Apparel Exports Need Fresh Lease Of Life… But How???? A Report..

Last few months have been catastrophic for apparel exports industry of India. One after the other the industry was struggling with one or the other challenge. While global competition is one aspect of the challenges within the country at the moment is being regarded as the biggest deterrent to the slow situation of the industry. Burdened with higher tariffs than their competitors, the exporters need more incentives and protection to stay afloat. India’s foreign trade policy pundits need to renegotiate tariffs on apparel exports with the EU and the US to tackle the emergent economic slowdown in the country. The apparel industry is the country’s largest low technology employer after agriculture, with 45 million workers, contributing two percent of GDP and 15 percent of export earnings.

Today, Indian apparel exports are burdened with 9-32 percent duty in the EU and US markets which blunts its competitive edge. Now that Vietnam has signed a Free Trade Agreement with the EU, which enables apparel exports at zero duty, Indian exports to these markets will be impacted adversely.

India’s two major competitors, Vietnam and Bangladesh, export apparels to the tune of $27 billion and $33 billion, respectively. India’s exports are at $17 billion. Vietnam has taken advantage of its bilateral trade agreements, while Bangladesh has benefited from its Least Developed Country status. They have not only tapped opportunities with the declining market share of China but have also eaten into India’s market share.

Over the years, Indian apparel exports have been in distress and survived largely due to export incentives. While these incentives have proved partially useful, they have not helped Indian apparel manufacturers compete on price with their competitors. To that extent, the flawed foreign trade policy does not augur well for apparel exports.

The situation is further complicated by the flip-flop on incentive schemes. For example, the government decided to introduce the Rebate of Central Taxes and Levies (RoSCTL) in March 2019. While the apparel industry welcomed the announcement, its optimism was dampened with news from North Block that Merchandise Export Incentive Scheme (MEIS) meant to offset infrastructural inefficiencies will be retrospectively withdrawn.

This incentive is calculated as a percentage of export (freight on board) value and given in the form of tradable scrips which can be used as currency to pay Customs duty or sold to other importers.