Case Study

Enhancing Indian Textile Exports to Sri Lanka: A CITI Case Study

Abstract

In the pursuit of fostering growth and global competitiveness within the Indian textile and clothing industry, the Confederation of Indian Textile Industry (CITI) emerged as a key player. With a proactive stance, CITI bridges the gap between the government and the industry, advocating policies, addressing challenges, and nurturing a dynamic trade ecosystem. This case study delves into CITI's strategic involvement in enhancing Indian textile exports to Sri Lanka, highlighting the rationale behind this choice, the benefits accrued, and the pivotal role of government support.

Keywords

Confederation of Indian Textile Industry (CITI), India, Sri Lanka, Free trade agreement

Introduction

The India Sri Lanka Free Trade Agreement (ISFTA) came into effect in March 2000. The aim of this agreement is to promote the trade and economic cooperation between India and Sri Lanka as this is India's first free trade Agreement (FTA) after the new economic policies i.e Liberalisation, Privatisation, Globalisation (LPG) which was implemented in 1991. This case study provides a comprehensive analysis of India's textile and apparel exports and imports to and from Sri Lanka over the last five years, as well as a retrospective assessment of the top nine export and import items of last two decades, with their CAGR percentages. In addition, the study outlines key government initiatives that have shaped the trade between India and Sri Lanka. Additionally, it explores the post-Covid landscape and how the textile and apparel sector is demonstrating growth under the India Sri Lanka Free Trade Agreement.

India has actively pursued a Free Trade Agreement (FTA) with Sri Lanka, aiming to establish a prominent global trade position. These agreements are designed to amplify India's exports, attract foreign investment, and foster economic collaboration with Sri Lanka. By reducing trade barriers and encouraging economic cooperation, the FTA opens doors for Indian businesses to access new markets, draw foreign investment, and stimulate economic growth. This study delves into the export-import dynamics of India's textile and apparel sector, highlighting key trade items between the two countries, and assesses the impact of the FTA. With the textile and garment industry playing a pivotal role in India's economy, driving substantial exports and imports while employing millions, the research underscores the advantages of FTAs, distinguishes them from economic integration, and sheds light on India's initiatives to enhance its global market presence.

Amid the increased disruption among global trade and supply chain, Mr. T. Raj Kumar, Chairman of the Confederation of Indian Textile Industry (CITI), took various strategic decision for the Indian textile and clothing industry and has long been the driving force behind the industry growth and various policy advocacy. In 1998, the signing of the India-Sri Lanka Free commerce Agreement (ISFTA), provided an opportunity to boost Indian textile exports to Sri Lanka and significantly enhance trade between the two countries.

India and Sri Lanka have maintained a strong economic relationship for many years. The bilateral free trade agreement (FTA) between the two countries was signed in 1998 and came into effect in March 2000. The decision was further reinforced by better delivery times and reduced transportation costs, however there was a more intense objectives behind this trade agreement including economic imbalances between the two countries, socioeconomic sensitivities in the local area, the need to protect domestic interests, and revenue implications not to affect highrevenue-generating tariff lines. Thus, the aim bilateral free trade agreement (FTA) was to promote trade and economic cooperation between the two neighbouring countries and foster deeper integration of their economies.

This case can help researchers and scholars to understand the dynamics of Free Trade Agreement (FTA). This study can be applicable in the subject areas of Global Business Environment, International Business, International Trade, and Global Strategic Management.

Problem Mitigation

The FTA (free trade agreement) was designed to offer numerous benefits to both India and Sri Lanka. For Sri Lanka, it provides access to a large market with over a billion consumers, potentially leading to increased exports and economic growth. For India, the agreement provided an opportunity to secure preferential access to Sri Lanka's market, which is particularly important for sectors such as textiles, automotive, and pharmaceuticals. Over the years, the FTA (free trade agreement) has led to a significant increase in bilateral trade between India and Sri Lanka. However, the trade balance has been largely in India's favor, with India exporting more goods and services to Sri Lanka than it imports from the Srilanka. In figure 1, the chart shows a positive trend in both India's exports and imports. The increasing CAGR for exports (8.28%) and imports (6.19%) indicates a healthy and growing economy.

Commodities exported from India to Sri Lanka

Commodities Imported by India from Sri Lanka

Figure 3 displays India's top 9 imports from Sri Lanka over the past 2 decades, along with their Compound Annual Growth Rate (CAGR), illustrating trade trends and economic dynamics between the two nations. The largest sector is textile and apparel, which is approx. 15% of India’s import basket from is Sri Lanka.

The India-Sri Lanka Free Trade Agreement (ISFTA) was a game-changer in the era of increased global trade and served as crucial point for successful economic alliance and enhanced economic as well as commercial partnership

Textile and Apparel Sector

The textile and clothing sector wasn't just a slice of the industry pie—it was the focal point. CITI recognized its pivotal role in India's economic fabric, contributing a robust 7% to the country's industrial output and serving as a crucial source of employment. The fact that textiles and apparel constituted a significant 15% share of India's imports from Sri Lanka underscored the potency of this alliance.

Data is in Million Thousand US $.
Figure 4
Source: Own compilations; data taken from ITC trade map

Data is in Million Thousand US $.
Figure 5
Source: Own compilations; data taken from ITC trade map

Figure 4 shows that the CAGR of India's exports to Sri Lanka has increased by 5% during the period of 5 years starting from 2017 to end in 2021. This indicates a steady and positive growth trend in India's exports to the neighbouring country, reflecting strengthened trade relations.

In figure 5 it is shown the India imports from Sri Lanka in the textile and apparel sector and CAGR has been increased by 2% for the last 5 years starting from 2018 to end in 2022.

As officials of CITI delved into the data, the upward trajectory of export growth became evident. With a consistent Compound Annual Growth Rate (CAGR) of 5% from 2017 to 2021, India's textile exports to Sri Lanka charted a resilient course. The unforeseen turbulence of the COVID-19 pandemic did cause the growth rate to waver, settling at 5.6%—a testament to the industry's ability to adapt in the face of adversity.

Relevance of Economic Integrations

Economic integration seeks to minimize trade barriers and enhance economic collaboration among nations. One widespread approach is the Free Trade Agreement (FTA), where countries mutually reduce tariffs and trade barriers on goods and services. FTAs, like NAFTA, grant preferential treatment to member nations while maintaining independent trade policies with non-members. A higher level of integration is the Customs Union, which not only eliminates tariffs within member countries but also enforces a common external tariff on imports from non-member states. Going beyond this, a Common Market facilitates free movement of goods, services, capital, and labour among members, exemplified by the EU. These integration levels culminate in Economic Unions and Political Unions, which harmonize economic policies and sometimes even pool sovereignty for unified governance. Each form reflects varying degrees of collaboration and alignment while fostering trade, investment, and economic growth.

But what lent weight to this strategic move were the unyielding efforts of the Indian government. Streamlining trade procedures, harmonizing regulations, and boosting export competitiveness were integral to the government's vision—an alignment that resonated deeply with CITI. This synergy transformed policies into tangible progress, giving CITI’s strategic decisions not just wings, but an unswerving trajectory. The Amended Technology Up-gradation Fund Scheme (ATUFS) brought forth the promise of ease of doing business. Credit-linked capital investment subsidies for bench-marked machinery in various textile segments opened vistas of growth and innovation. The National Technical Textile Mission added a layer of depth, fostering the usage of technical textiles across flagship programs, including strategic sectors, with an outlay of Rs.1480 crore. The Production Linked Incentive (PLI) Scheme, a cornerstone of 'Make in India,' aimed at propelling MMF apparel, fabrics, and technical textile products. The promise was grand—an anticipated Rs. 19,000 crore investment and nearly 7.5 lakh fresh job opportunities.

CITI’s journey was marked by tangible strides. The PM-MITRA initiative aimed at setting up seven Mega Integrated Textile Region and Apparel (PM MITRA) Parks. These parks stood as testaments to 'Make in India,' boasting world-class infrastructure and plugging growth into greenfield/ brownfield sites. In this intricate narrative, the ISFTA (India Sri Lanka Free Trade Agreement) played the pivotal role. It wasn't a mere agreement; it was the fulcrum of growth. As trade volumes surged, concerns about trade imbalances surfaced, casting a shadow on the partnership. However, CITI viewed these challenges as opportunities—chances to address concerns and further the ethos of balanced trade. Non-tariff barriers emerged as complex nuances that could thwart the ISFTA's (India Sri Lanka Free Trade Agreement) promise. Yet, CITI perceived these obstacles as stepping stones towards a more robust trade relationship. Advocating for streamlined procedures became paramount, a pursuit holding the promise of unlocking the agreement's full potential. As the narrative progressed, cooperation in services and investment produced mixed outcomes. Contemplations about renegotiating the FTA (Free Trade Agreement) underscored CITI’s unwavering commitment to a balanced partnership, where both nations thrived in harmony

Conclusion

In the culmination of this journey, CITI’s legacy stands as a testament to growth, competitiveness, and seamless integration. The choice of Sri Lanka wasn't merely a decision; it was a manifestation of a visionary's insight, guided by strategic acumen and fortified by the partnership forged under the ISFTA (India Sri Lanka Free Trade Agreement). The tale of Indian textile exports to Sri Lanka, as shaped by CITI and Ministry of Commerce, wasn't just a story—it was a living embodiment of visionary leadership, resolute dedication, and the intricate threads of international trade woven into harmonious synergy