India Ratings and Research (Ind-Ra) believes the initial withdrawal of the generalised system of preference (GSP) benefits by the US on over 3,000 products that were either under the low tariff or no tariff categories will have limited impact on Indian textile exports. The withdrawal of benefits under GSP would primarily affect apparel exports under the textile industry, but the impact would be modest, as less than 1% of India’s apparel exports were receiving GSP benefits.

As per the Apparel Export Promotion Council, the US imported apparels worth USD586.58 million under the ready-made garments (RMG; HSN 61 and 62) category during FY19; of this, imports worth USD17.9 million were from India. In FY18, the total benefit (across sectors) from the duties received by India under the GSP framework was USD260 million (FY17: USD190 million).
 Figure 1

In terms of the duties, about 15 varieties of ready-made garments attract tariffs of 0.86%-14.6%. The percolation of import tariff to other segments could result in loss of volumes or pressure on margins for Indian apparel manufacturers in the near-to-medium term. However, Ind-Ra sees limited threats for cotton-based textiles, readymade garments and made-ups, as India is the largest producer of cotton and benefits from the availability of inexpensive labour.

 Figure 2

Ind-Ra believes the move by the US would mainly impact the woven silk garments segment, which constitutes 50% of the 1% of India’s total apparel exports that had been receiving GSP benefits. The other textile product categories that would be impacted include silk woven clothing for women (HSN 62044910), shawls, scarves, mufflers, mantillas, veils, etc, containing 70 per cent or more by weight of silk or silk waste.

 Figure 3

In the past, the US has restored GSP benefits for countries such as Liberia, Argentina and Myanmar, after deeming that they had made ‘sufficient progress’ to become eligible again. However, Ind-Ra believes the reinstatement of GSP benefits for India would be conditional and it would be accompanied by the need to make commitments or fulfil certain conditions. In the event of non-reinstatement, the agency expects the government to come up with a refund of taxes scheme, like Refund of State Levies, for the affected sectors.

 Figure 4

Ind-Ra has maintained a stable outlook for the textile sector for FY20. Strong domestic demand, along with the waning impact of the disruptions (due to the goods and services tax and demonetisation) and the rising export of textiles (aided by a weak Indian rupee) would support volume growth and enable players to maintain their profitability in FY20, according to the agency.

Domestic textile exporters are likely to continue to benefit from improved cost competitiveness, resulting from a weak Indian rupee, which would drive volume growth. Over 9MFY19, the Indian rupee depreciated at a higher rate against the US dollar compared to the currencies of key apparel-exporting nations such as Vietnam and Bangladesh. Also, China’s apparel industry continues to face concerns regarding high labour costs and increased trade protectionism. In addition, a slowdown in export demand from the US for textiles (especially apparel), due to the destocking strategy implemented by e-commerce players, seems to have come to an end.

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Analyst Names

  • Abhishek Rathi

    Senior Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40356110

    Mahaveer Jain

    Associate Director
    +91 22 40001768

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    Namita Sharma

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