The report, presented by two working groups, is a virtual roadmap for tariff liberalisation in respect of imports into the country and internal reforms for enhanced growth of the largest manufacturing sector earning one third of the forex for the country. It deals considerably with high cost internal economy and policy reforms, improved market access for Indian textiles and gearing up the monitoring system to check imports.
However, industry has made it clear the tariff reductions should be offered only if “effective additional market access is available to Indian textiles and clothing in the major importing countries such as the US and EU and competing countries too agree for similar liberalisation.” The groups are not against India and China jointly strategising the demand for equal treatment since China is a major exporter of textiles outside NAFTA and EU. Industry has urged bilateral preferential trade arrangements covering US and EU.
According to the working groups, finished fabrics (excluding industrial and technical fabrics), household linen and ready-made garments could face severe competition once liberalised tariff regime sets in and hence should be bound at higher rates of 25 per cent (30 per cent in the case of garments). Alternatively, this should be specific duty at the end of stage I of reduction in tariffs and at 20 per cent (25 per cent in case of garments) or specific duty at the end of stage II reduction.
The stage II of reduction in tariffs is expected to be effective by mid-2005 considering stage I commences by March 2003 when negotiations are concluded.
India’s fibre segment (cotton, silk, wool, polyester, viscose and acrylic) and carpets are considered non-sensitive in the sensitivity index prepared by the industry “based on current fragmented and weak structure and in-built deficiencies arising out of industrial and fiscal policies of the last five decades.” The index has put yarn and industrial & technical fabrics in the ‘B’ category (semi-sensitive), grey fabric and blankets in ‘C’ (sensitive) and the rest including ready-made garments in ‘D’ or highly sensitive class.
Accordingly, the two groups have recommended the bound rate to be pegged at five per cent in the case of raw cotton and wool, 15 per cent for VSF/PSF/filaments/yarn and 20 per cent for grey fabric (or specific duty) at the end of stage I reduction. The bound rates proposed at the end of stage II reduction are nil in the case of raw cotton and wool, 10 per cent in the case of VSF/PSF/filaments/yarn and 15 per cent (or specific duty) for grey fabrics.
“High cost of unreliable and inadequately available power, an unworkable labour regime, high interest rates and serious infrastructural inadequacies have been blunting the competitive edge of the Indian textile industry. The preferential access available to most of the competitors under NAFTA, AGOA and other regional and bilateral preferential trade arrangements have almost isolated the Indian textile industry. It has also been one of the principal victims of the GATT inconsistent bilateral trade restrictions under STA, LTA, MFA and the ATC,” the report comments.
The two working groups, one on fibre to fabric and the other for ready-made garments and knitwear, had separate sittings with the Textile Commissioner before finalising the combined report.
The industry is seeking a bigger role in all future negotiations too. It has recommended the setting up of a resource team with members from among industry representatives which could act as ‘on the spot resource’ and provide necessary inputs to the Indian team involved in the negotiation process. The industry has asked for an interactive session with the Indian negotiating team for textile & clothing sector to help latter understand the viewpoint in general.
Lack of inputs from the industry in the past has seen India giving away considerable tariff reductions for textile products during the Uruguay Round, and this was again repeated in bilateral negotiations on market access for textiles with the US and EU.
Analysing threats to Indian textile industry, the groups recommended application of appropriate specific duties to check mounting imports into the country from Far East countries and to exclude textile products from SAARC region agreements to the extent possible. The rules of origin should be made mandatory where such exclusions are not possible.
Stringent application of stamping regulations on imported textile products, detailed monitoring of import and export data and data compilation on domestic production for future planning have been suggested in the report.
On government policies, the group has once again highlighted the textile industry’s long pending demand to treat deemed exports by manufacturers in the domestic tariff area (DTA) on par with physical exports. The regimen for fiscal reforms include a complete VAT chain covering all central and local levies, inclusion of electricity duty in VAT refund, review of interest rates to bring them in line with current LIBOR of one per cent and abolition of import duty and excise duty on textile machinery and spare parts.
Power sector reforms, labour reforms and improvement in basic infrastructure facilities have also been sought. Repeal of Handloom Reservation Act, abolition of hank yarn obligation, removal of SSI reservation for knitwear form part of sectoral reforms urged by the industry.