Go beyond FTAs

Go beyond FTAs

According to a report of analytics firm Fitch Solutions, Asia is expected to remain a dominant player in garment production over the coming decade even as China looks to reduce its apparel manufacturing operations and move up the value chain. In spite of this, India and Indonesia, which offer low-cost cheap labour and large domestic markets, may not be able to take advantage of the situation due to the lack of conducive business conditions.

According to a report of analytics firm Fitch Solutions, Asia is expected to remain a dominant player in garment production over the coming decade even as China looks to reduce its apparel manufacturing operations and move up the value chain. In spite of this, India and Indonesia, which offer low-cost cheap labour and large domestic markets, may not be able to take advantage of the situation due to the lack of conducive business conditions.

Rising labour costs in China is expected to push out low- to mid-range manufacturing to cheaper cost centres across Asia. The trend is likely to be intensifieddue to rising trade protectionism globally and geopolitical risks attached to operating in China, as relations between China and the West deteriorate.

As a result, countries like Vietnam, Bangladesh, Cambodia and Myanmar are expected to see more investments into the textile industry in the coming years.Though India can be a potential recipient of manufacturing shifts and growth in terms of global apparel export share, a lack of preferential trade access to the US &European Union (EU) markets and higher labour costs act as obstacles, says Fitch Solutions in the report.
According to the Apparel Export Promotion Council (AEPC), India currently has a duty disadvantage of 9.6 per cent in the EU market compared with competitors like Bangladesh, Cambodia, Sri Lanka, and Pakistan (who pay zero duty). Recently, Vietnam has also concluded a Free Trade Agreement (FTA) with the EU and most competitors are leveraging such FTAs in a big way to enhance their cost competitiveness.

In the US, the average tariff on Indian apparels is 12.5 per cent, while on certain items like man-made fibre (MMF) based apparel (that India is promoting) has a peak tariff of 28 per cent. Indian textile companies have lost a substantial share of exports in Canada – which was earlier a very large market for India – as other countries have entered into trade agreements with Canada.

In a letter to Prime Minister Narendra Modi, AEPC has urged the central government toenter into FTAs with the EU, UK, US, Australia and Canada to help increase apparel exports to these markets.

However, for India to emerge has leading exporter of textile products, FTAs alone will notsuffice. India will have to improve its cost competitiveness through economies of scale and developing integrated textile manufacturing clusters.

The impact of COVID and its fallout would determine which country would remain standing when this is all over. Recent rise in cases in Bangladesh have pummeled their efforts in revival, India has a better chance since the number of workers are in smaller lots and spread to keep within the umbrella of MSME labour law protection. So is this a chance for India as China’s rising costs and Bangladesh’s woes provide an opening. SE Asian nations which have controlled the virus well are definitely going to gain.

What India needs is a comprehensive textile policy to become a global textile powerhouse.

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