Removal of quotas would lead to decline in exports from India in the near term, as markets worldwide go through a phase of confusion and consolidation. In addition elimination of quotas effective from January 2005 has other negative implications on current year exports too.
Firstly, Indian exporters cannot borrow currently against future quotas and grow their exports. The practice, until now had been that Indian apparel exporters would borrow export quotas against future quotas each year.
However, with the dismantling of the quota regime in 2005, such borrowing is not available. Thus in the interim period till the quota regime goes off the Indian apparel exports will not register increase. Thus for FY'04 and for nine months of FY'05, growth of apparel exports from India would show a pessimistic trend.
According to AEPC (Apparel Export Promotion Council), annual figures for FY'04 exports would be approximately $5.1 billion, down from $5.3 billion in the previous fiscal. In the financial year 2003-04 up to February, apparel exports amounted to only $4.6 bn, while the projected figures for March are at $500 million, thus taking the total apparel exports for FY'04 to $5.1 billion.
This implies a negative growth of 3.5% for the Indian apparel exports in the financial year 2003-04. Even in the 2004-05, apparel exports are expected to be in the region of $5 billion only. This is because with the dismantling of the quota raj, premiums paid for quotas would disappear. Even other expenses on quota management, would not be incurred by the exporters. Thus bringing down the cost and prices of India 's apparel exports.
This has twin effects. In the very short term, it would mean that exports in value terms would drop further, and in the long term it would make India competitive with China on cost basis.
With exports static in the region of $5 billion, AEPC expects to see good growth post 2006 only. Until then, they expect the world trade in apparel to go through a period of consolidation and re-settlement. Buyer-seller dynamics would be re-written during this period and trade pattern would largely be governed by cost economics after 2006.
Thus AEPC, expects India would then be recognized as a good supplier and anticipates exports to touch $8 billion by 2008. They also add that India 's production is indigenous - from cottonseeds, yarn to manpower to textile. Thus India is insured to that extent from outside variables. The world exports of apparel in 2003 are pegged around $201 billion.
In the current year, it is expected that the world market for apparel exports would register a growth of 3%, after a long period of flat growth post the 9/11 and SARS case. Currently, India accounts for only 2.5% of world trade in apparel.
India 's prime markets are the EU and the USA , with each accounting for 40% of total apparel exports from India . USA imports apparel worth $68 billion, of which India 's share is only $2.1 billion. Similarly apparel trade in EU is worth $86 billion, with India accounting for only $2.18 billion.
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