Clothes, leather sectors key to jobs growth, says Economic Survey

Clothes, leather sectors key to jobs growth, says Economic Survey

Harnessing manufacturing sectors such as clothes and leather, which require low skill, is the key to large scale labour absorption and export growth for the country, according to the Economic Survey 2016-17.

Released by the central government on Tuesday, the Survey has an entire chapter on the subject, titled “Clothes and Shoes: Can India Reclaim Low Skill Manufacturing?�.

The Survey pointed out that India was at a good position to take advantage of China’s deteriorating competition because of higher wage costs. But, it also noted, with alarm, that this was not happening.

“The space vacated by China is fast being taken over by Bangladesh and Vietnam in case of apparels; Vietnam and Indonesia in case of leather and footwear,” the Survey said. It also said Indian apparel and leather firms were relocating to Bangladesh, Vietnam, Myanmar, and even Ethiopia.

India’s garment exports have been facing problem stagnation since last year, because of depressed conditions in major export markets such as the US and the European Union.

While Bangladesh and China have been blamed for aggressively edging out Indian exporters from traditional markets such as Europe, industry insiders have also blamed recurring structural issues, such as lesser availability of cotton in the past two years.

India exported apparels worth $10.96 billion during the April-November period of 2016. According to the Apparel Exports Promotion Council, the garment sector alone accounted for more than 47 per cent share in all textile goods exported from the country. In the last financial year (2015-16), India’s garment exports were about $16.9 billion. The Rs 6,000-crore package announced by the government for the textile industry in July and notified in September last year, is now expected to bear results much later than expected. Textile ministry officials have also said there was no timeline for when the package was expected to deliver results. While the Survey bet on such recent government policy in the sector, it also called for further action, such as negotiation of more free trade agreements (FTA).

Any FTA with EU and the UK would have to consider leather and apparel sectors as a priority. “Based on work initiated in last year’s Survey, we calculate additional $3 billion in the apparel, leather and footwear sectors, and additional employment of 150,000,” the Survey said.

It also said the government was taking disadvantages faced by Indian exporters in foreign markets very seriously. The leather sector, the Survey, was poised to take off on the back of domestic consumption, which was $12 billion (Rs 81,600 crore) in 2015-16. According to government estimates, the leather industry was $17.85 billion in size in the same period, with exports accounting for $5.85 billion. At 47 per cent, footwear accounted for the lion’s share of leather exports.

However, the Survey also noted challenges such as poor logistics, burdensome labour regulations and distorting tariff policies. It said labor costs, that boosted India’s comparative advantage in this sector, also seemed to not work in its favour.

This had to do with regulations on minimum overtime pay as well as onerous mandatory contributions that had been compared to “de facto” taxes for low-paid workers in small firms, the Survey said. The later had also been held responsible for a 45 per cent lower disposable salary for workers apart from a lack of flexibility in part-time work and high minimum wages.

Among more structural issues, the Survey noted, high tariffs on yarn and fibre, which increases the cost of producing clothing as well as the fact that apparel and leather firms are smaller compared to firms in major competitors such as China, Bangladesh and Vietnam.

Article By – Business Standard