What is the issue?
- India’s apparel exports (cloths and fashion), is slowing down, mainly due to competition from countries like Vietnam and Bangladesh.
- Comprehensive reforms are needed to make Indian apparel competitive.
What are the trends?
- Data released by “Clothing Manufacturer’s Association of India” (CMAI), indicates that exports of clothes went down by 4% overall in 2017-18.
- More significantly, the figures for April 2018 has fallen a whopping 23% from the 2017 numbers for the same month.
- While CMAI partly blames weak international demand for this scenario, such an argument does not stand up to sustained scrutiny.
- An analysis of the other major apparel producers in the developing world seems to indicate that the problem is related to the Indian conditions.
What is the state of competitor countries?
- While apparel exports from Indian had fallen by 4% in the last financial year, Bangladesh registered almost 9% growth over the same period.
- Vietnam is now the fifth-largest producer, as well as exporter, of clothing and exports in the sector grew by over 14% in calendar year 2018 (thus far).
- Despite the recent slowdown, Sri Lanka nonetheless registered an overall yearly growth of 9% in 2017-18.
- The industry has indeed flagged the loss of markets to competitor countries as one reason for reduction in exports from India.
- This merely underlines the fact that this is a structural problem, and not something related to demand conditions at the moment.
What are the problems in the sector?
- Financial - The industry has complained that its tax position has turned adverse since the introduction of GST.
- Resultantly, a “textiles package” was given out by the government, which has focused on tax tweaks that would refund certain levies.
- The decision to allow fixed-term employment contracts in the sector and the promise to bear employer’s PF contribution for 3 years are significant ones.
- Structural - The problem with textile and apparel competitiveness in India is the small scale of Indian factories as compared to its competitors.
- This raises average cost, reduces firm flexibility when it comes to dealing with small orders or new-style inventory, and makes capital investment harder.
- For instance, in Bangladesh, an average factory has 600 workers, whereas Indian factories are a fraction of that size.
What is the way ahead?
- A more comprehensive approach is needed to liberalise the labour laws as well as other difficult regulations to incentivise the sector.
- Rising manufacturing cost in China has opened up new opportunities in the apparel sector and India cannot afford to miss them.
- Hence, rather than a piecemeal approach, comprehensive reforms are needed to achieve the desired ends.
Source: Business Standard
