that arises due to these countries getting duty-free access to the EU and U.S. Indian products attract a 9.5 per cent duty in the EU.

Finance Minister Arun Jaitley has chaired about six meetings on India’s strategy towards free trade agreements (FTAs) with the textiles and commerce ministries, with a view to offset this disadvantage, she said, adding that the entire cabinet is on board with a proposal to trade-off access to automobiles and wine imports under an India-EU FTA in return for access to Indian textiles.

Seeking trade-off

“It was recognised by the cabinet that the trade-off from allowing automobile and wines from the EU (may be worth it) as the loss is much bigger if we don’t do an FTA and lose jobs in the textile sector,” Ms. Verma said at a conference hosted by the Confederation of Indian Industry. “The commerce ministry is trying but these negotiations take time and the EU has to respond,” she added.

“A one crore rupees investment in most sectors creates ten to twelve jobs, but in textiles it creates 100 jobs. The government realises the need to incentivise the sector for its job-generation potential, especially for women who form 70-80 per cent of its workforce,” Ms. Verma said.

Recent package

Asking the industry to take advantage of the recently announced 3-year package for the sector, Ms. Verma said that the upcoming GST regime will make Indian textiles more competitive. “It will solve many problems, the tax on tax will go away, input tax credits will be given and the differential tax rate on man-made fibres could be fixed in line with the long-standing demand for fibre neutrality,” she pointed out.

The textiles secretary said that the industry should engage with a committee in the revenue department on its concerns about GST so that it got a fair deal. “Most probably, the sector is likely to get a lower tax rate. That’s been our discussion with the finance ministry. But the final view will be taken by the GST Council,” she said. The GST Council, chaired by the finance minister, is slated to meet next week to start determining the tax rates for the new indirect tax regime.