Gujarat’s New Textile Policy: Well-Intentioned, Say Stakeholders

Among the notable incentives included in the Gujarat Textile Policy 2024 are capital subsidies for new industrial units, ranging from 10 per cent to 35 per cent of the eligible fixed capital investment (eFCI), with a cap of Rs 100 crore determined by factors such as location, activity and employment levels. Additionally, an interest subsidy of 5-7 per cent on eFCI will be available for up to eight years, providing crucial financial support to new ventures.

In a further effort to enhance operational viability, units sourcing electricity from distribution companies, or utilising renewable energy, will receive a subsidy of Rs 1 per unit for five years from the commencement of production, underscoring the state’s commitment to sustainability and reducing the ecological footprint of the textile industry.

The policy also prioritises workforce development, offering payroll assistance of Rs 2,000 to Rs 5,000 per month per worker, with enhanced support for female employees. Furthermore, it includes dedicated assistance for self-help groups (SHGs) in the form of payroll and training support, reflecting an inclusive approach to empowerment.

The policy marks a significant evolution from its 2018 version, introducing a comprehensive strategy for the first time. It focuses on promoting the entire value chain of the textile industry, fostering employment opportunities and empowering women’s self-help groups, paving the way for a more inclusive and robust sector in the state.

Gujarat's textile industry, with its rich history and strategic advantages — fertile lands and access to key ports — continues to dominate India’s textile sector, accounting for over 25 per cent of the nation’s production and 12 per cent of its exports. 

Previous textile policy efforts

This dominance is driven by the state’s proactive policies, which have played a critical role in maintaining its competitive edge. The 2012 Textile Policy set the stage for modernisation and investment, while the 2018 policy expanded on these efforts, focusing on value-added textiles, technical textiles, and upgrading the power loom sector. 

Key incentives such as interest subsidies of up to 7 per cent, capital subsidies for spinning units and reduced electricity costs, have drawn substantial investment, with Rs 30,000 crore flowing into the state between 2012 and 2017, creating over 2.5 lakh jobs.

Despite these successes, industry folks have voiced concerns over the need for improvement. Prateek Kriplani, regional manager of Arvind Ltd., highlighted the importance of innovation and R&D, emphasising that while capital and other financial subsidies are good, they alone will not ensure global competitiveness. 

Similarly, S Krishna, an executive at Welspun Group, praised the incentives but noted challenges like logistics and GST compliance, urging the government to address these issues. Infrastructure deficiencies, particularly in transport and warehousing, have also been raised by the Southern Gujarat Chamber of Commerce and Industry (SGCCI), with suggestions that better logistics could maximise the benefits of the policy.

While Gujarat's policies have successfully attracted investment and spurred growth, for long-term sustainability, the industry still faces hurdles that need addressing. Enhanced infrastructure, clearer tax frameworks like GST, and a sharper focus on innovation are crucial for maintaining Gujarat’s global edge. As Kulin Lalbhai of Arvind Mills put it, “The groundwork has been laid, but to stay competitive on a global scale, we need to go beyond basic subsidies and address deeper issues in logistics and innovation.”

Efforts to bolster Gujarat’s textile sector are not new. In March 2023, the state was shortlisted under the central government’s PM MITRA (Mega Integrated Textile Region and Apparel Parks) scheme. It was aimed at capturing and creating integrated textile parks encapsulating the whole supply chain.

However, concerns were raised, particularly regarding the high costs of development in Surat, due to its proximity to the sea. Rajendra Chokhawala, Chairman of SGCCI, noted the need for a robust pipeline network and solar grid, without which, progress could slow down, increasing costs. 

On the other hand, planned improvements in connectivity, like a proposed flyover reducing travel time to the Vansi-Borsi, Navsari district of Gujarat site, were seen as positives by industry experts like Bharat Gandhi.

The 80 per cent occupancy requirement for new textile parks has faced criticism, with industry stakeholders calling it impractical given the cyclical nature of demand. Operators have urged for a more realistic target to encourage greater participation in the development of these parks.

Questions remain about the scheme's execution, including the role of Gujarat Industrial development Corporation in land development and the structure of the Special Purpose Vehicle (SPV) announced to manage the project. Industry veteran Giridhar Gopal Mundra expressed concerns over the delays and lack of clarity, warning that uncertainty could deter new investments.

Both Gandhi and Chokhawala underscored the need for transparency and stricter benchmarks in the PM MITRA scheme to prevent the entry of outdated technologies and to ensure meaningful innovation. They argued that while subsidies are important, a comprehensive approach — including a robust policy framework, simplified taxation, and seamless infrastructure — is essential for Gujarat’s textile industry to thrive on a global scale.

Expectations Vs Reality

Industry experts have identified five key areas of expectation from Gujarat’s textile policy — tax reform, capital subsidy, employment generation and skill development, innovation, and research and development (R&D) — besides sustainability and infrastructure.

While the policy has made progress by increasing the interest subsidy from 5 per cent to 7 per cent, this remains below the anticipated level. Additionally, the capital subsidy has been set at 10-35 per cent, based on the size of the unit, whereas many stakeholders had hoped for a flat capital subsidy of 35 per cent for all unit sizes. This discrepancy highlights ongoing concerns within the industry regarding financial support, and the need for more substantial incentives to foster growth and competitiveness.

Fortunately, the policy includes commendable provisions for skill development, innovation and R&D. However, it remains silent on addressing tax issues, particularly those related to GST. Rahul Mehta, Chief Mentor of the Clothing Manufacturers Association of India (CMAI), has raised significant concerns regarding various GST challenges that continue to affect the textile sector. 

He highlighted the problematic inverted duty structure, wherein raw materials face higher tax rates than finished products, thereby straining the industry's profitability. Compounding this issue are delays in tax refunds, which further exacerbate cash flow challenges for manufacturers.

Mehta also pointed out the complexity of the GST rate structure, noting that multiple tax rates across different products create confusion, especially for smaller businesses. This complexity increases compliance costs and complicates overall business operations within the textile industry.

In tandem with the policy announcement, it was revealed that under the PM MITRA initiative, a state-of-the-art textile park will be developed in Vansi under Navsari district, with an investment of Rs 3.52 billion. This initiative is poised to significantly enhance Gujarat’s textile infrastructure, attract new investments, and create thousands of jobs. The success of both the PM MITRA scheme and the financial viability of the new textile policy will be crucial for the sector’s growth.

For the fiscal year 2024-25, Gujarat has allocated Rs 1,600 crore toward the textile sector to facilitate the development of these parks.

While there are budgetary reforms and provisions aimed at both short-term micro-interventions and larger policies like the 2024-25 budget and the MITRA scheme, the state’s intention for these initiatives to interconnect is evident. However, there still remain gaps in infrastructure and tax reforms that need to be addressed. Filling these gaps will enable the industry to thrive, compete on a global scale and foster local economic growth through innovation and development.