Expert Speak India Matters
Published on Feb 08, 2017
Big job creation potential in apparel and leather sectors

Job creation is the biggest challenge of the Modi government and the two sectors being targeted are apparel and leather. The Economic Survey 2016-17 noted that these two sectors are labour intensive and fast growing. These sectors fall mostly under Micro, Small and Medium Enterprises ( MSMEs). The Union Budget 2017 gave a boost to MSMEs whose turnover was less than Rs 50 crore annually, by reducing their tax rate to 25 percent from 30 percent. According to Finance Minister Arun Jaitley, this would cover 96 percent of total companies in India filing tax returns.

The MSME sector has indeed a huge potential for job creation.  Most MSMEs are making labour intensive products that employ women also. With 15 million job seekers a year, these units can offer opportunities for work. But most are plagued by a number of problems which compress their profit margins, often leading to their shutdowns. First is the competition from large scale industry which forces them to remain price competitive.  They have to pay higher minimum wages and mandated overtime. Competition from China for the products that these units make is also formidable. There is also the problem of acquiring the right raw materials for production and getting trained labour who report regularly. Infrastructure problems like lack of regular power supply and water availability are important impediments to their growth.

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Most importantly it is the credit availability which bogs down small units. Many schemes have been introduced to facilitate credit supply to these units but if one talks to the owners, they always cite difficulties in obtaining credit from formal sources. Marketing and advertising are other problems at which they are at a disadvantage vis-à-vis large companies. Even with so many problems, they are contributing to 37.5 per cent of India’s GDP and employing 8.05 crore people.

The apparel/garment industry has been affected by competition from Bangladesh, Vietnam and Ethiopia in international markets which have better access due to tariff policies of the EU.

 Bangladesh’s garment industry has flourished in the last few years employing mostly women who are forced to work at low wages but are extremely competent. There are 6660 garment factories, many near Dhaka lodged in multi storeyed buildings, working 24x7. The Rana Plaza garment factory disaster in 2013, which killed 1138 workers, has brought to light the miserable conditions of work in these factories with little attention to the safety of workers. But the competition offered by these factories is so great that Indians are now relocating their garment units in Dhaka. Unless the Indian garment factories shape up, they will lose out to the factories in the region.

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Leather is another industry which has a big employment and export potential. It is a $17.85 billion industry. India is aiming to increase per capita consumption of shoes to four pairs by 2020. India’s leather industry has a young workforce and is engaged in various centres for leather production across the country with Kanpur, Agra, Chennai, Kolkata being important hubs. India also produces leather goods like handbags, wallets, gloves, finished leather, footwear components as well as harness and saddlery.

 The supply of raw hides comes from India’s huge cattle and goat population. India has 20 percent of the world’s cow and buffalo and 11 percent of goat and sheep population, India produces 2.5 billon square feet of leather accounting for 13 percent of global production.

The leather industry employs 3 million people of which 30 per cent are women. Hence, it is an industry worth nurturing. The industry was, however, badly hit by demonetization because of the nature of the industry which is cash based. Many abattoirs were shut down and many small units closed for lack of cash supply and their inability to pay daily wages. Hopefully the supply of raw hides will be normal now because it involves the welfare of a very caste and community specific activity in which Dalits and Muslims are involved.

There have been many reforms introduced to boost exports -- the footwear industry has been de-licensed and de-reserved allowing bigger firms to produce shoes with state of the art machinery. They also have been allowed to expand their production capacity. Most leather exports ($ 5.85 billion in 2015-16 ) have gone to US and EU in the past. With increase in protectionism in the US, Indian industry should concentrate on the domestic market which is consuming $12 billion worth of leather goods.

In the past when I interviewed leather goods exporters, they complained about the quality of leather and its finish. Now there is zero import duty on hides and skins and semi and tanned fur skins. Yet the problems of logistics, trained labour force and high wages remain. Training is being given through the Footwear Design and Development Institute which in 2016-17, trained 60,705 young workers and 80 percent found jobs.

There has to be cluster development and there is one being developed in Kota Mandal in Andhra Pradesh with assistance of Rs 125 crore from the Central government. Quality of products and details like even/smooth stitching, following fashion trends, embellishments and quality zippers and timely delivery have to be checked out regularly because there are important competitors in EU like Portugal, Slovakia and Romania which are closer to the western European market.

For market access which is a big problem for small producers, there is a Market Access Initiative scheme of Rs 765 lakhs and for Marketing Development Assistance scheme Rs 297.93 lakhs. But for micro units operating from the basement of an owner’s house, the big hurdle is credit and access to these schemes. Interest rate has been reduced to 3 percent on rupee export credit to MSME units and all footwear units under interest equalisation scheme launched in 2015.

With so much leather that can be accessed in India (though limited by cow slaughter ban) the potential of the industry is big, but unfortunately it is bogged down by myriad problems relating to careless execution of design and uneven finish which make people crave for Italian leather goods or the best in the world -- Berkin bags by Hermes of Paris! India has not developed that kind of a brand or name in leather goods but it is nice to see ‘Made in India’ label on Marks and Spencer hand bags in the UK!

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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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