Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

[op-ed snap] Endgame for garment exports?op-ed snap


Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: The importance of textiles and apparels industry(in Indian economy) and issues related to it.


Contribution of Textiles and Apparels industry in Indian Economy

  1. India has huge $100 billion-plus textiles and apparels industry
  2. It employs more than 45 million people, accounts for almost 14% of exports and over a quarter of foreign exchange earnings
  3. It is the second-largest employment sector after agriculture
  4. Of this, the apparel sector alone accounts for more than 12 million jobs and a chunk of the exports

The textiles and apparels sector as a job creator

  1. The Economic Survey 2016-17 made a strong case for focusing on the textiles and apparels sector as a job creator
  2. According to the survey, apparels are 80 times more labour-intensive than automobiles and create 240-fold more jobs than steel

What is the issue?:  India is quickly losing its place at the top of the table of apparel-exporting nations
Official export data

  1. Apparel exports in February stood at $1.44 billion, a decline of 10.25% compared to the year before
  2. In fiscal 2017-18 (April to February), overall apparel production declined 10.4% , while garment exports fell 4%
  3. Garment exports have fallen for six months in a row now
  4. There are no signs of any immediate turnaround
  5. The sector got hit with a double whammy: demonetisation and the goods and services tax (GST)
  6. Meanwhile, the rupee has also been appreciating, gaining 6.4% against the dollar through 2017
  7. This means that an exporter who quoted, say, Rs. 100 per piece last April and quotes the same rate this April is already 6% more expensive to his buyer
  8. And the industry simply does not have the margin to take this 6% hit and still stay competitive with countries like Bangladesh and Vietnam which are eyeing India’s already shrinking export market

India and other exporting countries: Why is India lagging behind?

  1. Apparel exports from Bangladesh crossed India’s in 2003, while Vietnam passed India in 2011
  2. Both nations enjoy the same advantage that India does — an abundance of cheap, skilled labour
  3. In addition, they also enjoy favoured access through treaties to major markets like the U.S. and the European Union,
  4. while India is under intense pressure from the WTO to phase out subsidies and incentives given to the textiles sector as the sector has already achieved ‘export competitiveness’

The Main Challenge

  1. India’s garments sector is large in the aggregate, it is comprised mostly of tiny units
  2. Almost 90% of India’s garment manufacturing units are in the unregistered sector
  3. About 78% of the firms employ less than 50 workers and only 10% more than 500 workers
  4. This means that individual entrepreneurs have severe limitations on the kind of capital they can invest in capacity and technology

Other challenges

  1. According to the economic survey 2016-2017, the key issues are:
    (1) Logistics
    (2) labour regulations
    (3) tax and tariff policy
    (4) disadvantages emanating from the international trading environment compared to competitor countries

High logistic consts in India

  1. Logistics costs are also high: around $7/km by road transport(in India), while it is just $2.5/km in China and $3/km in Sri Lanka

What should be done?

  1. The tax policy needs to be aligned with global trends
  2. The scale problem needs to be met through aggregation of individual units in large clusters
  3. Technology upgradation needs serious funding, while trade treaties need to be reviewed to ensure that India gets access for its competitive products in major markets
  4. Above all, Indian entrepreneurs need to also focus on creating their own global brands rather than simply producing for other labels
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