With export incentive schemes no longer viable for supporting falling garments exports, the Centre needs to design “smart”, alternative subsidies for textile manufacturers that cannot be challenged at the World Trade Organization linking them to employment, technology and services used, a recent study by a Delhi-based think tank has suggested.

“Rationalisation of import duties on raw materials and machines used by the industry would also help in cutting down costs and making exports more competitive,” according to the study titled ‘Trade, Trade Agreements and Subsidies: The Case of the Indian Apparel Industry’ by ICRIER.

It is a matter of concern that in spite of having tariff restrictions on imports (about 25 per cent) and perceived domestic competitiveness, India’s apparel exports are stagnating. During 2017-18, apparel exports declined 3.8 per cent in dollar terms and 7.6 per cent in rupee terms. In the current fiscal, while over-all exports posted a growth of about 12 per cent, garment exports fared poorly.

Doing away with incentives for textiles exporters, as dictated by WTO rules, would make the sector totally uncompetitive unless alternative schemes are designed and implemented, the study said.

“A number of developing countries, including Vietnam and China, give subsidies along with other fiscal and non-fiscal benefits to their apparel manufacturing firms to gain scale and for exports. Since export incentive schemes are no longer a viable policy option for India, the country needs to design “smart”, alternative subsidies that cannot be challenged at the WTO in the future,” it added.

The study is co-authored by Arpita Mukherjee, Anusree Paul, Angana Parashar Sarma and Soham Sinha from ICRIER.

Listing out the possibilities, the study said the government should remove the export contingency clause of the incentives given through the different schemes that have been challenged under the WTO’s Subsidies and Countervailing Measures Agreement and instead link subsidies to other performance indicators such as requirement of employment or investment in technology, which focuses on scale expansion and growth.

Since the WTO is yet to develop a discipline on subsidies in services, services used in the apparel export supply chain can be subsidised, especially in view of the increasing use of services in apparel manufacturing, it added.

Apart from providing subsidies, the textiles sector could also benefit from reduced input costs, the study said. Countries such as Bangladesh and Vietnam have imposed zero import duty for machinery and equipment imports. In India, after the introduction of GST, the import duties for machines have been reduced, but not eliminated. “It is important to do a detailed study on the costs and benefits of the removal of import duty on machines. If the benefits outweigh the costs, the government should lower or remove import duties,” the study proposed.