India needs to actively pursue FTAs to push apparel exports, suggests RBI

India has traditionally enjoyed a comparative advantage in the textile sector, including apparels, and they constitute a major chunk of India’s export basket.

India needs to actively pursue free-trade agreements (FTAs) with major export destinations like the EU and the US to push apparel shipments amid increasing competition from Bangladesh and Cambodia that enjoy tariff concessions, an RBI article said on Wednesday.

India has traditionally enjoyed a comparative advantage in the textile sector, including apparels, and they constitute a major chunk of India’s export basket.

“However, over the past few years, near stagnation in India’s textile exports, particularly in apparel exports, has been witnessed,” said the article in its analysis of the role of tariff regimes of the destination country in directing the exports of apparels from major suppliers including India.

The article published in the RBI Bulletin said India’s apparel exports to the EU, which is the largest market for apparel exports, have stagnated in the last decade while other countries like Bangladesh, Vietnam and Cambodia have witnessed robust growth.

Preferential tariff treatments in the form of EBA (Everything But Arms) have been a major contributory factor for the rapid growth of apparel exports from Bangladesh and Cambodia, especially after the relaxation of input sourcing norms in 2011.

“Robust growth of apparel exports by Vietnam to EU despite facing similar tariff structure reflects some underlying issues being faced by the apparel exporters in India,” said the article written by RBI officials.

The RBI, however, added that the views expressed in the article are those of the authors and do not represent the views of the Reserve Bank of India.

The US, the EU, UAE, Canada and Saudi Arabia are among the major markets for Indian apparels.

“India needs to actively pursue free-trade agreements with its major export destinations – EU, US – to prevent competitive disadvantage it currently faces due to tariff-free access to its competitors,” the article said.

With Vietnam having signed an FTA with the EU in 2019, the competition is only expected to intensify for India, it added.

According to the authors, the recently introduced production-linked incentive (PLI) scheme for textiles, specifically aimed at boosting the production of man-made fibre (MMF) fabric, MMF apparel and technical textiles is a step in the right direction.

High transportation cost owing to wider geographical spread, high inland transportation cost and major production areas situated inland also contribute to the higher cost of Indian apparel exports vis-à-vis competitors.

The PM-MITRA (Mega Integrated Textile Region and Apparel) parks scheme, under which seven integrated textile parks are to be set up in the country, will help develop the integrated textile value chain, the article said.

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