New Delhi: The government’s recent decision to rescind the Quality Control Order (QCO) on several polymer and fibre intermediates will ease raw-material costs for the readymade garments sector, and improve supply of cheaper imported yarn and provide support to the downstream sectors, amid the US tariff headwinds, Crisil Ratings said Thursday.
The move will provide respite to the tariff-impacted downstream textiles segments, particularly readymade garments, which will now have access to more competitively priced raw material imports.
“This however will adversely impact the upstream polyester yarn segment which may now face increased competition from imports. Our analysis of 20 polyester yarn makers, comprising 40-45% of the sector’s revenue, indicates as much,” Crisil said.
India has withdrawn QCOs on several polymer and fibre intermediates with immediate effect. The QCO mandated BIS certification on imported yarn, to address the influx of cheaper polyester yarn from China.
The readymade garment segment derives 25-30% of its revenue from exports, of which a third are to the US while the home textile segment derives two-thirds of its revenue from exports, with the US accounting for 55-60% of the total exports.
As per the report, the readymade garment segment, which extensively relies on polyester yarn, is likely to benefit more, whereas home textile segment may see a limited positive impact due to its higher dependence on cotton-based exports.
“As polyester yarn is a more affordable substitute to cotton yarn, it is extensively used to manufacture value and mid-premium garments. The removal of QCO should provide a breather to the downstream textile industry, which has been impacted by high tariffs on exports to the US,” said Gautam Shahi, director, Crisil Ratings.
However, lower realisations due to competition from imported yarn and softened crude oil prices will likely keep revenue growth for polyester yarn manufacturers flat at 3-5% next fiscal, partly negating the volume uptick due to reduced GST rate.
