T N Ninan: Garments...at last!

The government made two policy announcements this past week, both designed to boost domestic manufacturing activity. The one that got bigger headline wattage, here and abroad, was the opening of the door much wider for foreign investment in two important industries (defence and pharmaceuticals) and two important service activities: civil aviation and retailing. The announcement that got relatively less attention, here and abroad, was what followed two days later: a package of support measures for the textile and garment industries. It is of course in the nature of the news business that the media treatment of both sets of announcements paled in comparison with the saturation coverage that followed last weekend’s announcement by the Reserve Bank governor that he would not seek a second term in office.

With the initial dust having settled on all three announcements, it is possible to argue with some clarity that the most important of the three relates probably to the textile and garment industries. Indeed, it may end up being more important than previous economic policy decisions by the Modi government —last November’s foreign investment package for 15 industries, also in November the power discoms’ rescue package, and before that the Indradhanush package for public sector banks. Those announcements have dimmed in importance because the discoms don’t seem too keen on deliverance, and the banks have only plunged deeper into crisis.

In comparison, the textiles-garments package has the potential to give fresh momentum to one of the country’s largest manufacturing sectors, reverse the continuing fall in exports, and create millions of jobs — the three top priorities for a government struggling to revive an economy that is also struggling for momentum, despite the 7.6 per cent economic growth. Anyone who has doubts on the scale of the upside on those three fronts (manufacturing, exports and jobs) should read an article written jointly by the chief economic advisor and the textiles secretary (published in The Financial Express on Thursday), which spells out these benefits. I might add sotto voce that they could also read my book, The Turn of the Tortoise, which made the same arguments last year.

The facts are simple enough. Garment manufacture is by far the most labour-intensive industry that we have. Textiles and garments also feature as the country’s leading net earner of foreign exchange — yet countries like Bangladesh and Vietnam have overtaken India in export markets by taking greater advantage of the loss of wage-competitiveness in China, which is the king of the global garments business. India’s policies and laws have held back the industry — only small firms used to be encouraged in a volume business, so India has few large manufacturers. Labour laws have continued to deny exporters the flexibility that they need in a business with sharp seasonal variations. Finally, there are the cost disabilities that flow from the continuing deficiencies of India’s physical infrastructure — uncertain power supply, high cost of containers, high port charges (even as Mr Gadkari celebrates how profitable the ports are), high shipping freight rates, and much else.

The new policy package tries to address all three, with amendments to the operative labour laws, and financial support from the government in a variety of ways. These will cost the government a few thousand crore of rupees, but the bill will be much less than for the rural employment guarantee scheme; and the benefit could be very much greater — millions of sustainable jobs at much better wages. It isn’t clear whether what has been announced will be enough to neutralise the advantages that Bangladesh has: duty-free access to the European market, and much lower wages. Manufacturers and exporters in India will also continue to be handicapped by India’s infrastructure constraints, which will not go away for another five years. Still, after more than a decade of lost opportunities in the textile and garments business, the sector has at last got the attention it needs and deserves.