Textiles is an important industry in India, generating millions of employment and foreign exchange for the country. India has been a net exporter of textiles to the world, ranging from the US, Europe to Africa etc. Textiles are also a major component of the India-EU trade basket, with India being one of Europe’s top suppliers of garments and apparel.
In July 2023, the Europe India Centre for Business & Industry (EICBI) organised the annual EU-India Leaders Conference at the European Parliament, Brussels where textile trade was one of the main themes of discussions. Members from Indian and European textile organisations participated in the discussion which highlighted key issues on EU tariffs on Indian textiles, market access and industry expectations from the ongoing India-EU Free Trade Agreement (FTA) negotiations.
Indian Textile Industry: An Overview
India is a world leader in cotton, textiles and apparel and domestic consumption alone contributes to 2 per cent of the country’s GDP. From traditional handlooms, handicrafts, woollens, and silk to ready-made garments and apparel, the Indian textile industry is highly diversified and complex, serving a large domestic and international market. Notably, the textiles and apparel industry in India is the 2nd largest employer in the country providing direct employment to 45 million people and 100 million people in allied industries, including cotton and jute production. In addition, India is also the largest cotton producer in the world and supplies cotton bales and fabric to countries across the world.
Export-wise, Indian textiles have been on the upward track, accounting for about $35 billion annually since 2018. Indian textile exports recorded their highest-ever tally in the financial year 2021-22 when they exceeded $44 billion. The United States (US) has been the top destination for Indian textile exports, comprising around 27 per cent of total Indian textile exports. The US is followed by the EU, Bangladesh and UAE respectively. Main export items include readymade garments, fabrics, yarns, cotton bales, carpets etc.
India-EU Textile Trade
Textiles have been a significant pillar of India-EU trade, with India being the net exporter. In 2022, India exported around 7.3 billion worth of textiles to the EU, which was around 9 per cent of India’s total exports with the EU and accounted for 20 per cent of India’s total textile exports in 2022. For the past few years, India’s textile exports to the EU have been constantly fixated between $6-8 billion. While Indian textile exports to the EU witnessed a 2 per cent dip in 2022, it was still one of India’s single largest commodity export to the region and made up for 13 per cent of the EU’s total imports that year. The biggest buyers of Indian textiles in the EU are Germany, France, the Netherlands, Spain and Italy.
Indian textiles face stiff competition in the EU market due to tariff-free imports of various textile and clothing products from Bangladesh and Vietnam. Indian textiles currently do not enjoy any preferential tariff treatment or technically known as the Generalised System of Preferences (GSP) in the EU and bear import tariffs of roughly about 9.5-12 per cent on various textile products. Whereas countries like Bangladesh and Vietnam, owing to their low-income developing country (LDC) status, enjoy the reaps of tariff eliminations or concessions on textile imports through GSP and free trade agreements respectively. However, Bangladesh has graduated from the LDC status and the EU is currently reviewing its GSP quota, and may accord the country GSP Plus benefits– tariff-free export with conditions. India hopes that the proposed FTA with the EU will remove tariff barriers and provide a level-playing field for its textile industry to compete with other countries.
Issues and expectations from the FTA
India and the EU face significant tariff and policy issues pertaining to textiles in the proposed FTA. On the one hand, India primarily aims for the removal of tariffs for textile products; on the other, the EU textile industry seeks to enhance its access to the Indian market, which currently only buys around $400 million worth of textiles from Europe. In apropos, India and the EU want better access and conditions for their respective textile industry, and the FTA is hoped to resolve key issues as follows-
1) Elimination of tariffs- Both India and the EU seek the reciprocal removal of tariffs on textile products. Since the majority of Indian textile products are already not covered by EU GSP concessions and given India exports more to the EU, a move to remove tariff barriers is expected to impact Indian textiles considerably. India wants the EU FTA to be modelled similarly to its recent FTAs with UAE and Australia, where tariffs have been eliminated for all textile products.
2) Impact of sustainability/environmental regulations- India has viewed the EU’s recent emphasis on ensuring sustainability standards on the mode and process of textile products to hurt Micro, Small and Medium Enterprises (MSMEs) and traditional artisans, who may not have the skill or resources to diversify to sustainable production scales. India wants the EU to provide concessions on sustainable trade norms for its textile exports through the FTA.
3) Enhance market access for the EU in India- The EU textile industry for long has mooted greater market access for its textile products in India. As a result, the EU has been critical of various subsidies offered by the Central and State Governments in India for boosting the production of textiles and hence advocates for the removal of these non-tariff barriers that restrict European textiles to penetrate the large Indian market. However, India does not intend to alter its targeted and product incentives offered to domestic textile industries, instead, the textile industry wants India to open its market for textile machinery imports and technology transfers from the EU.
4) Robust IPR protections for Indian cultural textiles- India wants the EU to implement apt intellectual property rights (IPR) for its cultural fabric and textile products entering the EU market. Currently, Indian textiles, especially ones that are culturally significant and of heritage value, face IP issues in the form of lack of patents, trademarks, designs or lack of recognition of geographical indications (GI) in the EU.
India and the EU expect to strike a balance on the aforementioned issues through the FTA. The Indian textile market has a huge potential to grow in the near future, and with the EU’s technical and logistical support, it can expand its horizons in the European market further as well as compete with emerging industry leaders such as Bangladesh, Pakistan and Vietnam.
This policy brief was derived based on the comments from Sanjay Jain, Managing Director TT Textiles Limited, Pratik Gadia, Founder, Yarn Bazaar and Amit Lath, CEO & Managing Partner, Sharda Group of Companies & Vice-Chair (Poland), EICBI.