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Trends in the Indian Apparel Sector

iasparliament
July 11, 2018
10 days
198
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What is the issue?

  • India’s apparel exports (cloths and fashion), is slowing down, mainly due to competition from countries like Vietnam and Bangladesh.
  • Comprehensive reforms are needed to make Indian apparel competitive.

What are the trends?

  • Data released by “Clothing Manufacturer’s Association of India” (CMAI), indicates that exports of clothes went down by 4% overall in 2017-18.
  • More significantly, the figures for April 2018 has fallen a whopping 23% from the 2017 numbers for the same month.
  • While CMAI partly blames weak international demand for this scenario, such an argument does not stand up to sustained scrutiny.
  • An analysis of the other major apparel producers in the developing world seems to indicate that the problem is related to the Indian conditions.   

What is the state of competitor countries?

  • While apparel exports from Indian had fallen by 4% in the last financial year, Bangladesh registered almost 9% growth over the same period.
  • Vietnam is now the fifth-largest producer, as well as exporter, of clothing and exports in the sector grew by over 14% in calendar year 2018 (thus far).
  • Despite the recent slowdown, Sri Lanka nonetheless registered an overall yearly growth of 9% in 2017-18.
  • The industry has indeed flagged the loss of markets to competitor countries as one reason for reduction in exports from India.
  • This merely underlines the fact that this is a structural problem, and not something related to demand conditions at the moment.

What are the problems in the sector?

  • Financial - The industry has complained that its tax position has turned adverse since the introduction of GST.
  • Resultantly, a “textiles package” was given out by the government, which has focused on tax tweaks that would refund certain levies.
  • The decision to allow fixed-term employment contracts in the sector and the promise to bear employer’s PF contribution for 3 years are significant ones.
  • Structural - The problem with textile and apparel competitiveness in India is the small scale of Indian factories as compared to its competitors.
  • This raises average cost, reduces firm flexibility when it comes to dealing with small orders or new-style inventory, and makes capital investment harder.
  • For instance, in Bangladesh, an average factory has 600 workers, whereas Indian factories are a fraction of that size.

What is the way ahead?

  • A more comprehensive approach is needed to liberalise the labour laws as well as other difficult regulations to incentivise the sector.
  • Rising manufacturing cost in China has opened up new opportunities in the apparel sector and India cannot afford to miss them.
  • Hence, rather than a piecemeal approach, comprehensive reforms are needed to achieve the desired ends.

 

Source: Business Standard

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