Editorial 1 : Tailoring a sector
Context
India's share of global apparel trade is only 3% and has stayed the same for the last 20 years.
A deep-rooted tradition
- India has a deep-rooted tradition in textiles and apparel (T&A). The sector employs 45 million people and contributes 2.3 per cent to overall GDP. But its share in global trade remains low at 4.2 per cent, a mere $37.8 billion out of $897.8 billion.
- India has set a target of $40 billion in apparel exports by 2030. But in the last few years, apparel exports have declined at an AAGR of –2 per cent.
- If we had sustained the stronger AAGR of 8.5 per cent (2004-2017), we would reach $31 billion by 2030. And an AAGR of 8.5 per cent (2004-2023) suggests exports to reach $21 billion by 2030.
- These numbers make it clear that without a significant shift in policy and strategy, the $40-billion goal will remain a pipe dream.
The constraint
- Our research points to a fundamental constraint — India’s lack of scale. Put simply, we are too many, too small, and too dispersed.
- Over 80 per cent of India’s apparel units are Micro, Small and Medium Enterprises (MSMEs).
- China and Vietnam have built large-scale and export-oriented factories backed by integrated production systems.
- Even Bangladesh has found a way to either scale up or have single-window “buying houses” that take large orders and then get executed from various factories.
- The large scale helps them attract global buyers who demand volume. Scale also drives down unit costs, shortens delivery timelines, and generates mass formal employment.
- For a country like India with a young population, the garment industry offers a wonderful opportunity to expand employment and grab a larger share of the global market.
A silver lining to achieve
- To translate ambition into reality, India needs bold reforms enabling scale.
- First, capital must be made accessible and affordable for scale-focused investments. A structured capital subsidy of 25-30 per cent, linked to the size of the unit, can provide the initial push.
- Second, India’s 52 central labour laws have created rigidities, discouraging formal hiring and scale. They need flexibility. Overtime payments are mandated at two times the hourly wage, compared to the ILO standard of 1.25 times, adding to cost pressures.
- A bold idea could be to link MGNREGA funds to subsidise labour costs in garment units. This could make labour-intensive units more competitive while generating productive employment on a sustainable basis.
- Schemes like SAMARTH should be significantly scaled up to provide short-cycle, demand-linked skilling, especially for women.
- India’s low female labour force participation and high youth unemployment demand job creation, not just income transfers.
- Third, at least two of the seven PM MITRA parks should be designated as garment-focused hubs, particularly in states like Uttar Pradesh and Madhya Pradesh, where labour costs are lower and worker migration to southern garment hubs is high.
- Bringing manufacturing closer to the workforce can reduce costs, boost underdeveloped regions, and build more inclusive industrialisation.
- Finally, India must rethink its incentive architecture. What the garment sector needs is an Export-Linked Incentive (ELI) rather than just a Production-Linked Incentive (PLI). Schemes that reward firms not just for producing more, but for competing and winning in global markets.
Way forward
- The garment industry deserves focused policy attention because it sits at the intersection of mass employment and maximum value addition. The global marketplace will not wait for India to get its act together.
- Therefore, we need policies that are bold in design and swift in execution. We hope our policymakers can rise to this challenge.