India’s shipments of textiles and garments shrank 6.4 per cent in April to January, aiding a decline in overall exports that have contracted for a sixth straight month through January. The sector’s share in overall merchandise exports has been sliding consistently in recent years, having dropped from as much as 13.7 per cent in fiscal ’16 to just 10.6 per cent this fiscal, the lowest in around a decade.

The indirect tax structure in India’s manmade textile segment needs to be corrected. There is no parity in the goods and services tax rates between cotton-based and man-made textiles. The historical imbalance in favor of the natural fiber-dominated value chain has hurt the country’s export prospects. While GST on cotton and textiles made from it stands at a uniform five per cent across the value chain, the rate for synthetic fiber is 18 per cent. Manmade filament/spun yarn are taxed at 12 per cent and fabrics five per cent. This is despite the fact that manmade textiles make up as much as 65 per cent to 70 per cent of global demand and consequently hold immense export potential. In India, however, cotton textiles account for around 70 per cent of the market. Coupled with rigid labor laws and elevated logistics costs, this distortion — caused by policy interventions for decades — has stunted the country’s ability to raise garment exports exponentially.