Budget 2017: Govt must work towards policy rationalisation to push exports

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Econmic Survey finds that India’s competitors enjoy better market access by way of lower tariffs in two major importing markets – US and EU.

Chennai: While the Economic Survey sought to make Indian apparel, leather and footwear globally competitive, it acknowledged that the labour laws, taxes and tariffs and limited availability of cattle for slaughter are creating barriers for the sectors. The survey suggested the need to undertake rationalisation of domestic policies, which are inconsistent with global demand patterns.

In the textile sector, India’s comparative advantage of cheaper labour does not seem to work in its favour due to problems like regulations on minimum overtime pay, onerous mandatory contributions that become de facto taxes for low-paid workers in small firms that result in a 45 per cent lower disposable salary, lack of flexibility in part-time work and high minimum wages in some cases. Besides, costs and time involved in getting goods from factory to destinations are greater in India than those for other countries.

In both apparel and footwear sectors, tax and tariff policies create distortions impeding India in gaining export competitiveness.

India imposes a 10 per cent tariff on man-made fibres vis- a-vis 6 per cent on cotton fibres. On the other hand, domestic taxes also favour cotton-based production rather than production based on man-made fibres, and leather footwear rather than non-leather footwear. The global demand for apparel is moving from cotton fibre products to man-made fibre and similarly footwear of non-leather, it added.

“The industry has to align itself with the global market and promote synthetic textile. The employment in the sector will double and the growth will not be at the cost of cotton textiles. While the cotton textile market too will continue to grow, synthetic textiles itself has the potential to triple the industry in next 10 years,” said D K Nair, former secretary general, Confederation of Indian Textile Industry.

The survey also finds that India’s competitors enjoy better market access by way of zero or at least lower tariffs in the two major importing markets – the US and European Community (EU). As far as leather sector is concerned, despite having a large cattle population, India’s share of cattle leather exports is low and declining due to limited availability of cattle for slaughter in India.

The survey suggests several measures to make these sectors globally competitive and unlock their potential for creating new jobs and generating growth. It recommends that there is a need to undertake rationalisation of domestic policies, which are inconsistent with global demand patterns. “We need a fibre neutral policies and taxation structure that treats all inputs for the textile industry equally, this would benefit acceleration of the consumption of manmade fibres and also help India to capture a larger global market and share,” according to Reliance Industries spokesperson.

Several measures have been initiated that form part of the package approved by the government for textiles and apparels in June 2016, the survey notes. Accordingly, textile and apparel firms will be provided a subsidy for increasing employment, but these need to be complemented by further actions.

An FTA with EU and UK in the case of apparel will offset an existing disadvantage by India’s competitors- Bangladesh, Vietnam and Ethiopia. In the case of leather and footwear, the FTA might give India an advantage over competitors. In both cases, the incremental impact would be positive.

The introduction of the GST offers an opportunity to rationalise domestic indirect taxes so that they do not discriminate in the case of apparels against the production of clothing that uses man-made fibres, and in the case of footwear against the production of non-leather based footwear. Labour law reforms would encourage employment creation in these two sectors, it added.

The survey finds that India has an opportunity to push exports since rising wage levels in China has resulted in China stabilising or losing market share in these products. India is well positioned to take advantage of China’s deteriorating competitiveness due to lower wage costs in most Indian states.

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