Weak policy fabric

Manikam Ramaswami | Updated on January 20, 2018


Tariff wall a big issue in garments exports

The new garment policy — which aims to create one crore new jobs in three years — is a welcome initiative. But mere incentives and labour reforms will not be able to produce the targeted number of jobs. Granted, the policy will render make garment-making a little more competitive. The extra incentives given through higher drawback will make garments cheaper to the overseas buyer. Still, it may not be good enough to corner market share.

Duty woes

India’s exports to EU, Canada, Australia and China attract levies of 10-18 per cent. However, one or more of our competing countries have zero duty on exports into all these markets. So, when we export to EU, we can’t hope to be more price competitive compared with those having zero duties, unless Indian goods are 10-18 per cent cheaper (18 per cent when we export to Canada).

Hence, merely giving an extra one or two per cent duty drawback, reducing the cost of labour by 10 per cent, without addressing such important issues will not be enough. It will only make the hugely competitive garment industry look like a subsidy-seeking weakling.

Creating one crore additional jobs in three years through garment exports is an achievable target. It is also a target that must be met, so that growth in consumption does not fall behind increases labour productivity, as is the case now.

Labour law modifications should be effected faster; besides, the compulsory need to get ESI cover for workers should be made optional. Instead, a choice of credible private or public insurance policies for health and life must be offered.

More measures

A free-trade agreement with the EU, a comprehensive trade agreement to get zero duty with Australia and Canada and a reduced duty on par with Pakistan into China must be completed without further delay.

China will agree to giving the same duty for Indian textiles as Pakistan should our ministry take up textile duty reduction while discussing steps to reduce trade deficit between India and China.

Also, allow import of cement and steel under the EPCG (export promotion capital goods) scheme to cut the huge cost of building by 50 per cent. Building accounts for 70 per cent of the project cost for a residential garment unit.

By taking such measures, the Government will save over ₹5,000 crore a year, and will help create cost-competitive garmenting units which will be easily be able to garner 10 per cent market share in garments in EU and a even higher percentage in Canada and Australia, besides taking up a $7-10 billion share in the $25-billion-plus fabric and yarn import into China.

Exports to EU alone will help generate 50 lakh jobs and exports to China will provide 20 lakh jobs and the rest including domestic market consumption growth will provide 30 lakh jobs, in all 100 lakh jobs in three years.

The writer is CMD of Loyal Textiles

Published on June 26, 2016

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