The Union government’s decision to permit duty-free access for 48 apparel products, including knitwear from Bangladesh under the South Asian Free Trade Agreement (SAFTA) has touched a hornet’s nest in India. While CMAI (The Clothing Manufacturers Association of India) the top industry body has expressed shock and dismay, surprisingly many brands are happy with the move as they feel small players will be forced to compete now and this will ensure better quality. They also argue consumers will benefit as prices are likely to move south.
Rahul Mehta, President, CMAI, emphasized that more than 80 per cent of the domestic apparel industry of India is still in the small and medium scale. This is the sector which provides the second largest employment to semi-skilled workers, especially women. “It’s incredible that the government is not considering the potential impact on the employment of the country and is encouraging imports rather than domestic production,” he opines. “Even by conservative estimates, the likely imports of $2.5 billion per year could result in a loss of employment in the Indian garment industry of nearly 1.25 million jobs,” he points out.
In spite of the obvious dangers in opening up the market to a low cost country, the industry had in its various interactions with the government suggested 14 of the 48 items requested by the Bangladesh government be opened up for duty free imports. In fact, many large Indian retailers have already started buying huge quantities of their requirements from Bangladesh after 10 million pieces were permitted to be imported without duty. This trend will only turn into an avalanche if the entire industry is opened up for free imports.
Similarly, Shishir Jaipuria, Chairman, Confederation of Indian Textile Industry (CITI), says the duty free access in India for Bangladesh is disastrous and that if the government agrees for duty free access then at least there should be a clause that the knitting, spinning and weaving of the fabric used should be done in India. A Sakthivel, President of Tirupur Exporters’ Association (TEA) says, “Bangladesh garment exporters would penetrate the Indian market aggressively if there is lower demand in US and Europe.” Sakthivel adds Bangladesh garment exports have been showing a higher year-on-year growth rate than India’s due to its inherent advantages in low cost of manufacturing and in 2010-11, when Bangladesh garment exports had clocked $15 billion, India’s garments export was only $11.16 billion.
On the contrary many apparel brands support the move. As Amol Dhillon, Vice President, Strategic Planning, Aero Group, says, “Small players will come out of their comfort zones and take it as a challenge to improve all aspects of their business, be it adaptation of new technology, innovation of processes, product differentiation, as it would be a fight or flight approach to long term survival. It would definitely help both small and big manufacturers in the medium to long run.” Experts say Indian consumers too are likely to benefit as this will mean they will get clothes priced at least 20 per cent lower than apparel produced domestically. Besides, the predominantly export-oriented Bangladesh apparel industry has developed a knack for stitching garments for the suave European and American consumer and is expected to click with the Indian consumer too. Garments from Bangladesh are perfectly stitched and don’t have manufacturing defects. Also Bangladesh manufacturers have the capacities to support huge volumes as per styles.
Amitabh Suri, Senior VP, Indian Terrain Fashions, agrees. “It will be good for domestic business. It will give domestic brands an opportunity to work with good manufacturing facilities. Smaller ones will be affected because they will not be able to match the quality consistency and the price of big players.” Apparel manufacturers, especially brand producing shirts are taking this move as a positive one. They say imported fabrics coming directly to Bangladesh attract no duty as India has a free trade agreement with Bangladesh. Ajay Ramachandran Brand Head, Van Heusen says, “With India introducing excise duty, manufacturing here has also become 4 per cent more expensive. Plus Bangladesh is very good for manufacturing formal shirts.” But when asked about the consumer benefit Jalaj Kakkar, Remanika Apparels’s CEO said, “I do not think it will benefit the Indian consumers in terms of pricing only margins of the retailers will increase slightly.”
Meanwhile, CMAI on its parts has requested the government to reconsider its stand and not permit unrestricted duty-free imports of readymade garments from Bangladesh.