India’s labour-intensive manufacturing slump is no small worry

A report earlier this year by Global Trade Research Initiative, a think-tank, contains alarming data-points on India’s decline in the global garments market.
A report earlier this year by Global Trade Research Initiative, a think-tank, contains alarming data-points on India’s decline in the global garments market.


  • A stagnation in sectors that employ a large number of people can have a direct impact on India's basic human development indicators. A look at India in comparison with its neighbours is quite revealing.

It has been almost a decade since Harvard economist Dani Rodrik coined the term ‘premature de-industrialization.’ India’s share of manufacturing in GDP may have stagnated for about as long, but with shiny new production-linked incentive schemes making headlines over the past few years, it was possible to believe that India might buck the trend. Rodrik’s thesis was that manufacturing is plateauing or declining as a share of GDP in many developing countries at a relatively early stage in their development.

Recent export data, however, suggests that India is de-industrializing rapidly in labour-intensive sectors. The Indian Express this month quoted the Federation of Indian Export Organisations as saying, “An analysis of sector-wise export performance for the last five years reveals the troubling pattern that India is experiencing a decline in global market share across labour-intensive sectors." 

The trade group said that apparel, knitted garments, marine products, plastics, and gems and jewellery had grown at just 1 % to 2%. In fact, during 2023-24, while goods exports contracted by 3%, exports of textiles, leather, gems and jewellery and marine products declined 9%. 

The reasons are manifold and various, ranging from the difficulties that small firms have had adapting to India’s GST regime and an environment of slowing global trade to a sourcing preference displayed by buyers for Vietnam and Bangladesh because they are part of free trade agreements that we have spent several years negotiating but not joining.

A report earlier this year by Global Trade Research Initiative, a think-tank, contains alarming data-points on India’s decline in the global garments market. It states, “In 2023, China exported $114 billion worth of garments, followed by the EU with $94.4 billion, Vietnam with $81.6 billion, Bangladesh with $43.8 billion, and India with just $14.5 billion… From 2013 to 2023, Bangladesh’s garment exports grew (cumulatively) by 69.6%, Vietnam’s by 81.6%, but India’s grew by only 4.6%."

This matters because India’s textile and garments industry employs millions. New Delhi, regardless of which party is in power, prefers wooing big-name multinationals such as Tesla while exporters in these sectors tend to be unknown companies. By contrast, China in its early industrialization phase of the 1980s and 1990s leaned heavily on the expertise of Hong Kong and Taiwanese small and medium enterprises that made China’s provinces of Guangdong and Fujian light-manufacturing hubs that then pole-vaulted up the industrial value chain.

There is far better news in our data on exported services, especially over the past decade. These grew from $167 billion in 2013-14 to $340 billion in 2023-24. The growth has slowed in the past year and the worry is that our stubborn stand on data localization, for instance, and more might hobble this golden goose. To some extent, the sheer critical mass of investment and expertise in offshore business process management and analytics protects India from bureaucratic excesses. 

Just this week, the CEO of Concentrix Corp, a company I had never heard of, told Business Standard that he expects the company’s employees in India to reach 100,000 this year from about 1,000 a little more than a decade ago. I live in Bengaluru and most conversations with anyone in their twenties on where they work are a reminder of this growth we’re witnessing.

The trouble is, as the troubling data on labour-intensive exports shows, India is arguably experiencing the most K-shaped economic recovery anywhere. And the gap with places such as Bangladesh is not limited to their lead in garment exports, but extends to human development indicators, as Swati Narayan observes in Unequal: Why India Lags behind its Neighbours. 

The book unsettlingly begins with interviewees in Bangladesh laughing at Indians just across the border still defecating in the open. It quotes the National Family Health Survey (covering 2019-2021) which showed that in Bihar, Madhya Pradesh, Uttar Pradesh and Rajasthan, about half of those in villages defecated outdoors. The number of toilets has tripled in Bangladesh in the past three decades. 

The upshot, as Narayan notes, is that “children in West Bengal are shorter than Bangladeshi children due to poor sanitation." Nepal has improved on sanitation too; by 2016, 85% of its homes had toilets and its government was even denying benefits to those who did not have functional toilets. The biggest beneficiaries of widely used toilets and better sanitation, which improves nutritional outcomes, are women and small children.

An Indian-born garment-factory owner, who employs tens of thousands of workers and has invested in Bangladesh for decades, says its wide availability of female garment workers is its chief attribute; a larger share of its girls is in secondary school than India’s. Narayan contrasts the life expectancy of a girl born in 2021 in different parts of South Asia: it is 80 in Sri Lanka (whose schooling levels kept pace with Kerala’s for more than a century) and 74 in Bangladesh, versus 69 in India and Pakistan.

Nobody with a cursory interest in economics or a white-collar job would trade our macroeconomic position of ballooning foreign reserves with that of our neighbours. On the ground, however, a woman garment worker in Bangladesh—or even a tourist journeying from the messy sidewalks of Bengaluru to a Colombo of pristine lakes— experiences a different reality.

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