India almost doubles import tax on textile products; likely to hit China most

India doubled the import tax on more than 300 textile products to 20 percent this week as the world’s biggest producer of cotton tries to curb rising imports from China.

This is the second tax hike on textiles in the past two months after an increase in import levy on other products including fibre and apparels last month.

The moves are expected to provide some relief to the domestic textile industry, which has been hit by cheaper imports. India’s total textile imports jumped by 16 per cent to a record $7 billion in the fiscal year to March 2018. Of this, about $3 billion worth of imports were from China.

Rising imports has sent India’s trade deficit with China in textile products to a record high $1.54 billion in 2017/18, alarming industry officials as India had been until recently a net exporter of textile products to China.

The government of India has not yet disclosed details of the 328 products that will be subject to the duty increase announced this week.

Analysts do not expect China to retaliate to the Indian duty increases as it still has a trade surplus with India. However, India’s textile product imports could fall to $6 billion in 2018/19 as a result of the tax hike to 20 per cent.

India’s imports of textile products from Bangladesh, Vietnam and Cambodia also jumped in the last few years as they are not subject to any duty under free trade agreements (FTA) signed by India with these countries. The 20 per cent duty will not be applicable to products sourced from those countries due to the FTA.

Industry officials say in the last few months Chinese fibre has been shipped to Bangladesh and processed and exported to India with zero duty.

India’s textile and garment exports could rise by 8 per cent to $40 billion in 2018/19 due to a weak rupee and as the government is expected to introduce incentives to boost overseas sales.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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