Waiting for the boom

Published : Feb 11, 2005 00:00 IST

At a garment export unit in Tirupur. - K. ANANTHAN

At a garment export unit in Tirupur. - K. ANANTHAN

The outlook for Indian garments sector in a post-MFA world is mixed at best, and may be problematic, especially for the small producers.

IN the past few years, the optimistic expectations surrounding the impact of globalisation in India have receded to a significant extent. It is now recognised, at least to some extent, that global economic integration can have varying and uneven effects, and need not translate into increases in incomes and employment in the simplistic way that was originally presented by the votaries of globalisation.

But there are still some myths that refuse to go away, at least in official circles, such as the notion that (FDI) is essential to achieve a higher aggregate economic growth in the current situation, even if foreign capital inflows at present are only associated with a piling up of foreign exchange reserves with the . Just as domestic investment is still seen as savings-constrained thereby making foreign capital necessary, foreign markets are treated as the critical engine of growth, so that the government is still not giving adequate attention to measures for reviving domestic demand, especially in rural India.

And of course there are certain activities for which even the general public feels that the Indian economy only stands to gain from increased openness. The sectors of the economy that are supposed to hold the most promise in this regard are information technology-enabled services and the readymade garments sector. In both of these sectors, India is seen to have a high degree of comparative advantage such that the promises of globalisation are still seen to be valid.

In the case of the garments industry, it is often assumed that so far Indian exports have been constrained by the workings of the Multi-Fibre Agreement (MFA), an extremely complicated set of quantitative restrictions and quotas that have covered world textiles and garments trade for several decades now. This made exports from developing countries contingent upon the growth of markets in the developed world, and also fixed quotas for individual countries for individual items.

While this restrained aggregate exports from developing countries and definitely had adverse effects upon some of the more competitive exporters, its effects upon other smaller countries have often been more favourable in recent years. Thus, the recent export success of the garments industries in Bangladesh and Cambodia, to take only two examples, was a result of these countries moving to take advantages of the existing quotas in their favour (which they had earlier traded away or failed to fulfil). However, both these countries now face major problems as the MFA restrictions are gradually lifted and as trade actually gets opened up, since they face fierce competition from other lower cost exporting countries, especially China.

Many people in India believe that the post-MFA proposed opening up of developed country markets will lead to substantial benefits for Indian exporters, and by extension therefore, to employment, wages and work conditions in the garments industry. However, this is by no means so obvious. Various studies, including one by the Ministry of Commerce, have concluded that the outlook for the Indian garments industry in a post-MFA world is mixed at best, and may be quite problematic especially for the smaller producers.

IN order to understand the potential impact of the post-MFA tendencies, it is obviously necessary to analyse the present structure of the garments industry in India, not only in terms of a value chain analysis but also in terms of the actual conditions of employment in this sector. A recent study by Sujana Krishnamoorthy and others ("Structure of the Garments Industry and Labour Rights in India: The Post MFA Context", Centre for Education and Communication, New Delhi, 2004) is very useful in this context. It uses both secondary data on the nature and prospects of the industry and detailed interviews with employers and workers in three major nodes of export production (Mumbai, Tirupur and Delhi) to arrive at an understanding of production and work conditions as well as prospects.

Some of the study's main conclusions are so significant that it is worth highlighting them here. One important finding is that the garment export industry in India has reached a plateau from where further increases are only likely through further reductions in the already low labour costs. Further, this pattern is likely to be reinforced by the increased competitive pressures of the post-MFA world, rather than diminished by improved access to developed country markets.

It is not only that China is fast emerging as the most important exporter of textiles and garments; it is also that almost all developing countries rely on increasing exports in this area as a major step in the ladder to development according to the received wisdom of mainstream development strategy. The problem of "fallacy of composition" is therefore likely to be especially acute in this sector.

This has important implications for future policy, since it suggests that efforts to avoid a "low road" to increasing export advantage will require active government intervention to ensure both productivity increases and markets. Currently, both these initiatives appear to be sadly lacking in India, and there is precious little evidence of systematic polices addressing the specific requirements and potential challenges of the garments industry, and ensuring that it will provide stable and sustainable employment. The view seems to be that further deregulation and removing reservation for small-scale producers in certain areas will be adequate to ensure future competitive advantage. This augurs ill for both smaller producers and workers in this sector, who are already being squeezed by competitive pressure.

The seasonal nature of export demand, the tight deadlines faced by producers and the competitive pressures from other developing country exporters have already created a production structure that is heavily dependent upon sub-contracting and casual, highly flexible contracts, typically using workers with less bargaining power such as migrants or young women. It is evident that the precise expressions of these aspects of the industry's structure vary according to local conditions. Thus, there is greater use of female labour in Mumbai and Tirupur than in Delhi, and the wage gap is higher in these locations. The organisational conditions are different in Tirupur because of the nature of industrial clustering that has historical causes and recent determinants. The antipathy to organisation and mobilisation of workers is strongest in Mumbai, given the past history of active trade unionism in the once flourishing factory-based textile industry. However, in all of these locations, the basic conditions of work remain difficult and exploitative, and the employment remains volatile and uncertain.

One feature that has emerged from the CEC study as well as other recent work is that well-meaning attempts to improve workers' conditions (such as codes of conduct for employers) often have the effects that run counter to the intentions, since they can be flouted easily and create further competitive pressure that actually affects workers. Policies for workers need to be more sensitively and perceptively designed to take account of these conditions and the potential for evasion.

But most crucially, workers' conditions in this sector will not improve if the basic market conditions are not improving. And if external market expansion is basically dependant upon cheaper production rather than systematic market development and improved technology and productivity, then workers' wages and conditions are likely to deteriorate further. The very high degree of seasonality of production that prevails currently, as well as the stagnation in recent trends such as demand for home-based work, are already pointers to this.

Of course, all this assumes that the obligations of developed countries under the Agreement on Textiles and Clothing under the World Trade Organisation will actually be met by the promised deadline. This is not likely, as past patterns indicate that the developed countries had already managed to avoid removing the quota restrictions as stipulated, and in any case have put in place a host of "transitional measures" that have prevented these markets from opening up as expected. For India, and for many other developing countries, it turns out that the removal of MFA may turn out to be a mixed blessing. But for it to have even some positive aspects, the government needs to be doing much more, and more actively, in terms of developing this sector.

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