Vietnam could attract large Indian apparel firms
At a time when India’s exports are already weak—they contracted for the ninth straight month in August—the recently-concluded TPP (Trans-Pacific Partnership) agreement between 12 trading countries that produce 40% of the world’s output threatens to derail the country’s garments trade. Once the TPP agreement is in place, garments-exporting nations such as Vietnam, already the world’s second-largest seller with $24 billion of revenues, would be in a position to sell to the US and other members of the trade bloc at zero duty. In contrast, Indian exporters need to fork out duties of as high as 30%, putting revenues of $18 billion at risk. Already a relatively strong currency and slower global trade have meant diminishing export revenues, but once nations such as Vietnam and Malaysia start selling at zero duties, they would become virtually invincible.
In an interview to Bloomberg TV, Arvind Group chairman Sanjay Lalbhai pointed out that if his firm exports a pair of jeans to the US, it pays a 17% duty; if the garment is a branded fabric made of more than 50% polyester, the duty almost doubles to 33%. Indeed, it could become hard for India to access markets such as the US or Europe even for cotton garments given the duties range between 10% and 17%. While the commerce ministry has been relatively sanguine about the TPP—indeed, its inability to even hike duty drawback rates after steel duties were raised is what hit engineering exports in August—if Indian firms either lose out to Vietnam or Malaysia or shift base there, lakhs of jobs will also be lost; that would be really unfortunate since, with Chinese wages and the currency hurting its exports, India has a big opportunity to try and grab the share vacated by China.
To combat TPP, India has to either come up with its own set of incentives for exporters that are WTO-compatible, or it has to rush its own work on trade pacts with large economic groups. While coming up with incentives so large as to negate the duty advantage Vietnam and others will get once TPP comes into effect is not possible, it remains true the commerce ministry has not been able to even come up with an interest subvention scheme for labour-intensive exports, and with steel duties going up again, the low duty drawbacks will continue to hit engineering exports. While India is working on trade pacts, the government needs to be realistic—any pact outside of the WTO framework is going to demand India make changes, on market access or on its patent regime, for instance. Unless the country is willing to be flexible—and it has shown no such flexibility in WTO negotiations—it is in danger of getting further marginalised when it comes to global trade.