Strengthening Manufacturing – Case of Apparel and Leather Industries…

The push to Indian Manufacturing sector and ‘Make in India’ campaign can receive a boost from some key sectors whose growth has preceded the growth of the economy across the world in recent times. These are Apparel and Footwear offering significant opportunity to accelerate employment generation and boost growth as per the Economic Survey. A look at the dynamics of these sectors..

The stress on the sectors is backed by an interesting set of data pointed out by the Survey. A group of seven East-Asian countries reported average growth rate of as much as 35% and 38% CAGR for Apparel and Footwear industry for the twenty year period after their economy took off. While it is difficult to assign a specific reason, this could be because these are low capital intensive but high employment generating sectors and could be leading to spur in consumption demand. As per the Annual Survey of Industries, Apparel and footwear account for only about 1.2% of invested capital across industries but employ almost 10% of workforce. For example, number of jobs created per crore of investment in apparel is 24 times that in Steel industry, whereas footwear generates nearly ten times more employment than Steel. Further, these two are also the sectors requiring least skilled workers and hence, can employ the lowest strata of the society. Further, the low level of skill also comes with lower cost of labour adding to the comparative advantage of the sector. The average salaries for the sectors is only 70% of the average salary across industries and half of the salary across metals and automobile sector.
Other than the importance of these sectors in generating employment and boosting growth, the need to focus on these sectors stems from another reason also – the decreasing low cost labour advantage of China which provides opportunity to countries like India. China’s share in global exports which moved up from less than 25% to 40% in about a decade has come down marginally over last few years and looks difficult to pick up again. As per the Economic Survey, the labour cost in some of the states in India is now almost one-third that in China.
Despite these compelling reasons, the sectors have not been able to follow the growth trajectory as shown across East-Asian countries for a variety of reasons. Paradoxically, labour, despite offering a competitive advantage, has acted as a drag due to plethora of regulations and restrictions related to wages, overtime, employment conditions etc. The most glaring reflection of the labour market problems is small sizes of factories in India restricting the gains arising out of economies of scale and reducing market reach. Nearly 80% of firms in India employ less than 50 workers against only 15% in case of China.
The government does appear to have realised these impediments resulting in a revamped textile policy announced in June last year. However, the policy for footwear industry is still awaited…
(Image Courtesy – Ministry of Textiles)

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