The Role Of Apparel And Leather In Low Skill Manufacturing

• India needs to generate jobs that are formal , productive, have the potential for broader social transformations and can generate exports and growth. The apparel and leather & Footwear sectors meet most of these criteria.

Apparel and Leather sector

• These sectors offer tremendous opportunities for creation of jobs especially for women. The apparel sector is the most labor-intensive followed by footwear. Apparel sector is more labor intensive than Auto and Steel. A high Labor intensity indicates an industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services; the higher the proportion of labor costs required, the more labor intensive the industry.
• The sectors if encouraged, can prove to be the vehicles of Social Transformation. For instance, in Bangladesh, female education , education and women’s labour force participation rate moved positively due to the expansion of apparel sector.
• Opportunity for India
• India has a historic opportunity to promote apparel, leather and footwear sectors because rising wage levels in China has resulted in China stabilizing and so losing market share.
• India is well positioned to take advantage of China’s deteriorating competitiveness as wages in most Indian states are quite low.
• However, India need to act fast as the space vacated by China is being filled by other countries. In case of apparels by Bangladesh and Vietnam; in case of leather and footwear by Vietnam and Indonesia.
• Indian apparel and leather firms are relocating to Bangladesh, Vietnam, Myanmar and Ethiopia, highlighting the need to act urgently. Employment Elasticity is a measure of the percentage change in employment associated with a 1 percentage point change in economic growth. The employment elasticity indicates the ability of an economy to generate employment opportunities for its population as per cent of its growth (development) process.

Challenges

• Logistics : India lags behind relative to competitors. The costs and time involved in getting goods from factory to destination are greater in India. Also, very few Very Large Capacity Containers(VLCC) come to India to take cargo making it necessary for exports to be shipped through Colombo instead. This increases the cost of India’s exports and reduces flexibility for manufacturers.
• Labor regulations : Regulations on minimum overtime pay, onerous mandatory contribution that in many ways become a form of tax for the low paid workers in small firms, lack of flexibility in part-time work and high minimum wages lead to lack of competitiveness in the sectors. Indian firms are smaller compared to firms in China and Vietnam ( 78 percent of Indian firms in India employ less than 50 workers )
• Tax and Tariff policies create distortions that impede India gaining export competitiveness.
• Discrimination in Export markets as India’s competitors enjoy a better market access in the two major importing markets of USA and EU. In the EU, Bangladesh’s and Ethiopia’s goods enter duty free being a Less Developed Country. On the other hand Vietnam enjoys zero tariff because of its Free Trade Agreement.
• Leather and Footwear sector suffer from certain sector specific challenges. The industry uses raw hides and skins of animals like cattle, buffalo, goat, sheep and other smaller animals. The leather made out of cattle has greater global demand because of its strength, durability and superior quality. Despite having a large cattle population, India’s share of its exports is very low because of lower availability of cattle for slaughter.

By: Vishal