The Dumping Dilemma

As synthetic fabric imports from China continue to grow, Indian manufacturers call for stronger
government intervention to level the playing field. Divya Shetty explores the reasons behind this
surge in imports and its impact on the Indian textile sector.

In early 2023, the demand for synthetic fabrics in India surged, driven primarily by rising cotton prices. This increase compelled many small and medium domestic manufacturers to turn to cheaper imports of synthetic fabrics to meet local demand at a lower cost. While India’s imports of man-made fibres (MMF) from countries like Indonesia, Thailand, Vietnam, Japan, and South Korea remained relatively stable, imports from China increased significantly over the past year. This spike was due to China dumping dyed synthetic knitted fabrics at extremely low prices.

“The issue of unabated dumping of synthetic knitted fabric by China has affected the Indian manufacturers severely. India’s MMF imports from China more than doubled to 686 tonne/day in the fiscal year ending March 2024, from 325 tonne/day in 2019-20, according to industry body All India Knitters Association (AIKA) in complaint filed with the government dated November 2023. Imports from China under the HSN code 600063200 alone had been to the tune of nearly 504 tonnes/day against 203 tonne/day,” informs Gurudas Aras.

With QCOs in place, the imports of fabrics is expected to rise further in near future from countries like China, if any preventive measures are not taken timely.
Rakesh Mehra, Chairman, CITI

China has been a major supplier of fabric to India and accounts for about 62 per cent of the total fabric import of India from the world. “During the last 5 years imports of certain type of fabrics, especially the knitted fabrics have increased significantly. For e.g. imports of HSN 60063200 which is the largest imported fabric commodity form China, have shown a CAGR of 7.7 per cent in value terms and about 22.1 per cent in volume terms during this period. Moreover, its import unit price has also declined by about 40 per cent during this time frame,” states Rakesh Mehra. The present import prices of many of such fabric categories are significantly lower than the domestic viable prices, which is a cause of concern for the domestic industry.

Local manufacturers will have to cut their costs and improve the quality to become more competitive.
Gurudas Aras, Independent Director (Rossari Biotech Group), Strategic Advisor (ITA GmbH, Germany, Yamuna Machine Works and Rabatex Industries)

The effect

One of the key issues contributing to this dumping practice is the under-invoicing of these fabrics during customs clearance, resulting in a loss of indirect taxes (customs duty + GST) for the government and creating unfair competition for local producers. “For example, at certain ports, fabric is being cleared at prices as low as 70-80 cent per kg, while its raw material costs around $ 1 per kilogram. This trend not only impacts the Indian textile industry, but also raises concerns about the integrity of international trade practices,” explains Sanjay Garg.

Rajkumar Agarwal informs that the obvious under invoicing has manifold ramifications;

• Revenue loss of indirect taxes: On the basis of import data for FY 2023‐24(April – August), BCD & SWS evaded at Import stage Rs 920 million per month and GST evaded Rs 2.42 billion per month from Import stage till Consumer stage. Further details required if any may be provided one to one basis.

• Revenue loss of direct taxes: On the basis of import data for FY 2023‐24 (April‐ August) Income Tax evaded Rs 1.41 billion per month from Importer stage to consumer stage.

India’s textile industry welcomes organically-priced imported goods as long as they are exported to India through legitimate channels and pass through the necessary customs checks.
Sanjay Garg , President – NITMA, Managing Director, Longowalia Group Director, Ludhiana

The dumping is harming the Indian economy, as the remaining funds, after undervaluation, are funneled through illegal channels. Rajkumar Agarwal, adds, “The government has implemented a Minimum Import Price (MIP) on certain sectors; however, traders circumvent this regulation by disguising fabrics as other products in their shipments. Additionally, by under-invoicing the declared value of these goods, they channel the remaining cost through informal financial networks such as hawala.(see Table 2)”

Local producers, such as the textile cluster in Surat, are actively working on developing products to rival Chinese fabrics. While this process may take up to a year, the local production is poised to successfully compete with imported fabric.
Rajesh Bansal, Member – NITMA, Media Impex, Ludhiana

This practice is not only hurting the fabric industry, but also garment industry to certain extent. Rahul Mehta opines, “The Indian textile industry is facing challenges due to the under-invoicing and other questionable methods used to import Chinese fabrics. Additionally, these fabrics are being routed through Bangladesh to avoid duties. In Bangladesh, Chinese fabrics are converted into garments and then exported to India, which adversely affects both the fabric and garment sectors in India.”

There should be no indirect bans like BIS & QCO on raw materials or fabrics. Enforcement of real import values must be focused on and illegal & undervalue importers must be punished.
Sunil Jhunjhunwala, Co-Founder and Co-Worker, TechnoSport

Importing Chinese fabrics at lower prices will inevitably affect the quality of the product.

The fabric being exported or dumped into India from China is predominantly synthetic or polyester- based. This is due to China’s surplus capacity in synthetic processing and knitting. Despite global fibre costs being nearly equal, the production of low-priced fabric cannot solely be attributed to cheaper raw materials.

Traders circumvent the Minimum Import Price regulation by disguising fabrics as other products in their shipments.
Rajkumar Agarwal, Managing Director, SVG Fashions

“It is evident that China holds a slight advantage in the processing segment over its competitors. However, organically priced and properly customs-cleared fabric will face intense competition from locally produced fabric and may struggle to compete with fabric made in India. Regarding the quality of the dumped fabric, it is important to note that efforts are being made to shift India’s market from PC dominance to a synthetic-based market. The products being dumped in India are often cheaper and of inferior quality, such as low-quality polyester-based products with their own drawbacks. Indian producers have the capability to produce superior fabric compared to Chinese fabric, but the unreasonable prices at which they are being dumped in India create an unfair playing field for local producers,” says, Rajesh Bansal.

Chinese fabrics are being converted into garments and routed through Bangladesh to India..
Rahul Mehta, Chief Mentor, CMAI

Aras adds, “Most of these fabrics had been of very low quality and was imported at an average price of $ 1.40 while the domestic manufacturing cost of such fabric has been at least $ 3.5 to 4. This cheaper quality dyed knitted fabric dumped by China not only spoiled the market for local good quality manufacturers but also duped the exchequer by about Rs.5700 crore in this category (Chapter 60).”

What had been most shocking is that the finished fabric was imported at a price even lesser than the domestic polyester yarn price. The prices at which China supplies these fabrics to India had been much lower than the prices at which it supplies to local industry as well as to some other countries.

While some view the quality of Chinese fabrics as inferior despite their low cost, some are pleased with both the quality and variety offered by these imports. Sunil Jhunjhunwala, Co-Founder, TechnoSport comments, “Government has imposed BIS & QCO on polyester filaments and Tencel Fibres which is acting like an indirect ban on Chinese raw materials. Local industry does not have access to good quality & innovative raw materials at reasonable prices due to QCO. China has over 70 per cent global capacity of innovative polyester yarns such as Bicomoponet, Mechanical Stretch, Bi-shrinkage etc. China also has over 70 per cent global capacity of Lyocell fibres. Consumers are demanding new types of innovative fabrics and Indian fabric mills are not able to buy these innovative filaments or fibres at globally competitive prices.

Hence China has a free hand exporting these innovative products to India. Indian Mills can easily make these fabrics at lower prices provided the raw materials are freely available in India.”

Government response

Local fabric manufacturers have persistently raised concerns about the dumping of Chinese fabrics. In response, the Ministry of Commerce and Industries issued a notification in March, setting a minimum import price for specific HSN codes related to various types of dyed knitted fabrics.

The matter was raised various stakeholders including CITI and NITMA during the meeting of the Textile Advisory Group (TAG) on MMF held on 18 January 2024 and in March 2024, they imposed a Minimum Imposed Price (MIP) of $ 3.5/Kg on 5 HSN codes of synthetic knitted fabric and this restriction is applicable till 15h September 2024.

Table 1: Showing significant reduction in import in the month of April‐24 & May‐24 in comparison with monthly average of FY 2023‐24 after implementation of MIP against the same

“Trade analysis shows that after the imposition of the above MSP, cumulative imports of the concerned fabric categories have declined by about 65 per cent during Apr-May 2024 as compared to last year, thus proving to be effective as of now. However, the industry is concerned that if this restriction continues, the import of such categories may happen under other HSN codes of similar product categories, which at present are not covered under the list of fabrics for which MIP has been announced,” informs Mehra.

Table 2: Below table showing undervalued import diverted & cleared under these both chapters after implementation of MIP against H.S. Codes mentioned in Table‐1 above

This concern was also discussed in the MMF TAG meeting held recently on 12 July 2024 in Mumbai under the chairmanship of Minister of Textiles during which various stakeholders suggested including such vulnerable HSN codes in the above said with MIP. Ministry is actively working on the various proposals of the different stakeholders.

Unfortunately, these measures could help only to some extent to control the imports of the cheap fabrics from China as the Chinese suppliers have found other ways to import these fabrics to India as mentioned above by the experts.

How are the ‘locals’ strategising

One major reason for the price difference between Chinese and Indian fabrics is the higher cost of MMF raw materials in India compared to China. As of June 2024, PSF and VSF prices in India were approximately 38% and 19% higher, respectively, than those in China. The Indian domestic industry has been urging the government to ensure that raw materials are available at internationally competitive prices, which is crucial for maintaining a level playing field in the sector.

Jhunjhunwala adds, “Domestic fabric industry was gearing up with investments in PLI. Many mills are coming up with the capability to manufacture such fabrics. Unfortunately the globally trending raw materials are not available in India at competitive prices. We hope local raw material manufacturers also invest rapidly to fill this gap. But there are no incentives on raw material manufacturing.

PLI must be extended to polyester filament yarn manufacturing and Lyocell fibre manufacturing. If Global raw materials are opened up Indian fabric manufacturers can easily compete globally with China.”

In addition, the domestic industry is actively working to enhance efficiency and capacity by adopting modernized techniques and improved manufacturing processes. According to ITMF International Textile Machinery Shipment Statistics, India was a major investor in rapier-and-projectile looms and large circular knitting machines in 2023. The industry believes there is an urgent need for government support to incentivize investment in India’s weaving and processing sector for significant capacity expansion and modernization. Although the government has included MMF fabric under the PLI scheme, it primarily benefits a few large players. Given the fragmented nature of the textile industry, with many players being MSMEs, the government may need to introduce a scheme similar to ATUFS or a revised PLI with a lower investment threshold and broader product coverage to support the entire sector, including MSMEs.

Consumer influence

The type of fabric used in products can greatly affect consumer preferences. While cotton and PC fabrics offer superior comfort, they often lack the glossy finish of Chinese fabrics. This aesthetic difference can lead many consumers to choose the shinier Chinese options. However, over time, this choice may become uncomfortable, particularly in hot climates like India, where polyester-based fabrics are less suitable.

Possible interventions

Besides the Chinese suppliers, Indian importers are equally responsible for these malpractices, which are harming local markets and defrauding the exchequer. The local knitters and dyers associations must alert the government to these issues. Additionally, local manufacturers need to reduce costs and improve quality to remain competitive.

The government should take strong action against both Indian importers and Chinese suppliers involved in these import malpractices. Those who under-invoice goods should be blacklisted from import-export transactions. If fabric dumping isn’t curtailed, the local industry could suffer, and the quality of export goods might decline due to poor-quality fabric inputs. Implementing a Quality Control Order (QCO) on Chinese fabric suppliers is necessary to prevent the import of substandard fabrics.

The Indian textile industry is a formidable presence on the global stage, being both backward and vertically integrated, with all textile products produced domestically.

“The industry’s future looks promising, provided the Indian government swiftly implements corrective measures. This includes tackling the issue of unreasonable dumping from China, particularly as the global economy shows signs of a pre-recession atmosphere. As global economies stabilize, market forces will naturally address dumping and other related challenges,” notes Garg and Bansal.

In conclusion, the Indian textile industry seeks only a fair and level playing field.