Apparel, leather sectors need policy shift to boost jobs

Updated - February 01, 2017 01:41 am IST

Published - January 31, 2017 10:43 pm IST - NEW DELHI:

The Centre needs to focus on apparel, leather and footwear sectors to boost formal and productive job creation in the economy, according to the Economic Survey.

The Survey has recommended that labour and taxation reforms along with Free Trade Agreements (FTA) with the European Union and the U.K. were key to make apparel and leather sector globally competitive. “Apparels and leather sectors offer tremendous opportunities for creation of jobs, especially for women… Apparels are 80-fold more labour-intensive than autos and 240-fold more jobs than steel,” according to the annual Survey.

The Survey highlighted challenges faced by the apparel and leather sectors: logistics, labour regulations, tax and tariff policy along with “disadvantages emanating from the international trading environment compared to competitor countries.”

Labour law reform

“More FTAs, GST-induced tax rationalization, and labour law reform would add considerably to the job creation potential of the clothing and footwear sectors.”

The Survey called for giving workers in the apparel sector choice to decide on various statutory deductions “that become de facto taxes for low-paid workers in small firms that result in a 45% lower disposable salary.”

The workers should decide whether they want 12% employee contribution to be deducted for provident fund from their income, whether their 12% employer contribution goes towards Employees’ Provident Fund scheme or National Pension System and whether their health insurance premium should go to Employees’ State Insurance or a private health insurance of the employer’s choice.

It also highlighted high minimum wages as another hurdle, as overtime wage rate is twice that of ordinary wage rate, according to the Minimum Wages Act of 1948.

The Survey said that apparels should receive high priority while negotiating FTAs with the European Union and the United Kingdom as it will “offset an existing disadvantage for India relative to competitors- Bangladesh, Vietnam and Ethiopia which already enjoy better market access.”

Trade pacts

Based on an in-house analysis in 2016, an FTA with the EU and U.K. can lead to 1.45 lakh additional jobs per annum in the apparel, leather and footwear sectors, according to the Survey.

It pointed out that the introduction of Goods and Service Tax (GST) will provide an “excellent opportunity” to rationalise domestic indirect taxes to avoid discrimination between apparels and man-made fibres.

It also pressed for higher exports of cattle hides used by leather and footwear industry as its chief raw material. The exports of cattle hides are declining due to limited availability of cattle for slaughter in India, “thereby leading to loss of a potential comparative advantage due to underutilisation of the abundantly available natural resource,” according to the Survey.

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