India to import 8m garment pieces a year

India has approved duty-free import of eight million pieces of garments from Bangladesh per year without restriction on raw material sourcing.
The approval was given at a meeting of Indian cabinet presided by Prime Minister Manmohan Singh on Thursday night, an official spokesperson told media persons.
The decision effectively reverses the decision taken by the cabinet in 2005, which had granted duty-free market access to Bangladesh for two million pieces of garment without raw material sourcing conditions at that time.
The decision is expected to somewhat correct bilateral trade imbalance that is heavily tilted against Bangladesh.
The decision of the cabinet is guided by South Asian Free Trade Agreement (SAFTA), said official sources.
In another decision, the cabinet also allowed Sri Lanka to export eight million pieces of garments without the condition of raw material sourcing from India and port restrictions on Tariff Rate Quota (TRQ).
Of this, five million pieces will be allowed duty-free import while there will be a TRQ on the remaining three million pieces.
The decision not only did away with the condition that some raw materials have to be imported from India but would allow negotiating flexibility in respect of three million pieces on zero duty and two million pieces on 75 percent margin of preference.
"The removal of [raw material] sourcing condition and port restriction will facilitate operationalisation of TRQ without causing any further adverse revenue implication," the spokesperson said.
However, the cabinet decisions to allow duty-free import of garments from Bangladesh and Sri Lanka could hurt the Indian textile sector whose export competitiveness has already been hit by appreciating value of national currency rupee against US dollar in the last one year, industry observers said.
Indian exporters may feel the heat of enhanced import competition, particularly from Bangladesh, which is emerging as a major competitor to the Indian textile industry, the observers said.
"The domestic textile industry is greatly disadvantaged compared to those of Bangladesh, Sri Lanka and China and giving trade benefit to these countries at a time when your industry is in great distress would have an adverse impact," said Vardhman group Chairman S P Oswal.
According to industry observers, Indian companies would have to either reduce the prices or scale down production to compete with cheaper imports.
However, Oswal said cutting prices was not possible in the given market situation as profit margins were very thin.
Indian rupee has appreciated by about 12 percent against the greenback in the last one year, putting tremendous pressure on exporters and prompting the government to come out with a series of incentives for them.