NEW DELHI — The $40 billion Indian textile industry is scurrying to interpret new government initiatives that include an $800 million boost to exports over the next three years and revamped labor guidelines aimed at generating up to 10 million jobs in the sector.
The Indian textile industry is the second-largest in the world, after China. In 2015, India was the sixth-largest garment exporter in the world, with apparel exports totaling $17.1 billion. China was number one, at $162.3 billion, according to figures from United Nations Commodity Trade Statistics Database.
The new government package is expected to grow Indian textile exports by another $30 billion, industry experts estimated, as well as add to the 45 million workers in the industry. More than 70 percent of workers are women, and the new guidelines focus on creating more jobs to increase female empowerment.
“The announcements will unshackle the garment sector, and this will lead to additional employment and exports,” said Rahul Mehta, president of the Clothing Manufacturers Association of India.
Among the changes expected with the investment is a focus on modernizing the textile industry, with an increased subsidy for the scheme to fund technology upgrades.
Other benefits include a refund of state levies in the form of a duty-drawback scheme and tax incentives and funds through loans and subsidies to speed the process of industrial expansion, as well as plans to subsidize employers’ social welfare contributions for workers. Employees earning less than 15,000 rupees a month, or $222 at current exchange, will get additional monthly funding from the government in their Employee Provident Fund, to increase their spending ability.
The new labor guidelines aim to increase the flexibility of both factory owners and workers in an industry that is often considered difficult because of seasonal orders and in which permanent, full-time workers become a liability. The new rules offer parity between contracted and permanent workers, in terms of wages and all other incentives.
The rules have caused both interest and controversy — with a provision to limit overtime by eight hours a week, in line with International Labour Organization norms, in order to create more jobs. Labor activists reacted to the ruling with mixed feelings, calling instead for stronger enforcement of existing laws to stop workplace abuses.
At a press conference last week to discuss the implications of the new policy organized by the Apparel Export Promotion Council, Sunaina Tomar, joint secretary exports from the Ministry of Textiles, went over some of the important parameters to achieve the growth targets outlined, with the need for a more detailed timeline to make it happen. “It is an achievable task,” she said, while pointing out that the reforms have been introduced to help improve working conditions. The new incentives will make the garment sector more competitive, as exporters will be able to match the low prices offered by Bangladesh and Vietnam, AEPC chairman Ashok Rajani added.
The overall package will be implemented over the next three months.
Rajani said the aid was especially important because of India’s continued cost disadvantage in relation to Bangladesh and Vietnam in exporting to the European Union and the U.S. Both Bangladesh and Vietnam get preferential treatment from those markets, while India does not. India also suffers from the increased compliance burden due to labor policies and has been hit by a 6.8 percent decline in EU demand for apparel. The new package is also expected to help handle the uncertainty and volatility in the market due to Britain’s planned exit from the EU.
Rajani added that the additional investment will also make the Indian industry more competitive with China. Finance minister Arun Jaitley emphasized the same point, citing rising wages and changing production patterns in China. “Economies of scale can happen in India. Through changes in schemes and regulations, we are ensuring that the sector realizes its full potential in India,” he said.
Either way, as industry analysts commented, a lot of work remains to be done in the race for growth. Some major problems include the smaller size of India’s garment factories, which typically have between 120 to 200 employees. Textile exports from India are also highly based in cotton fabrics, while worldwide consumption patterns have been moving toward man-made fibers.