While, apparel exports have grown at a subdued pace due to intense competitive pressures, yarn exports have also remained under pressure given the decline in demand from China as well as the country losing market share in the Chinese yarn market.
"Adequate budgetary allocation for schemes such as refund of state levies and interest subvention benefits can help improve competitiveness of textile exporters and improve textile exports growth," ICRA said in a pre-Budget note.
The country is still highly reliant on textile intermediaries for its export earnings, indicating potential for further value-addition and hence investment requirements in the downstream segments, like apparel and home textiles. The budgetary allocation for the Technology Upgrade Fund Scheme (Tufs) was lowered by 23 per cent to Rs 2,013 crore in 2017-18 from Rs 2,610 crore in 2016-17, a level even lower than in 2014-15, Jayanta Roy, a senior vice-president at Icra, said in the note.
As level of subsidies available under the scheme is key driver for investments in the sector, moderation in allocation constrains capacity additions. Accordingly, a higher allocation towards Tufs subsidy for 2018-19 would prop up investments in the downstream segments, facilitating higher value addition and an even higher contribution by the sector to the country's GDP as well as forex earnings, Roy said.
The sector is largely dominated by the small and medium enterprises and faces constraints arising from infrastructure bottlenecks and dispersed value chain, continued funding allocation towards textile parks, financial assistance and access to conducive infrastructure can enhance the sectoral efficiencies, he said. This in turn can help in enhancing sector's contribution to the manufacturing as well as GDP, the report concluded.
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