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POST TIME: 5 September, 2018 00:00 00 AM
India’s decision to hike textile import tax may benefit Bangladesh
Trade deficit with India is the highest in Asian region and exploring more opportunity in Indian markets will help Bangladesh to reduce this gap
Prof. Sarwar Md. Saifullah Khaled

India’s decision to hike textile import tax may benefit Bangladesh

As India has decided to double the import tax on more than 300 textile products, Bangladesh that enjoys duty free exports of readymade garments to the neighbouring country will see a  rise in its export to India. Entrepreneurs say that to curb imports from China, India’s decision to double tax on import of textile products will benefit the Bangladesh apparel industry. Bangladesh will be able to take the Indian market from China as the tax will curb Indian imports from China. Bangladesh’s RMG exports rose 10 percent year-on-year in fiscal year 2017-2018. Experts believe that India’s decision will help Bangladesh post more growth in apparel export this fiscal year 2018-2019.

Trade deficit with India is the highest in Asian region and exploring more opportunity in Indian markets, will help Bangladesh to reduce trade gap. As they are not subject to any duty under free trade agreements (FTA) signed by India with Bangladesh, Vietnam and Cambodia, India’s imports of textile products from these countries also jumped in the last few years. The 20 percent duty India imposed on textile products will not be applicable to products sourced from those countries due to the FTA. Meanwhile, India doubled the import tax on more than 300 textile products to 20 percent as the world’s biggest producer of cotton tries to curb rising imports from China. It was the second tax hike on textiles in many months after an increase on other products including fibre and apparels. The moves are expected to provide relief to the domestic textile industry, which has been hit by cheaper imports. India’s total textile imports have jumped by 16 percent to a record US $7 billion in the fiscal year to March 2018. Of this, about US $3 billion were from China.

Bangladesh’s apparel exports to India, a close competitor in the global markets, have seen sharp rise by 115 percent to US $279 million in the last fiscal year 2017-2018. For the sharp rise in export earnings, exporters and trade analysts attributed quality and reasonable price of clothing products. According to the Export Promotion Bureau (EPB) data, in the fiscal year 2017-2018, Bangladesh’s RMG exports to India stood at US $279.19 million, up by 115 percent compared to US $129.81 million in the fiscal year 2016-2017. Bangladesh’s apparel exports to India have seen a sharp growth by 115 percent in the fiscal year 2017-2018.

Of the total amount, Knitwear products earned US $71.05 million, which is 89.75 percent higher than the US $37.44 million in the same period a year ago. Woven products earned US $207.62 million, up by 124.79 percent, compared to US $92.35 million a year ago. On the other hand, Bangladesh’s overall exports to India have registered a 29.87 percent growth to US $873.27 million in the fiscal year 2017-2018. Exporters Association of Bangladesh (EAB) said that it is a good sign for Bangladesh that its apparel exports to India have seen sharp rise. Demands of Bangladeshi products increased in the Indian markets due to competitive price and product quality. As a result, exports earnings rose significantly. Bangladesh Garment Manufacturers and Exporters Association (BGMEA) maintains that, on the other hand, global brands are opening outlets in India and sourcing from Bangladesh, which may be another reason for the recent rise in export earnings from India.

The export earnings for Bangladesh from the neighboring country, however, could be more, if the non-tariff barriers are removed. As India has the second largest population after China, it is a very potential market for Bangladesh. While, there is a middle class with handsome disposable income there, in tapping the opportunity, Bangladesh government has to boldly negotiate with the Indian government to remove non-tariff trade barriers. A common standard is also suggested, which will be effective in all provinces in India to ship goods. Non-tariff barrier is a great challenge for Bangladesh to expand exports volume as well as value. Bangladesh has to focus on harmonising common standards for trading, in taping the opportunity in Indian markets. The government should stress on improving the bilateral trade relation between two neighbouring countries. On top of that, Bangladesh has to improve the connectivity with the boarder area such as with seven- sisters to grab more market share in India.

India did not disclose details of the 328 textile products that will be subject to the duty increase. Rising imports sent India’s trade deficit with China in textile products to a record high US $1.54 billion in 2017-2018, alarming industry officials as India had been until recently a net exporter of textile products to China. The president of the Confederation of Indian Textile Industry, Sanjay Jain, expressed the view that he did not expect China to retaliate to the Indian duty increases as it still has a trade surplus with India. He said India’s textile product imports could fall to US $6 billion in 2018-2019 as a result of the tax hike to 20 percent. India’s imports of textile products from Bangladesh, Vietnam and Cambodia also jumped in the last few years as they are not subject to any duty under free trade agreements (FTA) signed by India with these countries. Jain said that the 20 percent duty will not be applicable to products sourced from those three countries due to the FTA.  Industry officials say in the last few months Chinese fibre has been shipped to Bangladesh and processed and exported to India with zero duty. A Mumbai-based garment exporter, who declined to be named, said that “Rules of origin need to be implemented for textile products. Otherwise, Chinese products will land from other countries”. Jain predicted that India’s textile and garment exports could rise 8 percent to US $40 billion in 2018-2019 due to a weak rupee and as the government is expected to introduce incentives to boost overseas sales. However, the demand for Indian fabrics in Bangladesh is still substantial.  

The writer is a retired Professor of Economics, BCS General

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