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Till December 31, 1994, the exports of textiles to certain developed countries (e.g. US; member countries of EU; Canada) had been governed by bilateral textile agreements entered into between India and these countries under the aegis of the Multi-Fibre Arrangement (MFA), outside the rules of the General Agreement on Tariffs and Trade (GATT). With effect from January 1, 1995, the quantitative restrictions (import quotas) in the bilateral agreements under the MFA, are being governed by the Agreement on Textiles and Clothing (ATC) contained in the Final Act of the Uruguay Round negotiations of the GATT.
As per ATC, the textile quotas would be phased out and textile sector fully integrated into WTO by 1st January, 2005.
The liberalized trading regime would result in increased international trade in textiles thus providing greater export opportunities; and at the same time expose the domestic industry to import penetration in the domestic market. The industry will have to improve its efficiency and productivity to meet the emerging global competition.
Quota elimination would result in the following benefits:
Average growth rate of export from the supplying countries under quota would increase substantially;
Investment in the textile and clothing sector on the basis of comparative advantage amongst supplying countries will be promoted;
An equitable international setting for free flow of goods between suppliers, buyers and consumers will be established.
The multilateral system enshrined under the WTO will be strengthened;
Consumer prices and transaction costs for consumers and distributors will be reduced across the board.
The following adverse factors are anticipated in the post quota regime:
A variety of non-tariff barriers like formation of Regional and Preferential Trading Arrangements (RTAs/PTAs), initiation of back to back anti-dumping proceedings on textile products, altering the definition of rules of origin unilaterally, discriminating on the basis of non-trade issues like Drug programmes, Environment safeguards and Labour standards show a desire on the part of the developed countries to continue with the retinue of restrictions in various ways.
Regional and preferential trade arrangements are curtailing the trading opportunities of developing countries like India who are not part of any major trade block. Signing of regional trade agreements like NAFTA and Trade Development Act by the USA with Canada/Maxico and Sub-Saharan Africa & Caribbean Islands is beginning to have a major impact on Indian exports.
There is significant trade diversion due to such preferential arrangements as beneficiary countries either enjoy quota free or duty-free supply or both even after quota free regime.
To strengthen domestic textile industry for meeting the growing global competition, the following important announcements has been made in the Union Budget 2004-05:
Except for mandatory excise duty on polyester filament yarn including texturised yarn, synthetic and artificial fibres and synthetic and artificial filament yarn, the whole value addition chain has been given excise exemption option.
Additional Excise Duty on Textiles & Textile Articles (AT&T) and additional Excise Duty (Goods of Special Importance) Act have been abolished.
Basic customs duty on various textile machinery and spare parts has been reduced to 5%.
Beside, Government has been taking a number of steps from time to time to provide an enabling environment for the Indian Textiles Industry to meet the emerging global competition. Some of the important initiatives taken are:
The Technology Upgradation Fund Scheme (TUFS) has been made operational from 1-4-1999 to facilitate the modernization and upgradation of the sector.
To improve the productivity and quality of cotton, Government have launched Technology Mission on Cotton (TMC). The mission comprises four mini-missions, which are being jointly implemented by the Ministry of Agriculture and Ministry of Textiles. One of the important ingredients of the Mission is to cotton processing facilities by upgradating/modernizing the existing ginning and pressing facilities and setting up of the new market yards/improvement of existing market yards.
The Government has launched a centrally sponsored scheme titled "Apparel Park for Export Scheme" for imparting focused thrust for setting up of apparel manufacturing units of international standards at potential growth centres and to give fillip to exports.
For upgrading infrastructure facilities at important textile centres, a scheme "Textile Centre Infrastructure Development Scheme" (TCIDS) has been launched.
Expectations for future
The Indian textile exports are expected to receive a big push once the trade quotas are dismantled. Top textile importing countries like USA and the EU are looking towards India for meeting their import requirements. India, according to several recent studies, is going to emerge as alternative source of supply to China. India’s growth in exports will be driven by value added made ups and apparel as India has comparative advantages over its competitors in relation to (i) availability of relatively inexpensive and skilled workforce (ii) design expertise (iii) large production base of basic raw material like home grown cotton, yarns and fabrics and (iv) availability of wide range of textiles.
According to a recent study by CRISIL (commissioned by ICMF), the Indian textiles and apparel industry can achieve a potential size of US$ 85 billion by 2010. Of which, the domestic market potential would be US$ 45 billion and export potential would be US$ 40 billion. Nearly 60% of exports would comprise garments. This would create 12 million job opportunities, 5 million direct jobs in textile industry, and 7 million jobs in allied sectors.
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