Will Modi's textile sops be a threat to Bangladesh RMG industry?

[Loafer]

India's cabinet on Wednesday approved a package for the textiles sector with measures such as tax sops and relaxation of labour laws, with a three-year target of 10 million more jobs, $30 billion additional exports and $11 billion fresh investment.

The package was approved at a meeting of the cabinet presided over by Prime MinisterNarendra Modi, which took note of India's falling share in the global textile exports to Bangladesh and Vietnam, yet with the potential to grab the market being ceded by China.

Briefing reporters later, officials said the package includes full burden of provident fund on government, reduction in yearly working days for calculation of income tax rebate and additional subsidy for machinery under the amended technology upgradation fund scheme.

http://m.economictimes.com/news/eco...r-30-billion-exports/articleshow/52869230.cms

This is an Indian economic news but it posted here for discussion since this single cabinet decision has great implications for Bangladeshi economy and thereby its defence.

How will Bangladesh cope against this massive fund infusion by the Indian government to make its textile industry more competitive?

 

[Mufflerman]

Bangladesh doesn't need to worry. Bangladesh already has a very competitive textile industry. If any one country is gonna be hit, it is Pakistan.
Btw textiles are Pakistan's largest exports.

 

[Nilgiri]

How will Bangladesh cope against this massive fund infusion by the Indian government to make its textile industry more competitive?

Indian govt is not infusing the funds from taxpayer pocket. It is just a projected number based on whatever discussion they would have held with various companies with decent capital buffers, banks and MUDRA scheme planners etc...

Bangladesh will cope by continuing to stay in LDC category to keep gaining preferential tariffs, there is little else to do to revolutionise the model they have in place...its already pretty threadbare as it is.

More than the fund injection, it is labour laws that really have to be tackled and which I will be following:

https://defence.pk/threads/indian-economy-news-updates.27787/page-370#post-8410216

 

[Loafer]

[QUOTE="Nilgiri, post: 8411454, member: 170808]
Bangladesh will cope by continuing to stay in LDC category to keep gaining preferential tariffs, there is little else to do to revolutionise the model they have in place...its already pretty threadbare as it is.[/QUOTE]

http://www.dhakatribune.com/2016/jun/24/brexit-bangladesh-continuation-zero-duty-facility

Those days are numbered.

 

[Nilgiri]

[QUOTE="Nilgiri, post: 8411454, member: 170808]
Bangladesh will cope by continuing to stay in LDC category to keep gaining preferential tariffs, there is little else to do to revolutionise the model they have in place...its already pretty threadbare as it is.

http://www.dhakatribune.com/2016/jun/24/brexit-bangladesh-continuation-zero-duty-facility

Those days are numbered.[/QUOTE]

We will have to see how the UK renegotiates. They could easily continue the same trade norms as before with B'desh as LDC since these stem from UN suggestions/recommendations if I recall in their ODA charters (though not legally binding of course).

The rest of the EU will follow the same system as usual and they are a much bigger market than the UK still. Now if the EU starts to break up, then things may indeed change (esp if the UK puts different tariffs from before w.r.t B'desh) but I really don't know how long Bangladesh can maintain the LDC classification anyway.

 

[Bilal9]

There is one little understood fact that everyone is overlooking.

Bangladesh labor rates are half of India's. And there's infinitely more in Bangladesh of that type of skilled labor.

Even with extensive robotics efficiencies, you cannot transcend that gap.

I predict that this will be a tax-payer's fiasco in India.

 

[Nilgiri]

Bangladesh labor rates are half of India's. And there's infinitely more in Bangladesh of that type of skilled labor.

Question is a) why are labour rates higher in India (Hint: not to do with productivity)

b) Have you looked at the population size of both countries?

c) We will have to wait and see.

 

[Michael Corleone]

Bangladesh's current global position won't fall to India unless some major disaster happens. (War, climate change, dictatorship possibly)

 

[Bilal9]

This is an Indian economic news but it posted here for discussion since this single cabinet decision has great implications for Bangladeshi economy and thereby its defence.

With all due respect, this has little if any bearing on the Bangladeshi economy.

This has no bearing on Bangladeshi Defence sector either. Bangladeshis are too busy making investments and lifting their people out of poverty...and Bangladeshi spending on defence is probably the lowest in the subcontinent. We have other priorities....

Indians typically are not big investors in the Bangladeshi economy (the Chinese are) and Indian competition in garments won't be a threat to the Bangladeshi economy - which by the way is already moving away from garments investments gradually.

In doing this, Indians are encouraging their industrialists through govt. policy to invest in garments but whether the industrialists actually do it is doubtful.


Some reasons,

• Bangladesh is now tops as a cheap garments production base driven by global retailers who are constantly looking for ways to cut costs. How else are you going to sell a pair of jeans (organically washed/dyed at that in 'green' factories) for $9.99 retail at Walmart? Not if you price it at $12.99 even....

This is one of many LEEDS Platinum awarded green garments factories in Bangladesh,

Also,

• India exited the mass garments market many many years ago because things were unprofitable.
• Bangladesh exporters no longer depend on GSP or preferential trade arrangements for exports. USA withdrew preferences and Bangladesh garments exports to USA saw a 25% increase year-on-year.
• Bangladesh labor is not just cheap, but also highly skilled. They had gone to higher value-added garments like jackets and women's higher priced fashions many years ago.
• Any strikes are quickly resolved - many of Bangladesh's top politicians and bureaucrats own these businesses.Even if there are strikes, vehicles ferrying garments enjoy exemptions.
• Fuel is cheap in Bangladesh - in India government is still increasing fuel prices by squeezing the populace and exporters.
  
• In India customs is closed during holidays and there are many. In Bangladesh, customs is open 24x7X365. Same with Chamber of Commerce exporters' offices, SEZ offices....
  
• Bangladesh offers,
  • ease of doing business (we've been at it for twenty five some odd years now, all homegrown), we took a page from the Koreans and the Taiwanese who not only owned businesses but drove governmental changes from the 70's onward. There is no bureaucratic rigor-mortis like in India.
  • faster import-export of raw materials and finished goods (logistics is relatively much smoother with inland container ports, rail-container connections etc.),
  • faster R&D on new styles as you can import fabrics in three days (vs. 10 days in India)
• If India wants to get into the garments bandwagon at this late stage in its development as a middle income country, it will need massive subsidies and massive revisions in logistics arrangements. A little late in the game.
• Even the Chinese have stopped their subsidies in the lower value-addition Garments and Shoes export sectors and concentrating on higher value-addition industries, even beyond light engineering.
• Even Bangladesh is slowly transitioning from garments and shoes into simple white-goods like export-oriented light fixture products, household small appliances like irons and fans for example. There is massive local production of washing machines, microwaves and fridges too. Almost all Chinese production in these sectors are slated to move to Bangladesh eventually. And also to Pakistan which specializes in these items. India can take a page from this....
• India can increase the supply of inputs like raw materials like stainless steel, aluminium sheet products to Bangladesh including economical stamping, forging machines which can be supplied at lower cost than in China. But Indian exporters have got their work cut out in selling these to Bangladeshi factory owners in light of Taiwanese, Korean and most importantly Chinese competition.
• The point is that 'complementary' trade among specialized exporting countries can benefit both for win-win. Bangladesh does not have a large machine tools sector while India has that strength. But Indians have to watch their own exporters' reputations because this is already a limiting factor.
• India has many other higher value-addition industries (such as higher grade home electronics products like LED TVs) that it is already good at and that it can further explore like China. That is where the in-sourcing advantages can be utilized in India à la China.

 

[Nilgiri]

• Bangladesh is now tops as a cheap garments production base driven by global retailers who are constantly looking for ways to cut costs. How else are you going to sell a pair of jeans (organically washed/dyed at that in 'green' factories) for $9.99 retail at Walmart? Not if you price it at $12.99 even....
  
• India exited the mass garments market many many years ago because things were unprofitable.
• Bangladesh exporters no longer depend on GSP or preferential trade arrangements for exports. USA withdrew preferences and Bangladesh garments exports to USA saw a 25% increase year-on-year.
• Bangladesh labor is not just cheap, but also highly skilled. They had gone to higher value-added garments like jackets and women's higher priced fashions many years ago.
• Any strikes are quickly resolved - many of Bangladesh's top politicians and bureaucrats own these businesses.Even if there are strikes, vehicles ferrying garments enjoy exemptions.
• Fuel is cheap in Bangladesh - in India government is still increasing fuel prices by squeezing the populace and exporters.
  
• In India customs is closed during holidays and there are many. In Bangladesh, customs is open 24x7X365. Same with Chamber of Commerce exporters' offices, SEZ offices....
  
• Bangladesh offers,
  • ease of doing business (we've been at it for twenty five some odd years now, all homegrown),
  • faster import-export of raw materials and finished goods (logistics is relatively much smoother with inland container ports, rail-container connections etc.),
  • faster R&D on new styles as you can import fabrics in three days (vs. 10 days in India)
• If India wants to get into the garments bandwagon at this late stage in its development as a middle income country, it will need massive subsidies and massive revisions in logistics arrangements. A little late in the game.
• Even the Chinese have stopped their subsidies in the lower value-addition Garments and Shoes export sectors and concentrating on higher value-addition industries, even beyond light engineering.
• Even Bangladesh is slowly transitioning from garments and shoes into simple white-goods like export-oriented light fixture products, household small appliances like irons and fans for example. There is massive local production of washing machines, microwaves and fridges too. Almost all Chinese production in these sectors are slated to move to Bangladesh eventually.
• India can increase the supply of inputs like raw materials like stainless steel, aluminium sheet products to Bangladesh including economical stamping, forging machines which can be supplied at lower cost than in China.
• The point is that 'complementary' trade among specialized exporting countries can benefit both for win-win. Bangladesh does not have a large machine tools sector while India has that strength. But Indians have to watch their own exporters' reputations because this is already a limiting factor.
• India has many other higher value-addition industries (such as higher grade home electronics products like LED TVs) that it is already good at and that it can further explore like China. That is where the in-sourcing advantages can be utilized in India à la China.

Yeah yeah, typical propaganda inserted into other data to give it a particular spin.

I stopped reading at the point when you said "India abandoned the mass garments market". Like we export 0 now or something lol....
Lets look at just the garments and knitwear (and not overall textiles) sectors for India BEFORE this recent announcement and compare with your intro:

http://articles.economictimes.india..._knitwear-exports-1-03-lakh-crore-rupee-terms

http://timesofindia.indiatimes.com/...ade-garments-exports/articleshow/46061094.cms

http://market.apparelresources.com/sourcing-hub/indian-knitwear-hub-expects-20-growth-2016/

@Loafer Seems you were right and we are already getting quickly on the bandwagon to secure Brexit advantage:

http://economictimes.indiatimes.com...negotiations-with-uk/articleshow/52915966.cms

We do not need more subsidies really, just better labour laws, ease of business (both coming into play with this administration) and fresh investment as required. The country that relies almost exclusively on subsidy is Bangladesh by way of its preferential tarrif from its major importers. We have plenty of skilled labour (and overall average labour is far more skilled than in Bangladesh*), so with the policy paralysis finally being addresed, combined with Brexit (and potential future exits by others) and more investment flows into the sector coupled with massive internal demand to buffer as well....I can see why Bangladeshis would be concerned and will probably go into repetitive drone mode.

Why dont you wait and see what materialises? India has good experience of what works well (Tirupur)....now the future needs to replicate many more Tirupurs across India. Lets see if Bangladesh can compete. Happy hunting.

Its just one small cog of Indian economy too. We hedge across several industries and sectors now....and are not totally reliant on one sector for our exports. That will only continue as well i.e compare these two profiles:

http://atlas.media.mit.edu/en/profile/country/bgd/

http://atlas.media.mit.edu/en/profile/country/ind/

The details on the package announced by Indian govt:

http://www.thehindu.com/business/Industry/textiles-get-tax-sops-in-output-impetus/article8760867.ece

The initiatives may lead to $30 billion in exports and attract Rs.74,000 crore investments
The Centre announced a Rs.6,000-crore special package, with tax and production incentives, for the textile and apparel sector to enable domestic firms to compete globally.

The package which will be implemented soon aims to help in creating one crore jobs, mostly for women, in the next three years, said Textiles Secretary Rashmi Verma.

The package, approved by the Cabinet , includes several tax and production incentives. The government has also suggested bringing in flexibility in labour laws to increase productivity. These initiatives are expected to lead to an increase in exports by $30 billion and help attract investments worth Rs.74,000 crore in three years.

Finance Minister Mr. Arun Jaitley said China was gradually relinquishing its leadership position in the garment sector due to its rising wages and production shifting to high technology sectors. This, he said, was leading to garment sector firms shifting to countries including Bangladesh and Vietnam. “Economies of scale can happen in India. Through changes in schemes and regulations, we are ensuring that the sector realises its full potential in India,” he said.

Competitiveness
The package would strengthen the Indian textile and apparel sector by improving its cost competitiveness in the global market, according to an official statement.

Compared with Bangladesh and Vietnam India was the leader in apparel exports between 1995 and 2000. Bangladesh’s apparel exports exceeded that of India in 2003, while Vietnam surpassed India in 2011, Textile Ministry data showed. With policy support, India can again regain its position in the next three years, it said.

Of the Rs.6,000 crore package, Rs.5,500 crore is for an additional five per cent duty drawback for garments. “In a first-of-its-kind move, a new scheme will be introduced to refund the state levies which were not refunded so far. Drawback at ‘all industries rate’ would be given for domestic duty paid inputs even when fabrics are imported under ‘Advance Authorization Scheme,’ according to the statement.

The remaining Rs.500 crore will be for additional incentives under Amended Technology Upgradation Funds Scheme (ATUFS), where the subsidy provided to garmenting units under the scheme is being increased from 15 per cent to 25 per cent, providing a boost to employment generation.

“The package breaks new ground in moving from input-based to outcome-based incentives; a unique feature of the scheme will be to disburse subsidy only after expected jobs have been created,” according to the ministry.

To ensure increased earnings for workers, the package specifies that overtime hours for workers shall not to exceed eight hours per week — in line with International Labour Organisation norms.

Taking note of the seasonal nature of the garment industry, fixed term employment will be introduced for the sector and a fixed term workman will be considered at par with permanent workman in terms of working hours, wages, allowances and other statutory dues.

Considering the industry’s seasonal nature, the provision of 240 days under Section 80JJAA of Income Tax Act (allowing deduction of 30 per cent of additional wages paid to new regular employees for three years where the worker has worked at least for 240 days in a previous year) would be relaxed to 150 days for the garment industry, the Ministry said.

Also, the government said it will bear the entire employer’s contribution of 12 per cent under the Employees’ Provident Fund Scheme, for new employees of garment industry earning less than Rs. 15,000 per month, for the first three years.

--------

* https://defence.pk/threads/gdp-226-billion-usd-per-capita-1401.427551/page-5#post-8290988

 

[Species]

I think countries like Vietnam are far bigger threat to our RMG industry than India. However, investors have full confidence since the industry kept booming against all odds and we remain the 2nd largest RMG exporter in the world. Our cheap labor is perhaps the biggest resource. Plus, there are several garments villages under construction which will significantly boost our exports.

 

[Bilal9]

Yeah yeah, typical propaganda inserted into other data to give it a particular spin.

I stopped reading at the point when you said "India abandoned the mass garments market". Like we export 0 now or something lol....combined with all the rubbish you posted afterwards with Bangladesh still having about half the consumption of India in per capita terms and still using words like "massive" when I wouldn't even use that for India....though I guess its all relative.

Lets look at just the garments and knitwear (and not overall textiles) sectors for India BEFORE this recent announcement and compare with your intro:

http://articles.economictimes.india..._knitwear-exports-1-03-lakh-crore-rupee-terms

http://timesofindia.indiatimes.com/...ade-garments-exports/articleshow/46061094.cms

http://market.apparelresources.com/sourcing-hub/indian-knitwear-hub-expects-20-growth-2016/

@Loafer Seems you were right and we are already getting quickly on the bandwagon to secure Brexit advantage:

http://economictimes.indiatimes.com...negotiations-with-uk/articleshow/52915966.cms

We do not need more subsidies really, just better labour laws, ease of business (both coming into play with this administration) and fresh investment as required. The country that relies almost exclusively on subsidy is Bangladesh by way of its preferential tarrif from its major importers. We have plenty of skilled labour (and overall average labour is far more skilled than in Bangladesh*), so with the policy paralysis finally being addresed, combined with Brexit (and potential future exits by others) and more investment flows into the sector coupled with massive internal demand to buffer as well....I can see why Bangladeshis would be concerned and will probably go into repetitive drone mode.

Why dont you wait and see what materialises? India has good experience of what works well (Tirupur)....now the future needs to replicate many more Tirupurs across India. Lets see if Bangladesh can compete. Happy hunting.

Its just one small cog of Indian economy too. We hedge across several industries and sectors now....and are not totally reliant on one sector for our exports. That will only continue as well i.e compare these two profiles:

http://atlas.media.mit.edu/en/profile/country/bgd/

http://atlas.media.mit.edu/en/profile/country/ind/

The details on the package announced by Indian govt:

http://www.thehindu.com/business/Industry/textiles-get-tax-sops-in-output-impetus/article8760867.ece

The initiatives may lead to $30 billion in exports and attract Rs.74,000 crore investments
The Centre announced a Rs.6,000-crore special package, with tax and production incentives, for the textile and apparel sector to enable domestic firms to compete globally.

The package which will be implemented soon aims to help in creating one crore jobs, mostly for women, in the next three years, said Textiles Secretary Rashmi Verma.

The package, approved by the Cabinet , includes several tax and production incentives. The government has also suggested bringing in flexibility in labour laws to increase productivity. These initiatives are expected to lead to an increase in exports by $30 billion and help attract investments worth Rs.74,000 crore in three years.

Finance Minister Mr. Arun Jaitley said China was gradually relinquishing its leadership position in the garment sector due to its rising wages and production shifting to high technology sectors. This, he said, was leading to garment sector firms shifting to countries including Bangladesh and Vietnam. “Economies of scale can happen in India. Through changes in schemes and regulations, we are ensuring that the sector realises its full potential in India,” he said.

Competitiveness
The package would strengthen the Indian textile and apparel sector by improving its cost competitiveness in the global market, according to an official statement.

Compared with Bangladesh and Vietnam India was the leader in apparel exports between 1995 and 2000. Bangladesh’s apparel exports exceeded that of India in 2003, while Vietnam surpassed India in 2011, Textile Ministry data showed. With policy support, India can again regain its position in the next three years, it said.

Of the Rs.6,000 crore package, Rs.5,500 crore is for an additional five per cent duty drawback for garments. “In a first-of-its-kind move, a new scheme will be introduced to refund the state levies which were not refunded so far. Drawback at ‘all industries rate’ would be given for domestic duty paid inputs even when fabrics are imported under ‘Advance Authorization Scheme,’ according to the statement.

The remaining Rs.500 crore will be for additional incentives under Amended Technology Upgradation Funds Scheme (ATUFS), where the subsidy provided to garmenting units under the scheme is being increased from 15 per cent to 25 per cent, providing a boost to employment generation.

“The package breaks new ground in moving from input-based to outcome-based incentives; a unique feature of the scheme will be to disburse subsidy only after expected jobs have been created,” according to the ministry.

To ensure increased earnings for workers, the package specifies that overtime hours for workers shall not to exceed eight hours per week — in line with International Labour Organisation norms.

Taking note of the seasonal nature of the garment industry, fixed term employment will be introduced for the sector and a fixed term workman will be considered at par with permanent workman in terms of working hours, wages, allowances and other statutory dues.

Considering the industry’s seasonal nature, the provision of 240 days under Section 80JJAA of Income Tax Act (allowing deduction of 30 per cent of additional wages paid to new regular employees for three years where the worker has worked at least for 240 days in a previous year) would be relaxed to 150 days for the garment industry, the Ministry said.

Also, the government said it will bear the entire employer’s contribution of 12 per cent under the Employees’ Provident Fund Scheme, for new employees of garment industry earning less than Rs. 15,000 per month, for the first three years.

--------

* https://defence.pk/threads/gdp-226-billion-usd-per-capita-1401.427551/page-5#post-8290988

Thanks for your informative post, despite your somewhat abrasive comments.

If some poor 'dukhee' disadvantaged Indians can make a few rupees and make a better life making whatever, I'm not at odds with it. Only issue is what works in India exportwise, and if garments is it, more power to you guys.....

 

[bluesky]

Whatever the Indian govt. says about investing money to a labor intensive sector such as textile it will end up in a real fiasco. Many countries, including Japan, started their economic development by building apparel industries. It provided employment to the poor girls in the vicinity, the govt earned foreign currency from the export and people`s living quality goes up.
A time comes when many capital intensive industries are built. Production in these value added industries causes a raised salary for the labors in all the sectors that also includes textile.
China has almost reached that stage. next will be India`s turn to reach that stage. India already has quite a number of industries that produce high value added goods. Other new industries will certainly be built by the Indians themselves. Moreover, it is flooded with an FDI of 44 billion USD lately.
India will certainly reach a level whereby textile industry will not pay back resulting in a failure of Modi`s effort. It is a little late if not too little, and will be futile and without producing good long term dividends to the projected investment.

 

[Nilgiri]

Thanks for your informative post, despite your somewhat abrasive comments.

If some poor 'dukhee' disadvantaged Indians can make a few rupees and make a better life making whatever, I'm not at odds with it. Only issue is what works in India exportwise, and if garments is it, more power to you guys.....

Fixed it for you. My bad.

 

[bdslph]

Our jute industry is gone
So if india destroy our rmg i wont be surprised