Effects of Labor Laws and Costly Credit on Garment Exports

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Recently, the Indian garment sector has seen a boom in exports, thanks to growing demand from all major markets including the European Union as well as the united states. With large orders garments have become one of the very best growing export sectors in the state. Due to the high quality garments, India is now one of the favorite sourcing destinations for many brands including Zara, H&M, Mango, Tommy Hilfiger, etc. But, expensive credit and the nation’s inflexible labor laws are proving to be important roadblocks for the sector, particularly when it comes to exports.

Tight Labor Laws Changing Investors

The tight labor laws prevailing in the state have created great understanding among garment makers. They consider the larger they grow, the harder it’s to run a company. It’s to be noted that garment is among the very labor intensive sectors in the state after agriculture. Thus, the impact is more on this particular section in relation to the others because of strict labor laws. Out of which 70% are girls, more than 8 million workers are employed by the sector. Frequently businesses are shut without prior approval.

Consider for example the Factories Act of 1948. This act limits a worker that is willing to work beyond two days in a week. This reduces his gains, but in addition output capacity. The loss in India is its rivals’ gain. Though labour prices are higher in China, subsidized power, lower credit costs, yet its flexible work rules and better infrastructure has propelled its garment sector and exports. Other states 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 nation.

High Credit Prices Damaging India

Garment exports are also damaging from India. The same is around 3 to 5% in competing countries while credit price in India hovers around 11 to 12%. Deficit of electricity in states like Andhra Pradesh and Tamil Nadu, where many garment exporting firms are found are also damaging these businesses. In such states, high labour costs have reduced manufacturing competitiveness to a big extent.

The Way Challenges & Forward

Yet, lately garment exports have began to pick up, helped by several outside variables. Based on 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 decreased by 1.8% and 9.7% respectively during the same interval. Yuan’s rise against the dollar and labour unrest in Bangladesh has worked in India’s favor. Importers desire to purchase from India, rather than Bangladesh because of the total equilibrium that India supplies as well as safety related problems.