JOIN USA welcome special package
The mandate of employment generation seems to be on top of the agenda once again for the government. The recent Union Cabinet’s approval to provide a special package of Rs 6,000 crore to the textile sector is a clear-cut vindication towards fulfilling the goal. Of course, this is a prudent move to acknowledge that textile and clothing (T&C) sector is the second most important sector after agriculture and provides bulk of employment to the people; hence the decision to address and boost the sector is in the best interest of the country.
It is also true that move may fulfill the long desired twin objectives of employment generation and promotion of T&C sector. Current assessment suggests that this move will generate more than a crore job in the country.
On paper, the package looks extremely promising. It includes a slew of measures which are labour friendly and would promote employment generation, economies of scale and boost exports. The steps will lead to a cumulative increase of US$ 30 bn in exports and investment of Rs 74,000 crore over next three years. The employees provident fund (EPF) contribution will be raised to 12% from 8.3%. The majority of new jobs are likely to go to women since the garment industry employs nearly 70% of women workforce. Thus, the package would help in social transformation through women empowerment.
The moot point is will this proposal or designing of reforms or bringing in crafted package really help the sector and fulfill the government objectives? We have noticed that in the past, many such packages and proposals such as technology upgradation fund (TUF), disinvestment, providing subsidies to the textile producers and firm owners etc, have largely remained unproductive. They did nothing to promote the sector to ensure apparel becomes biggest foreign exchange earner and employment generator.
Today, the industry faces a host of constraints. A fragmented structure with dominance of the small scale sector, high power costs, interest rates and transaction costs, unfriendly labour laws and logistical disadvantage in terms of shipping costs and time are posing serious threats to its growth.
Foreign investments are not coming in as the overall factors influencing the industry are not investment friendly. Notwithstanding the fact that India is perceived to be a country with a huge potential owing to its superior design and processing capabilities, a large base of skilled and cheap labour, multi-fibre raw material and a large and growing domestic market, it is still unable to capitalise on its market share.
Therefore, the response of the government was expected and soon they act upon it, would be better. Because, China’s export of apparel and textile has been hit badly with the global financial crisis and with the rising wages in most of its regions like central and west, its apparel sector will remain globally uncompetitive.
In addition, China suffers from a huge debt crisis. This debt crisis has triggered because many of the firm owners and exporters in SME sector of textiles and other sectors have taken big loans from the banks and are unable to repay. This will be a great opportunity for India to advance its position in the world market as India has already slipped to the fifth position in world losing out to smaller economies like Vietnam and Bangladesh.
To make the sector globally competitive, challenges are many. First, it is important that India should provide long term sustainable employment to the textile producers. Since the product is seasonal, it’s important the producers are not financially hard pressed and then seek other employment sources.
As result, the number of cotton growers and textile manufactures may get reduced which may prove further detrimental as India would be losing out workforce in the sector. It’s not easy to motivate this work force to rejoin, because many of them are aspiring to do something else other than clinging onto this profession which is extremely low paid rural and non-glamorous.
Tariff advantage
Second, India’s competitors like Bangla-desh enjoys a huge tariff advantage almost zero per cent in major markets like EU and US, whereas India still faces about 9.2% and 10.3% in EU and US, respectively. Bangladesh’s GSP (a waiver of tariff) scheme with EU has helped it secure more market share in Europe.
If the free trade agreement between EU-Vietnam materialises and the Trans-Pacific Partnership (TPP) comes into effect, then Vietnam will pose a serious challenge to India.
Third, India also faces lots of constraints in terms of logistics and labour laws which render the industry uncompetitive. The cost of time and transportation from factory to destination take more time compared to other countries.
Big consignments of exports have to go through Colombo which unnecessarily increases the cost. In term of labour cost India, has comparative advantage, but this needs to be addressed only through the package the government has declared now by raising work permit, EPF contribution etc.
Fourth, the world demand is more in terms of apparel. The industry may also contemplate producing a variety of products that could be a mix of cotton and synthetic yarns. There is a huge demand for such products as they are easy to maintain and also cost less compared to pure cotton products. The diversification of the products range may prove to be hugely beneficial for the industry.
To conclude, the onus lies on the government. India needs to complete many of the pending FTAs with US, Australia, EU etc, to see that Indian exporters retain and increase their market access. India’s ethnicity and offerings in terms of print variety and unique embroidery can attract a huge number of customers from around the world. The industry needs to move from lower-end markets to middle level value-for-money markets and export high value added products that meet international standards.
(The author is Professor, Lal Bahadur Shastri Institute of Management, New Delhi)