Zero duty regime with Bangladesh will boost Entry of Chinese fabrics into India

Zero duty entry for Bangladeshi garments to India could indirectly end up offering Chinese fabrics duty-free access into the country. This is because Bangladesh is almost entirely dependent on Chinese fabrics for the manufacture of its exportable garment items.

According to industry players, the Bangladeshi garments sector, despite lacking a raw material base, has emerged more cost competitive than the Indian clothing industry and now has an edge even over the Chinese garment industry. Bangladesh has surmounted the problem by riding on cheap Chinese fabric imports and phenomenally low labour costs back home.

In the case of the Bangladesh-India pact, the Rules of Origin of exportable garment products are to be determined by the Agreement on South Asia Free Trade Area norms, which permits garment items made of imported fabrics to qualify for duty-free market access to India subject to the condition that at least 30 per cent value addition should take place in Bangladesh.

Earlier too, the domestic industry had raised apprehensions about the Chinese export juggernaut gaining access to the Indian textile and clothing market by taking advantage of a similar duty-free pact that India has with Nepal. Immediately after the phasing out of global textile trade quotas in the mid-2000s, the Indian market saw Nepal emerge as the largest readymade garment exporter for over 12 months. That Nepal only had a fledgling domestic textile industry, with only a handful of registered exporters, lent credence to apprehensions that Chinese garments were being routed through Nepal.

Indian textile players have expressed concern that government’s announcement of duty-free access to 46 textile items from Bangladesh in the form of a unilateral trade concession could hit them hard. However, Indian consumers could gain in terms of cheaper garments from across the border.

With increasing labour costs, rising inflation and a strengthening currency, China has been losing its foothold as the lowest cost manufacturer and countries such as Bangladesh and Indonesia have been the big gainers. Chinese fabrics, though, continue to be extremely competitive, especially for countries that lack a developed raw material base to feed their garment/textile sectors.