While the number of Coronavirus cases has plummeted in India, the situation in certain other countries causes concern. Cases are rising. India has successfully brought down the cases to an insignificant number. In this situation, can one expect the Indo-UK Free Trade Agreement (FTA) to go through as planned by the government?
The proposal was mooted a few months ago following talks between the two sides. But one thing is certain: The FTA will be quite different from the previous one signed by India with several other countries in the past, such as Sri Lanka, Bangladesh, etc., an “open strategy” will be adopted by New Delhi to engage in several other areas beyond goods and services, signaling a marked shift, say Commerce Secretary B.N.R. Subrahmanyam. The previous FTAs had resulted in large-scale imports that the government had not anticipated. Not only that, the “diffidence,” as termed by the Commerce Secretary, had resulted in the country’s isolation and opened the doors for products from Bangladesh and Vietnam.
According to the Commerce Secretary, the “New Age FTA’s” require countries to engage beyond goods and services, and the strategy adopted in the past “won’t take us far as countries such as Bangladesh and Vietnam have seen a surge in exports.” Anne-Marie Trevelyan Piyush Goyal, Commerce Minister and UK Trade Secretary, agreed to launch talks in 16 areas, including intellectual property rights and MSME’s, apart from goods and services and investment.
The two countries seek to bank on the complementarities and push through talks within a year. An interim agreement may be signed as early as Easter. It will cover around 60 percent of goods and 50-60 percent of identified services. At the end of the decade trade is set to double to 100 bn. The coverage wills expand to include 90 percent of goods. India and the UK are the fifth and sixth largest economies.
Trevelyan opinion is that a FTA would lead to huge benefits for both countries, including more access to each other’s markets, more goods and services. “These negotiations often a great prize for both countries“. I would expect to see increased access to the UK market including textiles. I would also expect to see the deal facilitating even more UK investment in India, creating more quality jobs for India’s talent. And I expect the deal to give Indian consumers more access, at affordable prices, to more UK goods and services “Kevin MCcobe” Managing Director of the UK. India Business council said it has been recognized that misuse of the FTA route has been on the rise to escape customs duty on imports.
The issue has often been flagged by the domestic industry repeatedly and urged the government to review the existing FTA’s to stop the misuse. Undue claims and benefits under FTA’s have posed a threat to the domestic industry and such imports require stringent checks, says Finance Minister Nirmala Sitharaman, in the budget presented by her during the budget session, a provision was incorporated in the customs Act to ensure that FTA benefits are availed of correctly. The rules for implementing this provision were issued in January. Under a new verification mechanism that came into force in September 2021 is expected to help curb the misuse. It requires importer’s to exercise due diligence before importing goods to ensure they satisfy the rules of origin criterion for eligibility of duty concession under FTA and declare this to the customs authorities. Supporting documents and information may also be sought by the customs department and in case of any doubt deny the benefit of the FTA duty concession or allow it provisionally pending verification. Extensive discussions have been held by the government to sensitive them about the new rules and need to keep a close eye.
India is one of the largest textile manufacturing countries after China. It holds enormous potential to convert itself into a textile manufacturing hub for the entire world. Increased penetration of organised natural and disposable income on the rise makes the future of the Indian textile industry look promising.
However the industry is facing several issues of late. Already it has got bruised by the impact of lockdowns and other restrictions in the wake of the new Corona virus pandemic in the last two years. Currently, the pressing problem has been the spurt in cotton and cotton prices. The volatility and high import duty on cotton has impacted the prices of fabrics and garments. The production cost of garments, the final product, has shot up by nearly 30 percent because of the sky rocketing prices of yarn up by more than 40 percent in the past six months.
The major reasons for the volatility in the cotton price are the imposition of a 15 percent basic customs duty and another 5 percent for agriculture infrastructure and 10 percent for social welfare, which were imposed on these items in the 2021-22 Union Budget, which amounts to the imposition of an overall import duty of 11 percent. Another reason is the cotton corporation of India’s (CCI) bulk discount to traders who had obtained nearly 70 percent of the minimum support price of cotton auctioned by the CCI at a lower rate during the cotton season using the 90-day free period and were later speculating on it.
On the rebate the state and central taxes and levies (ROSCTL) Scheme the textile industry estimates that the government owes around Rs.8000 cr to exporters in unpaid refund of duties and taxes on export products (RODTEP) bills with another Rs.3500 – Rs.4000 cr arrears due to Covid – 19 and cancellation of export orders. The ROSCTL scheme will run up to March 31, 2024.
Under the (RODTEP) scheme cotton yarn will get 8 percent with a cap of Rs.11.40 per kilo and woven fabric 4 percent with a cap of Rs. 03 to Rs.04 per square meter and knitted fabrics has seen given only one percent. The scheme is designed to cover over 8500 products or tariff lines with funds allocated estimated at Rs.17000 cr for 2021-22. The Scheme, according to the government will be a long lasting one and it is going to be a flag ship scheme of the Commerce Ministry. In addition, Rs.2000 cr is being provided to clear the arrears of service exporters for 2019-20 under the now defunct service exports from India Scheme (SEIS).
Meanwhile there are reports that several foreign companies operating in China and are finding it difficult to carry out their business due to hardships faced by them are planning to relocate from that country. These companies are said to the considering plans to exit the Chinese market and looking for other destinations. What prompted them is said to be an anti-China sentiment that came to the fore after the outbreak of the deadly corona virus pandemic that has wrought havoc to the global economics in the last over two years. The virus had originated from Wuhan (China).
India must seize this opportunity. A number of foreign companies are engaged in talks at various levels in the country and are pursuing their plans in various sectors including textiles and synthetic fibre. If India is to do so it must ensure consistency quality, productivity and a competitive edge, economies of scale and focus on sustainability.
Bangladesh and Vietnam, as is known, have reaped huge benefits and are expected to further their global market share. The situation in the U.S. is not conducive as nearly one fifth of global apparel trade will be impacted by the corona virus. Top supplying countries for US China (30 percent) Vietnam (16 percent) and Bangladesh (7 percent) have seen disruption due to Covid-19 situation. The new Omicron Variant has added a new dimension of concern to the affected countries
