Labour laws, costly credit crumple garment exports

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ROUGHLY a decade ago, India threw open garment production — until then the preserve of small scale industries (SSI) — to organised industry, hoping to make major headway in exports markets. But that was not to be. Blame the country’s inflexible labour laws, the clothing segment’s share in the country’s total textile and garment exports has only shrunk. Cotton yarn, at the lower end of the value chain, continues to be the pillar of India’s textile and clothing exports. Not only China, which clocked a four-fold increase in its garment exports share since 1990 and has entrenched its supremacy in the textile segment as well, even Bangladesh and Vietnam witnessed quantum jumps in their garment exports.

In recent years, many large garment companies have emerged in India, many of them employing tens of thousands of people across dozens of their factories. They have, however, avoided consolidating their capacities under fewer roofs fearing union militancy.

While India’s textile exports have grown 83% since 2008-09 to $18.75 billion in the last fiscal, garment exports grew just 18% to $12.95 billion during the same period. Importantly, the share of unorganised manufacturing in the yarn segment, a major contributor to the textile export growth, is barely 10%, compared with 80% for garments and roughly 90% for fabrics, senior industry executives said. Although China remains far ahead in overall textile and garment exports, India is the world’s largest cotton yarn exporter, accounting for 20-25% of the global trade in recent years, compared with a 3.5% share in garment exports.

“The growth in India’s share in global textile and garment trade is inversely proportionate to the share of unorganised manufacturing in these segments,” said DK Nair, secretary-general of the Confederation of Indian Textile Industry.

“Stringent labour laws, among others, have prevented investors from scaling up garment businesses in a big way. These have led to apprehensions that the bigger you grow in size, the more difficult it is to run the businesses. Since garment is the most labour-intensive sector after agriculture, the impact is felt more in this segment than some other textile segments,” Nair added. The sector employs more than eight million workers, around 70% are women.

For instance, Section 25-O of the Industrial Disputes Act prohibits the closure of an undertaking without the prior permission of the authority. “This often leads to illegal closures and workers are deprived even of their statutory dues as the unit isn’t officially closed. Therefore, closures should be allowed without strings attached but with adequate compensation to workers,” Nair said. Similarly, the Factories Act of 1948 puts restrictions on work beyond 48 hours a week even for a willing worker, which not only reduces earning but also limits production capacity, another industry executive said.

SP Oswal, chairman of Vardhman group, said: “Until labour laws are reformed, garment exports can’t be catapulted to a much higher growth trajectory as it is difficult to compete with countries such as China and Bangladesh that adopt industry-friendly policies.”

Although China’s labour costs are higher than India’s, flexible labour rules, subsidised power, lower credit costs and better port and other infrastructural facilities more than make up for the mills’ higher outgo in wage bills in the neighbouring country, he said. In India, the overall system which helps exports grow in a country, is lagging China’s, he added.

Weaving and processing segments were de-reserved from the SSI sector in the eighties itself, but the excise concession for powerlooms continued to prevent the setting up of large composite facilities for farbric-making and processing until recently. This has adversely impacted the texture and uniformity of India’s fabrics, especially of the blended (cotton-synthetic) variety, undermining its competitiveness in the export markets.

Apart from flexible labour laws, Bangladesh’s wage cost is around a third of India’s and its government has forged bilateral treaties with key nations in Europe and elsewhere to enable buyers source from it without any import duty, said HKL Magu, managing director of Jyoti Apparrels, one of northern India’s largest exporters. “This has made Bangladesh hugely competitive in the global market, as a European buyer has to pay a 14% import duty to purchase garments from India,” he added. While credit cost in India is around 11-12%, mills in competing nations get loans at 3-5%, he said.

“Moreover, labour shortage due to MNREGA and development activities in states like Bihar and Uttar Pradesh have put a lot of pressure on garment units in northern India. Shortage of electricity – especially in states like Tamil Nadu and Andhra Pradesh where many garment exporting firms are located – expensive credit and high labour costs have also dented competitiveness,” Magu said.

After sliding 6% last fiscal, India’s garment exports in the first two months of 2013-14 grew 10% to $2.3 billion, said A Shakthivel, chairman of the Apparel Exports Promotion Council. “The increase in exports is attributed to good performance in the US and the EU as our exports to these markets rose an average of 16%. We are expecting 15-16 % growth in the current fiscal if the other factors keep supporting the current rate of export growth,” he added.

He said better compliance with global safety standards for labourers would help India get export orders worth $3 billion in 2013-14 as some traditional buyers of Chinese and Bagladeshi garments are diverting purchase destinations. This is because China is seeking to gradually move away from labour-intensive sectors and Bangladesh is facing international criticism for its lack of adequate safety measures at garment and textile factories, following the death of more than 1,200 workers in a recent collapse of a building and an earlier fire tragedy.

On the contrary, thanks to organised manufacturing, spinning mills have been able to cash in on government assistance under the Technology Upgradation Fund Scheme (TUFS). Spinners have traditionally accounted for around a half of the total committed investments under the TUFS and grabs 50% of the government’s subsidy allocation.

The government has catalysed investments worth Rs 1,11,000 crore in the textile sector in the three years through 2011-12 by offering a subsidy of Rs 9,000 crore under TUFS and expects to attract investments worth Rs 1,51,000 crore during the current Plan period, with a subsidy allocation of Rs 11,952 crore.

The government mainly provides interest subsidy against loans to units, capital subsidy and limited cushion against exchange rate fluctuation for investing in new technology.

Despite a cash crunch in the overall industry, the country’s spinning capacity has risen by 6.11 million spindles to 48.15 million spindles in the three years through 2011-12, partly due to the help provided under the scheme, he added. Consequently, employment in the spinning sector also rose to 9,44,000 in 2011-12 from 8,92,000 three years before, the official said.

Source- Financial Express

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