Cotlook A Index - Cents/lb (Change from previous day)

23-01-2019 82.55 (-0.75)

22-01-2018 94.10

23-01-2017 82.45

New York Cotton Futures (Cents/lb) As on 24.01.2019 (Change from

previous day)

Mar 2019 73.53 (+0.39)

May 2019 74.66 (-0.19)

July 2019 75.98 (-0.13)

25th January

2019

CMAI to undertake Size India Project

Cabinet clears amendment to currency swap framework for

SAARC countries

JSW Group inks MoU with APEDB to invest `3,500 cr in Prakasam

district

China exchange to launch cotton options on Jan. 28

Vietnam, India seek ways to remove obstacles to trade ties

Cotton and Yarn Futures

ZCE - Daily Data (Change from previous day)

MCX (Change from previous day)

Jan 2019 20610 (-70)

Cotton 15915 (-60) Feb 2019 20920 (-70)

Yarn 24745 (0) Mar 2019 21190 (-70)

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2 CITI-NEWS LETTER

-------------------------------------------------------------------------------------- CMAI to undertake Size India Project

MSMEs need reforms to solve pressing problems

Cabinet clears amendment to currency swap framework for

SAARC countries

Why India needs its own size chart for the right fit

Deadline for new FDI policy in ecommerce may be deferred

Why Indian industry needs more than MSME sops

JSW Group inks MoU with APEDB to invest `3,500 cr in

Prakasam district

Madhya Pradesh seeks global investment as India’s ’emerging

economic tiger’

National honour for official for solar policy

------------------------------------------------------------------------------------------------ China exchange to launch cotton options on Jan. 28

Vietnam, India seek ways to remove obstacles to trade ties

Policy signals for greening Bangladesh’s RMG

The costs of India’s participation in the RCEP

Illegal low pay ‘rife’ in UK textiles industry, MP warns

--------------------------------------------------------------------------------------

NATIONAL

---------------------

GLOBAL

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3 CITI-NEWS LETTER

NATIONAL:

CMAI to undertake Size India Project

(Source: ANI News, January 24, 2019)

Retail is one of the driving forces that is propelling India’s Economic surge in recent Years.

Its total Size is Approx. USD 820 Bn and its Share in India’s GDP is 28%. Apparel Retail

is one of the Important Drivers of Modern Retail, with its total Size estimated to be

Approx. USD 72 Bn. Retail, and more so apparel retail, is thus playing a vital role in

transforming India into a major economic super power in the coming years. Rahul Mehta,

President stated that it is CMAI’s proud privilege to work with the Ministry of Textiles

and Govt of India to undertake this Project. It will provide immense Benefit to the

Consumers by getting Standardized Sizes, far better Fitting Clothes, and avoiding Wrong

and Wasteful Purchases. It will benefit the Manufacturers Retailers, and Brands by

eliminating Consumer Returns and Wasteful Inventory. Mehta also stated that this will

also help them Reduce Overall Prices which again Benefits the Consumers. It will help in

Increasing Investment in the Industry by Improving Returns, and Increase Consumption

as a result of more satisfied Consumers. It will help us to Increase our Exports by offering

Indian Sizes to the Indian diaspora across the World.

CMAI Congratulates the Minister of Textiles for taking this Historic Step which will put

the Indian Industry on par with all the Developed Countries like US, UK, EU etc which

have provided its Consumers with the Facility of having a Standard Size.

Home

MSMEs need reforms to solve pressing problems

(Source: The Hindu Business Line, January 24, 2019)

Micro, small and medium enterprises (MSMEs), the second largest employment

providing sector, need radical reforms to solve its pressing problems and to utilize its

potential.

This is the findings and recommendations of the latest 'Development Report' on MSMEs,

brought out by the Kochi based Institute of Small Enterprises and Development. 'India

Micro, Small, and Medium Enterprises Report 2018, the twenty- first volume in the series,

was released in Bengaluru at the South India MSME Summit 2019.

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4 CITI-NEWS LETTER

The report pointed out that several studies on India's MSMEs have brought out emerging

challenges of the sector, especially against the phenomenon of 'jobless growth', that the

country is experiencing today. MSME associations have also come up with issues relating

to finance and taxation. The Union Government came up with a new turnover-based

definition of MSMEs, which the associations consider it as an inroad into their

constituency by large players.

However, the RBI, on the other hand, has taken a serious note on the issues relating to

finance and taxation, and has set up an expert committee to identify causes and top

propose long term solutions. While the mainstream debates on MSME problems confine

to the limited areas of technology, finance, start-up support etc, the impact of more crucial

external influences such as policy failures (demonetization and GST implementation)

remain unanswered. In such a situation, piece-meal solutions to MSME problems may

not be effective, the report warns.

Quoting an RBI study, the report said that the credit growth for MSME declined

significantly and turned negative during November 2016 to February 2017. However the

growth in credit had recovered after February 2017 to reach an average 8.5 per cent. The

share of credit extended to MSMEs in overall bank credit, declined steadily to around 14

per cent from about 17 per cent. Additionally, within credit to the industrial sector, the

share of medium enterprises has dropped significantly as compared to micro and small

enterprises. The credit growth to MSME exports has also been affected.

ISED advocates an 'entitlement approach' that can have the potential of compelling all

related stake holders to work on a common national agenda and solutions under a

scientifically structured framework. Such an approach would demand identification and

analysis of major security threats to the MSMEs, and entrepreneurship at the grass root

level.

Home

Cabinet clears amendment to currency swap framework for SAARC

countries

(Source: SME Times, January 24, 2019)

The Union Cabinet on Wednesday gave its ex-post facto approval for amendment to the

"Framework on Currency Swap Arrangement for SAARC Member Countries" to

incorporate a 'standby swap' amounting to $400 million.

The standby swap was operated within the overall size of the facility which amounts to

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5 CITI-NEWS LETTER

$2 billion.

In an official statement, the government said that due to heightened financial risk and

volatility in global economy, short-term swap requirements of SAARC countries could

be higher than the agreed lines and the amendment builds in flexibility with respect to

modalities of its operation, such as period of swap and roll over.

"The incorporation of 'standby swap' within the approved SAARC Swap Framework

would provide necessary flexibility to the framework and would enable India to provide

a prompt response to the current request from SAARC member countries for availing

the swap amount exceeding the present limit prescribed under the SAARC Swap

Framework," it said.

The Cabinet gave its approval after due consideration of conditions of requesting

SAARC member countries and domestic requirements of India, it said.

It had approved the framework on March 1, 2012 with the intention to provide a line of

funding for short term foreign exchange requirements or to meet balance of payments

crises till longer term arrangements were made or the issue resolved in the short-term

itself.

Under the facility, RBI offers swaps of varying sizes to each SAARC member country

depending on their two months import requirement and not exceeding $2 billion in

total. The swap amount for each country has been defined, subject to a floor of $100

million and a maximum of $400 million.

Home

Why India needs its own size chart for the right fit

(Source: Live Mint, January 24, 2019)

Union minister of textiles Smriti Irani announced on Sunday that the country would soon

have its own standard clothing measurement chart under the Size India

project. Mint looks at the need for an India-specific size chart and how the move will help

retail brands.

What’s the need for Size India initiative?

The Size India initiative is an effort to establish a standardized size chart for clothing in

India. Both international and homegrown brands operating in the country have so far

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6 CITI-NEWS LETTER

used measurements from the US or the UK for garments, such as “Small", “Medium" and

“Large"; only a few brands used their own size charts. However, the differential sizing

standards caused confusion for Indian body types, which have significant

anthropometric differences with Western standards in terms of height, weight or specific

measurements of body parts such as the shoulders and bust.

Is the initiative the first of its kind in India?

The Size India project is not new. In February 2018, the National Institute of Fashion

Technology (NIFT) announced that it would start the process of creating a standardized

size chart for the Indian population. NIFT began the project with a funding of ₹30 crore

from the ministry of textiles. The research team at NIFT surveyed the body

measurements of 25,000 people aged between 15 and 65 across six cities—Kolkata,

Mumbai, New Delhi, Hyderabad, Bengaluru and Shillong—taking into account a cross-

section of the population along the length and breadth of India. It measured the types

using 3D whole-body scanners.

Which countries have their own size charts?

The UK and the US have their own standardized sizes, while Germany and Spain use the

European size chart. China, Australia and Mexico also have their own measurements.

How long will the project take and why?

Irani did not announce a specific timeline to pass the resolution for the project to be

implemented. In 2018, NIFT said the project was likely to be completed by 2021, given

its ambitious scale. Earlier, PTI reported that Noopur Anand, faculty member at NIFT

Delhi and principal investigator of the project, said that approximately 120 elements

such as height, weight, waist size, hip size and bust size would be included in the survey.

The size chart will also include detailed dimensions that will apply to clothing separates.

How will this move help retail brands?

So far, brands offering customized measurements for garments had limited potential to

cater to India’s large population. The Size India initiative will help streamline the process

and make it possible for brands to assign sizes to garments specifically addressing the

differences. An India-specific measurement chart will make it possible for brands to not

only apply accurate sizes to clothing, but also modify their production patterns to create

sizes that are more suitable for Indian body specifications.

Home

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7 CITI-NEWS LETTER

Deadline for new FDI policy in ecommerce may be deferred

(Source: Anindita Singh Mankotia, Economic Times, January 24, 2019)

The government is considering extending the deadline of February 1 by when recently

announced changes in the foreign direct investment policy for ecommerce are to take

effect, said people with knowledge of the matter.

“The government is considering giving an extension, but no final decision has been

taken,” said a senior official. Amazon and Walmart-owned Flipkart have sought a

deferment and industry sources said the government is weighing an extension of at least

two months.

Executives of Amazon and Flipkart have met senior government officials and asked for an

extension and review of two key clauses.

The first bars marketplaces and their group companies from having equity participation

in any of their vendors and the second prohibits marketplaces and group companies from

having control over inventory sold on the platforms, said the people cited above. An

extension of two months, if granted, would mean the rules take effect at around the time

of general election, said the people. While Amazon has sought a deferment of four

months, Flipkart is said to have proposed a six-month extension. The two companies have

also written to the Department of Industrial Policy and Promotion (DIPP) seeking a delay.

Amazon India said it will comply with all local laws, rules and regulations, but is awaiting

clarification from the government on the policy changes, which were announced on

December 26.

“As we seek clarity, we have written to the government requesting an extension of four

months,” a spokesperson said. “With over 4 lakh sellers and hundreds of thousands of

transactions happening daily on the Amazon India marketplace, we need adequate time

to understand the details of the policy.”

“We are working diligently to assess all aspects of the Flipkart business in an effort to

ensure full compliance with the new rules, but believe an extension is appropriate in order

to ensure that all elements of the new Press Note are clarified and a smooth transition for

marketplace participants occurs without any disruption for customers and small sellers,”

the firm had told ETon January 15.

The clauses cited above necessitate sweeping changes to the business models of

ecommerce marketplaces such as Amazon India and Flipkart. The inventory of a vendor

will be deemed to be controlled by the marketplace if more than 25% of the vendor’s

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8 CITI-NEWS LETTER

purchases are from the marketplace entity, including its wholesale unit. The marketplace

entity or its group companies cannot have control over inventory under FDI rules.

Amazon and Flipkart both control inventory directly or indirectly. They purchase goods

in bulk at cheap rates from manufacturers through their wholesale entities — Amazon

Wholesale and Flipkart India Pvt Ltd — and sell them on their marketplaces through

preferred sellers, which are companies in which the ecommerce company or a group

entity may have an equity stake. The preferred sellers account for 70-80% of the total

sales of the marketplaces. Both companies are betting heavily on the Indian market.

Amazon has committed an investment of $5 billion, of which a large chunk has been put

into wholesale, marketplace and payments. Walmart has paid $16 billion to take over

Flipkart.

The government’s next move is being keenly watched in US trade circles, especially with

US commerce secretary Wilbur Ross scheduled to visit India on February 14. The USIndia

Strategic Partnership Forum had termed the amendments “regressive”.

Home

Why Indian industry needs more than MSME sops

(Source: Live Mint, January 24, 2019)

With few months left for the 2019 general elections, the Union government has unveiled

a slew of measures to woo India’s small and medium scale businesses, which have

ostensibly been hurt the most because of the double whammy of demonetization and the

goods and services tax (GST).

The steps announced in recent weeks ranging from doubling the exemption limit for GST

registration to restructuring stressed loans for the sector may be well-intentioned but may

be too little, too late to address the industrial sector’s woes.

Data from the Centre for Monitoring Indian Economy (CMIE’s) Prowess database—

which tracks the performance of more than 40,000 companies across India— suggests

that the performance of the MSME sector has been broadly in line with the rest of the

corporate sector, and have shown signs of a recovery in the past fiscal year. Net sales for

both set of firms fell between fiscal 2012 and fiscal 2016 before improving slightly since

then

In this analysis, the enterprises are classified on the basis of their average annual turnover

in the last five years. Companies with revenue of up to ₹5 crore in FY14-FY18 are

considered ‘micro enterprises’, those with turnover between ₹5 crore and₹75 crore as

‘small enterprises’ and those with turnover between ₹75 crore and ₹250 crore as

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9 CITI-NEWS LETTER

‘medium enterprises’. The classification is in line with the proposed new definition of the

MSME sector, which was approved by the Union cabinet last year.

The improvement in net sales growth of these enterprises is almost entirely led by the

manufacturing units. Sales growth in the services sector, on the To be sure, the improvement

in net sales of manufacturing firms does not necessarily suggest an improvement in profits. The

data on aggregate profits suffers from extreme volatility and it is therefore difficult to identify a

conclusive trend.

Data on bank credit sourced from the Reserve Bank of India, which classifies the MSME

sector as per the current official definition based on investments of enterprises in plant,

machinery and equipment, shows that industrial credit growth has also improved in

recent months, with the entire improvement led by credit growth to medium-sized

enterprises other hand, declined for the third consecutive year in 2017-18

The trends in sales growth and credit flow largely represent the health of companies in

the organized MSME sector but it is worth noting that the relief measures of the

government are also aimed precisely at this sector since firms in the unorganized sector

are outside the purview of regulatory controls and formal lending channels. The one area

which seems to be of concern is jobs. The small and medium-sized enterprises (based on

turnover) cut jobs for the seventh straight year in 2017-18, even as the corporate sector as

a whole witnessed rising employment in recent years, Prowess data shows.

While demonetization and GST are blamed for the financial distress of these enterprises

due to which many were said to have laid-off employees or shut operations, the fall in

employment was the least in the demonetization year of 2016-17, according to Prowess

data. Instead, the declining growth in employment in smaller-sized companies has been

an ongoing trend since FY10

Some relief for the MSME sector may therefore seem warranted given their contribution

to overall employment but it is worth noting that size-based policy relief measures may

end up being counter-productive over the long run. Such measures could discourage firms

to grow by creating strong incentives to operate beneath the official size category.

There is some evidence to suggest that size-dependent labour regulations encourage

smaller firms to employ non-permanent workers, and make them sub-contract output to

other firms .

A recent survey conducted by IDFC Institute in collaboration with the government’s

think-tank NITI Aayog shows that larger firms face more regulatory obstacles, which

possibly explains why firms in India fail to grow big.

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10 CITI-NEWS LETTER

Policymakers would do well to focus on the structural bottlenecks holding back Indian

industry—including regulatory red tape, uncertainties in tax and investment policies,

and infrastructural deficits—which hurt both small and big firms, and limit growth.

Home

JSW Group inks MoU with APEDB to invest `3,500 cr in Prakasam district

(Source: Indian Express, January 24, 2019)

The firm also evinced interest to set up an integrated steel

plant, a textile park and a electric vehicles manufacturing

in Andhra Pradesh.

VIJAYAWADA: JSW Group, one of the biggest

conglomerates in the country, has entered into a

Memorandum of Understanding (MoU) with Andhra

Pradesh Economic Development Board (APEDB) to invest `3,500 crore in Andhra

Pradesh. As per the pact, the firm, which is into steel, cement, energy, infrastructure and

other sectors, proposes to develop two jetties at Ramayapatnam Port in Prakasam district

and lay a slurry pipeline.

The firm also evinced interest to set up an integrated steel plant, a textile park and a

electric vehicles manufacturing in Andhra Pradesh.The MoU was signed and exchanged

between JSW Group chairperson Sajjan Jindal and APEDC CEO J Krishna Kishore on the

sidelines of the World Economic Forum in Davos in the presence of IT Minister Nara

Lokesh on Wednesday.

According to an official release from APEDB, two jetties would be developed in 200 acres

of land at Ramayapatnam Port with `1,000 crore as part of JSW’s plans to expand their

logistics footprint in South Asia. The slurry pipeline, expected to build synergies and

linkages to Prakasam district, will be laid with `2,500 crore estimated investment for the

group’s plant in Bellary district in Karnataka. The MoU is expected to generate 250 direct

jobs.

It may be recalled that Chief Minister N Chandrababu Naidu, earlier this month, unveiled

a pylon marking the launch of the Ramayapatnam Port works.When Lokesh invited JSW

Group to establish an integrated steel complex in the coastal areas in Prakasam district to

take advantage of logistics and supporting infrastructure in AP, Sajjan Jindal expressed

interest and said he would visit the State soon. Jindal is also said to have evinced interest

to explore the opportunities to establish a textile park and e-vehicle manufacturing

facility, when Lokesh explained to him about the e-mobility policy rolled out by the

government.

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11 CITI-NEWS LETTER

Earlier in the day, Lokesh held meetings with delegations from firms, including Marsh

and McLennan, Genpact and others. Marsh and McLennan chairperson Alexander

Moczarski informed the minister that the firm was looking to invest in India and that he

would visit the State soon.The firm offers services insurance brokerage, risk management,

reinsurance services, talent management, investment advisory, and management

consulting.

Lokesh also interacted with other investors and explained to them the industry-friendly

policies in AP. He addressed an interaction luncheon with top investors on ‘Technologies

for Tomorrow’ held at AP Lounge and elaborated on the e-governance initiatives adopted

by the State government.

Later in the day, the IT Minister interacted with the executive vice-president and CEO of

Nestle, Chris Johnson. Citing the example of Araku Coffee, Lokesh said a target was set

to promote 5,000 brands from AP on global platforms and sought the cooperation of

Nestle Group. He invited the Nestle CEO to AP. Reacting to this, the firm’s CEO said that

the Nestle Group was ready to work with AP and assured cooperation for rural brand

marketing. He said a Nestle team would visit the State soon.Principal Secretary Ajay Jain

and APIIC MD Babu Ahmed were also present.

Home

Madhya Pradesh seeks global investment as India’s ’emerging

economic tiger’

(Source: Financial Express, January 24, 2019)

Terming job creation and agriculture as his main focus areas, the senior Congress leader

said he wants to ensure that agriculture is linked to the industrial growth in the state and

the new industries that come up create employment in a big way.

Promoting itself as “India’s emerging economic tiger”, Madhya Pradesh government

Thursday invited global investors to the country’s biggest state with promise of all

necessary infrastructure and a favourable business ecosystem. Chief Minister Kamal Nath

said Madhya Pradesh is not a fully urbanised state and it was largely rural-focussed

mainly on agriculture.

Terming job creation and agriculture as his main focus areas, the senior Congress leader

said he wants to ensure that agriculture is linked to the industrial growth in the state and

the new industries that come up create employment in a big way. He said there is a deep-

rooted frustration over jobs, not just in Madhya Pradesh but in the entire country, and

this can create a big social problem if not tackled immediately.

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12 CITI-NEWS LETTER

He was addressing investors at a session here on the sidelines of the WEF annual meeting.

The ‘Invest Madhya Pradesh’ session was organised by the Madhya Pradesh government

and leading industry chamber CII to promote the state as “India’s emerging economic

tiger’. Nath has been a regular at Davos as a union minister in the past, but has come for

the first time as chief minister this time. He urged investors to look at his state differently

than they did earlier, saying he was doing his best and the investors should also do their

best now.

Nath said several states have set up pavilions here, but he has none as he wants the

investors to talk about the business opportunities available in in the state. Madhya

Pradesh’s Chief Secretary S R Mohanty said, “apart from being biggest state, it has been

blessed with a whole lot of minerals, is a power surplus state and has a huge road network

and even the Narmada water is reserved for the industry there.”

He also promised a round the clock single-window business facilitation service for the

industry and investors. He said the state intends to do much better in terms of ease of

doing business (it is ranked seventh right now) and the Kamal Nath government is

committed to resolve whatever issues are there coming in way of industrial growth of the

state.

Mohanty further noted that airlines have increased their flights to the state soon after

Kamal Nath became the new chief minister and intend to further increase their

connectivity in the coming weeks and months. In what he described as a unique benefit

available to the investors, he said Madhya Pradesh is the only state in the country with a

‘tax-delinked policy’.

The main focus industries include agriculture, automobile, textiles etc and now the state

wants to focus on next generation technologies such as nano technology and artificial

intelligence to make up for the state having lagged behind some others in the area of

software and technology businesses. The chief minister is committed in creating an

extensive skill development framework in the state, the senior official said.

Our basic focus is on job creation while embarking on an industrial development path, he

said. He promised land at competitive rates for the industries and all necessary steps to

improve business ecosystem in the state. The session was also addressed by CII Director

General Chandrajit Banerjee and representatives of companies that already have a

presence in Madhya Pradesh. It was also attended by those having made commitments to

invest in the state.

Home

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13 CITI-NEWS LETTER

National honour for official for solar policy

(Source: Times of India, January 24, 2019)

A policy drafted by a textile department official from the region on providing solar power

to small power looms has earned a national-level honour.

G Kummaravel, assistant director, regional office of the textile commissioner, Coimbatore

region, has been felicitated by vice president M Venkaiah Naidu for framing a policy on

'Solar Energy Scheme for Power looms'. The policy seeks to provide solar power systems

to small weavers who have up to eight power looms. Kummaravel said small power loom

weavers can get roof-top solar power panels installed. "If weavers enter a net-metering

system, where surplus solar power can be re-routed to the grid, the cost would be reduced

from the monthly power tariff," he said.

Home

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14 CITI-NEWS LETTER

GLOBAL:

China exchange to launch cotton options on Jan. 28

(Source: Xinhua, January 23, 2019)

The Zhengzhou Commodity Exchange has released details on cotton options contracts

and listing, with the options to be open on Jan. 28.

The future contracts of the cotton options are CF1905, CF1907, CF1909 and CF2001.

There will be 104 options contracts to be released on Jan. 28.

The China Securities Regulatory Commission has also given the nod to the launch of

options contracts for rubber and corn on January 28 as part of the government's drive to

promote more complex agricultural trading tools.

Home

Vietnam, India seek ways to remove obstacles to trade ties

(Source: Vietnam News, January 24, 2019)

Officials from Việt Nam and India discussed specific measures to remove obstacles to

trade and promote investment co-operation between their businesses during the fourth

meeting of the Joint Sub-committee on Trade in Hà Nội on Wednesday.

The event was co-chaired by Vietnamese Deputy Minister of Industry and Trade Cao

Quốc Hưng and his Indian counterpart Anup Wadhawan.

Delegates compared notes on solutions to tighten economic relations, expand export

markets and take advantage of their strengths and resources to aid development in both

countries.

In his remarks, Hưng called on India not to impose anti-subsidy measures against

stainless steel pipes and copper wire rods imported from Việt Nam, and to consider not

expanding anti-dumping measures when they expire.

He also urged India to issue official documents allowing the import of Vietnamese

dragon fruits and speed up the process to pave the way for other fresh fruits of Việt Nam

– including longan, pomelo, rambutan and durian – to enter the South Asian market.

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15 CITI-NEWS LETTER

The official voiced his concern over India’s imposition of the Minimum Import Price

(MIP) on pepper and suggested the country reverse the measure and abide by

regulations of the World Trade Organisation (WTO) and the ASEAN Trade in Goods

Agreement (ATIGA).

He proposed India further support Vietnamese delegations joining trade promotion

activities in the country, encourage local enterprises to visit Việt Nam to scope out the

market and invest in the areas of their strength and help budget carrier Vietjet open

direct flights between the two countries.

Wadhawan raised issues in India’s interest, such as the granting of licences to facilities

processing buffalo meat to be exported to Việt Nam.

The free trade agreement between the Association of Southeast Asian Nations (ASEAN)

and India was also discussed.

Statistics show trade between Việt Nam and India reached US$10.7 billion in 2018, up

39 per cent from 2017.

India has, to date, run 208 FDI projects in Việt Nam with total registered capital of

about $878 million, ranking 26th out of 129 countries and territories investing in the

Southeast Asian nation.

Home

Policy signals for greening Bangladesh’s RMG

(Source: Dhaka Tribune, January 24, 2019)

Elaborate plans and projects that can reduce pollution in Bangladesh. This is the second

part of a four-part series on greening the RMG sector

Although buyer pressure remains one of the key motivators for RMG industry greening -

the government’s role in promoting cleaner production remains significant - especially in

regard to RMG companies where buyer pressure for greening is comparatively less.

Bangladesh has a rich and diverse mixture of policies and regulations covering water

pollution management. The strengthening of regulatory provisions for groundwater

monitoring, licensing, and charging as part of the rules supporting the 2013 Bangladesh

Water Act by the Ministry of Water Resources (MOWR) would be a step towards

promoting smarter water use by industries.

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16 CITI-NEWS LETTER

Buyer codes and Leadership in Energy and Environmental Design (LEED) certification

prioritizes water efficiency. Water conservation and rainwater harvesting could be

promoted more - which can be used in certain washing dyeing or toilet facilities within

the RMG factories.

It could be made compulsory in factories above a certain size, or a utility bill discount

could be given to companies using a certain amount of rainwater. On the punitive side,

banning the drilling of uncontrolled deep tube wells by private companies, groundwater

pricing, fee structure (for different types of water use), strict licensing, and use fees for

RMG companies could also be explored for sustainable management of the groundwater

aquifers in Dhaka.

A Zero Discharge policy by the Department of Environment (DoE) is under process and

will go towards relieving some of the groundwater pressure. Dhaka and Chittagong water

municipalities (DWASA and CWASA) could review groundwater licensing arrangements

for the larger RMG companies, including a revision of water jurisdiction in the growing

industrial clusters around Dhaka and Chittagong.

Revising the DoE’s volumetric tariffs to reflect environmental externalities, and

developing effective environmental compliance systems are all high priority actions for

the DoE. RMG factories are either classified as Red category (if they have a dyeing unit)

or Orange B category (if they have a washing unit) - depending on their production

process and potential pollution load - determining the extent of environmental evaluation

the company must undertake, and the kind of ETP and pollution management system

they must design before the DoE grants them environmental clearances.

Previously, RMG factories that were “cut and sew only” were classified as Green category

- requiring minimal environmental assessments for certification. In 2008, the ministry

amended its rules so that “cut and sew” factories no longer needed any form of DoE

clearance. However, cutting and sewing sections use high amounts of artificial lights and

generate a fair amount of heat transfer.

These factories usually produce air pollution and solid waste that is disposed of without

regulation. The DoE can only penalize them upon receiving written complaints from

locals - about solid wastes incorrectly disposed of in local waterways -- causing a blockage.

For greening to occur in all segments of the RMG industry, attention must be paid to the

“cutting and sewing only” segment as well.

It may be noted that RMG companies are now used to compliance scrutiny of an

international standard. As of July 1, 2018, building safety audits have been completed in

3,780 factories under the work plan formulated by a tripartite body comprising

International Labour Organization, Ministry of Labour and Manpower and factory

owners (as mentioned in the Budget Speech 2018). In addition, a Public Accessibility

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17 CITI-NEWS LETTER

Database has been prepared to contain information of 3,743 export-oriented RMG

factories; another database with information of another 27,000 factories is underway.

The government and the industry believe this has given a strong signal to the international

market.

The DoE could selectively share positive results achieved by companies among their

peers, buyers in Bangladesh, and on the DoE website for international audiences. A

voluntary benchmarking program could be started in collaboration with interested RMG

factories - possibly from the RMG high achievers - and their buyers.

This could be done with GCF funding since this involves climate adaptation. The DoE

could also start publishing details of court cases brought to the environmental courts, and

statistics on environmental fines charged and collected.

Water quality emissions standards are set out in the ECR, Schedule 12. The schedule sets

out the maximum amounts of a pollutant (volumetric concentrations) that may be

discharged by a factory (or other sources), based on available abatement technology or

the impacts of the emissions on the ambient environment.

While such standards are important to ensure the wastewater generated in industrial

processes is adequately treated - such traditional “concentration based” environmental

standards do not provide textile factories with incentives to conserve water and to reduce

the number of chemicals used in the production process.

It is mandatory under the ECR 1997 for Orange B and Red category factories to have ETPs.

Several reports and government documents note that many RMG owners do not run their

ETPs regularly, and often run them prior to DoE visits. The government might consider

clarifying the Public Interest Litigation laws to make it easier for citizens living near

factory outfalls to bring cases against companies that do not run ETPs.

Currently, the fines for violation are too small and irregularly imposed, allowing

noncompliant companies to pay the fine as a cost of doing business rather than purchase

and run ETPs. The DoE’s mandate as it stands is not designed to encourage greening

outside of the environmental clearances. Recently, they have been drafting guidelines to

encourage factories to go for a Zero Discharge model for their air and water emissions.

Once the guidelines are finalized, the DoE will request the factories to submit a Zero

Discharge plan on a voluntary basis.

The Ministry of Environment, Forests and Climate Change is in the process of finalizing

an update to the ECR 1997 (Draft Environmental Protection Rules 2017). The update will

replace the ECR 1997. The update contains revised emissions standards.

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Once the draft is adopted, a technical advisory project could address the staffing gap to

increase their capacity to monitor cleaner production targets. A new partnership with the

DoE and the most proactive buyers could open new opportunities for scaling up cleaner

production in the RMG industry.

The papers in this series are a part of a paper for the DFID supported

Economic Dialogue on Green Growth (EDGG) project, implemented by

Adam Smith International.

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The costs of India’s participation in the RCEP

(Source: Nilanjan Ghosh, ORF, January 24, 2019)

The suspense with India’s participation in the proposed 16-member mega-trade deal,

Regional Comprehensive Economic Partnership (RCEP), the first trade bloc that groups

large economies of the developing world in Asia-Pacific, still continues despite many

rounds of negotiations. While it is thought that the RCEP negotiations are on the verge of

conclusion, the Indian government has engaged three consultants -- ICRIER, the Centre

for Regional Trade housed in the Indian Institute of Foreign Trade (IIFT), Delhi, and the

IIM, Bangalore -- to hold stakeholder consultations on India’s strategy in goods, services

and investment negotiations.

Within India, the sentiments with the RCEP are quite divided. The first point of objection

with the RCEP is that India’s trade deficits have always widened with nations after signing

free-trade-agreements (FTAs) with them. The same is true for India’s FTAs with the

ASEAN, Japan, Korea, and Singapore, most of which are RCEP nations. On this note, I

had raised serious concerns earlier in one of my published papers stating that trade deficit

should not be the only lens through which FTAs should be judged. One also needs to look

at the impacts on the participants in the various nodes of the commodity value-chain. The

second point of contention lies with exposing vulnerable sectors to market forces and the

vagaries of competition emerging from global trade.

As far as the RCEP is concerned, there are feelings in certain corners in India, like the

Swadeshi Jagran Manch (SJM), that it will worsen the condition of India’s agriculture and

dairy sectors, which are not in positions to compete with Australia and New Zealand.

On the other hand, there are trade economists and free trade proponents who believe that

the RCEP is beneficial for the Indian economy. In a very compelling argument

in The Hindu Business Line (7 January, 2019), Geethanjali Nataraj and Garima Sahdev

infer that the long-term benefits of joining the bloc far outweigh the short-run costs. The

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authors state, “…if India wants its ‘Make in India’ to become a global success, it must

participate positively to become a part of the Asian value and supply chain which either

begins or ends in India”.

I begin my argument from this point. My contention is: Regional trade agreements like

the RCEP need not always be beneficial from the “Make in India” perspective. From here,

I raise concerns with the RCEP from two other perspectives: impacts on value chain, and

issues of complementarity. I raise these issues notwithstanding the geo-strategic issue of

existence of China in this trading bloc, which I am leaving out for the time being.

My very first concern is that while “Make in India” is definitely the flagship project to

attract foreign investment, this was never conceived of at the cost of domestic industry.

Even after more than quarter of a century of economic reforms, Indian manufacturing are

yet to mature to be competitive enough to face the vagaries of competition brought about

by international trade. This situation prevails also because of a host of unimplemented

reforms in the product and the factor of markets. While the introduction of GST was

thought of to be a major step in this regard by rationalising supply-chains, and removing

the fragmented nature of the markets, multiple rates of GST often cause problems of

compliance across the value-chain of a commodity. On the input side, critical reforms

need to take place in the labour market. Despite low relative labour cost, labour

productivity in India in manufacturing is still one of the lowest in the world, and spatially

fragmented labour laws escalate costs of transaction. Under such circumstances, the

Indian industry is hardly in a position to compete in a level playing ground in a free-trade

region. “Make in India” is meant to create enabling conditions for both domestic and

foreign businesses to thrive. If domestic industry has to thrive, it needs protection as also

the enabling conditions created by factor and product market reforms. Mega-trade deals

like the RCEP may derail the timing and coordination of such plans.

At the same time, it is being continuously argued that the RCEP will facilitate India’s

Micro, Small and Medium Enterprises (MSMEs) to effectively integrate into the regional

value and supply chains.

To a large extent, the opportunity indeed exists, and so are the threats! It is important

that complementarities in trade be looked at while getting into any form of FTA. Whether

this complementarity really exists is a working hypothesis without any solid empirical

analysis or evidence. Rather, things may simply work the other way round. It needs to be

looked at whether the RCEP will really lead to cheaper intermediate goods, or cheaper

final goods. So far, the rise in Indian trade deficit with its FTA partners has occurred due

to cheap imports of final products that have led to an increase in consumer surplus (or

consumer well-being), but adding to the angst of the domestic producers. Cheaper

intermediate goods can rather help in making Indian exports competitive.

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20 CITI-NEWS LETTER

Trade liberalisation of the RCEP partners with respect to services has been a thorny issue

from the Indian perspective. In the cases of FTAs with East and Southeast Asian

economies, beginning with Singapore in 2005 to the last one signed with South Korea in

2011, India has been insisting on capitalising on its pool of 'skilled' labour force to gain

from improved access to employment opportunities in these economies. This has been

expected to come about by increasing the ease of movement of professionals through the

liberalisation of what is called Mode 4 in services trade. To this end, India has been willing

to trade up its remaining tariff policy manoeuvrability in the manufacturing industry (and

even in the agricultural sector). In the context of the RCEP, this again raises a matter of

concern. Whether promoting services at the cost of manufacturing in the trade pact acts

as a boon or a lost opportunity needs a more deliberate cost-benefit analysis.

The literature on international trade claims that for “small” economies (ones that do not

influence the prices of goods and services traded in the global economy) “preferential

trade agreements” (PTA) are not really the best moves for such nations. India, despite its

huge population and increasing income leveles, is a price-taker, rather than “price-maker”

in the global trade. When a country preferentially reduces trade barriers with its partners

in a PTA, it is raising the relative trade barrier against countries that are not members of

the agreement.

On the other hand, the RCEP in the long run goes far beyond trade liberalisation. In its

attempt to harmonise foreign investment rules, intellectual property rights (IPR) laws

and several other laws and standards beyond what has been agreed by developing

countries at the WTO, it takes away an economy’s ability to customise trade policies

according to the needs of specific time periods. This will be another long-term cost that

the Indian economy has to bear.

My treatise is not against India’s signing of the trade deal. One needs to remember that

this will be the first mega-trade deal of such comprehensive nature that India is engaged

with. From that perspective, I intend to raise some cautionary statements so that the costs

of moving to this deal are considered. Therefore, the ToR of the three consultants should

not be confined to merely holding stakeholder consultations. They should place a more

comprehensive report on the benefits and costs at spatial and temporal scales of India’s

participation in the RCEP, including the geo-strategic concerns of China’s existence in the

bloc that I didn’t take up here. Now that bilateral negotiations are being pursued under

the umbrella, India has to find the right equation to extract the maximum benefits from

this mega-trade deal. The challenge is huge, but so are the opportunities, if analysed and

implemented in the right way.

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21 CITI-NEWS LETTER

Illegal low pay ‘rife’ in UK textiles industry, MP warns

(Source: Financial Times, January 24, 2019)

Payment of illegally low wages is “rife” in the UK’s textile industry and goes hand in hand

with a “culture of fear and intimidation”, a senior MP has warned. Mary Creagh, chair of

the Commons environmental audit committee, was speaking after her panel received

evidence from HM Revenue & Customs about its investigations into non-payment of the

national minimum wage to textile workers. The evidence was part of the committee’s

inquiry into the sustainability of the fashion industry, driven partly by Financial Times’

reporting on abuses in factories serving the “fast fashion” sector in Leicester. In a letter

to the committee published on Friday, Janet Alexander, HMRC’s director of Individuals

and Small Business Compliance, said that over the six tax years to 2017-18, her

organisation had started 93 investigations over failure to pay the minimum wage in textile

factories. It had identified arrears totalling £87,158 owed to 126 workers for pay levels

below the minimum wage in 24 of those investigations. Nearly half the arrears identified

— £42,787 — were identified in the 2017-18 tax year alone. The committee said separately

that it had been told 14 investigations into under-payment were still under way. Unofficial

garment factories have sprung up rapidly in the UK, especially in Leicester, in recent years

to service fast-changing demand for cheap clothing. The factories can supply goods faster

to UK retailers than those in Asia that serve most of the world’s clothing needs.

Pressure to cut costs to the absolute minimum has exacerbated the tendency for the

factories to pay workers less than the legal minimum. Ms Creagh said the “Made in the

UK” label should mean workers were paid at least the minimum wage. “It has been 20

years since the introduction of the minimum wage but in our inquiry we heard that

underpayment is rife and goes hand-in-hand with a culture of fear and intimidation in the

UK’s textile industry,” she said. Ms Alexander’s letter added to the “scandalous and

growing evidence” of workers’ being criminally underpaid in the UK, said Ms Creagh.

“This must stop. We need government action to end these 19th-century practices in 21st-

century Britain.” HMRC is one of several government bodies that oversee workplace

abuses. Ian Waterfield, director of operations at the Gangmasters and Labour Abuse

Authority, another of the bodies, recently told the Financial Times the apparel sector was

one of those industries where conditions most concerned his organisation.

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