Warp and weft

Perhaps taking a cue from the climate of protectionism the world over, the Centre has decided to raise import levies on 50 items, from fibre to apparel. Most of the items will attract a rate of 20 per cent, against 10 per cent now. Readymade garments (RMG) imports increased from ₹2,643 crore in 2013-14 to ₹4,983 crore in 2017-18, which amounts to a CAGR of over 17 per cent — and these are just official numbers. Bangladesh and China, with whom India shares porous borders, accounted for about 64 per cent of India’s RMG imports in 2017-18 (26 per cent and 38 per cent, respectively). The hike in duty will contain direct Chinese imports, but not so much the influx from Bangladesh. Since India has free trade pacts in place with Bangladesh and our less significant RMG import origins, Vietnam and Cambodia, the higher tariffs are unlikely to come into force with respect to these countries.

Lower RMG imports from China over the next few years will open up a section of the domestic market for local players. However, this window of respite may not last for long. China could step up its relocation of apparel making into Bangladesh and ASEAN countries, a process that is already underway as a result of rising labour costs in China and a larger move by its industries to move up the skills and technology ladder into sectors such as electronics. Despite the size of the Indian market, China has generally preferred to export its way into India rather than set up facilities here, with India too not being entirely comfortable at the latter prospect for strategic reasons. Hence, there can be no getting away from India’s RMG sector setting its own house in order.

While China’s share in global apparel exports is on a gentle decline (it still controls over a third of the world market), India has been losing out to Vietnam and Bangladesh, with the respective shares of the three countries at 4 per cent, 5 per cent and 6 per cent. As Economic Survey 2016-17 implicitly suggests, India’s textiles and apparel industry has been impacted not as much by labour costs (it observes that monthly wages at $80-120 are on a par with those in Bangladesh but lower than in Vietnam, Indonesia and China) as by logistics and tax-related hassles. Besides, the price of cotton is a factor of concern in an industry where margins are under relentless pressure. The government could pitch in with housing costs for labour, as in China’s clusters. While staying competitive on the global stage, a large domestic market helps the garments sector to ride out shocks arising out of constantly shifting global market trends.

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