More than 50 garment exporters have pledged to invest around R1,000 crore so far, responding to the government’s announcement of a R6,000-crore special package and some radical changes to labour laws for the industry in June, according to the data sourced from the Apparel Export Promotion Council (AEPC) and some companies.
The level of investment commitments announced by exporters so far are way below the government’s ambitious target of attracting investment to the tune of Rs 74,000 crore over the next three years. Nevertheless, the exporters that FE spoke to were unanimous in asserting that the move to allow fixed-term employment is the biggest labour reform done for the garment industry in ages, and they are going to adopt it in a big way.
Also, the exporters said since most of the decisions — including the provision for fixed-term employment — have been notified only recently, more companies could announce their investment plans in coming weeks as well, thus driving up the proposed investment levels.
However, a big exporter, who didn’t want to be named, admitted that since the balance sheets of many of the exporters are already stressed due to subdued demand in previous years, it will take some time for massive investments to flow in. It isn’t clear if Shahi Exports — the country’s largest garment exporter that ships out items worth R6,000-7,000 crore a year — has committed any investment yet, responding to the announcement of the package.
An email sent to the company for this purpose remained unanswered. Through the package, the government is aiming to create 10 million additional jobs, $30 billion in additional exports and investments worth Rs 74,000 crore in the textile and garment sector.
According to Sudhir Dhingra, chairman of one of the country’s largest garment companies, Orient Craft, if the proposed free trade agreement with the EU and another one with Britain are clinched, all these targets will be easily realised. That is because Indian exporters are paying close to 10% duties for supplies to the EU, while key competitor Bangladesh, Pakistan and Cambodia have zero duty access to it. The EU makes up for 37% of India’s garment exports and Britain alone used to account for roughly one-third of the EU demand.
Orient will add 4,000 people to its existing workforce of 32,000 over the next three years. Apart from replacing a small unit in Noida with a bigger one, the company will set up one more facility in the city.
Virender Uppal, chairman of another large exporter, Richa Global, said he will add 3,000 people within a year to its existing employee base of 11,000 people. Narendra Kumar Goenka of Texport Industries says his company is looking to hire 4,500 people over the next three years, recording a sharp increase over the current workforce of 1,000 people.
Over a half a dozen small and medium enterprises with a turnover of less than R5 crore have also pledged to invest. This is important, as roughly 80% of the labour-intensive garment sector is dominated by small-scale industries.
Ashok G Rajani, the chairman of AEPC and also the chief of Midas Touch Exports, has pledged to invest R75 crore and hire 650 people in response to the package.
The government in June announced a raft of measures including the introduction of fixed-term employment, optional contribution to EPF by workers earning less than R15,000 a month, refund of employers’ contribution of EPF, additional incentives under the Amended Technology Upgradation Fund Scheme, enhanced duty drawback and some income tax relief to boost the garment sector.
The government introduced fixed-term employment and brought in parity between the contractual and permanent labourers in terms of wages and all other incentives.
So a garment factory now has the flexibility to hire contractual workers for a fixed period with ease so that it can meet supply commitments, given the highly seasonal nature of export orders. Despite enthusiasm shown by exporters for the package, analysts say the targets set by the government are too ambitious to be achieved in a span of three years, given stressed balance sheets of most companies, subdued demand and dented cost competitiveness of Indian exporters vis-a-vis Bangladesh’s or Vietnam’s.
Nevertheless, the analysts added that the steps will also encourage the consolidation of garments units under fewer roofs and more units may come under the organised sector. At present, close to 32 million people are employed in the textiles and garments sector, which is the largest jobs provider after agriculture and accounts for roughly 15% of the country’s exports. The country’s textile and garment exports stood almost flat at $40 billion in the last fiscal, with clothing accounting for $17 billion.