Gain for Indian textiles from building collapse in Bangladesh is all gas

In April this year, wearing apparel production in India rose 86.6% against contraction of 10.3% in same month of 2012

At the outset, it may seem that a rebound of India's garment production as well as overall textile exports in April is somehow connected to a collapse of an eight-storey commercial building Rana Plaza in Bangladesh. The link seems obvious since India might become a dominant export player if preferential tariffs are not given to textile exports from Bangladesh by the United States and Europe.

However, the relation may turn out to be too simplistic, if one analyses it deeply. Rather, inherent cost disadvantage against India and least developed country status for Bangladesh are bound to work in favour of our eastern neighbour's textile sector, analysts said.

See these facts -- the building collapsed on April 24, 2013 and the latest action against Bangladesh from the United States came only in June. So, high production and export figures for India's textile sector may not be influenced by developments in Bangladesh. Besides, jump in production, particularly in garment production as is given in the Index of Industrial Production (IIP), started from March, 2013. The same is true of exports.

In April this year, wearing apparel production in India rose 86.6% against contraction of 10.3% in the same month of 2012, according to official Index of IIP figures. Textiles production (taken separately in IIP) rose five% in April compared to 3.1% a year ago.

The growth in wearing apparel category was astonishing, given lackluster production figures in the whole of 2012-13, except for March. However, in March, the growth was even higher at 159.1% for wearing apparel against contraction of 59.3% in March, 2012. Textiles production rose 3.3% in the month against 2.2% a year ago.

Similarly, garments exports rose 8.55% to 1.15 billion dollars in April, 2013 year-on-year after sluggish performance in the entire 2012-13, again barring March. The entire textiles sector also saw exports growing by 6.57% in the month at 2.25 billion dollars.

However, the trend started in March itself-- garment exports rose 12.08% at 1.39 billion dollars and larger textiles exports were up 15.72% at 2.74 billion dollars. It is quite evident that garment exports in fact declined in April, 2013 compared to March, 2013.

Now, comes the issue of reaction of advanced nation to the building collapse and whether India can take advantage of this development?

Rana Plaza building in Savar, an industrial suburb of Dhaka, collapsed on April 24, killing over 1,000 workers. The incident evoked worldwide condemnation. Bangladesh has more than 5,000 garment factories, handling orders for nearly all of the world’s top brands and retailers.

US President Barack Obama last week cut off longtime U.S. trade benefits for Bangladesh in response to dangerous conditions in that country’s garment industry. This means Bangladesh may no longer receive duty-free access to the U.S. market under the Generalized System of Preferences (GSP) programme.

Suspending Bangladesh from the GSP program will increase U.S. duties on an array of products the country exports to the United States, such as tobacco, sporting equipment, porcelain china, plastic products. However, it includes only a small amount of textile products.

It will not directly affect Bangladesh’s main export, clothing, since garments are not eligible for duty cuts under the programme, which was created in 1976 to help economic development in the world’s poorest countries and to reduce import costs for U.S. companies.

The Federation of Indian Exporter Organisations (FIEO) director general Ajay Sahai said if US and the European Union (EU) really impose sanctions against Bangladesh, the place vacated by the neighbouring country could be captured by India.

To a query why could only India capture the place and not China, Sahai said the Asian giant is no longer looking for textile exports but for high value added products like electronics.

However, US and EU are not likely to take any drastic action against Bangladesh, analysts said.

Confederation of Indian Textile Industry economist Ajay Kumar said," We are much into publicizing building collapse in Bangladesh."

However, inherent structure of India's textile industry and least developed nation status of Bangladesh will play to the advantage of our eastern neighbor, he said.

Bangladesh will continue to get sympathy of advanced nations because of its LDC status and Bangladesh government’s hard efforts to refute the poor conditions on garment making there.   

Out of total Indian textile exports, including garments', around 20% goes to US and 35% to the European Union (EU-27) countries. So far as garment exports are concerned, US accounts for 25% of India's outbound shipments and EU 40%.

According to the WTO report, 2012, India occupied fifth place in global clothing trade, behind China, European Union, Hong Kong and Bangladesh in 2011. Bangladesh had 20 billion global trade in 2011 which constituted 4.8% of the global trade. India, on the other hand, had 14 billion trade, accounting for 3.5% of the world trade in clothing in 2011.

EU imposes on an average around nine% tax on textile imports from India and zero from Bangladesh.

Among top ten most imported items of garments by EU,  India  exports only in few categories --shirts, T-shirts, suits, cotton based clothing, while Bangladesh sends goods among all the ten categories.

India still depends on exports of mainly woven garments, while Bangladesh has evolved its woven as well as knitted garment exports in EU as well as US market.

If one excludes tariff structure of EU, there is still 10-20% disadvantage against India in terms of unit cost of production because of low wages and high subsidies in Bangladesh.  

Including tariff, it turns out to be 20-30% advantage for Bangladesh vis-a-vis India in EU.

In India, labour cost is going up, high interests are raising cost of working capital, labour laws are sticky, power cost is increasing and the industry is  not getting up on scales, explained Kumar.

For instance, Gokaldas Exports Ltd is one of the largest garment exporters of India. It has a plethora of small units in and around Bangalore because of labour laws concern, instead of having a few large units, kumar said.

The 85-billion dollar Indian textile industry (including domestic and exports) is surviving because of raw materials.

"We are surviving due to domestic-produced cotton yarn produced by modernised spinning industry and also due to abundant availability of man-made fibre based staple fibres and filaments," Kumar explained.

Reliance Industries Ltd is the world's largest synthetic staple, fibre and filament producer, having the world's five% capacity. Then, Indo Rama is bringing viscous manufacturing in India, he said.

On the other hand, Bangladesh imports yarn from India, and also cotton, fabrics from India and China. It still supplies finished products like garments to world market cheaper than India and China.