The PLI scheme will help build competitiveness The Indian textile and apparel sector, with $37 billion exports and $85 billion domestic consumption, is one of the largest employers in the country. Every $1 billion additional exports in apparel manufacturing can create 1.5 lakh new jobs. If we capitalise on the current China-plus-One opportunity, Indian exports will grow in double digits for the next several years, which in turn will create millions of jobs. The Indian apparel sector needs scale, specialisation and competitiveness to capitalise on the emerging post-Covid opportunities in global trade. Need for scale: Scale is important to bring down the cost of production, improve productivity levels to match global benchmarks and, thereby, cater to large orders from markets like the US. With right scale and technology interventions, India can match the manufacturing costs of competing countries. With growing awareness on social and environmental issues, global buyers are looking for more compliant, sustainable and large factories to place bulk orders; these are available in China and Vietnam. Such facilities need to be created in India too. The PLI scheme incentivises scale, and ROCE will be high for companies investing in this scheme. With a condition on incremental sales growth, this scheme ensures investment from the enterprise to grow capacity on a continuous basis. India can surely build ten $1 billion companies in the next few years. Specialisation: India has built a strong ecosystem in cotton apparels, but is lagging in man-made fibre (MMF) apparel manufacturing. Global fashion is moving towards blends. The US annually imports around ₹3-lakh crore worth of MMF apparels. In this mega market, India has a share of just 2.5 per cent. PLI addresses this friction point. Hence, with a focussed approach, the sector can be aligned towards global fashion demands. PLI incentivises the manufacturing of MMF apparel and fabrics. Instead of providing scattered incentives to so many products, it’s time to specialise in a few products which have huge market opportunity. In India, spinning companies demonstrated world-class productivity levels and also built scale. Now it’s time for these companies to invest in weaving/knitting and processing to build a strong MMF ecosystem. Integrated companies can invest in greenfield projects to make MMF apparel and compete with strong players like China and Vietnam in cost. India’s largest export item commands just $2-2.5 per unit. With rising costs, we need to bet on value addition to get better price realisation and that’s possible by focussing on MMF apparels. Competitiveness: To compete with low-cost competitors, India needs to be ultraefficient in pricing. With assured production incentives in the PLI scheme, entrepreneurs with growth aspirations will boldly invest in integrated smart factories. This can help achieve world-class productivity and manufacturing efficiency. Attracting capital: Only 10 per cent of the Indian textile sector is in the listed space. The textile sector’s (excluding raw-material makers) market cap of around ₹2-lakh crore is hardly 1 per cent of the BSE’s ₹250-lakh crore market cap. Many textile companies in the SME space are not participating in the wealth creation story of the stock market. PLI will enable SMEs to grow their balance sheet size. This will enable them to attract capital through PEs and IPOs. Global ESG funds are chasing companies with good practices. Many textile companies in the unlisted space are demonstrating world-class sustainable practices and can attract a lot of capital if they present the right themes. PLI will help initiate the basic change in terms of better visibility and competitiveness. In the past two years, the government has initiated a lot of structural reforms to bring new energy to the textile sector. PLI is one such reform and it’s time for the industry to step up and announce new projects under this scheme and move towards making India the fashion capital of the world.
Source: The Hindu Business Line
The textiles PLI scheme addresses the geographical disconnect between centres of apparel production and labour supply Joint training projects in association with leading skill institutions will have to be developed for rapid growth of the industry and driving innovation. At present, India is known as a leading manufacturer of cotton-based apparel and home textiles products. The Indian textiles and apparel (T&A) industry accounted for around 2.3% of GDP and 12% of merchandise exports in 2018–19 (11% in FY 2020–21) and employs around 45 million people directly. Women find this industry conducive for work and join it in large numbers. Urbanisation and increase in disposable income will drive demand in the future, which is expected to take textile production at over $300 billion by 2030. India’s competitive advantage in this sector is that the entire value chain—from fibre to fashion—is located within the country. This, along with superior quality, puts India at a firm footing to become a global textile powerhouse, provided some key challenges are addressed. The Indian textiles industry is small, fragmented, and dispersed, which drives up production costs. It also lacks economies of scale, making it difficult to be internationally competitive. Many of our global competitors belong to the LDC category and enjoy preferential trade arrangements with export destinations. Post the 1990s, there has been a shift in consumer preference from cotton and natural fibres towards manmade fibre (MMF). The wealthy patrons in cold countries use MMF apparel during the majority of the year; however, the Indian textiles industry is centred around cotton. The Production Linked Incentive (PLI) scheme launched by the ministry of textiles is a significant step towards overcoming the disadvantages faced by the T&A industry. It builds upon the successful strategy followed by the ministry for boosting PPE production, which made India the second-largest producer of PPE kits worldwide. The PLI Scheme aims to boost domestic manufacturing and processing of MMF fabric and apparel as well as technical textiles. It provides incentives on incremental sales subject to conditions on investments and turnover. With a budgeted outlay of Rs 10,683 crore, it will transform the processing and weaving segment and provide a strong base for apparel manufacturers. The scheme will also help place India among the frontrunning producers of technical textiles, thus unlocking huge application potential in sectors like agriculture, infrastructure, water, defence, automobiles, and health and hygiene, thereby improving their efficiency. After the National Technical Textile Mission aimed at R&D, the PLI scheme will induce investments and enhance production. Targeted investment in the textiles sector is bound to be beneficial. The T&A industry is highly mobile with low capex, and high employment. This PLI scheme will lead to fresh investments worth more than Rs 19,000 crore, and cumulative turnover of over Rs 3 lakh crore, and additional direct employment opportunities for 7.5 lakh jobs. The Indian yarn spinning industry has the opportunity to expand activity to the weaving and processing segment. The scheme also addresses the geographical disconnect between centres of apparel production and labour supply. The demography of most production centres being developed areas does not support such a labour-intensive industry, leading to dependence on migrant labour. The scheme adopts a paradigm-shifting approach of taking jobs to people, not vice-versa, by incentivising establishment of garment factories in aspirational districts and Tier-III and IV towns. Thus, workers will be able to find work closer to home, while the industry can get a reliable labour supply. The PLI scheme is different from the previous initiatives as it is time-bound. There will be no permanent support and the production will happen during a fixed time frame to receive financial incentive. The ultimate objective is to support the creation of a viable enterprise and competitive industry in the long term by supporting them in initially. Reaping full benefits of the scheme in the medium and long term will require collaboration between different agents and stakeholders. Collaboration between the buying houses for leading brands, fashion designers, and the knitting, weaving, and processing industries and the state and central governments would catalyse new investments. Joint training projects in association with leading skill institutions will have to be developed for rapid growth of the industry and driving innovation. Along with the Mega Industrial Textile Areas announced in the 2021 budget, this PLI Scheme has the potential to completely transform the T&A industry and facilitate growth, economic development and industrialisation.
Source: Financial Express
Indian Prime Minister says India was in reform mode when big economies were in a defensive mode India’s fast economic recovery, estimated at a growth rate of around 10 per cent during the current financial year, is stronger than expected given the enormity of the impact it suffered due to the Covid-19 outbreak. Covid-19 affected the economies of the entire world, including that of India. But our economy has recovered more strongly than it was halted by the pandemic,” Indian Prime Minister Narendra Modi said in a virtual address to a gathering after inaugurating a complex for providing training to job aspirants in Ahmedabad. He said India was in reform mode when big economies were in a defensive mode. “When global supply chains were being disrupted, we were launching production linked incentive (PLI) schemes to turn the tide in India’s favour.” “We should look upon ourselves as global economic leader as in the 21st century, India does not have a scarcity of opportunities to make it big,” Modi said. The PLI scheme, rolled out for 10 key sectors, including textile and automobiles, is aimed at helping the country’s economy recover faster after the pandemic. As per the latest data released by the National Statistical Office (NSO), India’s economic growth surged to 20.1 per cent in the April-June quarter of this fiscal, helped by a low base of the year-ago period, despite a devastating second wave of Covid-19. The gross domestic product (GDP) had contracted by 24.4 per cent in the corresponding April-June quarter of 2020-21. In the current fiscal (2021-22), the Indian economy is expected to grow around 10 per cent on the likelihood of fewer Covid-19-linked supply disruptions and buoyancy in the global economy, said Poonam Gupta, director general of economic think-tank NCAER. The real challenge, however, would be to sustain a growth rate of 7-8 per cent in years to come, she said. “We could see annual growth in the ballpark range of about 10 per cent. The reasons for this perceived optimism are: fewer supply disruptions; increased pent-up demand in the traditional and contact-intensive services; and a buoyant global economy. “Even so, if two pandemic years are taken together, there would be a very small net growth. In other words, the economy at the end of 2021-22 would be only slightly larger than at the end of 2019-20,” Gupta said. On the challenges being faced by the Indian economy, she said the first one is to recover from the impact of Covid-19 and the second is to sustain post-Covid-19 growth rates of at least 7-8 per cent. India has done rather well during the Covid-19 pandemic, primarily because of the rapid pace of vaccination, Gupta said, adding, “Currently, ensuring rapid and widespread vaccination is the best pro-growth policy that any country can implement.” India’s central bank, the RBI, expects the GDP growth at 9.5 per cent in 2021-22 consisting of 21.4 per cent in the first quarter; 7.3 per cent in Q2; 6.3 per cent in Q3; and 6.1 per cent in Q4 of 2021-22.
Source: Khaleej Times
Sitharaman encouraged continuous feedback and inputs from India Inc, and said discussions with industry had enabled the government to take a series of actions as the pandemic situation evolved Highlighting the importance of trust between the government and industry, Union Finance Minister Nirmala Sitharaman said on Monday that it was essential to leverage opportunities thrown up by the Covid-19 pandemic and take the country one generation ahead. The trust between the two sides was reflected in the government’s actions, Sitharaman said while addressing members of the Confederation of Indian Industry (CII) in Chennai. Indian Inc has come under criticism recently for various reasons. Earlier this month, RSS mouthpiece Panchajanya called Infosys anti-national in a report while referring to the IT company’s failure to fix the glitches in the income-tax portal. The RSS later distanced itself from the report. Recently, Sitharaman said it was not right to call Infosys antinational. In another instance, Commerce Minister Piyush Goyal had said during an industry interaction in August that some companies, including the Tata group, had acted against national interest and that local businesses shouldn’t just think of profit. The Tatas had opposed some of the proposed rules in the e-commerce policy. Sitharaman, however, encouraged continuous feedback and inputs from India Inc, and said discussions with industry had enabled the government to take a series of actions as the pandemic situation evolved. On the government’s strategy for handling the pandemic, the finance minister said that on the one hand, the focus was on ramping up vaccination, but on the other hand, the government was working to upgrade health infrastructure, including in Tier-2 and Tier-3 cities, by supporting the private sector. India has so far administered at least one dose of Covid vaccine to 744 million people. Sitharaman assured India Inc that liquidity was no longer a major concern. She added that the bank-NBFC-MFI channel had been de-clogged, and from October 15 there would be a special drive to reach out to those who need credit.
Source: Business Standard
Earlier, Liz Truss, UK Secretary of State for International Trade, revealed that the public consultation process ahead of the trade negotiations attracted "huge interest” from businesses across the UK and its completion last month means that FTA negotiations can now begin. Commerce and Industry Minister Piyush Goyal is scheduled for virtual talks with his UK counterpart, Liz Truss, on Monday to discuss the next steps to launch negotiations for a UK-India trade agreement, the UK government said. The UK's Department for International Trade (DIT) said the talks between Secretary of State Truss and Goyal come as part of preparations towards a free trade agreement (FTA) with India. It follows the conclusion of the UK's formal consultation process ahead of the negotiations on August 31. “International Trade Secretary Liz truss will speak with Minister for Commerce and Industry Piyush Goyal to discuss timelines and next steps to launching negotiations for a UK-India trade deal, following the closing of the public consultation on August 31,” the DIT said. “Preparations towards a free trade agreement with India are progressing. A deal would represent a major boost for UK exporters, lowering tariffs, easing regulation, and driving up bilateral trade which totalled 23 billion Pounds in 2019,” it noted. Increasing UK-India trade has been dubbed as a “huge opportunity” by the UK, given India's position as one of the world's biggest and fastest-growing economies and home to more than a billion consumers. “I see the UK and India in a sweet spot of the trade dynamics that are building up,” Truss said at a City of London Corporation event celebrating the UK-India economic partnership last week. “We are looking at a comprehensive trade agreement that covers everything, from financial services to legal services to Goyal has also been on the record saying that an “early harvest” trade deal with the UK is in the pipeline.
Source: Economic Times
Tamilnadu Chamber of Commerce and Industry representatives on Monday met Union finance minister Nirmala Sitharaman here and discussed problems faced by them in Goods and Services Tax (GST). They suggested changes that would make things easy for them as well as the common man. Their key demand was clearing ambiguity in fixing one GST rate for all the goods covered under one chapter. Chamber president N Jegatheesan said that the Harmonized System of Nomenclature (HSN) code structure under GST contains 21 chapters with broad product groups like food products and textiles. There are 199 schedules under these chapters with 1,244 headings and 5,224 subheadings. “GST rates were fixed on the basis of the headings and sub-headings of products, leading to uncertainty about the exact rate of tax for many products,” he said. Stating that this only breeds corruption and utter confusion in rate of tax for commodities, the trade body urged the GST Council and the Union government to fix one rate for all the goods covered under one chapter, thereby simplifying tax rates. Chamber senior president S Rethinavelu said that they also pressed for tax exemption of essential food products, be it branded or unbranded. The representatives were against higher tax rates for branded food products. They said that doing so would motivate all the food manufacturers to go for branding and to ensure quality. Taxing branded products is not a step in the right direction to ensure safe and healthy foods to the end consumers. They also stressed on their long due demand of rationalising tax rates by scrapping the ‘unrealistic’ 18% and 28% rates, as they are unbearable for consumers. The chamber stated that such high rates have induced evasion of tax besides driving away honest traders from the trade and industry. They stressed on only three GST rates (5%, 10% and 15%) while sin goods and super luxury cars could attract 18 per cent tax, plus cess. Batting for tax reduction for the services sector, they said that apart from exempted services, the tax rates for other services should be fixed at 5% to 15% based on the nature of the services. Stating that the threshold limit of Rs 20 for goods as well as services when at the time of introducing GST was later enhanced as Rs 40 lakh for goods, they sought the same limit for services.
Source: Times Of India
Retail inflation had breached the RBI's target of 2-6 per cent in April as the Covid-induced lockdown impacted supply Retail inflation cooled to a four-month low of 5.3 per cent in August from 5.59 per cent in the previous month, led by subdued prices of food articles and a high base effect. Inflation based on the Consumer Price Index (CPI) remained within the Reserve Bank of India (RBI)’s tolerance band for the second consecutive month, according to the data released by the Ministry of Statistics and Programme Implementation, on Monday. While economists estimate inflation to ease further in the coming months, they believe that the RBI will continue with its accommodative monetary policy stance and begin interest rate hikes only in the next fiscal year, amid risks to the growth outlook. Food inflation declined to a seven-month low of 3.11 per cent compared to 3.96 per cent in July. Fuel inflation remained elevated and increased to 12.98 per cent in August compared with 12.38 per cent in the previous month. The inflation rate for petrol increased to 24.01 per cent in August from 23.70 per cent in July, while for diesel, it eased marginally to 22.06 per cent from 22.71 per cent in July. The core-CPI inflation, which is non-food and non-fuel, eased to 5.5 per cent in August from 5.7 per cent in the previous month. The six-member monetary policy committee (MPC) had raised the inflation projection for the current fiscal year by 60 basis points (bps) to 5.7 per cent in the August meeting. The MPC resolution had also put the onus of bringing down petrol and diesel prices on the Union and state governments through tax reduction. Retail inflation had breached the RBI’s target of 2-6 per cent in April as the Covid-induced lockdown impacted supply. Retail inflation has now remained over 5 per cent for the seventh straight month and over the RBI’s target rate of 4 per cent for the 23rd straight month. Aditi Nayar, chief economist, ICRA, said the sequential downtick in the headline and the core August CPI print was likely to allay the discomfort in the tone of the upcoming policy review. “Moreover, fears of immediate policy normalisation have been doused with the Q1 FY2022 GDP (gross domestic product) growth being mildly lower than the MPC’s own forecast of 21.4 per cent. The stance and policy rate are likely to be left unchanged until strengthening domestic demand replaces supply-side constraints as the key driver of inflationary pressures,” said Nayar. “At present, we believe policy normalisation could commence in February 2022, with a change in the stance of monetary policy to neutral from accommodative, followed by a hike in the repo rate of 25 bps each in the April 2022 and June 2022 meetings,” said Nayar. Sunil Kumar Sinha, principal economist, India Ratings and Research, said that although monsoon rainfall was lower in August 2021, it did not impact the cereals inflation adversely. “On the contrary, cereals witnessed the seventh consecutive month of deflation. Low agriculture productivity and deflation in cereals prices may impact the rural income and in turn the rural demand. In fact, it is also finding a reflection in the low rural wage growth,” said Sinha. The deflation in vegetables rose to 11.68 per cent from 7.75 per cent in July and 0.70 per cent in June. Cereals also saw deflation, but moderated to 1.42 per cent in August from 1.75 per cent in the previous month and 1.94 per cent in June. Sugar and confectionery remained in the deflationary zone at 0.62 per cent from 0.52 per cent in the previous month. However, certain other items in the food basket saw an elevated rate of price rise. While the inflation rate in eggs eased compared to the previous month, it remained high at 16.33 per cent. Madhavi Arora, lead economist, Emkay Global Financial Services, said that lower food inflation led by comfortable sowing activity despite sub-par monsoons and policymaker’s tax tweaks on edible oils and the imposition of stocking limits on pulses will continue to reflect positively ahead for food inflation. “The headline CPI may average almost 60 bps lower than the RBI’s forecast of 5.7 per cent. With the monetary reaction function currently hinging more on growth revival becoming sustainable, the RBI is unlikely to change key policy rates this year and the focus will be more on surplus liquidity management,” said Arora. Nikhil Gupta, chief economist at Motilal Oswal Financial Services, said that inflation will ease further towards 4.2-4.3 per cent in October-November 2021. “Cut in fuel taxes around Diwali (we consider it as a highly likely scenario) may support lower inflation. Therefore, we don't expect RBI to hike rates in FY22,” said Gupta.
Source: Business Standard
Climate change, facilitating investments, and addressing concerns of the services sector proved key talking points for India and the UK at the 11th India-UK Economic and Financial Dialogue (EFD) held virtually on September 2, 2021. Separately, India and the UK are working out their negotiations for a first-time Free Trade Agreement (FTA), which will improve bilateral market access. This would be a big win for British manufacturers as the average tariffs in India on UK exports are more than three times than those levied on Indian goods in the UK. India also has in place high non-tariff barriers, which should be addressed by the FTA. Moreover, the services sector contributes heavily to both the UK and Indian economies and are set to form prime agenda in the bilateral FTA negotiations. Bilateral investment thrust areas to include green economy, clean energy At the 11th Economic and Financial Dialogue, India and the UK agreed to a package worth almost £900 million (US$1.2 billion) in public and private finance for green projects and renewable energy. “This includes a US$1 billion investment from the CDC, the UK’s development finance institution in green projects in India, joint investments by both governments to support companies working on innovative green tech solutions, and a new US$200 million private and multilateral investment into the joint Green Growth Equity Fund, which invests in Indian renewable energy”, as per the UK Treasury. Both India and the UK also welcomed the launch of the Climate Finance Leadership Initiative (CFLI) India partnership that will mobilize private capital into sustainable infrastructure in India. The CFLI-India partnership offers a roadmap for financing clean energy projects involving wind energy, solar power, and other green technologies. The partnership will be led by a group of leading financial institutions responsible for US$6.2 trillion worth of assets and is chaired by Michael Bloomberg, UN Special Envoy on Climate Ambition and Solutions. Meanwhile, on September 13, the UK’s Energy Minister Anne-Marie Trevelyan announced Britain’s next round of its renewable energy scheme – the Contracts-forDifference (CfD) scheme – where qualifying projects will be guaranteed a minimum price at which they can sell electricity and renewable energy producers can bid for CfD contracts in a round of auctions. As per the UK government, the latest round will provide £200 million worth support to offshore wind projects and £55 million support for emerging renewable technologies. The UK aims to be able to significantly cut its emissions before it hosts the United Nations’ Climate Change conference (COP26) in Scotland in November this year. This creates multiple industry and investment opportunities for clean tech and renewable energy stakeholders, from India and the UK.
India-UK FTA negotiations: Status update UK businesses and exporters had time till August 31 this year to submit their inputs on areas in the proposed FTA with India as part of a formal public consultation process. The next steps will involve the UK Department for International Trade processing these suggestions and finalizing its negotiating position. Formal India-UK FTA talks are likely to start sometime before the end of 2021, as per indications from both sides.
Securing market access Unequal market access and trade protectionism, as experienced through India’s high tariffs, in particular, have been the starting points for UK FTA negotiators. The average tariff imposed on Indian export goods to the UK was 4.2 percent, while it was at 14.6 percent for UK exports to India. In fact, about 66 percent of the product lines exported by India to the UK faced no tariffs while only three percent of the product lines from the UK could enter India without being subject to tariffs. India’s non-tariff barriers include a large number of sanitary and phytosanitary measures, technical barriers to trade, quantitative restrictions, tariff-rate quotas, and safeguards. Through the FTA, however, the UK will likely want larger market access for items apart from automobiles and wines and spirits, with trade diversification a key goal for London in the aftermath of Brexit. India, too, stands to make gains by broaching new export market ground in areas where it faces high tariffs like apparel, textiles, and footwear. UK’s total trade in goods and services with India increased by 51 percent from £9.8 billion in 2011 to £14.8 billion in 2019, its exports of goods and services to India increased by three percent from £8.2 billion to £8.5 billion, during the same period.
Services sector another key negotiation point The services sector accounts for 71 percent of the UK’s GDP and 54 percent of India’s GDP. In a joint statement at the virtual EFD in early September, both, Nirmala Sitharaman, India’s Minister of Finance, and Rishi Sunak, the UK Chancellor, agreed they will be ambitious in their negotiations over the services sector. The UK wants new opportunities for its financial firms and can help more Indian companies access finance in London. An end to the retrospective tax scheme and a higher foreign direct investment (FDI) limit in the insurance sector – increasing from 49 percent to 74 percent – besides the removal of the sector’s ownership and control requirements have been appreciated by London. These measures will strengthen the business environment and prove facilitatory. On the Indian side, a liberal visa regime and mutual recognition agreements for service providers is anticipated that will ease the movement of Indian workers to the UK and expand the scope for businesses in the professional services industry. Among the two countries, India imposes substantially higher restrictions across all the sectors covered by the OECD Services Trade Restrictiveness Index. Sectors with the most restrictions include rail freight transport, legal, accounting, and architecture.
Source: India Briefing
According to a recent CRISIL report, India’s share in global exports of cotton yarn shrunk 600 basis points to 23% in 2020 from 29% in 2015, while in readymade garments, its share has stagnated at 3-4% over the past decade. India’s textiles exports traditionally lagged behind China because of cost and scale factors, but now it has been beaten by countries such as Bangladesh and Vietnam due to another factor – the duty disadvantage.
Source: Hindustan Times
Weaving techniques for silks, cotton, muslin and other textiles, and traditions for making dye from plants that had peaked during the 17th and 18th centuries are now available to netizens at the click of a mouse. The museum of Botanical Survey of India has digitised the entire repository of textiles, dyes and plant paintings and has launched an e-archive this week. Formed in 1890 to study India’s plant resources and explore plants with economic utility, the BSI, in 2009, came across 15 volumes of research by Thomas Wardle to document thousands of specimens of woven fabrics dyed by natural dye. These volumes contain samples of 4,100 indigenous dyes extracted from 64 plants. There are 18 more volumes that contain samples from woven textiles used for turbans, sarees, dhotis, trousers, carpets, mosquito curtains, coats, shawls and gowns. These myriad weaving techniques — 1,700 to be precise — were preserved in these 18 volumes between 1866 and 1874 by another scholar, John Forbes Watson. “There are also 2,500-plus plant paintings of Roxburgh, who took charge of the Company Gardens or the Indian Botanic Garden as its superintendent in 1793. We are the only repository of Roxburgh paintings other than those preserved at the Royal Botanic Gardens in Kew, London. Scholars and even fashion designers will now get to see the heights we reached in textiles and dyes that had surprised the British in colonial India,” said BSI director A A Mao, adding that the archive also has 3,280 lifesized botanical paintings by Indian artists employed by the BSI at that time.
Source: Times of India
On September 9, 2021, the National Assembly of Cambodia ratified the bilateral free trade agreement (FTA) with China, which aims to increase the trade of goods by reducing and eliminating tariffs and non-tariff barriers. The Cambodia-China FTA extends across a wide range of sectors, including trade, tourism, investment, transportation, and agriculture. China will provide duty-free status to some 98 percent of imports from Cambodia whereas Cambodia has agreed to exemptions of up to 90 percent of its imports from China. Although the vast majority of Cambodia’s exports to China are tariff-free through the ASEAN-China Free Trade Area (ACFTA), the CCFTA extends tariff-free trade to over 340 products, such as seafood products, garlic, cashew nuts, and dried chili, among others. Through the CCFTA, Cambodia hopes to increase bilateral trade with China to US$10 billion by 2023, up from US$8 billion in 2020. This is a timely development for Cambodia as businesses continue to reel from the European Union’s (EU) withdrawal of the Everything but Arms (EBA) status in 2020. The EBA status was withdrawn because of what the EU perceived as serious and systemic violations of human rights in Cambodia. The EBA provides 49 of the world’s poorest countries duty-free access to EU markets. CCFTA can boost agricultural products trade with China Through the CCFTA, Cambodia can leverage and better develop its agriculture industry in return for Chinese efficiency in manufacturing or products, such as electronic devices that local producers cannot make. Between January to May 2021, Cambodian exports to China were valued at US$558 million, an increase of 56 percent from the same period in 2020. This increase was attributed to the rising demand for Cambodian agricultural products in China. Beijing has been Cambodia’s top source for development aid since 2010, pouring some US$US$5.8 billion as of 2018. Through this, China has financed major irrigation projects, rice mills, and agricultural schools. Further, a list of 100 China-funded projects over the past 20 years shows 17 percent were agricultural-related. Cambodia also saw a surge of 200 percent in the export of fruit in the first five months of 2021 and such exports can also help Cambodia gradually chip away the large trade deficit the country has with China; of the US$8 billion in bilateral trade in 2020, only US$1 billion was sent from Cambodia. The export of fresh Cambodian mango was made possible because both countries were able to finalize sanitary requirements for fresh fruit in June 2020. The arrangement allows Chinese regulators to certify that specific Cambodian packing factories and orchards meet quality standards. This was previously not the case and Cambodian exporters had to ship their produce to Vietnam before entering China. Cambodian bananas received similar approval in 2018, and exports for this fruit rose to US$121 million from US$8 million in 2019. However, Cambodia’s agriculture sector is highly fragmented and is dominated by smallholders. As such, the government needs to develop policies to support small and medium farmers to create efficiency in the sector. Moreover, quality standard compliance poses one of the biggest challenges for boosting agricultural exports. In addition, Cambodia needs better infrastructure and investments in the downstream segments, such as processing facilities.
Pegging tourism resurgence in China Cambodia’s tourism industry is a key contributor to economic growth (21 percent of GDP in 2019) and there is large potential to develop the eco-tourism sub-sector. By 2020, Cambodia saw 1.31 million foreign visitors, a decline of 80 percent from 2019. Despite the downturn, Cambodia is pegging the resurgence of this sector on Chinese tourists. In 2015, the government launched the ‘China Ready for Cambodia Tourism’ policy to attract more Chinese tourists. The policy saw two million Chinese tourists visiting the country in 2019, although this dropped to 329,000 due to the pandemic.
Extended government support Suspended workers in hotels, guesthouses, travel agencies and the tourism industries are also eligible for financial aid of US$40 until the end of September 2021. Moreover, registered guesthouses, hotels, restaurants, and travel agents that operate in Phnom Penh, Siem Reap, Preah Sihanouk, Kep, Kampot, Bavet, and Poi Pet continued to receive monthly tax exemptions from July to September 2021. CCFTA will not cover loss occurred from EBA status From the initial estimates of the CCFTA, the trade pact will add US$325 million or less than two percent of total GDP to Cambodia’s economy, whereas the withdrawal of Cambodia’s EBA status will impact one-fifth of the country’s exports to the EU, totaling US$1.1 billion. The sectors most impacted are in textile, garment, and footwear manufacturing, which account for 80 percent of Cambodia’s total exports — agriculture only accounts for 5.4 percent of exports. By comparison, Cambodia enjoyed a trade surplus with the EU and US, and the relationships brought in foreign exchange to the country. Any renewed EU tariffs could cost the economy an additional US$130 million each year, although the compound cost from the loss of investments could be greater. Also, boosting agricultural exports is not a large progressive step for a country looking to move its export base from low-skilled and low-cost manufacturing to high-end manufacturing, and the percentage of Cambodians employed in the agriculture sector fell from around 75 percent in 1991 to 30 percent in 2018.
Source: ASEAN Briefing
Sri Lanka has imposed a 100 per cent cash margin on letters of credit (LC) for over 600 items, including carpets, chocolates, wine and raincoats, to discourage unnecessary imports as the country is facing a severe foreign exchange crisis. The monetary board of the Central Bank of Sri Lanka (CBSL) took the decision at a recent meeting. The order was issued under the Monetary Law. The new margin requirement has come in effect from September 8. Licensed commercial banks have also been barred from offering credit to importers to meet the margins. Finance minister Basil Rajapaksa recently told parliament that the country is facing a severe foreign exchange crisis with revenues falling and expenses continuing to rise. According to CBSL data, Sri Lanka's foreign reserves fell to $2.8 billion at the end of July, from $7.5 billion in November 2019, when the government took office. On August 31, President Gotabaya Rajapaksa issued emergency regulations to contain soaring inflation after a steep fall in the value of the country's currency caused a spike in food prices. President Rajapaksa declared the state of emergency under the public security ordinance to prevent the hoarding of essential items. The government appointed a former army general as commissioner of essential services, who will have the power to seize food stocks held by traders and retailers and regulate their prices. The Sri Lankan rupee has fallen by 7.5 per cent against the US dollar this year. The Central Bank of Sri Lanka recently increased interest rates to shore up the local currency. Sri Lanka, a net importer of food and other commodities, is witnessing a surge in COVID19 cases and deaths which has hit tourism, one of its main foreign currency earners. Partly as a result of the slump in tourist numbers, Sri Lanka's economy shrank by a record 3.6 per cent last year. The country is currently under a 16-day curfew until Monday because of a jump in COVID-19 cases
It is estimated that a shoe company with about 9,000 employees will have to spend nearly $1 million on precautions, but the cost of input material has risen by 5-10%. Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association (VITAS), said that as the pandemic continues to grow, companies may not be able to sustain and stabilize their businesses and retain their customers. To restore production, the Ministry of Industry and Elade (MoIT) will remove bottlenecks, reopen factories and provide maximum support to leverage orders in Western markets at the end of the year, according to media outlets. increase. MoIT will also strengthen the implementation of its textile and footwear development strategy by 2030, with a vision for 2035, and strengthen the establishment of programs for sustainable development of the sector by 2030. We will strive to expand the export market, take advantage of existing free trade agreements, diversify export items, and improve the competitiveness of our products and brands.
The decline in production in Vietnam’s textile, leather and footwear industries due to Covid-19 has affected the global supply chain, HSBC said. Nearly 35 per cent of textile and garment factories in the country are shut down, according to the Vietnam Textile and Apparel Association. Vietnam is the world's third largest textile and garment producing country behind only China and Bangladesh. The market share of its leather and footwear industry is 15 percent after doubling in the last decade. Consumers in the US and Europe will suffer from the disruption, especially as the festive season approaches. The international sportswear company Nike is a prime example of the importance of Vietnam in the global supply chain. Of its 112 factories, 88 are in Vietnam and produce half of all its footwear products. Adidas is also facing difficulties since Vietnam accounts for nearly 30 percent of its global supply. Its Taiwanese supplier Pouyuen, which has factories in Vietnam, is among the companies to suspend production. The Delta variant of Covid that has hit the country has raised questions about the viability of the Vietnamese supply chain so much so that Apple and Google have delayed their shift to Vietnam. HSBC said the plan to live with Covid-19 that the Vietnamese government is aiming for depends largely on the ability to achieve a broad vaccine coverage rate. Despite some progress, Vietnam still lags behind other countries in the region in ordering and using vaccines. Vietnam earned $21.2 billion from garment and textile export, and $12.6 billion from footwear export in the first eight months of this year, year-on-year rises of 9.7 percent and 16.2 percent, respectively, according to the GSO.
Source: VN Express
The import of textiles and apparel by the United States increased by 29.29 per cent to $60.393 billion in the first seven months of 2021, compared to $46.712 billion in January-July 2020. With 27.74 per cent share, China was the largest supplier of textiles and clothing to the US during the seven-month period, followed by Vietnam with 14.23 per cent share. Apparel constituted the bulk of textiles and garments imports made by the US during the initial seven months of this year, and were valued at $42.366 billion, while non-apparel imports accounted for the remaining $18.026 billion, according to the latest Major Shippers Report, released by the US department of commerce. Segment-wise, among the top ten apparel suppliers to the US, imports from El Salvador, Honduras and Pakistan shot up by 75.19 per cent, 74.63 per cent and 69.14 per cent yearon-year respectively. On the other hand, imports from Indonesia and Cambodia registered only a single-digit increase of 2.94 and 7.88 per cent compared to the same period of the previous year. In the non-apparel category, among the top ten suppliers, imports from India, Turkey, Italy and Pakistan soared by 75.30 per cent, 70.15 per cent, 56.31 per cent and 42.55 per cent, respectively. The sharp rise in numbers is due to the base effect, as imports were disrupted last year due to the COVID-19 pandemic. Of the total US textile and apparel imports of $60.393 billion during the period under review, cotton products were worth $26.627 billion, while man-made fibre products accounted for $31.053 billion, followed by $1.434 billion of wool products, and $1.277 billion of products from silk and vegetable fibres. In 2020, the US textile and apparel imports had decreased sharply, mainly on account of the COVID-19 pandemic induced disruption, to $89.602 billion compared to imports of $111.033 billion in 2019.
Source: Fibre 2 Fashion