World Bank projects apparel manufacturing has potential to create 1.2 Million new jobs

World Bank projects apparel manufacturing has potential to create 1.2 Million new jobs India Apparel fig 2

At a time when nearly one million people are expected to enter the workforce every month for the next three decades, export-oriented apparel production in India and other South Asian countries has the potential to create more and better jobs, says a new World Bank report

The Stitches to Riches? Apparel Employment, Trade and Economic Development, launched in New Delhi on April 26, 2016 is aimed at demystifying the global and South Asian apparel markets, estimating the potential gains in exports and jobs, and identifying policies that can unleash South Asia’s export and job potential compared with those of their closest competitors in the Southeast Asia region (Vietnam, Cambodia, and Indonesia).

As wages increase, China, the largest apparel manufacturer for the last 10 years, is expected to slowly relinquish its lead position in the global apparel market, opening the door to other competitors. This could be a huge opportunity for India and other South Asian countries. Even a 10 % increase in Chinese apparel prices could create at least 1.2 million new jobs in the Indian apparel industry, the report estimates.

Women are expected to benefit the most as their share in the total apparel employment is much higher than their share in other industries. A one percent increase in expected wages in the textiles and apparel industry could raise the probability of women entering the labour force by 18.9 %, says the report.

“Apparel manufacturing not only has a huge potential for creating jobs, particularly for the poor but also has a unique ability to attract female workers. Employed women are more likely to create positive social impacts as they tend to spend their income on the health and education of children,” said Onno Ruhl, World Bank Country Director, India. “Rising costs of apparel manufacturing in China provides a window of opportunity for India to focus on apparel in productively employing its huge working-age population.”

The top four apparel producers in South Asia – Bangladesh, India, Pakistan, and Sri Lanka – have made big investments in world apparel trade and account for 12 percent of global apparel exports. India also has a more diversified export structure and has a well-developed fibre (cotton), textile and apparel manufacturing base.

Though India is gaining market share, Southeast Asian countries (Cambodia, Indonesia, and Vietnam) are outperforming all South Asian countries in overall apparel export performance, product diversity, and other non-cost related factors. For it to take advantage, India needs to move quickly to ease barriers to the import of manmade fibres, facilitate market access and encourage foreign investment to reach more end markets, which would also yield dividends for other light manufacturers like footwear and toy, the new World Bank report Stitches to Riches suggests.

“South Asia has taken many steps in recent years to support the textile and apparel sector, but it now needs to step up its game by tackling inefficiencies that are undercutting its competitiveness. Greater access to manmade fibre and integration between textile and apparel among other measures can help Indian companies take advantage of the emerging global opportunities and encourage good jobs for development,” said Gladys C. Lopez-Acevedo, one of the authors of the report and a Lead Economist for the World Bank.

Policy Actions

The report recommends removing trade restrictions to allow easy access to manmade fibres as inputs; increasing efficiency along the value chain such as integration between textile and apparel; and improving social and environmental compliance by introducing better human resource practices.

It suggests the following policy measures to help increase apparel exports in India:

Increase product diversity by reducing tariffs and import barriers to ease access to manmade fibres (such as more transparency for duty drawback schemes and bonded warehouses, and removing anti-dumping duties on manmade fibres). Also lower excise taxes or provide other incentives to develop a domestic manmade fibres industry.

India Apparel fig 1Improve productivity by helping firms enter the formal sector and take advantage of economies of scale with less complex labour policies. Also promote FDI for apparel by adopting clear and transparent policies on foreign ownership (already in place for textiles) and within export processing zones. This in turn will help reach more end markets.

Improve market diversity by taking advantage of access to emerging markets.

Shorten lead times by using industrial parks to provide better infrastructure in a concentrated way.

India ranks second in terms of value (USD 12.5 billion) and global market share, although unlike Bangladesh and Sri Lanka, apparel’s share of total county exports is quite low at 5 percent. Foreign direct investment (FDI) has played a limited role (less than 1 percent) as a share of overall investment in the textile and apparel industry and as a share of the country’s overall FDI inflows. Workers in the formal sector generally enjoy better working conditions and wages than those in the informal sector, where compliance is limited and where most apparel workers are actually employed. The following policies can help India increase apparel exports: increase product diversity by reducing tariffs and import barriers to ease access to manmade fibres (such as more transparency for duty drawback schemes and bonded warehouses, and removing anti-dumping duties on manmade fibres); improve productivity by helping firms enter the formal sector and take advantage of economies of scale with less complex labour policies; improve market diversity by taking advantage of access to emerging markets; and shorten lead times by using industrial parks to provide better infrastructure in a concentrated way.

www.worldbank.org


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