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India's protectionist policies strangle man-made fiber exports, say critics

Indias protectionist policies strangle man made fiber exports say critics

 

India's ‘Make in India’ initiative faces numerous challenges as Quality Control Orders (QCOs) draws criticism for stifling export competitiveness, particularly in the critical man-made fiber (MMF) sector. A recent analysis in the Business Standard highlights the detrimental impact of these QCOs, intended to safeguard consumers but now seen as a major impediment to trade. The report underscores how these measures represent a worrying trend towards protectionism, reversing decades of economic liberalization.

The report reveals an increase in the implementation of QCOs, with the number of products under their purview skyrocketing from a few dozen in 2011 to nearly 775 by 2024, covering over 100 sectors. This "astonishing expansion of bureaucratic control over trade," as the report calls it, is raising alarm bells, especially for MMF, where QCOs cover almost 100 per cent of imports.

MMF sector hit hard

The impact of QCOs is particularly visible in the MMF sector, a key component of the apparel industry. Man-made fibers like polyester and viscose are essential inputs for manufacturing garments, especially those used by major global brands. However, policy shifts, especially the imposition of QCOs, have severely disrupted the import of these crucial materials.  

As the Business Standard analysis points out, the restrictive policies initially kept imports low. A subsequent tariff reduction in 2022 allowed domestic apparel firms to increase tapping foreign suppliers, but the advantage was short-lived. The implementation of QCOs led to a sharp decline in imports, directly impacting the industry's ability to compete globally.

The report shows the number of products under QCOs has seen exponential growth. Import of MMF inputs like polyester yarn and viscose staple fiber has been volatile, directly influenced by policy changes. India's share of global MMF apparel exports has suffered setbacks due to policies.

"Policy whiplash" is how an expert described the situation, highlighting the conflicting signals from the government. "First, tariffs were reduced, which was a welcome move, but then QCOs were imposed, effectively negating any benefit. It's like taking two steps forward and three steps back," the expert said.

The burden of compliance

The QCO regime mandates that foreign suppliers obtain certification from the Bureau of Indian Standards (BIS). This process involves BIS officials inspecting factories abroad, assessing production processes, and conducting rigorous testing.  "The certification process is cumbersome and time-consuming," says a representative from a garment exporter association. "Small and medium-sized enterprises (SMEs) are particularly affected as they lack the resources to navigate this bureaucratic maze. In some cases, it’s not clear why the Indian standards are better or different from the international standards we already adhere to.” Indonesia has even raised concerns at the World Trade Organization (WTO) regarding India's certification process for its viscose exporters, highlighting the potential for trade disputes.  

Economic consequences

The Business Standard analysis emphasizes the broader economic implications of these protectionist measures. India's share in global MMF apparel exports, which had been growing, nearly halved after import tariffs were significantly increased in 2017. While tariffs were rolled back in 2022, the subsequent QCO implementation has continued to damage the industry.  

"The cost of renewed protectionism is being paid in terms of exports, economic growth, and jobs," states the Business Standard report. The garment sector is labor-intensive, while MMF production is capital and energy-intensive. Therefore, these policies risk destroying jobs in the garment sector while benefiting a few large domestic MMF producers.  

Beyond garments

The impact of QCOs extends beyond the garment industry. The Business Standard report notes their pervasive use in the footwear and solar panel sectors, among others. In the solar panel industry, QCOs are criticized for increasing the cost of renewable energy and hindering India's transition to sustainable energy sources.  

The analysis strongly advocates for the elimination of QCOs. It draws a parallel to the "license-quota-permit Raj" of India's past, arguing that QCOs represent a resurgence of economic nationalism, arbitrary interventionism, and crony capitalism.  

"Indian exporters are already facing stiff challenges in the global market," the report states. "The last thing they need is to be hamstrung by domestic policies. QCOs must be removed immediately; it is a matter of survival for this vital sector of the Indian economy."  

 
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