Lately, the Indian garment sector has witnessed a boom in exports, as a result of increasing demand from all of major markets such as the USA along with the European Union. With big orders pouring in, garments became one in the top growing export sectors in the united states. Because of its premium quality garments, India has become one of several preferred sourcing destinations for a number of brands like Zara, H&M, Mango, Tommy Hilfiger, etc. However, america’s inflexible labor laws and dear credit are proving to become major roadblocks for that sector, particularly when it comes to exports.
Stringent Labor Laws Affecting Investors
The stringent labor laws prevailing in the nation have created great apprehension among garment manufacturers. They believe how the bigger they grow, a lot more difficult it’s to run an organization. It is for being noted that garment is on the list of most labor intensive sectors near your vicinity after agriculture. Hence, the impact is a bit more on this segment as opposed to runners due to strict labor laws. More than 8 million personnel are employed by the sector, of that 70% are women. Often companies are closed without prior approval from authorities, which deprive workers in their statutory dues.
Take for instance the Factories Act of 1948. This act restricts a good willing worker to operate beyond two days in a week. This not merely reduces production capacity, but additionally his earnings. India’s loss is its competitors’ gain. Though labor prices are higher in China, yet its flexible labor rules, lower credit costs, subsidized power and infrastructure has propelled its garment sector and exports. The Bangladesh government’s bilateral treaties with European nations along with other countries on the world have enabled buyers to import garments from the continent without any import duty.
High Credit Costs Hurting India
Higher credit prices are also hurting garment exports from India. While credit cost in India hovers around 11 to 12%, exactly the same is around 3 to 5% in rival nations. Shortage of electricity in states like Tamil Nadu and Andhra Pradesh, where many garment exporting companies are found are also hurting these businesses. In these states, high labor costs have reduced manufacturing competitiveness into a large extent.
The Way Forward & Challenges
However, recently garment exports began to pick up, aided by a number of external factors. According to data through the Apparel Export Promotion Council, India’s garment exports for the EU has risen by 5.9% on year-on-year basis during January-May 2013, while the ones from Bangladesh and China have declined by 1.8% and 9.7% respectively during exactly the same period. Yuan’s rise resistant to the dollar and labor unrest in Bangladesh worked in India’s favor. Importers now wish to buy from India, as an alternative to Bangladesh as a consequence of safety related issues as well as the overall stability that India provides.
The Government of India has initiatives to draw investment in the sector. However, India must workout a way to make its labor rules more flexible use a competitive edge to your sector.