India is to allow the duty-free import of previously barred goods from Bangladesh

India is to allow the duty-free import of previously barred goods from Bangladesh

This week's decision by India's Prime Minister Manmohan Singh to provide duty-free access to the Indian market for 46 different garment products from neighbouring Bangladesh, has been met with angry responses from the Indian garment industry.

"The prime minister has made a major mistake," says Kandasamy Selvaraju, secretary general at the Southern India Mills' Association, in Coimbatore, Tamil Nadu: "It is a disaster; our industry will now be ruined."

Selvaraju points out that the garment industry in India is already far from using its entire manufacturing capacity, especially with cotton prices continuing to be high: "We have 17m people employed in this sector - what will happen to them?"

Condemnation of Singh's decision was also made in Ludhiana, the garment sector centre in the north Indian state of Punjab. Ajit Lakra, president of Chamber of Knitwear and Textile Associations of Ludhiana alleges that "the decision has been taken under pressure of the lobby of the big garment brands."

Earlier this year, the Indian government imposed a 10.3% excise duty on all branded India-manufactured garments. "Brands don't want to pay that duty and have found an alternative in the form of imports from Bangladesh," Lakra told just-style.com.

"We [India] are the big brother and have done a great thing for them [Bangladesh], but the repercussions are going to be very serious [for us]".

Selvaraju also criticises the decision on duty-free entry of products on the basis of disparity in the growth and export of garments between the two countries: "Bangladesh's growth rate is 18%, while ours is only 10-12%," he says. "Their garment exports are also [at a much higher volume] than ours, and on top of that, they have a 20% cost advantage over us".

In addition, says Selvaraju, the timing of this decision was bad considering the decentralised Indian garment industry was only just beginning to consolidate, and trying to resolve labour-law related issues. According to Lakra, however, "India's garment exporting units will not be affected by the decision."

Despite the criticism, the manufacturers say there is currently no hope of this decision being reversed, and the industry is resigned to deal with its effects. However, Selvaraju suggests that it might be useful for New Delhi to add strings to the order.

"The government should at least impose the 'rule of origin' condition, so that it does not become a route to import Chinese goods," he says. "The condition should be that for all the imports, the raw material be imported from India, which would at least protect our weaving industry"

AKM Salim Osman, president of the Bangladesh Knitwear Manufacturers and Exporters Association, however, told just-style.com that most of the raw material used by Bangladesh actually already comes from India; so there is no reason for India to not import the country's goods duty-free.

"This has been our long-standing demand and we are happy that the Indian government has now accepted it." He adds that out of the 46 items in the list of duty free imports, 25 belong to the knitwear industry.

Osman says that Bangladeshi businessmen already have good business connections with Indian brands, and that new exports will be rolling out soon.

"Ad-hoc and arbitrary concessions"
India's apparel exporters also say they are "shocked" at what they see as "ad-hoc and arbitrary concessions" granted to Bangladesh.

According to Premal Udani, chairman of the Apparel Export Promotion Council (AEPC) the items that now qualify for duty-free import "comprise nearly 85% of India's present imports from Bangladesh [and] will severely dent apparel manufacturing activity within the country."

He notes that up to 15m of the items already qualify for tariff-free import from Bangladesh, adding that "removal of items from the negative list will open floodgates." The deal will also "translate to significant loss to Indian fabric industry."

"It was imperative for the Government to provide a level playing field to Indian apparel manufacturers before granting concessions to a country," adds Mr Udani.