The Indian textiles and apparel industry will need to take stock of the situation, think afresh, and reorient itself for a world full of uncertainties, especially in view of the lack of new fiscal mechanisms in Union Budget 2015-16 to a rather disappointing Foreign Trade Policy (FTP), and from a Trans-Pacific Partnership (TPP) looming ominously large on the export horizon to India being under the scanner of the World Trade Organization (WTO) over subsidies.
The very announcement of the Make in India initiative by the government in September last year came as a morale-booster for the textiles and apparel industry, the second largest in size in the Indian economy after agriculture. The industry had the potential to lead the campaign, turning itself into India's biggest success story after information technology (IT). The unveiling of the campaign came shortly after reports that India was now ahead of Germany and Italy as the world's second largest textiles exporter.
The data released in June 2014 by the Apparel Export Promotion Council (AEPC) showed that India's textiles exports were estimated at $40 billion in 2013, compared with China's $274 billion. Over 55 per cent of the global trade was related to ready-made garments, where India ranked sixth in 2013 with exports of $16 billion, which in turn was around 40 per cent of the country's textiles exports. There were reasons to be exhilarated about the future - things could only get better.
Mounting pressure on the WTO front
Pressure had been increasingly mounting on India at the World Trade Organization (WTO) to cut down subsidies and incentives given to the textiles sector. The European Union (EU) and Japan have teamed up with the United States (US) and Turkey calling for India to stop giving fresh subsidies and gradually phase out existing ones as the textiles sector had already achieved export competitiveness.
This (the pressure on the WTO front) was confirmed as recently as in March by the Union Minister for Commerce Nirmala Sitharaman in a written reply to a question in the Lok Sabha. "In the WTO subsidies committee meetings, the WTO member countries, in particular the US supported by European Union, Turkey, Japan and others have urged phasing out of export subsidies by India for the textiles and the apparel sector," she said. The minister informed that the government had not taken any decision on the phasing out of subsidies as the new Foreign Trade Policy (FTP) was "still under consideration". The FTP, which came only a few weeks later, did not announce new subsidies and old ones were replaced.
One of the ways out of this situation being cited by many is making use of fibers, yarns, and fabrics of Indian origin mandatory for allowing duty-free imports of apparel from Bangladesh and other small countries seeking preferential market access on a non-reciprocal basis. The rationale offered is this: if the US can impose sourcing restrictions in all its existing and proposed trade pacts, India can too.
INDIA'S FOREIGN TRADE BY CHAPTERS AND SECTIONS
Textile and textile articles
|
Chapters |
Sections |
Jan 2015 (` in lakhs) |
Apr to Jan 2015 (` in lakhs) |
|
50 |
Silk |
6615 |
70808 |
|
51 |
Wool, fine or coarse animal hair |
9692 |
88021 |
|
52 |
Cotton |
419878 |
3867144 |
|
53 |
Other vegetable textile fibres; paper yarn and fabrics |
19365 |
184155 |
|
54 |
Man-made filaments |
132511 |
1235838 |
|
55 |
Man-made staple fibres |
115670 |
1107699 |
|
56 |
Wadding, felt and nonwovens; special yarns; twine, cordage, ropes and cables and articles thereof |
17596 |
175087 |
|
57 |
Carpets and other textile floor coverings |
89043 |
944128 |
|
58 |
Special woven fabrics; tufted textile fabrics; lace; tapestries; trimmings; embroidery |
22168 |
210054 |
|
59 |
Impregnated, coated & laminated textile fabrics; |
17412 |
195260 |
|
60 |
Knitted or crocheted fabrics |
12803 |
131657 |
|
61 |
Articles of apparel and clothing accessories, |
441933 |
3864677 |
|
62 |
Articles of apparel and clothing accessories, |
544991 |
4500643 |
|
63 |
Other made up textile articles; sets; worn textile articles; rags |
263503 |
2381775 |
|
Grand Total |
2113180 |
18956946 | |
Source: Foreign Trade Statistics of India (Principal Commodities & Countries), DGCI&S. P - Provisional
Make in India
Reasons to invest
- India has the second largest manufacturing capacity globally.
- The Indian textile industry accounts for about 24% of the world's spindle capacity and 8% of global rotor capacity.
- India has the highest loom capacity (including hand looms) with 63% of the world's market share.
- India accounts for about 14% of the world's production of textile fibre and yarn and is the largest producer of jute and the second largest producer of silk and cotton.
- A strong production base of a wide range of fibre/yarn from natural fibres like cotton/jute, silk and wool to synthetic/man-made fibres like polyester, viscose, nylon and acrylic.
- Increased penetration of organised retail, favourable demographics and rising income levels to drive textile demand.
Will the policy shift be a paradigm shift too?
The indication that times were changing indeed, and quite fast at that, came in the form of the Foreign Trade Policy (FTP) 2015-20 announced by the Commerce Ministry in April. The policy, which set an ambitious target of $900 billion in merchandise and services exports by 2020, introduced a new scheme - Merchandise Exports from India Scheme (MEIS) - for export of specified goods to specified markets. It replaced some earlier schemes including the Focus Product Scheme (FPS). Under the new MEIS, handloom, coir, jute products, technical textiles, handmade carpets, other textile and readymade garments were to be supported for the European Union (EU), US, Canada and Japan. No conditions were linked to any scrip issued under the MEIS, and duty credit scrips could be fully transferable.
Cotton textile products, which face high tariff barriers and preferential treatment by importing countries, were given a duty credit scrip of 2 per cent while handlooms, carpets, coir products got higher rates of 2-5 per cent under the MEIS. The cotton yarn sector was alleged to have been ignored at a time when exports of this product had declined sharply, and faced high logistics costs when exported to markets like Latin America. Despite growing opportunities for textiles products such as yarn, fabrics and made-ups to China, these items were not included under market access negotiations with that country.
Sops in these named markets do not help yarn and fabric producers as they export very little to these markets. On the other hand, the MEIS had ignored markets such as China, Bangladesh, Sri Lanka, Turkey, Vietnam and South Korea, which were major destinations for yarn and fabric from India. India mostly exports fabrics to Bangladesh, Indonesia, Myanmar and Vietnam for conversion into garments that are ultimately shipped to Japan and the US. This aspect too seemed to have been ignored.
Moreover, the demand of mills calling for the restoration of benefits for cotton and cotton yarn under the Focus Market Scheme (FMS), withdrawn in 2013, too was rejected. Under the FMS, exporters got up to 4 per cent of the freight-on-board value of cotton yarn in the form of transferrable scrip.
The Textiles Ministry, reacting to demands from the industry, in the fag end of April announced that it would lobby for sops for the yarn and fabric sectors. The ministry also said that it would demand the inclusion of apparel in the interest subvention scheme being finalised by the Commerce Ministry so as to enable the sector manage a level-playing field with Vietnam, Sri Lanka and Bangladesh, which get favourable access to developed markets. Parleys on this front are ongoing.
- India enjoys a comparative advantage in terms of skilled manpower and cost of production over major textile producers.
- Abundant raw material and increasing demand for exports to boost fibre production.
- Abundant availability of raw materials such as cotton, wool, silk and jute.
Statistics
- The sector contributes 14% to industrial production, 4% to India's GDP and constitutes 13% of the country's export earnings.
- With over 45 million people, employed directly, the industry is one of the largest sources of employment generation in the country.
- The domestic textile and apparel industry in India is estimated to reach US$ 100 billion by 2016-17 from US$ 67 billion in 2013-14.
- Exports in textiles and apparel from India are expected to increase to US$ 65 billion by 2016-17 from US$ 40 billion in 2013-14.
- The total fabric production in India is expected to grow to 112 billion square metres by 2016-17 from 64 billion square metres in 2013-14.
- India's fibre production in 2013-14 is 7 million tonnes and is expected to reach 10 million tonnes in 2016-17.
Growth drivers
- Rising per capita income, favourable demographics and a shift in preference for branded products is expected to boost demand.
- Favourable trade policies and superior quality will drive textile exports.
- Increase in domestic demand is set to boost cloth production.
- Pointed and favourable policies instituted by the government will give the industry a fillip.
- With consumerism and disposable income on the rise, the retail sector has experienced rapid growth in the past decade, with many global players entering the Indian market.
- The centers of excellence focused on testing and evaluation as well as resource centres and training facilities have been set up.
- As per the plan for 2012-17, the Integrated Skill Development Scheme aims to train over 2,675,000 people up to 2017, covering all sub-sectors of the textile sector - textiles and apparel, handicrafts, handlooms, jute and sericulture.
- Changing lifestyles and increasing demand for quality products are set to fuel the need for apparel.
The case for a crackdown on Bangladesh has been gaining currency. The call is for imposing sourcing restrictions for permitting duty-free import of garments from Bangladesh, as that country does not possess fabric manufacturing facilities. While this will help textile exports to Bangladesh, it will also check backdoor entry of Chinese fabrics to India via Bangladesh.
It is not that all is lost. There are still big markets such as Brazil in the Mercosur region (a sub-regional bloc comprising members Argentina, Brazil, Paraguay, Uruguay and Venezuela, and associates Chile, Bolivia, Colombia, Ecuador and Peru). If textiles and apparel are included in the India-Mercosur Preferential Trade Agreement, it can help the industry since textile items face prohibitive import duties of 26-35 per cent in the Mercosur countries. But, that's only a possibility at the moment.
The Indian government has been frequently criticised for signing free trade agreements (FTAs) only with less developed nations, to which no labour-intensive manufactured goods can be exported. On the other hand, FTAs with EU, Canada and Australia, which can boost labour-intensive sectors and agricultural raw material-based sectors, have still not made much headway. Export incentives, meant for labour-intensive and net foreign exchange earners, are instead being given to products and sectors that do not need them as much. But with TPP and TTIP looming large, India needs to gear up its socks. The detailed FTP statement definitely is a step forward in that direction, since it seeks to make existing economic agreements work better for Indian enterprises through focused programmes, besides exploring opportunities in countries where India has a relatively small footprint.
None of the existing FTAs are success stories. The South Asian Free Trade Agreement (SAFTA) has remained dormant. Signed in 2004 at a summit of the South Asian Association for Regional Cooperation (SAARC), the SAFTA came into effect in January 2006 and has been operational following the ratification of the agreement by the seven governments. SAFTA required the developing countries in South Asia (India, Pakistan and Sri Lanka) to bring their duties down to 20 percent in the first phase of the two-year period ending in 2007. In the final five-year phase ending 2012, the 20 percent duty was to be reduced to zero in a series of annual cuts. The least developed nations (Nepal, Bhutan, Bangladesh, Afghanistan and Maldives) had an additional three years to reduce tariffs to zero.
Though small in size and scope, the SAFTA bloc cannot be ignored. India's total exports to other SAARC nations registered a 14.71 per cent growth in 2013-14 at $17.3 billion. Earlier this year, India was reported to be planning to bring down the list of sensitive items that are currently shielded from duty cuts under the agreement for Pakistan and Sri Lanka in a calibrated manner. This gained momentum with the FTP 2015-20 following which India has been planning to develop a five -year plan towards regional integration among SAARC nations. Besides working on infrastructure development along the borders, it aims to identify specific value chains that run through the SAARC countries.
The FTA in goods with the Association of Southeast Asian Nations (ASEAN), operational since January 2010, has not yielded beneficial results. India had faced criticism at home for signing the agreement in haste and losing out on benefits. While imports from ASEAN countries had increased, exports to these nations from India had not been significant. Trade between India and the 10-member bloc stood at about $76 billion in 2012-13. Both sides aim to increase it to $100 billion by 2015, and envisage lifting import tariffs on more than 80 per cent of traded products by 2016. The FTA in services and investments was signed last year. As a dominant exporter of light manufacturing products, ASEAN has competitive tariff rates that make it difficult for India to gain access to the industry in ASEAN markets. In fact, all the economies of the ASEAN member nations are largely export-driven, maintaining high export-to-GDP ratios (in 2007, Malaysia had a ratio of over 100 per cent). The services-investments FTA is expected to bring about a balance in India's deficit with ASEAN countries in trade of goods.
The TTIP notwithstanding, there is hope that the stalled negotiations with the European Union (EU) over an FTA may soon be on track. Indian apparel exporters have been seeking expeditious finalisation of the India-EU FTA to enable better market access for exporters. The EU markets account for 12 per cent share of India's apparel exports. Deliberations have not taken place since 2013 with both sides at loggerheads over issues like automobiles, and India's demand for a data-secure nation status. Talks on the FTA, called the Broad-based Trade and Investment Agreement (BTIA), were launched in June 2007.
The RCEP is still a long away from reality, but partnership will be big since it will include both China and India. The RCEP area would include more than 3 billion people, have a combined GDP of about $17 trillion, and account for about 40 per cent of world trade. It's not going to be a pushover.
The hope lies in multiple FTAs.
The cuts had been coming. According to the WTO's Agreement on Subsidies and Countervailing Measures, when the share of a developing country - with per capita income below $1,000 a year (in case of countries with higher income levels, subsidies are not allowed)- in global exports touches 3.25 per cent in any product category for two straight years, thereby gaining "export competitiveness", it has to phase out export subsidies for the items eight years from the second year of breach. The rules of the multilateral trade body clearly say: "Export competitiveness shall exist either (a) on the basis of notification by the developing country member having reached export competitiveness, or (b) on the basis of a computation undertaken by the (WTO) Secretariat at the request of any member."
According to detractors, since India's textiles and apparel exports crossed the benchmark in 2005 and remained above the level in 2006 as well, it should have ended its export subsidies for these items by January 2015. India, however, played by the rulebook too and contended that it had time till January 2018 since the WTO had asked it only in 2010 to consider phasing out the subsidies after the stipulated eight years. India's export subsidies for the industry existed under the Focus Market Scheme (FMS), Focus Product Scheme (FPS), market-linked FPS, Export Promotion Capital Goods (EPCG) Scheme, interest subvention on pre- and post-shipment export credit, besides tax breaks for special economic zones (SEZs). All these popular sops for the industry would have to be phased out sooner or later.
(Billion dollars and percentage)
|
Leading exporters and importers of textiles, 2013 | |||||||||
|
|
Value |
Share in world exports/imports |
Annual percentage change | ||||||
|
|
2013 |
1980 |
1990 |
2000 |
2013 |
2005-13 |
2011 |
2012 |
2013 |
|
Exporters | |||||||||
|
China (a) |
107 |
4.6 |
6.9 |
10.4 |
34.8 |
13 |
23 |
1 |
12 |
|
European Union (28) |
72 |
- |
- |
36.7 |
23.6 |
0 |
13 |
10 |
3 |
|
extra-EU (28) exports |
23 |
- |
- |
9.9 |
7.5 |
2 |
15 |
-6 |
3 |
|
India |
19 |
2.4 |
2.1 |
3.6 |
6.2 |
11 |
20 |
0 |
24 |
|
United States |
14 |
6.8 |
4.8 |
7.1 |
4.6 |
1 |
14 |
-3 |
3 |
|
Turkey |
12 |
0.6 |
1.4 |
2.4 |
4.0 |
7 |
20 |
3 |
10 |
|
Korea, Republic of |
12 |
4.0 |
5.8 |
8.2 |
3.9 |
2 |
13 |
-3 |
1 |
|
Hong Kong, China |
11 |
- |
- |
- |
- |
-3 |
0 |
-7 |
2 |
|
domestic exports (b) |
10 |
1.7 |
2.1 |
0.8 |
0.1 |
-15 |
-19 |
-8 |
-11 |
|
re-exports (b) |
10 |
- |
- |
- |
- |
-3 |
0 |
-6 |
0 |
|
Chinese Taipei |
10 |
3.2 |
5.9 |
7.7 |
3.3 |
1 |
13 |
-7 |
0 |
|
Pakistan |
9 |
1.6 |
2.6 |
2.9 |
3.1 |
4 |
16 |
-4 |
7 |
|
Japan |
7 |
9.3 |
5.6 |
4.5 |
2.2 |
0 |
13 |
-3 |
-12 |
|
Viet Nam (b) |
5 |
... |
... |
0.2 |
1.6 |
27 |
23 |
3 |
23 |
|
Indonesia |
5 |
0.1 |
1.2 |
2.3 |
1.5 |
4 |
16 |
-5 |
2 |
|
Thailand |
4 |
0.6 |
0.9 |
1.3 |
1.3 |
4 8 |
- |
14 |
10 |
|
United Arab Emirates (b), (c) |
3 |
0.1 |
0.0 |
0.8 |
0.9 |
9 |
6 |
16 |
23 |
|
Mexico (a) |
2 |
0.2 |
0.7 |
1.7 |
0.8 |
2 |
11 |
5 |
9 |
|
Above 15 |
281 |
- |
- |
90.5 |
91.8 |
- |
- |
- |
- |
|
Importers | |||||||||
|
European Union (28) |
78 |
- |
- |
35.2 |
24.2 |
1 |
14 |
-12 |
5 |
|
extra-EU (28) imports |
29 |
- |
- |
9.9 |
9.0 |
4 |
17 |
-14 |
7 |
|
United States |
27 |
4.5 |
6.2 |
9.8 |
8.4 |
2 |
8 |
2 |
4 |
|
China (a), (b) |
22 |
1.9 |
4.9 |
7.8 |
6.7 |
4 |
7 |
5 |
9 |
|
Viet Nam (b) |
11 |
... |
... |
0.8 |
3.3 |
15 |
24 |
4 |
17 |
|
Hong Kong, China |
10 |
- |
- |
- |
- |
-3 |
-2 |
-6 |
1 |
|
retained imports (b) |
0 |
3.7 |
3.8 |
0.9 |
0.0 |
- |
20 |
... |
... |
|
Japan |
9 |
3.0 |
3.8 |
3.0 |
2.7 |
5 |
28 |
-2 |
-3 |
|
Turkey |
7 |
0.1 |
0.5 |
1.3 |
2.1 |
5 |
16 |
-15 |
5 |
|
Bangladesh (b) |
6 |
0.2 |
0.4 |
0.8 |
1.9 |
12 |
48 |
-12 |
6 |
|
Mexico (a) |
6 |
0.2 |
0.9 |
3.6 |
1.9 |
0 |
14 |
2 |
3 |
|
Indonesia |
6 |
0.4 |
0.7 |
0.8 |
1.8 |
29 |
34 |
-1 |
4 |
|
Korea, Republic of |
5 |
0.7 |
1.8 |
2.1 |
1.6 |
5 |
17 |
-14 |
7 |
|
Canada |
5 |
2.3 |
2.2 |
2.5 |
1.4 |
1 |
8 |
2 |
-1 |
|
Russian Federation (b) |
4 |
- |
- |
0.4 |
1.3 |
17 |
25 |
5 |
-6 |
|
India |
4 |
0.1 |
0.2 |
0.4 |
1.1 |
8 |
22 |
-2 |
8 |
|
Above 15 |
193 |
- |
- |
70.0 |
59.8 |
- |
- |
- |
- |
Source: International Trade Statistics 2014, World Trade Organization
a) Includes significant shipments through processing zones,
b) Includes Secretariat estimates,
c) Mainly re-exports,
d) In 2013, China reported imports of textiles from China amounting to $3.2 billion. For further information, see the Metadata.
(Billion dollars and percentage)
|
Leading exporters and importers of Apparel, 2013 | |||||||||
|
|
Value |
Share in world exports/imports |
Annual percentage change | ||||||
|
|
2013 |
1980 |
1990 |
2000 |
2013 |
2005-13 |
2011 |
2012 |
2013 |
|
Exporters | |||||||||
|
China (a) |
177 |
4.0 |
8.9 |
18.3 |
38.6 |
12 |
18 |
4 |
11 |
|
European Union (28) |
118 |
- |
- |
28.7 |
25.6 |
4 |
17 |
-6 |
7 |
|
extra-EU (28) exports |
31 |
- |
- |
6.5 |
6.7 |
6 |
26 |
3 |
8 |
|
Bangladesh |
24 |
0.0 |
0.6 |
2.6 |
5.1 |
17 |
29 |
3 |
19 |
|
Hong Kong, China |
22 |
- |
- |
- |
- |
-3 |
2 |
-8 |
-3 |
|
domestic exports (b) |
0 |
11.5 |
8.6 |
5.0 |
0.0 |
-35 |
-14 |
-29 |
-11 |
|
re-exports (b) |
21 |
- |
- |
- |
- |
1 |
2 |
-8 |
-5 |
|
Viet Nam (b) |
17 |
... |
... |
0.9 |
3.7 |
18 |
27 |
10 |
19 |
|
India |
17 |
1.7 |
2.3 |
3.0 |
3.7 |
9 |
31 |
-6 |
22 |
|
Turkey |
15 |
0 |
3 |
3.3 |
3.3 |
3 |
9 |
2 |
8 |
|
Indonesia |
8 |
0.2 |
1.5 |
2.4 |
1.7 |
6 |
18 |
-6 |
2 |
|
United States |
6 |
3.1 |
2.4 |
4.4 |
1.3 |
2 |
12 |
7 |
4 |
|
Cambodia (b) |
5 |
... |
... |
0.5 |
1.1 |
11 |
31 |
8 |
19 |
|
Malaysia (a) |
5 |
0.4 |
1.2 |
1.1 |
1.0 |
8 |
18 |
0 |
1 |
|
Pakistan |
5 |
0.3 |
0.9 |
1.1 |
1.0 |
3 |
16 |
-7 |
8 |
|
Mexico (a) |
5 |
0.0 |
0.5 |
4.4 |
1.0 |
-6 |
6 |
-4 |
2 |
|
Sri Lanka (b) |
5 |
0.3 |
0.6 |
1.4 |
1.0 |
6 |
21 |
-5 |
13 |
|
Thailand |
4 |
0.7 |
2.6 |
1.9 |
0.9 |
0 |
6 |
-6 |
-4 |
|
Above 15 |
410 |
- |
- |
79.0 |
89.0 |
- |
- |
- |
- |
|
Importers | |||||||||
|
European Union (28) |
182 |
- |
- |
41.1 |
37.9 |
4 |
15 |
-10 |
6 |
|
extra-EU (28) imports |
95 |
- |
- |
19.6 |
19.7 |
5 |
15 |
-11 |
5 |
|
United States |
91 |
16.4 |
24.0 |
33.0 |
18.9 |
2 |
8 |
-1 |
3 |
|
Japan |
34 |
3.6 |
7.8 |
9.7 |
7.0 |
5 |
23 |
3 |
-1 |
|
Hong Kong, China |
16 |
- |
- |
- |
- |
-1 |
4 |
-5 |
1 |
|
retained imports |
... |
0.9 |
0.7 |
0.9 |
... |
... |
... |
... |
... |
|
Canada (c) |
10 |
1.7 |
2.1 |
1.8 |
2.1 |
7 |
15 |
-2 |
6 |
|
Russian Federation (b), (c) |
9 |
- |
- |
0.1 |
1.9 |
33 |
23 |
0 |
-2 |
|
Australia (c) |
6 |
0.8 |
0.6 |
0.9 |
1.3 |
9 |
21 |
4 |
3 |
|
Switzerland |
6 |
3.4 |
3.1 |
1.6 |
1.2 |
4 |
16 |
-7 |
3 |
|
China (a) |
5 |
0.1 |
0.0 |
0.6 |
1.1 |
16 |
59 |
13 |
18 |
|
United Arab Emirates (b) |
4 |
0.6 |
0.5 |
0.4 |
0.8 |
12 |
21 |
13 |
10 |
|
Saudi Arabia, Kingdom of (b) |
3 |
1.6 |
0.7 |
0.4 |
0.7 |
11 |
28 |
5 |
14 |
|
Mexico (a), (c) |
3 |
0.3 |
0.5 |
1.8 |
0.7 |
3 |
20 |
8 |
9 |
|
Turkey |
3 |
0.0 |
0.0 |
0.1 |
0.7 |
19 |
15 |
-18 |
17 |
|
Singapore |
3 |
0.3 |
0.8 |
0.9 |
0.6 |
4 |
19 |
2 |
22 |
|
Above 15 (d) |
368 |
- |
- |
93.1 |
76.4 |
- |
- |
- |
- |
Source: International Trade Statistics 2014, World Trade Organization
a) Includes significant shipments through processing zones,
b) Includes Secretariat estimates,
c) Imports are valued f.o.b.
d) Excludes retained imports of Hong Kong, China.
But if the Foreign Trade Policy (FTP) 2015-20 is an indicator, India is already going by its commitment to the WTO. Since the just-announced policy is for 2015-20, subsidies for the textile and apparel industry would have had to be phased midway (in 2018). The word in the commerce ministry was that it would be a better idea to provide subsidies for incentivising production rather than exports. Since the WTO prohibits subsidies only linked directly to exports and not on production-based subsidies, India had sought a clarification on the definition of "product". The textiles and apparel sector had long crossed the stipulated global trade share threshold, but many items within the group may not have attained export competitiveness. On the other hand, the technology mission on cotton and the Technology Upgradation Fund Scheme (TUFS) were measures meant for incentivising production. Those are therefore unlikely to take a hit at the moment. However, the phase-out period for subsidies seems to be already under way.
There is another yardstick too under which India would be handicapped. As per World Bank data, India's per capita annual income is $994. The moment it reaches $1,000 per annum, export subsidies would have to be dropped. The Bank data, which comes with a two-year lag, is expected sometime during the year. If India crosses this threshold, 2017 would be the cut-off period for export subsidies across sectors.
There are always other games at play, meanwhile. Reports say India can indirectly gain from a recent move by the US against China over the latter's extension of prohibited export subsidies to products such as agriculture items, textiles, leather, medical equipment, speciality chemicals, and building materials. If the scales tilt towards the US in this particular battle, it could mean lower competition from Chinese products for Indian manufacturers. Higher import duties on Chinese products could help India lower imports and narrow the existing trade deficit with China. Besides, China may also face penalties in other key markets such as the US and EU, which could make them less competitive than Indian products.
At the centre of dispute in this brewing storm is China's "Demonstration Bases-Common Service Platform" export subsidy programme, under which the country provides prohibited export subsidies through "Common Service Platforms" to manufacturers and producers across seven economic sectors-including the textiles, apparel and footwear sector-and dozens of sub-sectors located in more than one hundred and fifty industrial clusters throughout China known as "Demonstration Bases".
According to the National Council of Textile Organizations (NCTO) of the US, China provides WTO prohibited export subsidies to manufacturers which meet export performance criteria. These subsidies are alleged to be the reason for China's continuing dominance in the textiles and apparel sector in the US and worldwide too. The assertion is that China's rise in the global textiles and apparel market has been substantially aided by illegal and unfair trading practices. Matters are still being disputed, but in the US-China battle, India stands to win or lose a lot depending on who emerges as the winner.
But irrespective of what transpires on this front, many of the props for the industry back home are bound to disappear. The sign of things to come was spelt out by commerce secretary Rajeev Kher during a seminar that was held shortly after the FTP was announced. Kher cautioned Indian industry on the changing global trade scenario, and urged it to enhance product competitiveness in the international market without seeking "subsidies" and "doles". He remarked, "We have to acknowledge that we have to become competitive not through the route of subsidies and not through the route of doles."
The textiles and apparel industry will certainly have to brace up for the changing times.
The emergence of a new domineering order
If the development because of the World Trade Organization (WTO) obligations is not disturbing enough, then the implementation of the Trans-Pacific Partnership (TPP), a proposed regional regulatory and investment treaty, certainly is. The TPP, however, is only a possibility till now since the negotiations have run into a stumbling block - particularly in the US, which looks at the treaty as a primary trade goal. There has been trenchant opposition to the TPP over the proceedings' secrecy, the agreement's expansive scope, and controversial clauses in drafts that have been leaked to the public. The treaty includes 12 countries - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. Together, the bloc accounts for 38 per cent of global GDP and 25 per cent of global trade. It is a powerful trade group that wants to trade with itself.
As one of 12 countries in the TPP, Vietnam could steal a march over India in textiles. One of the clauses was to offer Vietnam's apparel exports a duty-free access to the US market. The agreement would have also included a yarn-forward rule, which would require Vietnam to make clothes with materials only from TPP member countries in order to receive tax-free import benefits. This would have an adverse effect on the other textiles and apparel exporters of Asia, particularly India and Bangladesh.
The TPP, if implemented, would be the biggest challenge for the Indian textiles industry since the US accounts for almost one-fourth of India's apparel exports. Exporters from India would be at a disadvantage with regard to tariffs, while those from Vietnam would get preferential access to the US market. Besides, since the yarn-forward rule makes it mandatory to source yarn, fabric and other inputs that are used in making clothes from TPP partner countries only in order to avail of duty preference, this would make apparel manufacturers in TPP countries source their input only from other TPP countries, even if the suppliers in that region are not very efficient.
The other treaty, which too is in the deliberations stage, that would have a far-reaching effect both on the global textiles trade and Indian exports is the Transatlantic Trade and Investment Partnership (TTIP) between the US and the European Union (EU). The US and EU together represent 60 per cent of global GDP, 33 per cent of world trade in goods, and 42 per cent of world trade in services.
Trends in textiles exports
|
Item |
` in Crore |
|
US$ million |
| ||
|
Apr Jan. (2014 15) (P) |
Apr Jan. (2013 14) |
% Growth |
Apr Jan. (2014 15) (P) |
Apr Jan. (2013 14) |
% Growth | |
|
Textiles exports |
2,07,255.62 |
1,97,713.82 |
4.83 |
34,014.47 |
32,722.95 |
3.95 |
|
Total exports |
11,22,499.75 |
10,80,203.41 |
3.92 |
1,85,970.07 |
1,81,234.98 |
2.61 |
|
Share of textile exports in total exports (%) |
18.46 |
18.30 |
|
18.29 |
18.06 |
|
Source: Foreign Trade Statistics of India (Principal Commodities & Countries), DGCI&S. P - Provisional
Trend in US imports of textiles and apparel from 2009 to 2013 & its top suppliers
|
S. No. |
Country |
2009 |
2010 |
2011 |
2012 |
2013 |
% Share |
|
1 |
China |
30897.33 |
37029.62 |
39260.99 |
39293.78 |
40673.77 |
37.82 |
|
2 |
Vietnam |
5175.13 |
6062.82 |
6907.44 |
7339.27 |
8413.12 |
7.82 |
|
3 |
India |
4863.91 |
5691.54 |
6278.60 |
6201.89 |
6633.16 |
6.17 |
|
4 |
Mexico |
4791.54 |
5145.00 |
5510.95 |
5368.62 |
5384.94 |
5.01 |
|
5 |
Indonesia |
4061.02 |
4697.26 |
5373.46 |
5234.26 |
5271.29 |
4.90 |
|
Rest of the World |
33430.80 |
36825.65 |
40609.99 |
40104.46 |
41167.59 |
38.28 | |
|
Grand Total |
83219.73 |
95451.89 |
103941.43 |
103542.28 |
107543.87 |
100.00 | |
Source: Office of Textiles and Apparel (OTEXA), US (Value in million US$)
Textile imports of US from 2009 to 2013
|
S. No. |
Country |
2009 |
2010 |
2011 |
2012 |
2013 |
% Share |
|
1 |
China |
1821.50 |
2376.87 |
2961.72 |
3221.15 |
3399.20 |
24.61 |
|
2 |
Canada |
1133.52 |
1303.40 |
1386.24 |
1390.35 |
1308.08 |
9.47 |
|
3 |
India |
790.79 |
989.50 |
1155.52 |
1172.30 |
1269.93 |
9.19 |
|
4 |
Mexico |
688.38 |
818.10 |
850.51 |
801.45 |
819.28 |
5.93 |
|
5 |
Italy |
350.94 |
423.32 |
469.28 |
485.41 |
518.02 |
3.75 |
|
Rest of the World |
4736.81 |
5818.13 |
6497.14 |
6459.68 |
6497.17 |
47.05 | |
|
Grand Total |
9521.31 |
11729.32 |
13320.41 |
13530.34 |
13811.68 |
100.00 | |
Source: Office of Textiles and Apparel (OTEXA), US (Value in million US$)
Apparel imports of US from 2009 to 2013
|
S. No. |
Country |
2009 |
2010 |
2011 |
2012 |
2013 |
% Share |
|
1 |
China |
29075.82 |
34652.75 |
36299.27 |
36072.63 |
37274.57 |
39.77 |
|
2 |
Vietnam |
5079.33 |
5879.77 |
6647.07 |
7120.68 |
8163.84 |
8.71 |
|
3 |
India |
4073.12 |
4702.04 |
5123.08 |
5029.60 |
5363.24 |
5.72 |
|
4 |
Indonesia |
3893.10 |
4463.05 |
5110.17 |
4998.30 |
5043.50 |
5.38 |
|
5 |
Bangladesh |
3479.41 |
4011.70 |
4577.36 |
4535.11 |
5025.42 |
5.36 |
|
Rest of the World |
28097.64 |
30013.26 |
32864.07 |
32255.62 |
32861.62 |
35.06 | |
|
Grand Total |
73698.42 |
83722.57 |
90621.02 |
90011.94 |
93732.19 |
100.00 | |
Source: Office of Textiles and Apparel (OTEXA), US (Value in million US$)
BRICS heads of state and government hold hands ahead of the 2014 G-20 summit in Brisbane, Australia. The BRICS nations have been left out of the TPP.
The two agreements, being pushed forward by the US, leave out the BRIC countries of Brazil, Russia, India and China. In the textiles and apparel context, India and China have been pushed into the same corner. India has been smarting at being left out of the negotiations, with TPP countries showing no signs of including more members. Right now, India is only part of the Regional Comprehensive Economic Partnership (RCEP, which includes China, 10 ASEAN countries, Japan, Korea, Australia and New Zealand).
Neither the US nor the EU repose much faith anymore in the WTO, which works mostly on the basis of consensus, whereby any country can veto any deal. India, for its part, has vetoed many proposals in the Doha Round of negotiations which have been deadlocked for almost 15 years. The TPP and TTIP, therefore, present a new world (trading) order. Anyone who is not a part of it would be at a disadvantage. Both the TPP and TTIP are said to be aimed at clipping the wings of China.
American sentiments were made clear by President Barack Obama on April 27, when he said in an interview, "If we don't write the rules, China will write the rules out in that region." The President repeatedly spoke of the "danger" of losing ground in economic competition with China if the trade deal is not completed: "We want China to be successful. We want China to continue to embark on its peaceful rise," he said. "I think that's good for the world... We just want to make sure that the rules of the road allow us to compete and everybody else to compete. We don't want China to use its size to muscle other countries in the region around rules that disadvantage us." Obama is desperate - he has been losing support even within his own people. Former secretary of state Hillary Clinton has declined to endorse the TPP, even though work on the agreement started while she was still in office.
Naturally, India has reasons to be worried. This was officially reflected in this year's Economy Survey of the Union Finance Ministry. It cautioned, "In the context of the slowdown in both world growth and India's export buoyancy exclusion from the mega-regionals would be additionally worrisome." Expressing concern over the slow pace of integration into the global value-added chains, it believed that India should not miss out on mega-regional free trade agreements (FTA), especially the TPP.
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