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.
