India needs to soon carry out reforms including reducing tariffs, easing labour norms and promoting foreign investment, to cash in on the opportunity to be an apparel manufacturing and exporting major as China slowly relinquishes its lead position owing to factors such as wage increases, according to the World Bank.
India should look at ways to help its apparel sector connect to global value chains (where production processes are situated in different countries) and consider joining mega free trade agreements such as the Trans-Pacific Partnership to get preferential access to huge and lucrative markets such as the U.S., according to a World Bank report titled ‘Stitches to Riches? Apparel Employment, Trade, and Economic Development in South Asia,’ released on Thursday.
The apparel sector of China — which holds the largest share of global apparel trade at 41 per cent (as against India’s share of just 3.5 per cent) — is likely to be hit by factors such as higher wages and the production shift to higher value-added industries like electronics. This is encouraging investors to seek out apparel firms in countries like Cambodia and Vietnam, the Bank said. It added that the potential decrease in Chinese apparel exports presents a huge opportunity for South Asian nations. The World Bank estimated that even a 10 per cent increase in Chinese apparel prices could create at least 1.2 million new jobs in the Indian apparel industry.
Onno Ruhl, World Bank Country Director, India, said: “Rising costs of apparel manufacturing in China provides a window of opportunity for India to focus on apparel in productively employing its huge working-age population.”
Though India is gaining market share, Southeast Asian countries (Cambodia, Indonesia, and Vietnam) are outperforming all South Asian countries in overall apparel export performance, product diversity, and other non-cost related factors, according to the report. India’s annual apparel exports stood at about $12 billion as against China’s $145 billion.
For India to take advantage, it needs to move quickly to ease barriers to the import of manmade fibres, facilitate market access and encourage foreign investment to reach more end markets, which would also yield dividends for other light manufacturers like footwear and toy, the Bank suggested.
India should consider reforms including reduce tariffs and import barriers to ease access to manmade fibres -- such as more transparency for duty drawback schemes and bonded warehouses, and removing anti-dumping duties on manmade fibres, India could also lower excise taxes or provide other incentives to develop a domestic manmade fibre industry, it added. The import duty on manmade fibres is currently at around 10 per cent, while in competing countries such as Sri Lanka the duty is nil. “To improve productivity, they (India) could help firms enter the formal sector and take advantage of economies of scale with less complex labor policies. They (India) could also promote foreign investment for apparel by adopting clear and transparent policies on foreign ownership (already in place for textiles) and within Export Promotion Zones,” according to the report.
It added that India could diversify markets by taking advantage of market access to emerging markets. And it could shorten lead times by using industrial parks to provide better infrastructure in a concentrated way.
