In addition to the duty structure, India has raised concerns about alleged discrepancies in import duties, rules of origin, and non-tariff barriers. These issues complicate trade negotiations and affect India's ability to procure raw materials efficiently. As a result, Indian manufacturers may find themselves disadvantaged, having to navigate a complex web of tariffs and regulations that impact their cost structures and market positioning.

The broader trade dynamics between India and ASEAN also plays a significant role. Both regions are key players in the global apparel market, with India being a major textile producer. India has a comparative advantage in sectors such as textiles, apparel, handicrafts, carpets, and chemicals. Nonetheless, addressing the anomalies related to duty structures, rules of origin, and non-tariff barriers remains essential for enhancing trade relations and ensuring that the benefits of the FTA are fully realised.

How does India fare in the Southeast Asian region?

Exhibit 1: India’s exports and its ranking among exporting nations to ASEAN countries (in $ mn)

Source: TexPro, F2F Analysis

The graph provides a snapshot of India's trade rankings in textiles with various ASEAN countries for 2023, highlighting significant variations in exports. It also shows India’s ranking in textile exports compared to other exporting countries within each ASEAN nation. India ranks relatively high in Malaysia, holding the 6th position globally, with a notable trade value of $223.36 million. This reflects a strong and growing trade relationship.

In contrast, India has lower export values with other ASEAN nations, such as Brunei Darussalam and Laos, where export values are comparatively modest at $1.877 million and $152 million, respectively. However, it is important to note that India ranks as the 4th largest exporter to Brunei Darussalam, making it one of the major textile exporters to the South-East Asian nation.

Vietnam emerges as a major trading partner, where India holds the 9th rank in textile exports, with the highest trade value of $339.119 million among the listed ASEAN countries. This indicates that while India has strong textile trade relations with several ASEAN nations, there is a significant disparity in trade volumes. Countries like Thailand and Indonesia also show considerable trade activity with India in the textile sector.

Potential markets for the Indian textile industry

Table 1: India’s textile exports growth rates in CY 2023 and CY 2024 (in %)

Source: TexPro, F2F Analysis

*Please note that the values for CY 2024 are estimated

In 2024, the estimated growth rates for India's exports to ASEAN countries reflect a range of outcomes, highlighting both recovery and continued challenges. Malaysia stands out with a projected increase of 21 per cent, recovering from a significant 16 per cent decline in 2023, signalling a robust rebound in trade. Cambodia also shows a notable recovery, with an estimated growth of 39 per cent, indicating a potential surge in demand or improved trade relations.

Conversely, Vietnam is expected to see a slight decline of 1 per cent, suggesting potential challenges or reduced market demand. Thailand and Myanmar are both forecast to experience continued declines of 8 per cent and 3 per cent, respectively, reflecting ongoing difficulties in these markets.

Indonesia is projected to see modest growth of 6 per cent, while the Philippines anticipates a potential decrease of 8 per cent in 2024, likely due to the recent tensions in the South China Sea, which could disrupt trade. This follows a substantial 16 per cent increase in CY 2023. Singapore, on the other hand, maintains a stable outlook with a 2 per cent increase, reflecting consistent but modest growth in trade with India.

In the ASEAN region, Malaysia, Indonesia, and Singapore stand out for their significant trade relationships with India, particularly in textiles. Malaysia is expected to see notable growth in trade with India in 2024, largely due to its reliance on Indian textiles, including finished goods such as apparel and garments. The trade dynamics between the two countries have been further enhanced by their agreement to settle transactions in their respective currencies, the Indian Rupee and the Malaysian Ringgit, since April of the previous year. This arrangement is likely to increase Malaysia's openness to Indian goods, with textiles being a major export. Additionally, Malaysia's substantial Indian diaspora strengthens bilateral ties, further fostering trade relations.

Indonesia also shows a positive outlook for 2024, with India and Indonesia exploring a potential Preferential Trade Agreement, alongside the existing ASEAN-India Free Trade Agreement (AIFTA). This renewed focus on trade agreements is expected to further enhance trade between the two nations.

Singapore continues to be a consistent and reliable partner for Indian textiles and clothing, supported by the Comprehensive Economic Cooperation Agreement (CECA). This agreement has eliminated all customs duties on Indian-origin goods, creating an optimistic trade environment and promoting the flow of Indian textiles to Singapore.

Table 2: India’s Revealed Comparative Advantages for ASEAN countries

Source: TexPro, F2F Analysis

The table presents the Revealed Comparative Advantages (RCA) of India concerning its ASEAN partners, offering insights into how India performs in trade with these countries. Revealed Comparative Advantage is a metric used to determine a country's relative advantage or disadvantage in trading a particular good or service, based on its trade patterns.

From the data, Brunei Darussalam stands out with an RCA of 4.7, indicating that India holds a strong comparative advantage in its trade with Brunei compared to other ASEAN countries. This high RCA suggests that India's trade with Brunei is relatively more significant and competitive. In contrast, Cambodia has the lowest RCA at 0.4, implying that India's trade with Cambodia is less competitive or significant relative to other ASEAN nations.

India's RCA with Malaysia, Thailand, and the Philippines ranges between 1.1 and 2.8, indicating a moderate level of comparative advantage. Malaysia, with an RCA of 2.8, suggests a stronger competitive position compared to other nations in this group. Thailand and the Philippines, with RCAs of 1.9 and 1.3, respectively, still indicate a notable comparative advantage, albeit to a lesser extent.

Countries such as Indonesia, Singapore, Myanmar, and the Lao People's Democratic Republic show RCAs below 1, with values ranging from 0.5 to 0.9. These lower RCAs reveal that India's comparative advantage in these markets is relatively weaker, suggesting that trade in these countries is either less competitive or less significant for India.

Inverted duty structure for textile staple fibres

Exhibit 2: India’s textile staple imports from the top 3 ASEAN countries (in $ mn)

Source: TexPro, F2F Analysis

India primarily imports textile staple fibres from Indonesia, Thailand, and Vietnam, maintaining trade relations with all three nations through the India-ASEAN Free Trade Agreement (FTA). However, given India's significant reliance on textile staple fibres from these countries, it should focus on creating individual trade pathways with Indonesia, Thailand, and Vietnam to address specific concerns. India already has an Early Harvest Scheme Trade Agreement with Thailand, which focuses on agricultural goods, but should consider expanding this to include critical textile-related issues.

India should address the inverted duty structure in the next negotiations, as resolving this issue would provide significant relief to the domestic garment, home, and technical textiles sectors. The Indian government should aim to abolish the inverted duty structure on textile staple fibres, particularly from these countries and other ASEAN nations, for the benefit of the growing apparel and technical textile industries, as well as the thriving home textile sector.

Way Forward

India should aim to strengthen its trade relations with Vietnam, Thailand, and the Philippines to establish a stronger presence in the ASEAN region for its textile products. These countries are geographically closer via sea routes, resulting in lower trade costs and more benefits during trade exchanges. A similar analysis of the inverted duty structure should be conducted for products such as ferroalloys, aluminium, and copper pipes and tubes to improve India’s position during negotiations.

India should also seek to capitalise on the India-ASEAN trade agreement by restructuring the rules on certain imported products, particularly textile staple fibres. A positive adjustment in this area would provide relief to domestic industries and strengthen the production of finished goods, which hold higher value in the international market.

Fibre2fashion News Desk (NS)