India will have to substantially increase garment production capacity in a move to effectively capitalize on the potential tariff benefits in the US market, Vice President at Elara Capital, Prerna Jhunjhunwala, said.
While speaking to CNBC-TV18 in an interview, Jhunjhunwala pointed out that India is behind countries like Vietnam and Bangladesh in terms of exports. "Bangladesh exports approximately $40 billion worth of garments around the world today compared to $17 billion for India," she pointed out.
A free trade agreement with America would put India on the same playing field. "India is subject to a 26% tariff post-baseline presently. A trade pact could reduce this rate, and that could even provide cost competitiveness to India against Bangladesh and Vietnam," she said.
Whereas Bangladesh takes advantage of cheaper labor, at around $115 per month compared to India's $150–170, Jhunjhunwala went on to clarify that tariff exemptions can even counter such a 10–12% cost disadvantage to Indian exporters.
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Bangladesh currently controls 9.3% (approximately $7.3 billion) of the US apparel import market, and India controls 5.9% (approximately $4.7 billion). "That 4% differential is a huge opportunity for Indian manufacturers," she said.
Even though there was a moderate pick-up in spinning mill orders, the export outlook is poor. "US order volumes are still low compared to the previous level," Jhunjhunwala noted.
On the investment side, Elara Capital's best bets are Arvind Ltd. in apparel, Indo Count and Welspun in home textiles, companies poised to gain from India's growing Free Trade Agreements (FTAs).
"India's competitive advantage is not only tariffs but also its structural strengths through FTAs," she summarized.
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