With Pakistan’s inclusion in the Generalised System of Preferences (GSP) by the European Union (EU) India has lost 37 textile markets over the last two years in the European Union to Pakistan. Preferences are given to certain countries through tax exemption in developed markets to boost trade from that country.

This duty anomaly, along with other issues, has resulted into a slow pick-up of garments and fabrics from India as compared to Pakistan. Data compiled by the Ministry of Textiles showed India’s textiles exports at around $40 billion in 2015-16, flat from the previous year, and a sharp decline from the target set for $47.5 billion at the beginning of the year.

In 2014, the European Union included Pakistan to the list of GSP which allowed duty-free access to EU markets for textile exports. Consequently, exporters from Pakistan are now able to ship fabrics, made-ups and garments with no tariffs. Indian exporters, however, must pay 9.6% export duty for made–ups and garments, and 6.5–8% duty on fabric items, making exports from India more expensive.

R K Dalmia, chairman of industry body Cotton Textiles Export Promotion Council (Texprocil) said that it is a matter of deep concern that India has already lost market share to Pakistan in 19 textile and 18 clothing products (37 products in all) during calendar year 2014 due to the preferential access extended by the European Union to that country under the Generalised System of Preferences (GSP) plus scheme. If urgent action is not initiated to address the issue then India would lose its market share in many more items.

Meanwhile, even though the textile sector was at the forefront of creating employment in the country, the cotton textiles business is fast losing its market share worldwide. Drawing attention to a report of the Labour Bureau published recently, Dalmia stated that the textile industry was at the forefront of creating maximum employment in 2015 as compared to other sectors like auto and information technology.

More employment can be generated provided the government gives greater priority to the needs of the textile sector and recognizes its huge potential by giving timely impetus in terms of policy support. Some of the issues relating to exports such as cost of funds and adverse impact of preferential access given to competing countries need to be addressed on a war footing.

According to him, the solution to this problem is India and the European Union sign an free trade agreement, which will help the textiles sector gain in terms of market access. He also expressed concern over the pace of progress of negotiations on the FTA. The government not only needs to revive talks under the Indo-EU FTA but conclude it at the earliest.