India’s government is thus confronted with a false trade choice. It is pulling out all the stops to make the country a global manufacturing powerhouse. Even with well-meaning intentions to increase domestic manufacturing with production-linked incentives, the outcomes have been lackluster. As the Indian economy contends with a growing trade deficit, particularly with China, recent trends in the viscose yarn market highlight the difficulties facing local industries.
India produces 50% of the world’s viscose yarn, which is a key input for woven garments, but have already faced a sudden drop in demand. Orders from nearby factories have decreased by nearly 40% over the last month alone. This dramatic drop-off signals a major alarm bell for the prospects of future domestic textile manufacturing. India’s trade deficit has hit historic highs. The deficit with China has ballooned to a record $100 billion (£75 billion).
Even with a significant currency depreciation, India’s exports to China have dropped to their lowest level since 2014. Skyrocketing imports are making things worse by the day. They jumped up 25% in March, led by electronics, batteries and solar cells. This alarming trend indicates that India continues to be over-reliant on Chinese manufactured products. The timing couldn’t be worse, given the increased border militarization that began in 2020.
The sudden spike in Chinese viscose yarn—an input for their fabric production—has made the situation even worse for Indian fabric manufacturers. According to these reports, Chinese producers are ‘dumping’, undercutting their competition by selling their products at a price point up to 80% lower. Imported viscose yarn prices have fallen by 15 rupees ($0.18, £0.13) a kilo. This surge is overwhelming Indian ports and putting intense pressure on domestic Indian producers.
The pain of rising imports has been felt across local industries. Consequently, about 50 small, hand operated spinning mills in Pallipalayam, Karur and Tirupur districts in southern India have halted their operations. It’s an understatement to say that the textile sector is wrestling with existential issues. It cannot hope to compete in a global marketplace, deluged with subsidized, lower-cost foreign merchandise.
“We can’t match these rates. Our raw material is not as cheap.”
Specifically, India’s trade ministry took the reins to address these challenges. They have created a special task force to track the deluge of cheap Chinese imports. Financing for clean technology would need marketing and policy strategies that proactively shield domestic industries and still comply with international trade agreements.
Ajay Srivastava, an industry analyst, highlighted the broader implications of the trade situation:
India just hit some steel imports with a 12% tax. This action is intended to stop the flood of low-cost imports from China. This program is intended to shield U.S. industries from being crushed by sudden foreign competition and to promote U.S. production.
“This isn’t just a trade imbalance. It’s a structural warning. Our industrial growth, including through PLI (production linked incentive) schemes, is fueling imports, not building domestic depth.”
Chinese firms still play a huge role in the production centers of India, making it hard even for Indian companies to compete on a level playing field. Xu Feihong, a representative from a Chinese manufacturing firm, noted:
That competition from China is a serious threat. It’s still notable that despite this, India has managed to keep the vast majority of its viscose yarn production domestic. The rest of the imports largely backfill supply gaps rather than make up for a total loss of domestic production.
“We will not engage in market dumping or cut-throat competition, nor will we disrupt other countries’ industries and economic development.”
India’s economy is looking to increase domestic manufacturing and decrease its reliance on foreign goods. The route ahead is full of fog. The government’s production-linked incentives have only been partially successful. This tide of innovation has fueled calls for bolder policies that can create a new era of inclusive, clean economic growth.
As India’s economy attempts to balance between increasing domestic manufacturing and reliance on foreign goods, the road ahead remains uncertain. The government’s initiatives through production-linked incentives have shown “limited success,” prompting calls for more robust policies aimed at fostering sustainable growth.
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