India doubles down on import barriers for synthetic fabrics amidst domestic industry struggles

The Indian government has announced an extension and expansion of its Minimum Import Price (MIP) policy on synthetic knitted fabrics, signalling a reinforced effort to shield domestic manufacturers from a surge of cheaper imports, primarily from China. The measure, effective from September 15, 2024, until December 31, 2024 was aime to stabilize a domestic market that has seen declining production and job losses.

MIP extension on synthetics fabrics

The decision followed an initial MIP implementation in March 2024, which was due to expire in September. The government extended the MIP on five existing International Trade Classification (ITC) Harmonized System (HS) codes and, crucially, introduced a new MIP of $3.50 per kg on the Cost, Insurance, and Freight (CIF) value of eight additional ITC (HS) codes. This expansion indicates a growing concern over the impact of low-priced imports on the Indian textile sector.

Data reveals a worrying trend for domestic producers. Between 2022 and 2023, import volumes of synthetic knitted fabrics increased by 50 per cent, from 100,000 tons to 150,000 tons, while the average import price plummeted from $2.50/kg to $2.00/kg. This price undercutting coincided with a decline in domestic production from 500,000 tons in 2022 to 450,000 tons in 2023. The first half of 2024 paints an even bleaker picture, with 100,000 tons of imports at an average price of just $1.50/kg, while domestic production languished at 200,000 tons. This data strongly suggests a causal link between rising, cheaper imports and the contraction of the domestic industry.

Table: Synthetic fabrics import volume and prices

The government’s rationale is clear: to create a ‘level playing field’ for domestic manufacturers who struggle to compete with significantly lower-priced imports. By setting a minimum price, the government hopes to discourage the influx of these cheaper goods, thereby boosting domestic production and preserving jobs within the textile sector.

Drawbacks of MIP policy

However, the MIP policy is not without its potential drawbacks and raises several analytical points:

Effectiveness of enforcement: The success of the MIP hinges on effective enforcement at customs. Loopholes and under-invoicing could undermine the policy’s intended impact.

Impact on consumers: Artificially raising import prices could translate to higher prices for consumers, potentially affecting demand for synthetic knitted fabrics.

Long-term competitiveness: While the MIP provides short-term relief, it doesn't address the underlying issues of high input costs and potentially outdated technology within the domestic industry. Critics argue that focusing solely on import restrictions may not be a sustainable solution for long-term competitiveness. Investment in modernization and efficiency improvements within the domestic sector may be necessary.

Trade relations: The move could strain trade relations, particularly with exporting countries like China, which may view the MIP as a protectionist measure.

The extension and expansion of the MIP represent a significant intervention in the Indian textile market. While it offers a lifeline to struggling domestic producers, its long-term efficacy will depend on effective implementation, addressing underlying industry challenges, and navigating potential trade tensions. The government’s move is a clear indication of its commitment to protecting domestic industries, but whether it provides a sustainable solution remains to be seen.