We have seen Bharat’s exports stagnating from the last five years. One of the product lines, which has been particularly disappointing the economists, is textiles. Let us delve into what led Bharat’s textile exports to fall and that of our neighbouring country, Bangladesh, to rise.
Bangladesh recorded a GDP of $303bn in 2019, sizing to almost 1/10th of Bharat’s GDP ($2869bn). Bangladesh exported goods worth $45.7 billion in 2019 with exports forming 15% of GDP. Textiles comprise around $40bn, making it the third largest Textiles exporter. Bangladesh is a low-income developing economy and therefore enjoys free trade agreements entailing lower tariffs and concessions with major developed economies along with preferential access in the EU.
The global fashion industry has been scaling big demanding for larger production and output. Bangladesh has been assimilating higher production value chains to cater to these exports. This has brought economies of scale and better productivity. However, year gone by has changed this picture.
In 2020, the pandemic massively affected the textiles industry and exports fell by 18% year on year. These developments are on the global front but at as we look deep inside the domestic, we will find that global textile companies are capitalising on Bangladesh’s lax regulations and cheap labour.
The event of Rana Plaza collapse in 2013 Dhaka claimed more than 1000 lives. Similarly, a textiles factory was set ablaze in 2012, which reported 100 casualties. Even after these incidents, not much has been scoped in for development of safety measures in the nation’s textile industry.
It is also important to note that Bangladesh’s textile industry employs more women than the male counterparts by design. As per a note by ICRIER, Unit labour cost per product is approximately 50 cents in Bharat as compared to 22 cents in Bangladesh. The fashion and clothing industry is benefitting from the above said factors along with higher labour productivity and lesser turnaround time.
A study shows Bharat takes 63 days as compared to less than 50 days in Bangladesh. Though the economy’s GDP is rising on the back of momentous exports, in my opinion, it seems to be a classic building case of exploitation. Despite of rising revenue from exports, minimum wages are far lower in Bangladesh roughly touching $116 as compared to $250 in Bharat in terms of constant currency.
In this context, I would like to highlight that product categories are different in both the countries. Bangladesh manufactures bulk low- end garments like T-shirts, shirts, denims and so on, whereas Bharat manufactures high end knitted and woollen garments. The demand for the latter is relatively dynamic.
Now, if we talk about Bharat, it is important to know what caused exports to perform poorly as compared to its peer. In the last five years, Bharat witnessed many changes and two major ones to affect the informal economy were Demonetisation and Goods and services tax. The former squeezed the credit out of the system and the latter made our goods less competitive on account of rising cost of raw materials, especially synthetic textiles. For healthy exports, Bharat needs more export credit, bank guarantees and competitive pricing in the global markets.
Textiles industry has been the second largest employer to Bharat after agriculture, directly and indirectly employing around 60 million. Since the industry is informal and largely fragmented, Medium and Small Enterprises carry out majority of manufacturing for exports. Since these organisations have relatively low production capacities, struggle to adopt technological advancements and achieving full economies of scale is but natural, restraining them from higher labour productivity.
Another and a rather critical issue, which Bharat has been facing, is formulating effective trade policies and bilateral trade agreements. It is pertinent to note that the current foreign trade policy has been extended until 31st March, 2021 due to the pandemic.
As per Niti Aayog’s report on “Free trade Agreements and their Costs”, some key macro takeaways from Bharat’s experience with respect to some comprehensive agreements that have been signed in the past decade suggest that Bharat’s exports to FTA countries has not outperformed overall export growth or exports to rest of the world. FTAs have led to increased imports and exports, although the former has been greater.
Bharat’s trade deficit with ASEAN, Korea and Japan has widened post-FTAs. Bharat’s exports are much more responsive to income changes as compared to price changes and thus a tariff reduction/elimination does not boost exports significantly. Utilisation rate of Regional Trade Agreements by exporters in Bharat is very low (between 5 and 25%). All these factors are need to be analysed carefully before designing new foreign trade policy.
As per World Economic Forum’s global competitive index of 2019, following scores have been obtained by Bharat vis-à-vis China, Bangladesh and Vietnam.
|Country||Rank||Diff from 2018|
The Global competitiveness index measures national competitiveness defined as a set of institutional, policies and productivity parameters. From the above data, we can see that China and Vietnam have moved up notches while Bharat has lost some points. Vietnam now has got similar scores to Bharat, as it has emerged as a leading destination for exports, now being the fourth largest exporter of textiles. Its textile exports are growing at a CAGR of more than 10% reaching $39bn in 2019. Total exports form 16% of Vietnam’s GDP.
The Vietnamese textile industry was affected because of the pandemic but the economy capitalised on the opportunity and exported 1.13 billion masks from March to October 2020. Popularly known for Cut – Make – Trim Exports, Vietnam is now attracting FDI inflows for end- to end manufacturing, also known as original design manufacturing.
What is Bharat’s takeaway from these countries?
Bharat’s textiles and apparels exports amounted to $15bn in 2019-20 fiscal de-growing around 4-5% from last year. Its share in the global textiles market has been shrinking and now it contributes to around 5% to total textile exports. According to a study by Confederation of Indian Textiles Industry, Bharat aims to increase this share to 15% and along with Bangladesh, both countries can achieve 35% share to global exports, leading ahead of China in the coming five to ten years.
We have discussed broadly the factors that have led to loss of exports and so far, we have understood that Bharat needs to increase its competitiveness in the global market by not compromising on safety measures. Comprehending these factors, the government, in the budget of 2020, a framework for development of seven Mega Investment Textile Parks over three years have been laid down, which is the first step towards getting back to our export goals.
The sector has also been provided for in the PLI Scheme with a dedicated investment of around 10,000 crores. Infrastructure development, especially ports and logistics, along with technological advancements is crucial to be competitive in terms of turnaround time. Higher labour cost than Bangladesh and Vietnam already makes us less competitive.
Increasing productivity by consolidating smaller units into bigger ones will save costs, increase production and help us achieve economies of scale. Revision of GST rates and boosting export incentives along with robust export credit will go a long way in making Bharat a better choice for exports.
Being the second largest employer, a focused initiative on increasing textile exports will lead to employment generation especially for women, improving overall labour force participation. Covid-19 pandemic has called for additional safety measures and stricter rules and regulations for all industries.
While we are moving through the pandemic, the trade policies globally are shifting and taking new places. While China has been a dominant exporter in the global market, condemnation on grounds of dumping cheap goods and unhealthy trade practices has given the time and opportunity for Bharat to reassess and reformulate effective trade agreements with other nations in order to gain the desired outcome of increasing exports and becoming an integral part of global supply chain.
(Featured image source: arabnews.com)
Did you find this article useful? We’re a non-profit. Make a donation and help pay for our journalism.
HinduPost is now on Telegram. For the best reports & opinion on issues concerning Hindu society, subscribe to HinduPost on Telegram.