What The Sri Lankan Crisis Means For India’s Exporters

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Sri Lanka’s $51 billion debt default and its ongoing economic crisis may present an opportunity for Indian exporters of tea and textiles. Yet, it won’t be easy for India to fill in the global supply gaps. Mint explains why.

What is causing the shift in demand?

Tea and textile exports have long been Sri Lanka’s strength. Textiles and apparel make up more than 50% of its overall exports, while tea accounts for 17%. Financial troubles and ensuing power cuts in Sri Lanka, which has sought international aid, have made it challenging for Colombo to meet its export orders. The country’s exports began faltering during covid-19 pandemic and have only worsened after it ran out of foreign exchange to buy fuel. The steep rise in crude oil prices following Russia’s invasion of Ukraine have added to its troubles. Buyers from across the globe are now looking for alternative suppliers.

Can India fill the supply gap for tea?

According to tea exporters, India is well-positioned to capture markets in countries that import orthodox tea—loose-leaf tea that is produced using traditional methods. Besides strengthening its footprint in Iran, the Sri Lankan economic crisis could open up newer markets such as the US, Turkey, Iraq, China, and Canada. India is now working on a strategy to tap into the supply gaps. It includes exploring alternative payment mechanisms for trade with sanctions-hit Russia and Iran markets, besides marketing and brand promotion activities in Europe and North American countries.

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New Avenues

Is there a surge in new orders for India?

According to India’s textiles secretary U.P. Singh, some orders have already been placed with companies in Tamil Nadu’s Tirupur textile cluster. Indian exporters have more enquiries from the UK and the European Union mainly for woven items, shirts, T-shirts, and baby garments. Orders are also being placed from Latin America, the UAE and Australia.

Are there constraints for Indian exports?

Indian exporters may face high tariffs. Turkey, for instance, has an import tariff of 145% for tea. Sri Lanka managed to get around this by putting up a packaging plant in Turkey. India has no such arrangement. Moreover, only a few ports are open to receive shipments. As for textiles, the headwinds include high cotton prices. The Indian government last week removed basic customs duty of 5% on cotton imports, but it is unlikely to bring down prices significantly as raw material costs are on the rise globally.

Could the gains made be permanent?

We are not sure yet. Indian textile exports attract import duty as high as 9-10% in some western countries. However, India has managed to negotiate duty-free access for its textile exports in the recent free trade agreements (FTA) it inked with the UAE and Australia. Similar FTAs may be signed with the EU and the UK. This may lead to some gains. India, meanwhile, has been eyeing a larger share of the international market by supporting companies through its production-linked incentives scheme.

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