Creating jobs through garment exports

Rapid creation of productive and better paying jobs reduces poverty. It also mitigates inequality. One can actually have high GDP growth rates with modest employment generation. One can also have higher expenditure on anti-poverty and welfare measures, without having a major impact on jobs.

Job creation should, therefore, be the key development goal. States, instead of signing MoUs for thousands of crores of investment, should be seeking job creation commitments in their Investment Summits.

Seeing the economy through the prism of job creation would bring into focus labour intensive sectors and generate discussion around policy instruments which could be used to get these sectors to grow more rapidly.

This would require fresh thinking beyond the traditional macroeconomic parameters such as inflation, the fiscal and current account deficits, and interest rates on the one hand, and, on the other, infrastructure development; power, highways, ports and airports.

To illustrate, the garment industry is a classic labour intensive sector.

India fought hard in the WTO negotiations for the phasing out of the quota system which used to govern textile exports and where (presumably for geopolitical reasons) the Chinese had a quota which was many times that of India’s. It was felt that once quota restrictions ended, apparel exports from India would rise rapidly and catch up with Chinese exports.

After the quota regime ended in 2005, textile and garment exports from India did not rise more rapidly. China’s per capita income and wages are now about five times that of India’s. Yet its textile exports are over $270 billion whereas India’s are around $40 billion.

India’s growth rates remain modest whereas Vietnam and Bangladesh have been having sustained export growth of over 20 per cent per annum. Fresh thinking on feasible measures to achieve a breakthrough is overdue.

Garment exports, given India’s low wages, should be covering the whole range of products for the global market rather than being restricted primarily to cotton apparel as is the case now.

Given the nature of the global supply chain of ready made garments with rapidly changing designs and fashions, hassle-free zero duty imports of synthetic fabrics specified by designers of global brands is an essential prerequisite for becoming part of global supply chains.

This is not the case now. The mechanism of advance licensing on input-output norms for exports works for standard industrial products, but not for garments. One radical option would be to do away with the duty protection available to the domestic synthetic fibre and fabric industry.

However, a viable approach which does not hurt the upstream domestic industry would be a dispensation where garment exporters exporting more than ₹100 crore per annum are given the freedom to import fabrics duty free, maintain records of usage for exports and be subject to annual audit to ensure that there is no misuse.

Bangladesh runs such a scheme. India could easily do so. This would enable garment exporters across the country to attempt diversification using imported fabric and accessories.

Textile SEZs

A more ambitious approach would be for the government to develop large integrated textile and apparel Special Economic Zones, where there are no import duties, and invite investors from India as well as overseas to put up plants.

There is one good precedent in the 1,000-acre Brandix textile SEZ, promoted by a Sri Lankan entrepreneur near Vijayawada.

It has specialised in women’s underwear and is a major supplier to the global luxury brand Victoria Secret. They claim that 60 per cent of the bras sold by Victoria Secret in the US are made here. It has been growing and now employs over 18,000 women from nearby villages who come in chartered buses for two shifts in the day.

The Andhra Pradesh government provided land in 2007 at a nominal rate in the expectation of the creation of a large number of jobs. But since then no other such SEZ has come up.

The allotment of land at reasonable/nominal/subsidised rates for industrial parks for job creation has to be the guiding principle if labour intensive organised sector manufacturing jobs for global supply chains are to be created.

Expensive land can undo the cost advantage of low wages. The SEZ regime could also be tweaked to treat sales to the domestic market on normal import duties as meeting the foreign exchange earning obligation of units in the SEZ. Some production for the growing Indian market would shift to the SEZ creating jobs for Indians.

Incubation centres

Another bolder approach would be for the state to finance the creation of Incubation Centres of plug and play garment manufacturing units in Textile Parks.

This would mean that work sheds with state-of-art stitching machines are provided at a token rent to a start-up, say, a fresh graduate from a fashion/ design institute with the agreement that as she succeeds, she would pay higher rents and even buy the garmenting unit paying the full cost.

Those who fail, and some would fail, could leave and look for jobs without any liabilities. The cost of the failures could over time be borne by the successes so that the Incubation Centre could grow and nurture an increasing number of entrepreneurs. To have global scale, the Textile Parks need to be large. These may be promoted by the state directly, or, through innovative public-private partnerships.

These could also break new ground by developing rental workers housing which has so far been missing in industrial area development.

However, staff housing is intrinsic to the IT SEZ development. Decent housing at a reasonable distance from the work place makes a huge difference to worker productivity. These ideas are equally relevant for other labour intensive sectors ranging from toys to shipbuilding. The state needs to assume a larger responsibility than it has so far been prepared to do for India to begin creating manufacturing jobs for global supply chains on the scale needed. It also needs strategic thinking, patience and willingness to take risks.

The writer is Distinguished Fellow, TERI, and former Secretary, DIPP

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