Apparel and Leather &
Footwear sectors are eminently suitable for generating jobs that are
formal and productive, providing bang-for-buck in terms of jobs created
relative to investment and generating exports and growth. This was
stated in the Economic Survey 2016-17 presented by the Finance Minister
Shri Arun Jaitley in the Parliament today. The Survey adds that these
sectors provide immense opportunities for creation of jobs for the
weaker sections, especially for women, and can become vehicles for
broader social transformation in the country.
The Survey highlights the opportunity for India in this sector in global
context by saying that India has an opportunity to push exports since
rising wage levels in China has resulted in China stabilizing or losing
market share in these products. India is well positioned to take
advantage of China’s deteriorating competitiveness due to lower wage
costs in most Indian states, it adds.
The Survey also lists a number of challenges faced by these sectors. It
says that the space vacated by China is fast being taken over by
Bangladesh and Vietnam in case of apparels and Vietnam and Indonesia in
case of leather and footwear, while Indian companies struggle in face of
a set of common challenges related to logistics, labour regulations, tax
& tariff policy and disadvantages emanating from the international
trading environment compared to competitor countries.
On logistics, the Survey says that costs and time involved in getting
goods from factory to destinations are greater in India than those for
other countries. On labour costs, India’s source of comparative
advantage in this sector, also seem not to work in its favour due to
problems like regulations on minimum overtime pay, onerous mandatory
contributions that become de facto taxes for low-paid workers in small
firms that result in a 45 per cent lower disposable salary, lack of
flexibility in part-time work and high minimum wages in some cases.
According to the Survey, in both apparel and footwear sectors, tax and
tariff policies create distortions that impede India gaining export
competitiveness. India imposes a 10 percent tariff on man-made fibers
vis- a-vis 6 percent on cotton fibres. On the other hand, domestic taxes
also favor cotton-based production rather than production based on
man-made fibers, and leather footwear rather than non leather footwear.
The global demand for apparel is moving from cotton fibre products to
manmade fibre and similarly footwear of non leather, it adds. India’s
competitors enjoy better market access by way of zero or at least lower
tariffs in the two major importing markets, namely, the United States of
America (USA) and European Community (EU), the Survey says.
Another problem faced by the leather sector highlighted by the Survey is
that despite having a large cattle population, India’s share of cattle
leather exports is low and declining due to limited availability of
cattle for slaughter in India.
The Survey suggests several measures to make these sectors globally
competitive and unlock its potential for creating new jobs and
generating growth. It recommends that there is a need to undertake
rationalization of domestic policies which are inconsistent with global
Several measures have been initiated that form part of the package
approved by the Government for textiles and apparels in June 2016, the
Survey notes. Accordingly, textile and apparel firms will be provided a
subsidy for increasing employment, but these need to be complemented by
further actions such as the following:
• An FTA with EU and UK in the case of apparel will offset an existing
disadvantage by India’s competitors- Bangladesh, Vietnam and Ethiopia.
In the case of leather and footwear, the FTA might give India an
advantage relative to competitors. In both cases, the incremental impact
would be positive.
• The introduction of the GST offers an excellent opportunity to
rationalize domestic indirect taxes so that they do not discriminate in
the case of apparels against the production of clothing that uses
man-made fibers; and in the case of footwear against the production of
non-leather based footwear.
• Third, a number of labor law reforms would encourage employment
creation in these two sectors.