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A stitch in time: Policy flip-flops have seen India lose in garments exports but, it might not be too late

Countries like Bangladesh & Vietnam are growing rapidly as garment manufacturing is moving here from China.

, ET Bureau|
Updated: Jan 12, 2020, 07.36 PM IST
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Ashar, 18, who is speech and hearing impaired, works at Orient Craft’s factory in Ranchi.
Over the last year, Gautam Nair, MD of Matrix Clothing and executive committee member of AEPC (Apparel Export Promotion Council), has knocked at the government’s doors. From Cabinet Secretary to revenue secretary, Niti Aayog to finance minister--he has met them all and has made at least 15 presentations. He has met officials in the Prime Minister’s Office at least thrice. At the textiles ministry, minister Smriti Zubin Irani and textiles secretary Ravi Capoor have supported the industry’s cause. But his mission remains unsuccessful.

“The matter is stuck. Nothing has moved. This even as our industry is in crisis. We are in the ICU,” says Nair.

The matter he is referring to is a pending refund by the government amounting to some Rs5,000 crore the government owes the industry. In March 2019, the government brought in a new scheme to make sure the garment exports sector—a huge employer and foreign exchange earner—enjoys a continuity in tax benefits under the new Goods and Services Taxes regime. Called the Rebate of State and Central Taxes and Levies (RoSCTL), it sought to refund the taxes on inputs paid by the sector. Ten months on, however, partly because ministries of finance and textiles are unable to find common ground on a few contentious issues, the refunds are stuck.

Exporters factored in RoSCTL and an existing program called Merchandise Exports from India Scheme (MEIS) as totalling 9% of their sales while pricing their products. There is also no clarity yet on the new rates under the two schemes, which were expected to change in January. In a highly competitive industry operating at 3-4% margins, where low-cost competing countries like Bangladesh get duty-free access to markets like the European Union, this development has pushed Indian garment exporters into distress. Dominated by small businesses (80% with exports under Rs 10 crore), exporters are starved of working capital with unpaid salaries and vendor dues, with tight liquidity among lenders compounding their woes.

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“This is unprecedented. In so many years of dealing with the government, we have never had a situation like this. We have met everyone who matter. They know the problem and support us. Yet, the decision is stuck,” he says. Historically, Ministry of Textiles has worked in tandem with other ministries and departments from finance to commerce and DGFT to tackle most issues. Not this time.

On Thursday night, as the PM and his top secretaries and ministers including Amit Shah and Nitin Gadkari met industry leaders to hear their issues, Deepak Seth, chairman, Pearl Group, along with his peers, made one last ditch effort pleading with the prime minister. “He told Modiji that garment industry is on ventilator and about to die, leaving hundreds jobless. Urgent action is required. If they still don’t take action, expect layoffs and loan defaults to make headlines,” says a seasoned exporter who was present in the meeting.

An email seeking responses from textiles minister Smriti Irani and textiles secretary Ravi Capoor went unanswered.

The Union Budget is around the corner. The annual drill of India Inc seeking tax rebates and subsidies has begun. But there are multiple reasons why the plight of India’s 6,000-odd garment exporters employing 40 million (direct and indirect) odd workers and exporting goods worth $17 billion deserve urgent attention. One, this is a question of government honouring a promise based on which exporters have priced and sold their goods. Two, in a slowing economy, its inaction will push many towards bankruptcy and unemployment.

In a way, this sector’s woes characterises what ails India’s policymaking. Riddled by policy flip-flops, the wide gap between government’s promises and its delivery has become a recurring theme across sectors, hurting businesses and worrying investors.

On a positive note, if nurtured well, garment exports could hold the key to creating millions of jobs that India needs for its young, unskilled and illiterate workforce. “This is the best poverty alleviation program that the government can have. With women forming 70-80% of our workforce, it is great for women too. Look at what it has done for Bangladesh, its economy, exports and employment,” says Harish Ahuja, MD, Shahi Exports, which employs 1.2 lakh workers across 54 plants in nine states.


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With a 450 million-plus workforce, a million new workers joining the labour market every month, and labour-intensive sectors such as manufacturing and construction hurting, creating jobs for the masses is the Indian government’s biggest worry. Most countries including China have leaned on manufacturing sector to shift their farm workers into non-farm jobs. But India’s small manufacturing base (less than a fifth of GDP), poor linkages with the global supply chain and rising global trade barriers means the country has few options. Also, AI and automation means labour intensity across manufacturing sectors like automobile is declining. Amid high unemployment, low job creation and declining exports, garment exporters offer hope in both creating jobs and bringing export dollars.

None of this is new wisdom. The government recognizes this sector’s job creating potential. In the Economic Survey 2016-17, an entire chapter “Clothes and Shoes: Can India reclaim low-skill manufacturing” waxed eloquent on the same. In January 2018, ex-vice chairman of Niti Aayog, Arvind Panagariya, wrote in ET: "RIL reports $110 billion in assets and 2.5 lakh employees and employs five workers for each $2.2 million in assets. India’s largest apparel exporter Shahi Exports has assets worth $185 million and employs 106,000 workers. So it employs 1260 workers for every $2.2 million in assets… Jobs that Shahi creates are what India needs today.”

Just look at what Bangladesh has managed to do. In 2000, its apparel exports (at 2.6% of global share) lagged behind India’s (at 3%). But a concerted government effort and its ability to leverage duty-free access to markets such as the European Union, has made it the world’s second largest apparel exporter after China. At $37 billion in 2018, apparel exports has helped its GDP grow at 6% annually over the last decade, contributed 80% to its exports besides creating millions of jobs. Closer home, Jharkhand is a small and recent example (see Page 10). The sector also plays to India’s strengths. Unlike say Bangladesh or Vietnam, who import most of their raw material, India is the world’s largest cotton producer and has an evolved fibre-to-fashion ecosystem.

India must tackle its shortcomings too. Productivity levels of garment exporters in China and Vietnam is 30-40% higher than India. For long, reserved for SSIs, Indian exporters are small and fragmented, typically a fifth of those in Bangladesh, Vietnam and China. In a competitive world where economies of scale is important, India would do well to create enabling plug-and-play infrastructure. Setting up large hubs where common facilities like effluent treatment plant and dormitories for workers are available and exporters can just move in and start production. “Facilitating such structural unlock will be critical,” says Kulin Lalbhai, executive director, Arvind Ltd.

The textile value chain consists of yarn making, weaving, fabric processing and apparel making. Due to multiple reasons, including high infrastructure costs and sub-scale operations, India is weak on weaving and fabric processing, forcing yarn exports and fabric imports. The country is near absent in synthetics, which constitute 70% of global apparel trade. The ecosystem is stunted due to poor domestic supply of raw material and duties on imports, making it costly. All this means India is ill-prepared to cash in on the big growth of fast fashion industry (FFI). “Low-cost business has moved to countries like Bangladesh.

Today you can’t just be a converter. Focusing on mid-premium segment, finding niches and value-added market has worked out as a good strategy for us,” says Sarbajit Ghose, MD, Laguna Creations, which caters to companies such as Zara. Embracing contemporary plant practices, learnings from other sectors (Laguna has borrowed from Toyota) are important. “Sitting in Bengaluru, I know we have not tapped into even 5% of technologies that is available to make us more efficient,” he says.

New waves reshaping the world of apparel exports offer new openings if India is keen. Instead of WTO-related trade agreements, new trade blocs such as Trans Pacific Partnership and legislations such as US’ African Growth and Opportunity Act will reshape the global trade flow. “Bangladesh’s biggest advantage is its duty-free access to EU, giving it an 11% pricing edge over us. Government is aware and working towards getting trade access in key markets,” says Lalbhai. With rising labour cost, there is a big shift away from China (see chart). “Buyers are looking outside of China. But India hasn’t been able to attract any,” says Premal Udani, chairman, Kaytee Corporation. Countries such as Vietnam and Bangladesh have grabbed the business with many Chinese manufacturers building new capacities in Vietnam. This, even as Africa, with low wages (Ethiopia’s is 1/10th of China) is emerging as new low-cost geography. Automation, policy resets and infrastructural efficiencies will likely see re-shoring of high-end garment making to the US.

Smarter sophisticated fabrics capable of moisture absorption, heat resistance, greater stretchability as well as the burgeoning athleisure category are altering consumer demand, opening up new opportunities for tech-led manufacturing. Sustainable products and traceability are becoming important consumer hooks. If India is serious, a slew of measures such as lowering duty on synthetic raw materials, strengthening weaving and processing industry and enabling Indian exporters to become FFI compliant will help. “Traceability, sustainability, organic positioning work well with buyers in countries such as Switzerland and Germany. I am an energy neutral company. These things help,” says Udani.


Just look at what Bangladesh has managed to do. In 2000, its apparel exports (at 2.6% of global share) lagged behind India’s (at 3%). But a concerted government effort and its ability to leverage duty-free access to markets such as the European Union have made it the world’s second largest apparel exporter after China. At $37 billion in 2018, apparel exports has helped its GDP grow at 6% annually over the last decade, contributed 80% to its exports besides creating millions of jobs. Closer home, Jharkhand is a small and recent example (See “Tailor-Made for Jobs”, p.10). The sector also plays to India’s strengths. Unlike, say, Bangladesh or Vietnam, which imports most of their raw material, India is the world’s largest cotton producer and has an evolved fibre-to-fashion ecosystem.

India must tackle its shortcomings, too. Productivity levels of garment exporters in China and Vietnam are 30-40% higher than India’s. For long, reserved for SSIs, Indian exporters are small and fragmented, typically a fifth of those in Bangladesh, Vietnam and China. In a competitive world where economies of scale are important, India would do well to create an enabling plug-and-play infrastructure. This means large hubs where common facilities like effluent treatment plants and dormitories for workers are available and exporters can just move in and start production. “Facilitating such structural unlock will be critical,” says Kulin Lalbhai, executive director, Arvind Ltd.

The textile value chain consists of yarn making, weaving, fabric processing and apparel making. Due to multiple reasons, including high infrastructure costs and subscale operations, India is weak on weaving and fabric processing, forcing yarn exports and fabric imports. The country is near absent in synthetics, which constitute 70% of global apparel trade.

New waves reshaping the world of apparel exports offer new openings if India is keen. Instead of WTO-related trade agreements, new trade blocs such as Trans-Pacific Partnership and legislations such as US’ African Growth and Opportunity Act will reshape the global trade flow. “Bangladesh’s biggest advantage is its duty-free access to EU, giving it an 11% pricing edge over us. Government is aware and working towards getting trade access in key markets,” says Lalbhai. With rising labour cost, there is a big shift away from China (See chart “Late Mover”). “Buyers are looking outside of China. But India hasn’t been able to attract any,” says Premal Udani, chairman, Kaytee Corporation. Countries such as Vietnam and Bangladesh have grabbed the business, with many Chinese manufacturers building new capacities in Vietnam. This, even as Africa, with low wages (Ethiopia’s is one-tenth of China) is emerging as new, low-cost geography. Automation, policy resets and infrastructural efficiencies will likely see a re-shoring of hightened garment making to the US.

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Smarter sophisticated fabrics capable of moisture absorption, heat resistance, greater stretchability as well as the burgeoning athleisure category are altering consumer demand, opening up new opportunities for tech-led manufacturing. Sustainable products and traceability are becoming important consumer hooks. If India is serious, a slew of measures such as lowering duty on synthetic raw materials, strengthening weaving and processing industry and enabling Indian exporters to become FFI compliant will help. “Traceability, sustainability, organic positioning work well with buyers in countries such as Switzerland and Germany. I am an energy neutral company. These things help,” says Udani.

The NDA government and states such as Jharkhand are waking up to the sector’s potential. Initiatives such as flexible labour laws and wage subsidies have been rolled out. But efforts thus far have been half-hearted and piecemeal. “This is a $480 billion industry. Capturing $40-50 billion isn’t difficult. Forget everything else, just imagine the millions of jobs it will create for the poor. If Bangladesh can do it, why can’t we? What we need is a coherent coordinated strategy to make this a priority sector,” says Dhingra.

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