- 1 Competitiveness when Measured Upon the Below Parameters
- 1.1 Trade Agreements Between Countries
- 1.2 Import-Export Duties in EU and US Markets
- 1.3 Export Costs Of GoodS and Services
- 1.4 Rate of Availability of Power to Industries
- 1.5 Raw Material Availability
- 1.6 Availability and Cost of Labour
- 1.7 Global Competitiveness Ranking
- 1.8 Rates of Taxation for Textile and Apparel Exports
- 1.9 Policy Support for Textile Exporter
- 1.10 Export Trends In Textile and Clothing
- 2 Do You Know?
India is doing well at the world platform in exports and businesses and is trying hard to grow continuously, especially in Textile and Apparel exports.
India has been ranked as the 58th most competitive economy in the World Economic Forum’s global competitiveness index for 2018.
India Improved it’s Rank by a whopping 23 positions and moved to 77th in the Ease of Doing Business. The World Bank released its latest Doing Business Report.
Indian textile companies have continuously faced higher trade barriers compared to other competing countries like Bangladesh, Vietnam, and Pakistan in key markets such as the USA and EU.
The Basic Average tariff on textile products faced by India with regard to competing countries in EU and USA: India faced tariff rates of 5.9% and 6.2% in the European Union and United States of America respectively, whereas competing nations like Bangladesh, Vietnam and Pakistan had comparatively nominal tariff rates of (0 & 3.9) %, (6.1 & 5.5) % and (0 & 5.3) % that made the Indian exporters go through a cut-throat competition in the western world.
Post GST, Textile and Apparel exporters were losing competitiveness by around nine percent in export markets as other countries were continuously growing through government incentives and Indian garment exporters were still calling for changes to the goods and service tax.
To enhance exports of textile and apparel products, the Government has announced the Special Package for garments and made-ups sectors.
The package offers Rebate of State Levies (RoSL), labor law reforms, additional incentives under ATUFS and relaxation of Section 80JJAA of Income Tax Act, in regards to employment generation.
Also, the rates under Merchandise Exports From India Scheme (MEIS) have been enhanced from 2% to 4% for apparel, 5% to 7% for made-ups, handloom, and handicrafts.
Products such as fibre, yarn, and fabric in the textile value chain are being strengthened and made more competitive through various schemes such as inter alia, Powertex for fabric segment, Amended Technology Up gradation Fund Scheme (ATUFS) for all segments except spinning, Scheme for Integrated Textile Parks (SITP) for all segments, etc.
Assistance is provided to exporters under the Market Access Initiative (MAI) Scheme. In Addition, the Government has also enhanced the interest equalization rate in favor of exporters for pre and post-shipment credit for the textile sector from 3% to 5%.
A New Boost with Introduction of RoSCTL by the Government of India in 2019
This led to reduction in the hank yarn obligation from 40 percent to 30 percent which came into effect from January 1, 2019, and was considered a welcome move that would enable ease of doing business by the export leaders of India.
The knitwear garment exporting units of India was going through a huge pricing pressure from competing countries other than China; like Vietnam, Bangladesh, Cambodia, Indonesia, Sri Lanka, and Pakistan.
RoSCTL introduction came as welcome relief. The approval of the new scheme by ministry lending ₹6,000 crore will benefit the apparel manufacturers and exporters, also will help boost the country’s competitiveness in the export market and ensure equitable and inclusive socio-economic growth of the textile and apparel sector.
The industry was pleading before the Union Government to include spun yarn and fabrics under the RoSL benefit for the last two years.
The government should have had considered the spinning and weaving/ knitting segments as these were the majorly suffered ones with surplus production capacity.
Post-GST, garment exporters and madeups began showing signs of struggle due to the inadequate export benefit and tariff barriers.
Competitiveness when Measured Upon the Below Parameters
Trade Agreements Between Countries
Trade agreements that provide non-tariff benefits and tariff benefits have always played a major role in determining the final export price of products to different importing countries, thereby impacting the competitiveness of the garment and textile export of the country in the specific region of imports.
The key markets that govern the global textile trade are the US and Canada, Europe, Middle East, Japan, and Australia.
The presence of the preferential or regional trade agreements definitely has a significant impact on the competitiveness of the textile and apparel industry of a country.
Import-Export Duties in EU and US Markets
The FTAs (Free Trade Areas) play a key role in defining the price competitiveness of textile and apparel exports with key competitors enjoying the benefits of either the GSP+ status, LDC status or through FTAs.
U.S. trade preference programs such as the Generalized System of Preferences (GSP) provide opportunities for many of the world’s poorest countries to use trade to grow their economies and climb out of poverty.
While India Pakistan and Turkey have the GSP status, although when most textile and apparel items are not covered under GSP.
China, Bangladesh, and Vietnam along with India, Pakistan, and Turkey have Normal Trade Relations with the US and hence enjoy the rates applicable to NTR (Formerly known as MFN)( Most Favored Nation Status, which India has withdrawn from Pakistan imposing 200% duty).
Cambodia is part of LDCs and accordingly, duty rates are applicable. However upcoming TPP (Trans-Pacific Partnership drafted in 2015), which is yet not into force, will give Vietnam a significant advantage in terms of duty-free access to the US.
Export Costs Of GoodS and Services
The transport cost of Goods from Delhi to Mumbai via road is far more than that of the cost of moving goods from Mumbai to Chicago on Ship, such are the situations in India.
On the Global platform, the transport cost of shipment along with the average time it takes for delivery of the shipment is a major factor when it comes to determining competitiveness.
India with its higher transport cost of export loses out to other countries of South Asia which have much lower transport costs.
Rate of Availability of Power to Industries
Availability of cheap power is a major competing factor in the industry and plays a significant role in determining the competitiveness of the country.
China and Vietnam enjoy the cheapest power rates for their industrial use amongst all the competing countries, with China continuously maintaining its power cost at a very low level, driving most of its competency from it.
India has a comparatively higher power tariff when compared to most competing countries with Republic of China and Vietnam.
Raw Material Availability
Availability of good quality raw material at competitive prices in terms of fibres and fabrics has been a requisite for a strong competitive textile and garmenting industry.
The countries of China, India, Pakistan, and Turkey have strong production of cotton while the other competing countries Bangladesh, Cambodia, and Vietnam are heavily dependent on imports for the same.
Bangladesh, Vietnam, and Cambodia are mostly garmenting hubs that are highly dependent on fabric imports to cater to their export demands.
Whereas India, China, Pakistan, and Turkey have integrated textile industry with huge presence across the value chain and the imports are higher on the fibre and yarn sectors.
Availability and Cost of Labour
Labour is one of the most important factors that determine competitiveness when it comes to highly labor-oriented garmenting and textile industry.
Each of the major competing countries thrives on lower wage rate as a core competing factor Turkey and China has a higher cost of labor whereas countries like Myanmar enjoy the cheapest labor rates amongst the identified competing countries.
South East and Pakistan and Bangladesh enjoy much cheaper labor wage rates which are almost 50% of what is applicable in India, giving the countries a significant competitive advantage in a labor-intensive industry such as textiles.
Global Competitiveness Ranking
The rankings done in 2019 indicate that among the competing countries the USA topped the list, China is the most competitive nation followed by Turkey and India majorly dealing in apparel exports.
While China has strong competitiveness in Infrastructure, labor market efficiency and Innovation, Turkey takes the upper hand in Technological readiness.
India has a significant score when it comes to the level of innovation but lacks behind in infrastructure and technological readiness. Which is again an area for India to work upon in the near future.
Rates of Taxation for Textile and Apparel Exports
India and Pakistan have the highest Business/corporate income tax rates compared to the key competing countries like Vietnam and Bangladesh.
The difference in corporate tax rate provides a significant additional margin to exporters from other countries increasing their competitiveness in the exports market.
With the world getting further globalized such tax rates to have great hands in deciding the Final Bid for the Buyers to identify the most competitive exporter sitting at the farthest corner of the globe.
Policy Support for Textile Exporter
Countries like Vietnam provides support through export credits and investment credit guarantees and subsidized loan, also they support up to 4% points from Vietnamese Development bank. Bangladesh also gets huge support as that is their major contributor to GDP.
Support for export-oriented market identification, participation in trade fairs and funding of market and Export Processing Zones, Special Economic Zones and High Tech Zones, wherein the benefits like lower tax on employment of women and minorities are provided, duty reimbursements, exemption from import and export-oriented duties in EPZ along with provision of plug-and-play infrastructure are the sound and vibrant policies that shall help grow the Textile sector at a larger scale and that too with a good pace.
Export Trends In Textile and Clothing
Textile and apparel exports from Vietnam were valued at US$ 32 billion for 2017, growing at 12.65% CAR from 2012 to 2017. Vietnam had a share of 3.1% in the global textile trade in 2014.
Vietnam is the current low-cost garmenting center which became the center of attraction of investors in Hong Kong, leaving India behind.
Faster refund of taxes paid has definitely helped in improving the textile sector’s cash flow, but underlying issues have remained the reason behind India’s apparel export drop of about four percent to $16.7 billion in 2017-18.
This was alarming, as this was the first reversal after years of relatively steady 7-8 percent growth, and more so as apparel exports still account for around 15 percent of India’s total exports.
The recent fall was largely a consequence of the funds’ crisis faced by apparel and textile manufacturing and exporting units, a situation created by a combination of delays in the processing of refund of taxes and reduction of duty drawback with the implementation of the Goods and Services Tax in July 2017.
Which saw the continuous fall, regulations not taken to ease the flow of funds to the units, led to the not only loss of markets to more competitive exporters such as Bangladesh and Vietnam but the closure of units and widespread job losses in this labor-intensive sector of Textiles.
The continuous shortage of funds have left Apparel and Textile manufacturers and their exporters no option but to increase prices by around 5-6 percent, and that too mainly because of low cash fluidity offered by Financing Banks.
But in a fiercely competitive market, price increase leads to loss of market, competitors cut your growth and consumer base at a single stroke.
That is what is happening to Indian apparel exports, and we are finding out solutions to tackle it immediately.
An early resolution is needed to prevent a deepening of the crisis in the textile and apparels export industry, particularly at a time when global demand has picked up.
Textiles and apparels industry is also one of the largest employers, particularly of women, after the agriculture sector, and its continued health is important for the creation of jobs. Especially when already other sectors are using an offset in the job creation
India has requested the US to maintain GSP beneficiary status for another 2 months at least, considering GSP factor that has played a key role in the competitiveness of Indian apparel export in USA and EU.
India’s apparel industry also faces the challenge to contend with faster growth of exports from Bangladesh and Vietnam.
While both countries experienced about 14-15 percent compound annual growth rate (CAGR) between 2012 and 2018 compared with India’s 7-8 percent.
Better infrastructure and smoother clearances with less paperwork are among some of the major factors helping exports from those countries.
Exports from Bangladesh have the added advantage of a free trade agreement with the European Union, lower labor costs and higher productivity.
India, in comparison, has faced the fear of reduced competitiveness as it needs to phase out export subsidies.
Thus competitiveness can be concluded quoting wise lines
Competition is always a good thing. It forces us to do our best.