MSME-driven Textile Sector Faces Funding, Modernisation Challenges

The Indian textile industry, which is predominantly micro, small and medium enterprises (MSME)-driven, struggles with limited funding and technical expertise, hindering modernisation and improvement in efficiency, Crisil Ratings has said in its India Progress report. 

In addition, the report added that the fragmented nature of the industry limits the ability of MSMEs to explore new product categories or growth avenues, which impacts their competitiveness. It added, “There are labour issues, too. The high level of industry fragmentation reduces awareness of labour rights and benefits, leading to challenging working conditions.”

The report added that government initiatives, such as the PM MITRA Parks scheme, which offers plug-and-play infrastructure, will play a crucial role in ensuring the development of small enterprises that face challenges due to the absence of efficient transport networks, infrastructure for ecommerce, lack of certification centres and interruptions in power supply. 

"Such initiatives will help narrow the gap between small manufacturers and their global peers. In addition, efforts to address the lack of information flow to smaller firms will go a long way," according to the report. Notably, SMEs grapple with technological limitations, outdated processes and lack of innovation, which result in low productivity. The absence of adequate knowledge and expertise also restricts their ability to adapt to new trends, restricting their competitiveness.

Rising Demand And Exports
Demand for Indian textiles is expected to log significant growth over the next decade, driven by sustained improvement in domestic demand and increased competitiveness of India’s textile industry in the global market. Rising discretionary spending, expanding middle class, brand awareness among consumers and demand for workwear and athleisure are likely to contribute to domestic demand.

According to the report, the demand will also be supported by steady improvement in export markets, with regulatory initiatives further strengthening domestic capabilities. The data from Invest India stated that the domestic textile market, valued at around USD 165 billion in 2022, includes USD 125 billion from domestic sales and USD 40 billion from exports.

Notably, the government has envisaged a target of USD 100 billion in textile exports by 2030, marking a steep jump from USD 44 billion in fiscal 2022. The report suggested that India must take on dominant textile exporters such as China and Bangladesh and improve its global market share, which will depend on its ability to overcome challenges such as fluctuating global demand, absence of trade pacts with major markets, cotton price volatility and labour cost increases. 

Further, India needs to be competitive in quality, pricing and innovation on the global stage. Amid Bangladesh’s political crisis and disruption in its textile sector, a report by Primus Research in August stated that even if 10-11 per cent of its business transfers to India, it could translate into an additional USD 300-400 million per month business for Indian textile players.

Bangladesh’s textile sector accounts for 80 per cent of its exports and contributes 15 per cent to its gross domestic product (GDP), has been a powerhouse, especially in the ready-made garments (RMG) sector.

“India’s textile industry is expected to grow to USD 350 billion by 2030 and add 3.5 crore jobs,” said Giriraj Singh, Union Minister of Textiles, during a Bharat Tex 2025 curtain-raiser event in September. Singh expressed confidence that the industry's 'Bharat' brand and green, sustainable textile products would be recognised globally.

However, Crisil's report revealed that women working in the RMG sector face difficulties due to inadequate accommodation facilities and restrictive work shifts. Addressing these issues is essential to ensure a safer, more supportive work environment and promote inclusive growth in the sector.

Interestingly, export trends over the past two decades underscore India’s pole position in cotton production and cotton yarn exports. India is globally competitive in raw material production, accounting for 23 per cent of global cotton output, and in spinning, it is the largest exporter of cotton yarn and the third-largest in polyester yarn exports.

Crisil mentioned that India faces stiff competition in weaving, knitting and processing and holds a minor share in the global trade compared with China. In the RMG segment, India’s share in the global trade is a mere 3%, far behind competitors such as China, which reflects its limited ability towards value addition. Moreover, India has been unable to capitalise on the shift away from China. 

While India’s share in the global trade continues to hover at 3% over the past two decades, erstwhile smaller peers, such as Vietnam and Bangladesh, who lack domestic availability of cotton and polyester yarn, have now surpassed India in RMG exports as these nations benefit from either lower costs, superior technology, or scale of operations.

Notably, the Confederation of Indian Textile Industry data stated that textiles exports from India during October were about 11.56 per cent higher at USD 1,833.95 million, compared to the same month last year. At the same time, apparel exports registered a significant growth of 35.06 per cent during the same period in October at USD 1,227.44 million. Cumulative exports of textiles and apparel in October 2024 increased by 19.93 per cent compared to October 2023. 

Achieving USD 100 billion in exports is a tall order due to the absence of trade pacts, which render Indian garments less competitive in the price-sensitive apparel segment, marked by high-competitive intensity. Countries such as Bangladesh, which enjoy duty-free access to the European Union, have surged ahead, while India faces tariffs as high as 9.6 per cent. 

“To compete on an even playing field, India needs more free trade agreements (FTAs). These agreements will not only help Indian exports reach major markets but also open doors to newer regions with significant potential,” Crisil stated.

The FTA signed with Australia in December 2022 has proven beneficial — exports to Australia saw a 98% increase in fiscal 2024 compared with fiscal 2019, and Australia’s share in India’s RMG export basket nearly doubled to 2.2% over the same period. This momentum can be further accelerated by the continuation of export-friendly schemes that remit duties and taxes, giving Indian exports a much-needed competitive edge.

However, India’s reliance on cotton textiles poses a challenge in a global market that is increasingly leaning toward synthetic fibres such as polyester. Nearly 60 per cent of the global textile consumption is driven by man-made fibres, yet India accounts for just 5 per cent of this segment. This imbalance in production has slowed India’s growth in international markets, where demand for synthetic textiles continues to rise, Crisil Ratings added.