Thursday, March 12, 2015

India's exports of textiles and garments to Latin America

India is the third largest supplier of textiles and the fourth largest supplier of ready made garments to Latin America. The exports in the period 2009-13 have shown average annual growth of 17.4% for textiles and 21% for garments. Impressive growth despite the post-world financial crisis conditions!

In 2013, Latin America imported 30.6 billion dollars of textiles. Predictably, China was the top supplier with 11.9 billion dollars, followed by US with 6 billion and India with 1.6 billion. In the same year, Latin America imported ready made garments worth 11.6 billion dollars of which 6 billion came from China, 628 million from US, 466 million from Bangladesh and 450 million from India. Bangladesh has overtaken India since 2012.

There are two surprising facts about the Latin American imports: first, Mexico is the largest importer of textiles and garments although Brazil is the largest market with twice the population and GDP in the region. 
The second surprise: Chile with a small population of 17 million, is the second largest importer of garments and the third largest importer of textiles, although Colombia, Argentina, Venezuela and Peru have larger populations and bigger economies. 

The 2013 textile imports of Mexico were 9.8 billion dollars, Brazil-6.8 bn, Chile-4.2 billion, Colombia- 2.3 bn, Peru- 1.8 bn, Argentina- 1.5 bn and Venezuela- 1.4 bn, 

The top garment importers ( 2013 figures) are: Mexico- 3 billion dollars, Chile- 2.7 bn, Brazil -2.4 bn, Colombia 741 million, Venezuela-664 m and Peru-655 mn. It is amazing that Chile's import is larger than that of Brazil whose population and GDP are ten times bigger.

There is scope for India to increase its exports of textiles to 5 billion dollars and garments to 2 billion dollars by 2020. The following factors favor growth of India's exports:

-Millions of Latin Americans have come out of poverty thanks to the effective pro-poor government programmes in the region. The increase in middle class, the new paradigm of sustained growth and prosperity of the region means more demand for textiles. Since 2009, the textile imports of the region have been growing by 10.7% and garment imports by 12.4% per year.

-Textile and garments industry in South America especially in Brazil, Argentina and Venezuela have become less competitive due to high local cost of production and the steady decline of the sector.

-The Latin American governments and business want to reduce the over-dependence on China and diversify their imports as part of their long term strategy. 

-The damage caused to local textile and other industries by the flooding of Chinese goods in the region has developed a fear about China. The Chinese business model of non-transparent deals at government level, bringing their own labour, illegal flow of Chinese immigrants and the cultural and communication gap has made the Latinos wary of China in general. In contrast, India is comfort zone for the Latin Americans many of whom practice yoga, meditation and follow Indian gurus such as Sai Baba and Sri Sri Ravi Shankar. This traditional positive image has been reinforced by the prominence of Indian IT companies which employ over 25,000 Latin Americans and the pharma companies which have helped reduce the cost of health care in the region.

Lastly, the Chinese wage levels have gone up and the Chinese government itself is moving into industries higher in technology and lower in pollution. This has reopened space and given an edge for Indian textile exports to some extent.

The main challenge faced by Indian exporters is the high customs duty in the big markets of the region. Indian garments attract ad valorem tariff of 35% in Brazil and Argentina, 31.7% in Venezuela, 30% in Mexico, 15% in Colombia, 11% in Peru and  5.8% (the lowest in the region) in Chile. Indian textiles face ad valorem duty of 25.1% in Brazil and Argentina, 16.5% in Mexico, 19.8% in Venezuela, 8.7% in Colombia, 8.4% in Peru and 5.8% in Chile

While Indian exports face tariffs, the exports of textiles and garments from countries which have FTAs with the Latin American markets enter duty free. India has Partial Trade Agreements (PTA) with Mercosur and Chile for limited number of items. This is not enough. There is need to go in for FTAs with the larger countries of Latin America.

The FTAs with US and EU help Mexico and Central America to gain advantage over India's exports to those large markets. 

Given the clear long term potential for increasing the textile and garment exports to the growing markets of Latin America, the Indian exporters, export promotion councils, the government and the embassies need to intensify the export promotion activities systematically and in a coordinated manner.

Note -  Source of statistics - Apparel Export Promotion Council, New Delhi.

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