Synthetic Textile Makers Seek Relief from QCOs Amid Supply Chain Woes

Industry players report that the market prices of PSF and VSF increased in FY24 following the implementation of QCOs on these inputs early on in the financial year.

· Underdeveloped raw material value chain, QCOs on polyester and viscose inputs have further exacerbated its woes, leading to significant idling of production capacity and balance sheets turning red.

· The first them in the value chain, the raw material that you use for synthetic textiles, is either polyester staple fibre (PSF) or viscose staple fibre (VSF), All these basic raw materials are at least 20 percent more expensive in India than anywhere else in the world.

· Official documents obtained through the RTI Act to show how Adity Birla Group-owned Grasim Industries Ltd Lobbied the Ministry of Textiles to implement a QCO on VSF to curb imports. Grasim Industries is the sole producer of VSF in India.

· Reliance Industries Limited (RIL) accounted for 57 percent of domestic PSF production in 2017. The remaining market share belonged to Alok Industries Ltd, owned by RIL, Indo Rama Synthetics (India) Ltd, and The Bombay Dyeing & Mfg Co Ltd.

[ABS News Service/13.07.2024]

Downstream synthetic textile manufacturers are urging the government to revoke Quality Control Orders (QCOs) on man-made fibres (MMF), which have undermined the competitiveness of the MMF supply chain by limiting access to affordable and specialised raw materials.

With the textile sector already grappling with weak domestic demand, shrinking exports, and an underdeveloped raw material value chain, QCOs on polyester and viscose inputs have further exacerbated its woes, leading to significant idling of production capacity and balance sheets turning red, according to industry representatives.

“We do not get out raw material at internationally competitive prices. That is the biggest problem, which is impacting our exports. The first them in the value chain, the raw material that you use for synthetic textiles, is either polyester staple fibre (PSF) or viscose staple fibre (VSF), All these basic raw materials are at least 20 percent more expensive in India than anywhere else in the world. That is killing our competitiveness,” Rakesh Mehra, Chairman of the Confederation of Indian Textile Industry (CITI) told the Press.

Industry players report that the market prices of PSF and VSF increased in FY24 following the implementation of QCOs on these inputs early on in the financial year. A QCO mandates foreign exporters to obtain Bureau of Indian Standards (BIS) certification to sell products covered under it in India. It is aimed towards curbing the imports of poor quality products into the products.

BIS, industry players allege, has been highly selective in granting certifications under the PSF and VSF OCOs to foreign exporters. For instance, while 65 percent of PSF imports in 2022-23 came from China and Thailand. The BIS has not certified any Chinese unit alongside only three Thai units, two of which are owned by Indorama Ventures, which also manufactures PSF in India. Similarly, while 50 percent of VSF imports in FY23 came from Indonesia and Singapore, no company in the two countries has received BIS certification. Moreover, the BIS has certified only three overseas VSF units in Austria and the United Kingdom, all owned by Lenzing AG. However, Lenzing’s Indonesia plant is yet to be certified.

Consequently, PSF imports dropped 43 percent in FY24 to Rs 520 crore from Rs 917 crore in FY23, as per official trade data. Similarly, VSF imports plummeted 65 percent to Rs 710 crore from Rs 2,033 crore in the same period. Curbing of VSF and PSF imports has forced downstream users- including spinner weavers, and knitters, to rely more heavily on domestic fibre supplies. Various industry representatives told The Indian Express that these inputs are more expensive in the domestic market, which also lacks adequate supply of specialised fibres.

In FY24, the MMF textile sector experienced a significant down-turn, according to Directorate General of Commercial Intelligence and Statistics (DGCIS) data compiled by CITL Exports of MMF apparel fell by 22 percent to $2.89 billion from $3.53 billion in FY23. Overall exports in the MMF sector dropped by 11 percent to $9.03 billion from $10.02 billion.

“The QCOs are lethal thing that they have done. There is nothing wrong with quality control to ensure that the end product which the consumer is using doesn’t trouble the skin. If at all they have to apply QCOs, they should apply it on garments and fabrics. What is a QCO on raw materials going to do? It is not going to ensure that the end product is correct. It is a non-tariff barrier and a protection to them (domestic industry) so that they can charge higher prices, “Mehra said.

In a meeting of the National Committee on Textiles & Clothing (NCTC) in May, representatives from various industry bodies called from suspending PSF and VSF QCOs for a few years to allow domestic upstream manufacturers to become competitive. The temporary removal of these QCOs, they argued, will help revitalise the sector by allowing access to cheaper raw material and improving sourcing flexibility.

In March earlier this year, The Indian Express had analysed official documents obtained through the RTI Act to show how Adity Birla Group-owned Grasim Industries Ltd Lobbied the Ministry of Textiles to implement a QCO on VSF to curb imports. Grasim Industries is the sole producer of VSF in India.

In August, 2021, the Competition Commission of India (CCI) issued an order stating that Grasim had abused its dominant position in the VSF market “by charging discriminatory prices to its customers, denying market access and imposing supplementary obligations upon its customers”. Grasim subsequently appealed the order before the National Company Law Appellate Tribunal (NCLAT) and the case is currently ongoing.

The PSF market is relatively more fragmented but still concentrated. As per documents from the Directorate General of Trade Remedies (DGTR), Reliance Industries Limited (RIL) accounted for 57 percent of domestic PSF production in 2017. The remaining market share belonged to Alok Industries Ltd, owned by RIL, Indo Rama Synthetics (India) Ltd, and The Bombay Dyeing & Mfg Co Ltd. Industry players claim that RIL continues to hold a market share of more than 60 percent.

The downstream industry received partial relief when the Directorate General of Foreign Trade (DGFT) exempted VSF imports from QCOs under the advance authorization (AA) scheme in March. This exemption was extended to PSF imports in June. The AA scheme permits duty-free imports of inputs that are physically incorporated into export products. However, the industry argues exemption under the AA scheme is not enough and QCOs on textile inputs should be removed altogether. “It’s only a very handful of people who can use advance authorisation. A person who is exporting made-up textiles can’t use advance authorisation-he is too small to use the exemption. The government’s policy should be such that you import from wherever in the world you can where it is cheaper,” Mehra said.

“Man-made cellulose fibre (VSF) constitutes a negligible share of the MMF basket. On account of geopolitical issues, overall textile demand has fallen resulting in lower exports in the recent past for the overall textiles sector. The fall in (VSF) exports is much lower than the overall sector. The QCO includes provisions for importing raw materials on an advance authorization basis for export purposes. Therefore, the argument that the QCO hampers viscose exports is not substantiated,” a spokesperson from Birla Cellulose, a subsidiary of Grasim said.

The textiles ministry, the chemicals and fertilisers ministry, the finance ministry, BIS, and RIL did not respond to requests for comments.