India’s textile and garment exports are likely to fall short of targets for 2017-’18.
During April to February 2017-18, exports of readymade garments fell 6.25 per cent over the same period last year. In February alone, shipments witnessed a steep 13.86 per cent fall.
A worrying factor is the backdoor entry of Chinese fabrics into the Indian market via Bangladesh.
Another negative factor is that the effective duty drawback has come down for the sector post implementation of GST, thereby hitting export margins. Although the remission of state levies and the Merchandise Exports from India Scheme rates were tweaked late last year, a two per cent gap still exists, which is crucial in a single digit margin industry. Moreover, refunds are getting delayed or blocked and the financial crunch is taking a toll on the capital intensive industry.
China, which is the largest market for cotton yarn, has imposed a 3.5 per cent import duty on yarn from India under the Asia Pacific Trade Agreement, while duty free access is given to Vietnam. This has led to a large capacity expansion in yarn manufacturing in Vietnam, which has surpassed India to become the largest supplier of cotton yarn to China.
As a result, India’s cotton yarn exports to China have decreased by 49 per cent, while Vietnam’s exports of cotton yarn to China have increased by 88 per cent.