INDIA has doubled import duties on 328 textile items making costlier imported garments such as fabrics, carpets and technical textiles. Apparently, this policy decision aims to shield Indian manufactures from the fallout of a bitter Sino-US trade war. Indian textile is expected to suffer from collateral damage. India took a quiet, unannounced step last month to protect its key industry when it raised import duty on more than 50 textile products. The recent move is, however, much bigger in terms of the number of products. The textile sector is India’s second largest job provider after agriculture. It accounts for almost 15 per cent of the country’s total exports, making it the world’s second largest textile exporter after China. It has a genuine apprehension: blocked by the Americans, China may swamp the Indian market with cheap goods that would destroy the domestic industry.
Tariff protection is, however, a half measure. The new tigers — Bangladesh, Sri Lanka and Vietnam — are giving the Indian textile industry a run for its money. Most of these countries have extremely favourable trade treaties with India, including Free Trade Agreements (FTAs) and benefits from other pacts. China had been indirectly exporting its products without paying duties through these countries after a little value addition. The tariff wall will force it to use this loophole to gain market access. The government needs to plug this gap through the principle of ‘rules of origin’.
Besides being proactive on the tariff front, the government must take steps necessary to make the Indian textile sector competitive. Like China, India has all required resources — technology, raw materials, skilled labourers. What it lacks is the political will to correct policy anomalies. Skewed labour laws do not favour the creation of massive textile manufacturing units that could compete with the Chinese facilities in the economy of scale. The government must not rest easy after erecting tariff walls. The textile sector needs rejuvenation to make it the thriving export engine it once was.
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