India’s garments industry, a sub-segment of the broader textile industry, is now getting policy attention. This is evident from the focused and wide-ranging support measures announced for the textile-garments sector that also incorporate some elements of labour reform. For instance, the highly seasonal garment manufacturers can now hire workers on fixed-term contracts with double the overtime work limits and greater freedom for female workers. These relaxations are supplemented with the entire cost (12%) of employers’ provident fund contribution for new workers in the garment industry earning less than ₹ 15,000 per month being borne by government for the first three years; the prevailing portion is 8.33%. Other new features are inclusion of state-level taxes and duties into the export drawback fold.
The policy focus is welcome. In particular, relaxation of labour laws that has consistently prevented the industry from up scaling to lower production costs and compete favourably with other large scale producer countries, has been long overdue. In all, the assessed cost of these measures is ₹ 6,000 crore for a sector whose employment elasticity tends high, which provides jobs to about 45 million workers, and has long been struggling against global forces but steadily losing export market shares.
There is more bang for these bucks. The government calculates that with this competitive uplift, about 1 crore jobs, the majority of them for women, will be created in the textile-garments sector in the next three years; this will come via an estimated $30 billion cumulative increase in exports and a ₹ 74,000 crore jump in investments.
One concern here is that past employment elasticities may no longer hold due to the marked reorientation of global manufacturing as a whole towards increased automation. This is what a recent study by the industry body Texprocil and Ernst & Young confirms: its estimate is the textile-apparel industry is likely to generate just one-third or 29 lakh jobs relative to government’s target, although the market size is expected to grow by 40% to $142 billion in the next five years.
Nonetheless, new avenues to offset the reduction in employment potential from automation can be examined and opened up by the government. One of the paths proposed is advantageous free trade agreements, especially with the European Union, one of the largest export markets where several competitor countries have duty-free access; the forthcoming US-led Trans-Pacific Partnership, which will increase the comparative advantage of some garment-exporting participant nations is another sphere to be watchful. There is also plenty of scope to gain advantages from improvements in infrastructure, logistics and operational efficiencies, all of which in India lags behind many Asian competitors. The government should do all to ensure this momentum is sustained for success ahead.
Renu Kohli is a New Delhi based economist.