How is it that India’s textiles and apparel exports get adversely affected in the 28-member European Union, United States and China? The reason is not far. It is the duty disadvantage faced by India vis-à-vis its competitors. EU’s Generalised System of Preferences (GSP) is applied discriminately. Pakistan and Bangladesh receive duty-free access in the EU because the former is a GSP beneficiary, while the latter is a least-developed-country (LDC). The GSP benefits are also made available to Turkey (an EU member), which also enjoys logistic advantage due to proximity to the EU.
India’s fabrics exports to the EU attract an 8 per cent duty while yarn exports are charged a 4 per cent duty. It is widely known that Pakistan enjoys the GSP benefits because of its co-operation with the EU in combating drug trafficking. India is not in the business of drug trafficking, hence, the denial of GSP. This issue though could be raised in the World Trade Organisation (WTO) for a resolution.
In the US, India’s apparel exports attract an average duty of 10.2 per cent while nil rates is applied on imports from Bangladesh and Ethiopia in the EU and zero duty on imports from Ethiopia in the US. The selective preferential duty access has resulted in India already losing out 37 fabrics items to Pakistan on account of zero-duty access to Pakistan by the EU.
In China, Indian fabrics are charged at 8.5 per cent duty, while no duty is slapped for the same item entering from Pakistan. New Delhi can gain by negotiations for tariff concessions with China for grey fabrics under the Regional Comprehensive Economic Partnership (RECP) agreement as Pakistan has an 80 per cent share of the market and India has only two per cent share.
These negotiations could be a long drawn out process as New Delhi will have to give concessions in other areas. In the Fourth India Strategic Economic Dialogue (SED) held recently, textiles exports to China did not figure at all. Textiles exports to China could be increased multi-fold, if market access issues are resolved. Textiles could be a part of all SED until the import duties are reduced. Turkey has a well-established textiles and apparel industry while it is also a good market for fabrics, especially the fine and denim type from India. Istanbul however has slapped, as a protectionist measure, additional duties on Indian fabrics. With this, the minimum duty stands at 1.25 dollar per kg and the maximum at 4.25 dollar per kg tariffs.
Since the imposition of the duties, exports (covered under HS Codes 6208-6212) from India to Turkey have declined from $43.02 mn to $19.38 mn in 2016, as per the latest data. The levy of additional duties is in contravention of GATT Article II:1 (b),which states that non-ordinary customs duties cannot normally be levied, except when they are done as per the WTO Safeguards Agreement. In view of this, this matter needs to be taken up with Istanbul or at WTO.
The additional duties were imposed on fabrics in 2011. For imports from less-developed- countries, the additional tax ratio of 11 per cent will be added to the existing zero per cent tax, resulting in tariffs of minimum 0.75 dollar per cent and maximum 3.75 dollar per kg. For imports from developing countries, the additional tax ratio of 18 per cent will be added to the existing tax of 6.4 per cent, resulting ina minimum of 1 dollar per kg and maximum of 4 dollar per kg tariffs. For imports from “other countries,” the additional tax ratio of 20 per cent will be added to the existing tax of 8 per cent, resulting in a minimum of 1.25 dollar per kg and a maximum of 4.25 dollar per kg. As per Turkey’s country classification, India falls under the “other countries” category. If the duties are reduced, India’s cotton fabrics exports could go up.
Currently, exports of cotton yarn are not covered under the 3 per cent Interest Equalisation Scheme (IES) and the Merchandise Exports India Scheme (MEIS). These benefits could be extended to cotton yarn as well, as there is excess production capacity in the spinning sector which needs to export its surplus yarn to survive and sustain its activities.
Night shifts for female workers could be allowed in accordance with the regulations provided by some States like Tamil Nadu. This could make textiles exports more competitive. Next comes power, which is one of the major cost factors affecting the textiles industry’s competitiveness. Some States like Haryana, West Bengal and Telengana have power tariff subsidy/part waiver policy to enhance competitiveness. Making power available at competitive rates can be a game changer for textiles exports. Lowering the rates for non-peak hours can also be considered.
The government has already taken several steps in the recent past to help apparel and textiles exports. These are(i)overtime hours for workers not to exceed 8 hours per week in line with the International Labour Organisation (ILO) norms (ii) Introduction of term employment under Section 1 (15) of the Industrial Employment (Standing Order) Act, 1946(iii) Making employees contribution to Employees Provident Fund optional for employees earning less than Rs. 15,000 a month (iv) moving away from input outcome-based incentive by increasing subsidy under the Amended-TUFS from 15 per cent to 25 per cent for the garment sector as a boost to employment generation(v) special scheme for remission of State levies by the textiles industry for three years with rebate to be worked out by the Drawback Committee, and (vi) Drawback at All Industry rates to be given when fabrics inputs are imported under the Advance Authorization Scheme.
Currently, the3 per cent IES is not available to merchant exporters. Since the financial requirement of manufacturer-exporters and merchant exporters at the pre-shipment stage and post-shipment stage is the same, the benefit can be extended to merchant exporters. For instance, as per the Standard Operation Procedure goods such as yarn, fabrics made-ups for exports are procured from the spinners by merchant exporters. As such, any financial support to merchant exporters can lead to an increase in exports. Further, the main beneficiary will be the manufacturers from the Small Medium Enterprises (SMEs) whose production and employment go up due to export orders placed with them by merchant exporters.
Merchant exporters in specified sectors are eligible for the interest subvention scheme, but they have been excluded under the current IES. Insectors such as carpets etc. exports are undertaken by merchant exporters.