March 2019: India Textile Exporters Eye U.S., Europe After Tax Boost

Indian clothing suppliers to American and European brands say new tax incentives will help them lower prices and reclaim ground they’ve lost to competitors elsewhere in Asia.

A new program to make textile exports effectively tax free comes as buyers in places like the U.S. are looking to diversify their supply chains after years of relying heavily on countries like China, said Sanjay Arora of Wazir Advisors, a textile industry consultancy.

India is the second largest exporter of textiles in the world, selling to companies like Walmart Inc., Target Corp., Gap Inc. and Bed Bath & Beyond Inc. Italian fashion brand Benetton Group, which has around 5,000 retail outlets, said it sources 92 million items—7 percent of its total production—from India. The industry is a major contributor to the country’s economy, employing 45 million people and contributing 15 percent to India’s export earnings.

The country’s commerce and finance officials are finalizing the details of the program, set to start this month. It would give exporters a rebate on central and state taxes that can total as much as 8 percent of the value of the item. The idea is to compensate for taxes on items like petrol used in manufacturing textiles.

The tax rebate means Indian exporters can reduce prices 5 percent or more, said Siddhartha Rajagopal, executive director of the Cotton Textiles Export Promotion Council.

“U.S. buyers want to shift some of their capacities from China and Bangladesh to India, and this decision will help,” Arora said, adding that Indian exporters have begun receiving queries from American brands looking to buy more from the country.

Clawing Back Lost Ground
India’s exporters have lost ground as competitors like Bangladesh take advantage of trade agreements with key buyers and domestic incentives to boost trade. The value of Indian textile exports slid from $37.66 billion in 2015 to $32.75 billion last year, according to the India Brand Equity Foundation.

“We are definitely more competitive than what we used to be,” said K.V. Srinivasan, managing director Premier Fine Linens Pvt Ltd, whose bed linen ends up in U.S. chains like Crate & Barrel. “We would like to get a larger market share.”

Some are skeptical of how much extra business Indian exporters will be able to attract. For example, Indian fabrics still face import tariffs of 8 percent in the European Union compared with zero percent for those from Bangladesh and Pakistan. Reviving the industry will take time, said Anish Narang, managing director of Karavan Advisory Enterprises LLP, who has worked with textile exporters. “It will not happen overnight,” he said.

But T.K. Sengupta, president of the Textile Association of India, said exporters are concentrating on expanding their footprint in the U.S. market, where they don’t face a tariff disadvantage against their South Asian neighbors. India is currently the fifth largest clothing supplier to the U.S. Increasing their share of the U.S. market is key to helping Indian exporters reach their growth target, Sengupta said.

The Indian Brand Equity Foundation expects the total industry to increase to $223 billion in 2021 from $150 billion in 2017.

“In today’s competitive environment, margins are thin. If you get even 2 to 5 percent rebate back from the government, it’s a decent amount,” said Harpreet Singh, an indirect tax partner at KPMG. “It would definitely help Indian textile brands compete.”


Leave a Reply