Impact of Budget 2024-25 announcements on India's textile industry

In a series of impactful policy announcements in India’s Budget 2024-25 (April-March), Finance Minister Nirmala Sitharaman has outlined significant measures that promise to reshape the Indian textile industry. The budget has notably increased the allocation for the textile industry to ₹4,417.09 crore (~$527.50 million), up by ₹974 crore (~$116.15 million) crore from the previous year. This substantial boost is particularly impactful given that the industry is highly fragmented, with 80 per cent of its manufacturers being small players.

The 2024-25 Budget not only enhances financial support but also introduces strategic reductions in duties and targeted infrastructural investments. These measures are set to address key challenges in the industry, including high operational costs and fragmented supply chains, thereby fostering growth and competitiveness. By bolstering agricultural inputs, reducing material costs, and investing in infrastructure, the budget is poised to drive significant improvements in productivity and global market positioning for Indian textiles.

Enhanced support for handicrafts and silk production

In the latest budget, Sitharaman has announced a significant increase of 38 per cent in funding for the National Handicraft Development Programme, reaching ₹236 crore (~$28.22 million) from ₹171 crore ($20.43 million) in the previous budget. This boost in funding aims to strengthen India’s traditional handicraft sector, which is integral to the country’s cultural heritage and economy. The enhanced support is expected to provide greater resources for artisans, improve the quality of handicraft products, and support the growth of this sector, which plays a crucial role in the domestic apparel industry by supplying unique and culturally significant textiles.

Additionally, the budget has increased the allocation for silk promotion to ₹900 crore (~$107.73 million) from ₹875 crore (~$104.32 million). As the world’s second-largest producer of silk, India’s sericulture industry is a vital source of employment, engaging approximately 9.2 million people in rural and semi-urban areas. Despite this, India imports a significant portion of its silk to meet high domestic demand. The increased budget allocation is anticipated to bolster domestic silk production capabilities, reduce reliance on imports, and enhance the quality and availability of silk for the apparel industry. This investment will likely benefit Indian textile manufacturers by ensuring a more stable and cost-effective supply of silk, which is essential for producing high-quality apparel. Overall, these budgetary measures are poised to support the growth of India’s apparel industry by enhancing the quality and availability of traditional and high-demand textiles.

Boost to agriculture and raw material supply

The allocation of ₹1.52 lakh crore (~$18.17 billion) for agriculture and allied sectors is a major push by the government to bolster the agricultural framework. This substantial investment is expected to enhance agricultural productivity, improve supply chains, and support rural development. For the textile industry, which relies heavily on agricultural inputs such as cotton, this allocation will likely lead to increased production efficiency and stability in raw material supplies. Improved agricultural practices and infrastructure can result in higher yields and better-quality cotton, which in turn can reduce costs and boost the competitiveness of the textile sector. Additionally, rural development initiatives under this allocation may help in expanding market access and improving logistics in agricultural regions.

Boost for micro and smaller textile units

The enhancement of loan limits under the PM MUDRA scheme to ₹20 lakh (~$23,888.15) is poised to significantly benefit manufacturers in India’s textile industry, particularly small and micro enterprises. This increase in funding capacity enables textile manufacturers to acquire raw materials, upgrade machinery, and expand production capabilities more effectively. By accessing higher loan amounts, such enterprises can enhance operational efficiency, adopt advanced technologies, and improve competitiveness both domestically and globally.

Additionally, the government’s decision to reduce the turnover threshold for mandatory onboarding on the Trade Receivables Discounting System (TReDS) platform from ₹500 crore (~$59.74 million) to ₹250 crore (~$29.87 million) will have a profound impact on the textile sector. With a large number of small owners and MSMEs in the industry, this move promotes financial inclusivity by encouraging more MSME buyers to use TReDS for quicker access to working capital through invoice discounting. This initiative supports improved cash flow management and reduces reliance on traditional, potentially more expensive financing options, thereby enhancing overall operational efficiency and resilience in managing payment delays.

Support for employment and skill development

The introduction of employment-linked skilling schemes as part of the Prime Minister’s package is designed to support the formal sector by focusing on first-time employees. These schemes, based on enrolment in the Employees’ Provident Fund Organisation (EPFO), will provide direct benefit transfers (DBT) amounting to one month’s salary, up to ₹15,000 (~$179.34), in three instalments. This initiative targets youths earning up to ₹1 lakh (~$1,195.67) per month and is expected to benefit 2.1 lakh individuals.

For the textile industry, which relies heavily on semi-skilled and unskilled labour, this scheme presents several advantages. By incentivising the entry of fresh talent into the formal workforce, it provides a valuable pool of skilled and motivated workers. The financial support will help reduce initial employment costs, allowing companies to invest more in training and development. Additionally, the new centrally sponsored scheme, which plans to skill 20 lakh youth over five years and upgrade 1,000 Industrial Training Institutes (ITIs) with industry-relevant courses, will further enhance workforce productivity and efficiency. This will lead to higher quality and more innovative textile products, boosting the industry’s overall growth and competitiveness.

Duty reductions on real down-filling materials to revitalise Indian textile and leather industries

In the 2024-25 Budget, the Finance Minister has announced reduction of duties on real down-filling materials from ducks or geese. This is set to have significant repercussions for the textile and leather industries. Real down-filling materials are primarily used in the production of high-quality insulated apparel, such as jackets and outdoor gear, due to their superior insulating properties. They are also utilised in luxury bedding and cushions. In the Indian context, these materials are highly valued for their ability to provide warmth without excessive weight, making them essential for premium and high-performance products.

The reduction in duties on these materials will lower production costs for manufacturers, enabling them to produce insulated clothing and bedding at more competitive prices. This is particularly beneficial in the Indian market, where there is a growing demand for both affordable and high-quality winter apparel. Lower costs will not only improve profit margins but also make products more accessible to a broader consumer base. This move is expected to boost the competitiveness of Indian manufacturers in both domestic and international markets, supporting industry growth and potentially increasing export volumes.

Impact of reduced BCD on MDI for spandex yarn manufacturing

The reduction in basic customs duty (BCD) on Methylene Diphenyl Diisocyanate (MDI) from 7.5 per cent to 5 per cent is a significant policy shift for the Indian textile industry. MDI is a critical chemical used in the production of spandex yarn, which is essential for creating stretchable fabrics found in a range of apparel, including sportswear, activewear, and intimate apparel. Spandex yarn’s flexibility and resilience make it indispensable in these high-performance textiles. By lowering the duty on MDI, the cost of producing spandex yarn will decrease, translating to reduced manufacturing expenses for textile producers. This reduction will enable manufacturers to offer more competitively priced fabrics, enhancing their market position both domestically and internationally. Given the growing demand for stretchable and performance-oriented fabrics, this move is expected to improve the profitability of Indian textile producers and strengthen their competitiveness in the global market.

Currently, the Indian textile industry faces challenges related to high input costs and intense global competition. To an extent, the reduced BCD on MDI will address these challenges by lowering the production costs associated with spandex yarn. This will not only help in maintaining cost-efficiency but also foster innovation in fabric production, as manufacturers can invest more in research and development.

Moderation of stamp duty rates

The Finance Minister’s push for states to moderate high stamp duty rates is expected to deliver significant benefits to the textile industry. Stamp duty represents a substantial cost in property transactions and business agreements, impacting operational expenses for textile companies. Currently, several states, including Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Telangana, and Uttar Pradesh, offer 100 per cent exemptions from stamp duty, while Tamil Nadu provides a 50 per cent exemption. The disparity in stamp duty policies across states creates an uneven playing field, affecting investment decisions and business expansion strategies.

By encouraging states to lower their stamp duty rates, particularly in regions with higher costs like Tamil Nadu, the government aims to reduce the financial burden on textile businesses. This reduction can lower transaction costs associated with property acquisitions and business agreements, making it more economically viable for companies to invest in new infrastructure and expand their operations. For states with historically high rates, further reductions could attract additional textile businesses, stimulate regional industrial growth, and enhance the overall competitiveness of the textile sector.

E-commerce export hubs and industrial parks

The establishment of E-Commerce Export Hubs through public-private partnerships (PPPs) will provide MSMEs and traditional artisans with better access to international markets. This initiative will facilitate trade and export-related services under a unified regulatory and logistical framework, helping smaller textile businesses reach global customers more effectively.

Additionally, the development of 'plug and play' industrial parks and the National Industrial Corridor Development Programme will create well-equipped, investment-ready facilities. For the textile sector, this means easier access to modern infrastructure and better logistics, enhancing operational efficiency and scalability. The planned industrial parks will support the growth of textile hubs, potentially leading to increased production capacities and higher exports.

Conclusion

The Budget 2024-25 strategically addresses critical aspects of the Indian textile industry by enhancing agricultural support, reducing manufacturing costs, and investing in infrastructure. Key measures, including reduced duties on essential raw materials like MDI and real down-filling materials, coupled with increased allocations for handicrafts and silk are set to bolster both traditional and innovative segments of the industry. The establishment of E-Commerce Export Hubs and industrial parks, along with improved financing options for MSMEs, further supports growth and global competitiveness. These comprehensive initiatives aim to streamline supply chains, lower costs, and drive industry expansion, positioning the Indian textile sector for enhanced productivity and market strength.

ALCHEMPro News Desk (NS) (SA)