New Delhi: Indian exports are struggling at the moment due to a slump in global demand. On top of that, China’s decision to provide duty free access to specific items from Pakistan is all set to further impact the exports, especially that of cotton yarn.

In April this year, China entered the second phase of its free trade agreement (FTA) with Pakistan, eliminating tariffs for 313 items exported from India’s western neighbour. These items accounted for $64 billion of China’s global imports, opening up a huge market for Pakistani exporters.

The tariff lines are across items such as cotton yarn, textiles and garments, seafood, meat and other animal products, among others.

Of these items, analysts say India is going to be worst hit on account of cotton yarn where Pakistan is a direct competitor.

Cotton yarn exporters point out that this Indian export is fast becoming uncompetitive against those from Pakistan and Vietnam, with China giving duty-free access to these nations.

“Countries like Pakistan and Vietnam have zero duty access to China while India’s exports to China face a 3.5-4 per cent levy. This has adversely impacted our cotton yarn exports. They have fallen to 15-20 million kg as against an average of 50-60 million kg,” said K. Selvaraju, secretary general of The Southern India Mills’ Association.

Cotton yarn exports to China constituted around 30 per cent of India’s exports of this commodity last year.

What the data says

Data from the commerce ministry shows cotton yarn exports have started to fall sharply over the last few months, especially to China.

In the months of June and July, cotton yarn exports to China successively contracted by more than 80 per cent.

Overall, cotton yarn exports to China contracted by 61 per cent in the April-July period to $211 million as against $537 million from a year ago. In the same period, total cotton yarn exports contracted by 37 per cent to $863 million from $1.37 billion.

“There are certain products where India has some competitiveness, like textiles and clothing. The textiles exports where India and Pakistan are competitors could be affected. But the larger impact of this will be felt going forward,” said Biswajit Dhar, professor at Jawaharlal Nehru University.

Cotton yarn sector is a crucial pillar for India’s textile industry.

“Pakistani manufacturers will get bolstered because of free access to such a big market and increase their presence in this space and this will be played out in the medium term,” added Dhar.

Pakistan’s share in China’s global imports of the given 313 items is 2 per cent currently, but it’s now hoping to take that figure to 10 per cent.

Dhar said Pakistan and China have a strategic give-and-take partnership, with the former providing connectivity and the latter giving economic concessions.

“India has become collateral damage in this process,” he said. “India wants to reduce trade deficit with China and it has a serious competition in Pakistan now.”

In 2018-19, India’s exports to China were at $16.7 billion while its imports from China were at $70 billion — a trade deficit of over $53 billion.

However, Ajay Kumar Sahai, director general of the Federation of Indian Exporters Organisation, said the impact of the Pakistan-China FTA will be minimal and only on select items.

“Cotton yarn exports have been hit but that can also be attributed to the fact the globally demand has fallen and prices have collapsed,” said Sahai.