The recently re-elected government needs to rethink its policy on turning around India’s second-largest job provider as the textile and apparel sector continues to gasp for growth.
Three years after key regulatory and labor changes were put in place, India’s textile and apparel exports have declined from $38.6 billion in 2014 to $37 billion in 2018 while imports have increased from $5.8 to $7.3 billion.
Industry experts attribute the fall to the ever-tightening pressure on the exports markets by higher shipments from low-cost competitors like Bangladesh and Vietnam.
“While China – the world’s largest apparel manufacturer and exporter, continues to shed market share in the global trade, India has not been able to capitalize on the opportunity.
Instead, Bangladesh and Vietnam, the second and the third largest apparel exporting nations, globally have garnered a large chunk. While Bangladesh has been the key beneficiary in the EU, Vietnam has maintained growth in its stronghold market of the US.” says Mr. Jayanta Roy, Senior Vice-President, and Group Head, ICRA
“A substantial drop in the import duty was observed after the implementation of the GST, which has encouraged cheaper imports. For imports from Bangladesh, there is a full exemption of basic customs duty and hence Chinese fabric is easily coming to India duty-free through Bangladesh in the form of garments,” said Sanjay Jain, chairman, Confederation of Indian Textile Industries.
Trade Partnerships
The Ministry of Commerce, Government of India, has been tirelessly working to support the industry with a favorable international environment for trade and business.
India has a Comprehensive Economic Partnership Agreement (CEPA) with Japan, which provides exporters with zero duty access in Japanese markets.
The India-Singapore Comprehensive Economic Cooperation Agreement (CECA) gives a similar favorable positioning to Indian RMG imports in Singapore. It is also beneficial for Korea, Chile, and Malaysia MSMEs (Micro-small and medium enterprises) to further develop their established trade agreements with India.
Among the many advantages of exporting to these countries, the foremost is the landing price advantage (because of trade agreements) for buyers in purchasing Indian garments and the consequent preference for India as a sourcing destination.
Labor Laws
There have been recent demonstrations against labor law reform (Code on Wages, Occupational Safety, health, and working conditions bill) that were introduced by the Modi government.
These laws emphasize the importance and ease of doing business ahead of worker welfare.
The Code on wages was recently passed by the parliament that amalgamates 44 existing labor laws into four separate labor laws that govern the fixing and paying of wages. Local unions are unhappy with the new law as it undermines the participation of union representatives, particularly in the establishment of minimum wages.
Previously unions demanded the minimum wages to be reviewed every year but under the new code revisions, they are looked at every five years. They have also automated the process for reviewing the code on wages, which reduces human involvement in negotiations. The unions strongly disagree with the automation process.
Dr. G Sanjeeva Reddy, president of the Indian National Trade Union Congress says “The working class in India is facing the worst ever onslaught on workers’ rights under the Modi government”.
Minimum wages are currently decided by the central government: currently INR336 (US$4.90) per day, plus an inflation-based variable.
India’s export market is not thriving as well as it could be. Much of the problem lies with the Modi government labor policies and lack of infrastructure.
