How Narendra Modi govt tailored labour reforms in textile policy garb

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New Delhi | Updated: June 23, 2016 7:17:53 AM

The government on Wednesday announced a special package with an estimated annual outgo of R6,000 crore for the garment industry, with a thrust on some radical changes to labour rules to help create 1 crore additional jobs over the next three years.

The government on Wednesday announced a special package with an estimated annual outgo of R6,000 crore for the garment industry, with a thrust on some radical changes to labour rules to help create 1 crore additional jobs over the next three years.(Reuters)Rigid labour rules, among others, caused Indian garments exports to grow at a much slower rate. This resulted in Bangladesh beating India in garment exports in 2003 and Vietnam in 2011. India’s textiles and garment exports stood almost flat at billion in 2015-16 from a year before. (Reuters)

The government on Wednesday announced a special package with an estimated annual outgo of R6,000 crore for the garment industry, with a thrust on some radical changes to labour rules to help create 1 crore additional jobs over the next three years.

To rid the employment-intensive sector of the cobweb of archaic labour rules that have stifled growth and ensured the rise of “militant unionism”, the Cabinet decided to introduce fixed-term employment and bring in parity between the contractual and permanent labourers in terms of wages and all other incentives — an important step that can potentially be replicated in other industries (for instance, automobiles) that have witnessed protests over pay disparity among workers and are struggling under rigid rules for contractual employment.

Also read | Cabinet approves textile sector special package; impetus to exports

So a garment factory will now have 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. Prime Minister Narendra Modi was driving these reforms to boost domestic manufacturing and exports, a source said.

Rigid labour rules, among others, caused Indian garments exports to grow at a much slower rate. This resulted in Bangladesh beating India in garment exports in 2003 and Vietnam in 2011. India’s textiles and garment exports stood almost flat at $40 billion in 2015-16 from a year before.

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The government has also raised the overtime work limits to 8 hours per week (which will translate into roughly 100 hours a quarter) against the current 50 hours per quarter and said the employees’ provident fund contribution will be optional for employees earning less than Rs 15,000 per month. FE was the first to report in December that the textile ministry was pushing for doubling the overtime limit to 100 hours per quarter.

Among other measures, the government has decided to bear the entire 12% of the employers’ contribution of the Employees’ Provident Fund Scheme for new employees in the garment industry earning less than Rs 15,000 per month for the initial three years. Currently, 8.33% of the employer’s contribution is being provided by the government under the Pradhan Mantri Rozgar Protsahan Yojana.

With the latest changes, the ministry of textiles will provide the additional 3.67% of the employer’s contribution, amounting to R1,170 crore, over the next three years.

“This shall leave more money in the hands of the workers and also promote employment in the formal sector,” according to an official statement.

“These were long-pending reforms, which are finally being carried out. Overall, the impact will be positive for the garment industry, which, along with the textiles industry, is the largest employment provider after agriculture,” said noted textile expert DK Nair.

The government also raised subsidy under the Amended Technology Upgradation Fund Scheme (ATUFS), which will be “moving from input to outcome-based incentives”, from 15% to 25% for the garment sector.

A unique feature of the scheme will be to disburse the subsidy only after the expected jobs are created, according to the statement.

In a first, the government has announced a new scheme to refund state levies under the duty drawback scheme to garment exporters. This move is expected to cost the exchequer Rs 5,500 crore a year, but it will greatly boost the competitiveness of Indian exports in foreign markets, the textile ministry said.

Moreover, the provision of 240 days under Section 80JJAA of the Income Tax Act would be relaxed to 150 days for garment companies, the ministry said.

“The refund of employers contribution of EPF, additional incentives under ATUFS, enhanced duty drawback coverage with drawback for domestic duty paid inputs even when fabrics are imported under advance authorisation scheme, etc, are support that will help the industry gain cost competitiveness,” said Apparel Export Promotion Council chairman Ashok G Rajani.

BK Goenka, chairman, Welspun Group, and co-chairman, CII National Committee on Textiles, said, “These reforms are critical for the sector as the industry is highly labour-intensive and India needs to increase productivity to put up with the growing competition.”

If India’s textile sector can increase its global market share from 5% to 10%, it could lead to generation of 50 million additional jobs by 2025, half the Make in India target, he said.

SC Ralhan, president, FIEO, said “the exemption from employees’ contribution to those drawing wages up to Rs 15,000 and contribution by the government in lieu of employer will facilitate bringing workers from informal sector into a formal sector thereby entitling them for the various benefits extended by the government aimed at labour welfare”.

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