3 months ago
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India’s textile assemblage has been steadily losing crushed successful planetary export markets. In contrast, Bangladesh has woven unneurotic a singular export success. Given the precocious signed India-EU Free Trade Agreement (FTA), and with Bangladesh poised to suffer its Least Developed Country (LDC) status, this is an opportune infinitesimal for India’s textile industry.
Within the textile worth chain, India’s exports to the EU stay concentrated successful intermediate products — peculiarly yarns and fabrics — alternatively than successful finished garments specified arsenic T-shirts, shirts, and trousers. Bangladesh’s exports acold transcend India’s successful 2 readymade garment categories successful peculiar — knitted oregon crocheted garments (such arsenic T-shirts, jerseys, pullovers, sweaters, and cardigans) and woven garments (such arsenic suits, jackets, trousers, dresses, and shirts).
As shown successful the illustration below, India’s stock of the EU’s full imports declined from astir 6.5% successful 2009 to astir 4.4% successful 2023 for knitted/crocheted garments. Bangladesh’s stock roseate from conscionable 6% successful 2000 to 13% successful 2009 and 26% by 2023.
A akin signifier is seen successful the woven garments commercialized too. For woven garments, India’s nominal export worth to the EU fell successful implicit numbers from a highest of astir $3.5 cardinal to $2.9 billion.
To recognize wherefore Indian garments person not been capable to vie with Bangladesh successful the EU market, we compared the mean per-unit terms of Bangladesh’s large export commodities. From the array below, it is wide that India’s portion values are consistently higher crossed each products.
This whitethorn bespeak the following: First, India whitethorn beryllium exporting much value-added, better-quality garments, which allows it to complaint higher prices.
However, its debased marketplace stock reveals that the EU’s request for specified products is constricted comparative to mass-market apparel, suggesting that ‘premium positioning’ (if astatine all) unsocial cannot thrust volume. Second, and much likely, is that higher prices whitethorn bespeak structural disadvantages: higher accumulation costs, little integrated proviso chains and logistical inefficiencies.
Furthermore, the tariffs faced by Indian and Bangladeshi products are radically different. Bangladesh, arsenic a LDC, has enjoyed duty-free, quota-free entree to the EU nether the Everything But Arms (EBA) scheme.
Crucially, this zero-tariff entree applies adjacent erstwhile garments bash not conscionable the EU’s modular ‘double transformation’ requirement.
This means Bangladesh tin import cloth from anyplace successful the world, stitch garments domestically, and export them to the EU astatine zero duty. India, lacking specified preferential treatment, has faced EU Most Favoured Nation (MFN) tariffs of astir 12%.
Internal factors besides matter. Over the past 3 decades, Bangladesh has unilaterally and consistently promoted the garment sector. India’s approach, by contrast, has been fragmented. Yet, the equilibrium whitethorn beryllium poised to shift. Two large structural breaks are connected the horizon.
First, Bangladesh is acceptable to suffer its EBA benefits successful 2029. This would mean the extremity of automatic duty-free entree to the EU, with apparel exports perchance facing MFN tariffs of astir 12%. Bangladesh is past expected to question introduction into the EU’s Generalised Scheme of Preferences Plus (GSP+), which offers zero tariffs connected astir two-thirds of tariff lines, including textiles. However, GSP+ comes with stricter rules of root (RoO) and safeguard provisions.
As Bangladesh is heavy reliant connected different countries (including India) for fabrics, this could mean that Bangladesh’s garments whitethorn not fulfill GSP+ RoO for work escaped entry. Bangladesh, volition of course, effort its champion to negociate its mode retired of this clause.
Historically, EU has maintained its stance connected the treble translation criteria. In lawsuit it continues to bash so, Bangladesh volition beryllium astatine a superior disadvantage. If contention is price-driven, past Bangladesh whitethorn suffer its marketplace share. If, connected the different hand, Bangladesh’s superior vantage comes from supply-chain integration, past it could inactive clasp dominance successful the look of higher tariffs.
The precocious finalised statement grants India duty-free entree to the EU’s textile markets, taxable to the double-stage processing requirement. Since India’s textile manufacture is already comparatively vertically integrated — astir of the yarn and cloth utilized successful apparel accumulation is manufactured domestically — the double-stage request is not apt to beryllium an impediment for Indian textile exports. As a result, Indian exporters are well-positioned to conscionable stricter rules of root without large restructuring.
Taken together, these changes make a uncommon model of opportunity: narrowing of Bangladesh’s preferential vantage and simplification of India’s tariff disadvantage. Textiles stay 1 of the largest employers successful Indian manufacturing, spanning some ceremonial and informal enterprises, yet the assemblage has failed to make employment opportunities successful caller years.
Reviving textile exports, peculiarly to high-income markets similar the EU, could enactment arsenic a much-needed tonic for India’s employment crisis. The question is whether India is yet acceptable to tailor a strategy that fits, capturing marketplace stock with cost-competitive production, vertical integration, and a coherent concern policy.
The caller acquisition of Vietnam’s apparel exports, which saw a surge station the signing of the EU-Vietnam FTA successful 2020, is indicative of the opportunities connected the skyline for India.
Anwesha Basu and Arnab Chakrabarti are Assistant Professors successful the Department of Economics, FLAME University
