One of many key highlights for Indian business beneath the India-UK commerce deal signed on Thursday is the profit prolonged to India’s labour-intensive sectors reminiscent of textiles, footwear, and gems and jewelry, which is able to now see tariff elimination in comparison with pre-deal charges starting from 4 to 12 per cent.
Nonetheless, tariff elimination beneath a commerce deal doesn’t all the time translate into export good points—significantly in superior markets the place rivals reminiscent of Vietnam, Bangladesh, and China have already got secured provide chains and a well-established presence.
Even with a tariff of 11.5 per cent on its merchandise, China instructions over 25 per cent of the UK’s complete imports of ready-made clothes (RMG). The UK imports over $5 billion value of RMG yearly from China alone, pushed by its aggressive benefit.
In distinction, India’s share in UK RMG imports at the moment stands at 6 per cent, regardless of a prevailing obligation of 9 per cent in that phase. India exports RMG value solely $1.2 billion to the UK and expects to extend outbound shipments by 30–40 per cent as soon as the deal takes impact. However a lot would depend upon competitiveness and never tariff concession alone.
A number of rivals within the UK market already take pleasure in zero-duty entry and have entrenched provide chains. Bangladesh, as an illustration, holds a 20 per cent share of UK RMG imports and advantages from zero-duty entry to the premium market on account of its Least Developed Nation (LDC) standing. Turkey, too, has zero-duty market entry for its RMG exports to the UK and instructions an 8 per cent share.
Adversarial expertise in Japan
India has typically failed to extend market share even when granted concessional tariff charges beneath FTAs, a working paper from the Indian Institute of Administration Ahmedabad, launched in March 2023, stated.
“A working example is India’s gas and textile exports to Japan. India’s gas exports dropped by as a lot as 65 per cent within the years following the Indo-Japan FTA. Equally, India has a really low (0.05 per cent) share within the Japanese textile market regardless of zero tariffs beneath the Japanese CEPA. This factors to systemic points reminiscent of high quality and value that undermine the competitiveness of Indian items,” the report famous.
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Eroding market share and challenges
The report identified that India held 1 / 4 of the worldwide market share in textiles within the early 2000s. Nonetheless, this has eroded through the years, partly because of the absence of commerce agreements with main importers such because the US and the EU.
“India’s market share decreased from 26 per cent in 2000 to 21 per cent in 2003, and declined additional within the following years. In distinction, main textile exporters reminiscent of Vietnam, Malaysia, Turkey, and South Korea have commerce agreements in place with not less than one main importer. These commerce agreements enabled duty-free entry whereas India confronted tariffs as excessive as 32 per cent within the US for merchandise reminiscent of T-shirts,” it stated.
Consultants additionally pointed to structural points throughout the Indian textile business, together with an inverted obligation construction—the place inputs or uncooked supplies are taxed at the next fee than completed merchandise.
This has lengthy burdened Indian textile producers, making home merchandise dearer than imported ones. Nonetheless, specialists famous that India holds potential to develop high-value services and products carefully aligned with its present capabilities.
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