Warp & woof of the new trade design

Textile exporters are at the forefront of beneficiaries from the India-EU trade deal. The relief comes at a challenging point for the industry, which is facing 50% tariffs in the US, its biggest export market. GoI is offering labour-intensive industry financial relief. But the US tariff action has brought home the need to diversify its exports in terms of export destinations. The obvious candidate, the EU, previously had higher duties on textile imports from India, which will now be brought to levels faced by principal competitors Bangladesh and Vietnam. Tariff equalisation in the EU was a tough but necessary condition - the trade deal was decades in the making - but several other hurdles confront Indian exporters eyeing a larger share of the EU textile market.

The main impediment is sustainability conditions imposed by the EU, which will involve fresh investment by Indian exporters. Investments will have to be made at all levels of textile value chain, which could affect competitiveness of MSMEs. The industry faces a supply chain that is fragmented across states and adds to logistics costs, unlike China, which has adopted an integrated approach to textile manufacturing. India also needs to make a bigger push into man-made fibres, where taxes have kept input costs elevated. The EU trade deal may fall short of transforming India's textile industry into large manufacturing units unless supportive infrastructure and capital are easier to access.

The deal, however, offers the Indian textile industry a mechanism to transform technologically and climb the value chain. Levelled tariffs are a starting point for a sustainable growth path. The industry is one of the biggest employment generators and is primed for expansion through foreign investment. With access to the EU improving, the growth trajectory should shift upwards for India's textile sector. India must have an early harvest plan for EU textile exports and build on its inherent strengths. The sector's linkages to agriculture contribute to its need for self-sustaining expansion.