Consider, for example, Vietnam, which saw a growth rate of 14 per cent in its apparel exports over the course of calendar year 2018 so far. It is now the fifth-largest producer, as well as exporter, of clothing. And while Indian apparel exports had fallen by 4 per cent in the last financial year, Bangladesh registered revenue growth from the export of readymade garments of almost 9 per cent over the same period. This comes after an extensive period of upgrading infrastructure in Bangladesh textile and clothing mills to meet higher safety standards following a disastrous fire some years ago. And in May this year, as Indian apparel exports fell 17 per cent, Sri Lanka's apparel exports grew by over 9 per cent year-on-year, albeit after a 4 per-cent fall year-on-year in April — which was still much smaller than India's 23 per cent descent. The industry has also blamed rising imports from other competitor countries into India for its troubled state. But that merely underlines the fact that this is a structural problem of competitiveness, and not something related to demand conditions at the moment.
The government needs to re-examine its approach to the sector. A much-publicised “textiles package” from the government has focused on tax tweaks that would refund certain state levies. The industry has complained that its tax position has turned adverse since the introduction of the goods and services tax, and this might go some way towards repairing that impression. More important, perhaps, was the decision to allow fixed-term employment contracts in the sector as well as its promise to bear the employers’ contribution to the Employees Provident Fund for three years. 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. In Bangladesh, an average factory has 600 workers; Indian factories are a fraction of that size. If this has to be fixed, a more comprehensive approach is needed that examines how to liberalise the remaining labour laws as well as other onerous regulation. Piecemeal and temporary fixes will not work. Rising cost in China has opened up opportunities for significant growth in this sector; India cannot miss the boat again.
