Bangladesh and Vietnam dominate the global textile and clothing export market: What can India do to make its mark ?

 

Zara, H&M, Adidas, Nike and GAP are well-known bands for apparel and clothing customers across the globe. The garment manufacturing for these brands is mostly done in Bangladesh and Vietnam. Have we ever wondered why India is not there is the list of suppliers to these top garment brands, despite being a larger economy as compared to Bangladesh and Vietnam? This blog tries to explore the reasons that are posing challenges for India’s Textile and Clothing (T&C) sector to exploit its full potential in the global market.

Image credit: The Independent

T&C sector contributes 2.3 per cent to India’s Gross Domestic Product (GDP), 13 per cent to industrial production and 12 per cent to its exports. This sector is the second largest employer in the country providing direct employment to 45 million people and 100 million people in allied industries (Invest India, 2023). While India’s T&C sector holds immense importance for the Indian economy, its exports from India are unable to assume a significant spot in the global market, and India’s share in T&C global exports was 4.4 per cent, as of 2022. The Government of India (GoI) has also been prioritising the sector’s growth through various schemes like the Production Linked Incentive scheme with an approved outlay of INR 10,683 crore to promote the production of Man-Made Fibre (MMF) Apparel, MMF Fabrics and Products of Technical Textiles in the country to enable Textiles Industry to achieve size and scale and to become competitive.

Despite these domestic efforts, the global market for T&C is dominated By Bangladesh and Vietnam. Bangladesh accounted for 7.9 per cent of apparel global exports, in 2022 and has gone from 2.6 per cent in 2000.  

Before delving into the reasons for this in performance, let us first understand the key segments within the broad T&C sector. The overall sector spans over 14 two-digit Harmonised System (HS) codes, from 50 to 63, including various items across the entire supply chain in this segment -  like wool, silk, cotton, vegetable textiles fibres, man-made fibres, carpets, fabric, apparel and clothing.

Let us take the example of Vietnam which is an emerging player in this sector, and compare the sub-sectoral performance with that in India. Vietnam accounts for 5.2 per cent of global exports of the T&C sector. Around 75 per cent of Vietnam’s total T&C exports come from apparel and clothing, accounting for 14 per cent of global apparel exports. On the other hand, for India, apparel exports account for around 43 per cent of its total T&C exports, accounting for just 7 per cent of global apparel exports. For India, items like cotton and carpets, have a high share in the global market, accounting for around 11 and 12 per cent of their global exports.

These statistics indicate the advantage that Vietnam possesses in the higher end of the T&C supply chain, while India is lagging in that regard.  What can explain this and how can we combat this?

It has bot noted that as we move up the value chain like made-up garments and apparel, Indian producers operate at a lower scale as compared to firms in Bangladesh and Vietnam, which makes it difficult for them to exploit the economies of scale to produce at lower costs. As most of the apparel businesses in India are family-run, they are not open to capital investments, specifically from foreign investors and hence technology upgradation is a challenge for these firms. This puts the Indian exporters at a disadvantage in comparison to Vietnam and Bangladesh, specifically when the world is now moving towards sustainable textiles that need advanced technology for production and for monitoring the production process.   

The important bilateral agreements that Bangladesh and Vietnam have with important economies like the European Union also help them acquire a larger share in the T&C’s global export market.  EU has the Everything But Arms (EBA) concessions for Least Developed Countries (LDCs) like Bangladesh, and has a Free Trade Agreement (FTA) with Vietnam.  In this regard, the FTA that India is negotiating with the EU becomes crucial to provide greater market access to Indian T&C exporters.

Finally, to exploit trade openness for driving cost-efficient manufacturing, India should consider reducing the import duty of 11 per cent on cotton as it forms an important part of the supply chain. While India is one of the top exporters of cotton, to ensure competitive apparel and clothing manufacturing, it should liberalise its cotton imports. Trade openness results in cost-effective production and availability of various varieties of cotton that enable diversification of apparel manufacturing in the country. In this regard, many apparel associations like the Southern India Mills’ Association, have also appealed to the GoI to reduce the import duty on cotton.  

Overall, for Indian exports to become the global leaders in the global textile and clothing industry, the Indian industry must start operating at scale and facilitate foreign investments for better technology adoption. India should also fast-track its FTA negotiations to exploit the potential trade gains from these FTAs. Finally, it is imperative to open the market to key inputs such that the final apparel items become competitive in the global market.