India’s new trade deal with the UK offers significant tariff concessions for textiles, but experts warn that simply lowering duties won’t guarantee a surge in exports unless underlying competitiveness issues are addressed.
A New Deal, But Old Challenges
The recent trade agreement between India and the UK is a welcome step, promising to eliminate tariffs on key Indian labor-intensive sectors like textiles, footwear, and gems and jewelry. Previously, these products faced duties ranging from 4 to 12 percent.
However, history suggests that tariff elimination alone doesn’t always translate into a big boost for exports. Especially in advanced markets, where competitors have already established strong supply chains and market presence, the playing field remains challenging.
The UK Market: A Tough Battlefield
The UK ready-made garment (RMG) market is a prime example. China, despite facing an 11.5 percent tariff, commands over 25 percent of the UK’s RMG imports, totaling over $5 billion annually. This dominance is due to its significant competitive advantage.
In contrast, India currently holds only a 6 percent share of UK RMG imports, despite a 9 percent prevailing duty. India expects its RMG shipments to the UK to increase by 30-40 percent post-deal, but much will hinge on factors beyond just tariffs.
Many of India’s competitors already enjoy zero-duty access to the UK market. Bangladesh, for instance, holds a substantial 20 percent share, benefiting from its Least Developed Country (LDC) status. Turkey also has zero-duty access for its RMG exports, securing an 8 percent share of the market.
Lessons from Japan: Tariffs Aren’t Everything
India has faced similar situations before. A 2023 report from the Indian Institute of Management Ahmedabad highlighted instances where India failed to boost market share even after receiving concessional tariff rates under Free Trade Agreements (FTAs).
For example, India’s fuel exports to Japan dropped by as much as 65 percent in the years following the Indo-Japan FTA. Similarly, despite zero tariffs under the Japanese CEPA, India holds a tiny 0.05 percent share in Japan’s textile market.
These cases point to deeper systemic issues, such as product quality and cost, which can undermine the competitiveness of Indian goods even with a tariff advantage.
India’s Textile Industry: A Deeper Look
India’s global textile market share has seen a decline over the years, falling from 26 percent in the early 2000s to 21 percent by 2003, and decreasing further thereafter. A key reason has been the absence of trade agreements with major importers like the US and the EU.
While countries like Vietnam, Malaysia, Turkey, and South Korea secured duty-free access through their own trade agreements, Indian products often faced high tariffs, sometimes as much as 32 percent in the US for items like T-shirts.
Beyond external factors, structural issues within the Indian textile industry also play a role. An “inverted duty structure,” where raw materials or inputs are taxed at a higher rate than finished products, has long made Indian goods less competitive domestically and internationally.
- The India-UK trade deal removes tariffs on Indian textiles, footwear, and gems and jewelry.
- Tariff removal alone does not guarantee increased exports without improved competitiveness.
- Major competitors in the UK market already enjoy zero-duty access and have established supply chains.
- Past FTAs, like with Japan, show India’s exports haven’t always increased despite duty concessions due to issues with quality and cost.
- Structural problems like an inverted duty structure further challenge India’s textile industry.
For India to truly capitalize on the UK trade deal, a concerted effort to enhance competitiveness, address quality concerns, and resolve internal structural issues will be crucial.
