Lawyer Joseph Plazo Law Firm:Effects of Labor Laws and High-Priced Credit on Garment Exports,
Recently, the Indian garment sector has witnessed a boom in exports, thanks to increasing demand from all major markets including the USA and the European Union. Because of its high quality garments, India is now one of the preferred sourcing destinations for several brands including Zara, H&M, Mango, Tommy Hilfiger, etc. On the other hand, pricey credit and the country’s inflexible labor laws are proving to be important roadblocks for the sector, notably when it comes to exports.
Rigorous Labor Laws Changing Investors
The stringent labor laws prevailing in the nation have created great apprehension among garment manufacturers. They consider that the bigger they grow, the harder it’s to run a business. It is to be noted that garment is one of the most labor intensive sectors in the country after agriculture. Hence, the impact is more on this segment than the others due to strict labor laws. Often companies are shut without prior approval.
This act limits even a worker that is willing to work beyond two days in a week. This not only reduces his gains, but also output capacity. India’s loss is its opponents’ gain. Though labour costs are higher in China, subsidized power, lower credit costs, yet its flexible labour rules and better infrastructure has propelled its garment sector and exports. Other countries of the world and the Bangladesh government’s bilateral treaties with European nations have empowered buyers to import garments with no import duty from the state.
High Credit Costs Hurting India
Garment exports are also hurting from India. The same is approximately 3 to 5% in rival countries while credit price in India hovers around 11 to 12%. These businesses are being also hurt by deficit of electricity in states like Andhra Pradesh and Tamil Nadu, where many garment exporting firms are found. In these states, high labor costs have reduced manufacturing competitiveness to a big extent.
The Way Forward & Challenges
However, lately garment exports have began to pick up, aided by several outside factors. According to data from the Apparel Export Promotion Council, India’s garment exports to the EU has grown by 5.9% on year-on-year basis during January-May 2013, while those of Bangladesh and China have dropped by 1.8% and 9.7% respectively during the same interval. Importers want to purchase from India, rather than Bangladesh because of safety related issues and the overall stability that India provides.
The Government of India has taken initiatives to bring investment in the sector. Nevertheless, India must work out a means to make its job rules more flexible to supply a competitive advantage to the sector.
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