Economic survey 2016-17: Scope for

apparel
The recent Economic Survey 2016-17 of the ministry of finance analyses the growth
of the apparel sector, and reveals that there is ample scope for development. The
Indian apparel industry can grow considering that China is losing ground due to
various factors including a rise in labour wages. However, there are certain factors
that are hindering the growth of the sector, which need to be tackled to ensure its
unprecedented growth. A Market Intelligence-Fibre2Fashion report.
The Economic Survey, the flagship annual document of the ministry of finance,
represents the annual economic performance of the Indian economy. It is presented
every year in Parliament by the ministry a day before the presentation of the Union
Budget. It reviews the performance of key development programmes the policy
initiatives of the government, and forecasts the effect of different government
initiatives from short term to long term.
Last year, two major decisions had been taken by the Indian government-the
implementation of the goods and services tax (GST) and demonetisation of currency
notes in the denominations of Rs500 and Rs1,000. These actions led to a temporary
decline in the growth trend, but will help boost the growth of the Indian economy,
according to the Survey.
The apparel sector is growing in India as people are more concerned about their
lifestyle and thus, the demand for branded and quality clothes across the country as
well as across the globe has gone up. During 2015-16, the apparel sector contributed
42 per cent of the total share in textiles and apparel exports of India. The apparel
sector has a huge potential for employment generation especially for women.
The apparel sector is the second largest labour intensive sector after footwear. It is
dominated by female workers, driving the cause of women empowerment. Women
empowerment leads to the development of the country with the growth of the
apparel sector.
Opportunities and challenges
The current and expected global market conditions are ideal for growth of the Indian
apparel sector as China is losing market share. Because labour wages have been
increasing in China, the country's stability in the global market has been affected.
Table 1: Minimum wages of workers for apparel sector

Source: ILO, State Labour Department

In Table 1, the wages of leading apparel manufacturing countries are shown. India
and Bangladesh have the lowest wages among all. India has a huge potential to take
the position of China due to cheap, skilled and abundant labour force for the apparel
sector. It can take advantage of the situation, but Bangladesh and Vietnam give tough
competition to India with their lower wage rates and other favourable policies. The
apparel sector is growing in India, but some constraints still hinder its growth. The
challenges faced by the apparel sector include labour regulations, trade policies, tax
and tariff policies, logistics, and the international trading environment as compared
to other countries. Moreover, the time and cost involved for the transport of goods
from factories to destinations are higher than its competitor countries.
The labour regulations have nullified the benefits of low labour wages with
regulations on minimum overtime pay, tax regulations for low-paid workers, less
flexibility for part time workers and higher minimum wages in some conditions.
Indian apparel firms are smaller in size and capacity than those in other countries.
Around 78 per cent companies have 50 or less workers, while only 10 per cent
employ over 500 workers.
Tax and tariff policies are different in India from competitor countries. The taxes and
tariffs are different for manmade textiles and cotton/natural textiles. The policy is in
the favour of cotton-based textiles than manmade textiles. This is a serious issue
because the export demand of manmade textile is more than cotton-based textile
globally. With the tax relation for the manmade textile, exports can be increased.
India imposes 10 per cent tariffs on manmade fibres, and 6 per cent on cotton fibres.
The higher tariff on fibre and yarn directly leads to higher cost of cloth and apparel
products. The tax and tariff policy needs to reform for the equality of all textile
products. Domestic taxes are also lower for cotton apparel than manmade apparel-
7.5 per cent vs 8.4 per cent respectively.
Competitor countries offer more benefits for improved market access in the
international market than India. Competitor countries have zero tariffs in the two-
leading apparel importing markets i.e. European Union (EU) and US.
Table 2: Tariff faced for export in major importing countries

Source: World Bank Database

Table 2 shows the average tariffs in different countries for the export of apparel.
Bangladesh being a least developed country (LDC), its exports to the EU are duty-
free. Vietnam has also enjoyed the benefits of zero tariffs once because of the EU-
Vietnam free trade agreement (FTA). Ethiopia enjoys duty-free exports to all major
importing countries and is an emerging competitor for Indi
Policy response
To face the above challenges of the apparel sector, a special package was approved by
the Indian government in June 2016. Apparel exporters will be allowed to offset the
impression of state taxes imposed on exports, which could be as much as 5 per cent
of exports.
Apparel sector will get a subsidy to boost the employment in the apparel
sector. The government will provide benefits in the employees provident fund.
The government is serious about export policy discrimination from major
importing countries. India will be very cautious while negotiating the FTA
with the UK and EU.
According to a recent house analysis (2016), an FTA with the UK and EU
can create 1,08,029 direct jobs per year in the apparel sector, besides indirect
jobs.
GST will provide an opportunity to nullify domestic indirect taxes
especially for manmade apparel production against cotton-based apparel.
Employment in the apparel sector can be created by the reformation of
labour laws. Low wage employees get only 55 per cent of the salary since 45
per cent of it goes to various provident fund schemes and insurance. Low wage
employees may not prefer 45 per cent savings as they need their salary at that
time rather than in the future.
Employees should be given a choice in terms of savings. They should be
free to decide among the different schemes for savings to encourage them to
save. Various insurance policy companies also offer great options.
The apparel sector has a tremendous opportunity for growth and job creation, which
directly leads to economic growth. The aim of all industrial policy promotion is to
implement them without risk. But the apparel sector can boost exports, employment
and social transformation by employing women. To conclude, many of the future
policy responses like labour law reform, FTAs and tax rationalisation could give huge
benefits to the Indian economy.