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Market access for Indian garments in US and EU - II

M K Panthaki

A tariff advantage 9 per cent on CIF value for India will translate with an advantage of 10.89 per cent on FoB (CIF = 121 per cent FOB). Even with a 5 per cent increase in our units prices, our volumes increased by 2 per cent, whereas, despite a fall of 15 per cent by Bangladesh, they still lost 10 per cent on their volumes. This is despite a zero tariff for Bangladesh. It would, therefore, appear that Bangladesh is a “no contest” for India and so is Pakistan and Sri Lanka which lost 18 per cent in volume with an 8 per cent increase in unit price.

Remarks common to both EU and USA

While there cannot be two opinions on improvement in size, technology and reduction in production time on the part of the Indian garment industry, offering zero tariffs to EU and USA from April 2006 will have overwhelming benefits to the country if the government also plays ball and ensures that the industry/exporters are not saddled with duties and taxes on imports, entering the manufacture of the export product. This will be a small price to pay considering the fact that:

• The stimulus to exports will enable us to cross $ 25 billion earlier than 2010.
• More units will come up and/or existing units will start second shift and/or existing units will expand their manufacturing facilities to meet the increased export demand. In all these cases, employment will get a substantial boost. Every additional 500 machines installed gives employment to 1,500 people, directly or indirectly.

Additional production will have further effect on production for the domestic sector giving the government the much-needed revenues it had to sacrifice on increased exports.

• Increase in employment will, in turn, increase the spending power of the employed which will give a boost to the economy in other spheres.
• Increase in per capita earnings, propelling India into the Club Class of developed countries.
• Processing/embroidery units will be the beneficiary of larger orders.
• Since China will be limited by quotas upto December 2007 and, in all probability, will have utilised its entire quota in the first half of 2005, bulk orders will flow into India which Indian manufacturers can take advantage of by speeding up production by using the “Bundle System”. Thus a part of the 20 per cent world trade which consists of bulk garments almost exclusively catered to by China, will come to India and this is likely to be a permanent benefit to India.
• Units from developed countries will increasingly consider setting up units in India (which they have done all along in China) bringing in its wake, foreign direct investment for manufacturing activities and not just for trade on stock exchanges.
• The government must move with speed on making labour laws industry-friendly, for improving infrastructure and for reducing transction costs so as to help industry cut production costs.
• The present rates of drawback and DEPB should be suitably revised upwards to take care of each and every item of duties and taxes on all inputs that enter the cost of an export product. These include electricity duty, duty on diesel oil, octroi, entry tax in addition to customs and excise duties on machinery, dyes/chemicals etc. This will further increase the competitive capacity of the industry.

Supplying Country	Unit Price Realisation in US$/Kg: (Jan/March 2005)
	Imports into EU (1.5 Euro = $)	Imports into USA (4 M2 = $)	Unit Price Increase % in USA over EU
China	7.00	11.28	61%
India	9.93	14.80	49%
Bangladesh	4.69	8.20	75%
Sri Lanka	10.02	14.48	45%
Pakistan	5.17	8.20	59%

The author is with CMAI