China-Maldives FTA: Will India's apparel exports face setbacks?

India remains one of the Maldives’ largest exporters, even surpassing China in terms of export volume, as per CY 2023 data. Indian textiles and apparel, particularly finished garments, hold a significant share of the Maldivian market and rank among the top three export categories to the island nation. However, this stronghold faces challenges as China’s cost-competitive products, driven by economies of scale, are poised to flood the market under the new FTA.

With increased trade activity between China and the Maldives, Indian textile and apparel exports risk losing ground to cheaper Chinese alternatives. To maintain its competitive edge, Indian exporters must focus on value-added offerings, quality differentiation, and strategic pricing. Fibre2Fashion examines India’s current standing in the Maldivian textile market and highlights key product categories Indian exporters should prioritise to retain their leadership in this vital export destination.

India’s export trends over the years

Exhibit 1: India’s Textiles and Apparel exports to Maldives over the years (in $ million)

Source: ITC Trade map

India’s textile and apparel exports to the Maldives, measured in $ million, highlight notable shifts over the years. Apparel, as a percentage of total textile exports, has seen significant fluctuations. In 2019, apparel accounted for 43.9 per cent of total exports. This share dropped sharply to 33.3 per cent in 2020, reflecting the pandemic’s impact, before recovering to 49.2 per cent in 2021. However, the proportion declined again to 45.8 per cent in 2022 and further to 39.1 per cent in 2023. The declining apparel share in the total textile exports is concerning, given Maldives is one of the few countries where India reigns supreme even ahead of its apparel giant competitors such ss China, Bangladesh and Vietnam.

While apparel exports grew in absolute terms, their share in the total has decreased due to the rapid rise in overall textile exports. Total textile exports grew from $ 11.35 million in 2021 to $ 19.47 million in 2023, representing a remarkable 71.5 per cent growth. On the other hand, apparel exports peaked at $ 8.41 million in 2022 but declined slightly to $ 7.61 million in 2023.

Exhibit 2: China and India’s Apparel Exports to Maldives in CY 2024 (Jan-June) (in $ Mn)

Source: ITC Trade map

In the first half of 2023, India’s apparel exports to the Maldives reached $2.70 million, slightly higher than China’s exports of $2.56 million. However, by the first half of 2024, China’s apparel exports surged to $5.61 million, reflecting a remarkable 119 per cent increase compared to the same period in 2023. In contrast, India’s apparel exports grew more modestly, reaching $3.16 million in 2024, a year-on-year increase of just 17 per cent.

This trend highlights a significant shift in the Maldivian market, where China has rapidly closed the gap and overtaken India as a leading supplier. The surge in China’s exports is indicative of the growing Sino-Maldivian economic ties, further bolstered by China’s increasing investments in the region. The strengthening of China-Maldives relations in 2024, including political and military cooperation, has increasingly tilted the balance in favour of China. This shift is particularly evident in the apparel imports, where Maldives appears to be gravitating towards China as its primary supplier, posing a potential challenge to India’s dominance in this sector.

Key focus products for India’s apparel exports

Table 1: India’s Revealed Comparative Advantage for apparel in the Maldivian market

Source: F2F Analysis

According to UNCTADstat definition, Revealed Comparative Advantage (RCA) of 1 or more than 1 refers to the export strength of the particular country.

India’s leading export categories: India’s largest export category to the Maldives is HS 611490, special garments for professional or sporting purposes, with an export value of 92.44. India also leads in HS 610422, women’s or girls’ ensembles, with an export value of 80.89. India’s strong market presence is notable in tracksuits (HS 611212) and special garments made of cotton or man-made fibres (HS 611420, HS 611430).

These categories reflect India’s advantage in supplying specialised and functional apparel, often used for sports or professional purposes. However, India’s market share could be threatened in these areas if China strengthens its own offerings in these categories.

China’s dominant export categories: On the other hand, China leads in HS 611780, which involves ties, bow ties, and other made-up clothing accessories, with an export value of 497.19, significantly higher than India’s top category. China also has strong exports in HS 620453, women’s skirts made from synthetic fibres, with an export value of 386.21, a stark contrast to India’s 28.89 in the same category. China’s presence is also substantial in HS 610422, women’s ensembles, where it holds an export value of 292.99, much higher than India’s 80.89.

This suggests that China has already captured a large share of the apparel market in the Maldives, particularly in categories like accessories, skirts, and women’s fashion.

Areas where China could compete with India: China’s advantage in the accessories market (HS 611780) is significant, with a much higher export value than India. As apparel accessories are a lucrative segment, China could further challenge India’s position in this area, especially if it continues to offer more variety or competitive pricing. Additionally, China’s dominance in the synthetic fibre garment market, including women’s skirts (HS 620453) and jackets (HS 620433), poses a potential threat to India. India’s lower export value in women’s skirts suggests that China has already taken a significant portion of this market, and India may struggle to regain ground in this segment. Furthermore, China’s strong exports in women’s ensembles and jackets indicate that India could lose market share in these categories as well, particularly as China expands its offerings.

Way Forward: What external factor might impact India-Maldives relations

Maldives public debt: China holds more say in Maldivian affairs due to the hold it has on the current Maldivian economy. Maldives is currently under debt with China leading the roster with $1.3 billion being owed by the Maldivian government. Other key creditors include India, to which Maldives owes $124 million in debt. China needs access to the Indian Ocean for its trade activities.

Maldives’ increased reliance on China for infrastructure: Maldives joined China’s Belt and Road Initiative in 2014, which has led to significant investment by the Chinese in infrastructure such as bridges, airport and even housing developments.

Political tensions: Mohammed Muizzu, the current president of Maldives was elected due to his ‘India-out’ policy which focused on reducing India’s influence in key sectors of security and military. Given India’s sustained interest in all aspects of trade, the absence of a free trade agreement between the two countries will continue to affect India’s trade ties across all products.

The China-Maldives FTA may not significantly affect India’s apparel industry. However, China’s growing geopolitical influence, coupled with the Maldivian government’s increasing closeness to China, could potentially threaten Indian products, including Maldivian preferences for Indian apparel. Meanwhile, Indian apparel exporters could explore emerging apparel subcategories that are gaining traction in the Maldivian market.

Fibre2Fashion News Desk (NS)