Jakarta — Indonesia’s government is seeking to revive its textile industry through a range of incentives, including financing for machinery upgrades, tax holidays, and plans to create special production zones. However, industry stakeholders and analysts caution that these measures may have limited effect without addressing deeper structural challenges, such as outdated equipment, dependence on imported raw materials, and high production costs.

Rosan Roeslani, CEO of the state asset fund Danantara, detailed the government’s strategy during a Sept. 22 briefing at the Presidential Palace complex. The government aims to facilitate financing from local banks to modernize machinery and is exploring tax incentives as well as a dedicated zone to better link upstream and downstream production processes. Regarding a proposed state-owned textile company, Rosan emphasized that the focus would not necessarily be on establishing new factories but rather on upgrading existing firms through technological improvements, with priorities on job creation and investment returns.

Coordinating Economy Minister Airlangga Hartarto outlined ongoing reviews of import regulations to ease raw material access while curbing the influx of used clothing imports that compete with domestic producers. The government is also examining value-added tax policies for export-oriented textile and garment firms, alongside contract employment rules to better accommodate seasonal workloads. The textile sector currently accounts for about 0.97% of Indonesia’s GDP, employs roughly four million workers, and generates close to US$12 billion in exports, Airlangga added.

Despite these government efforts, experts point to persistent challenges hindering the sector’s competitiveness. Yusuf Rendy Manilet, a researcher at the Centre of Reform on Economics, acknowledged the initiatives as positive signals but argued that issues such as aging equipment, high energy and logistics expenses, reliance on imported intermediate inputs, and competition from illegal imports remain major obstacles. He recommended channeling bank financing specifically toward machinery modernization and working capital to help existing factories become more productive.

Manilet also voiced concern that state-owned enterprises entering the garment segment as competing producers could crowd out private companies already struggling to restructure. Similarly, Bob Azam, head of the labor division at the Indonesian Employers Association, warned that while incentives might help firms survive temporarily, they are insufficient to attract new investments without resolving fundamental problems in the sector. Azam highlighted a growing disparity between wage growth—rising at around 6% to 7% annually—and productivity improvements, which increase only about 2% to 3% each year in this labor-intensive industry. He cautioned that unchecked wage hikes could eventually push up prices and lead to factory closures.

Upstream producers also expressed reservations about the government’s approach. Redma Gita Wirawasta, chairman of the Indonesian Fibre and Filament Yarn Producers Association (APSYFI), stressed that fiscal incentives alone would not spur growth unless structural issues in the supply chain are addressed—particularly the dependency on imported raw materials. He warned that facilitating raw material imports could undermine efforts to develop the domestic upstream industry and questioned the effectiveness of tax holidays, which have been offered for years but failed to attract significant investment.

Domestic textile producers face additional pressures from rising logistics costs, geopolitical tensions, and competition from inexpensive imported products, some reportedly entering the market at below-market prices. APSYFI’s Redma noted that despite government incentives such as tax holidays and allowances, they are unlikely to draw new investors until underlying supply chain weaknesses are resolved.

The government’s current policies represent an effort to stabilize and grow Indonesia’s textile sector, but industry voices urge greater focus on modernization, supply chain integration, and production cost competitiveness to ensure sustainable development.