It’s Just a Stealth Reform

The Indian government is promoting textile and garment production to restore the country’s manufacturing prowess while also slipping in labor reforms. “By highlighting subsidies and higher wages for workers while increasing the hiring and firing power of employers the government has adopted the tactic of stealth reform,” writes Nayan Chanda, founding editor of YaleGlobal Online, in his column for Businessworld. “The labour-intensive textile industry has traditionally been the sector to launch a country’s economic modernization.” Labor reforms could spur innovation in the land that domesticated cotton production and developed artful dye technologies to increase India’s competitive edge against other producers. Chanda points out that India now produces 5.8 percent of global textile exports compared with China’s 35.6 per cent. By providing subsidies to create 10 million new jobs, albeit seasonal and not subject to union rules, the government hopes to encourage large-scale production and flexibility for manufacturers. The stealth reforms may buy some time as trends in automation threaten another industrial revolution with more job loss – YaleGlobal

It’s Just a Stealth Reform

India’s textile sector needs full-scale labor reform along with technological innovation to stand up to the challenges of automation
Nayan Chanda
Monday, July 25, 2016

Two years after launching the “Make in India,” program the Modi government has turned to the textile sector that once propelled India as one of the world’s leading manufacturing powers. Recent announcements of a special package to promote textile and garment production, though, aims at more than just restoring India’s original manufacturing prowess.


Under the guise of incentivizing textile export the government has introduced labour reform that it has been unable to enact. By highlighting subsidies and higher wages for workers while increasing the hiring and firing power of employers the government has adopted the tactic of stealth reform — signaling Left while turning Right. The muted response of labour unions suggests the tactic may be working.


The labour-intensive textile industry has traditionally been the sector to launch a country’s economic modernisation. For India, which in 1840 accounted for a quarter of the world’s GDP, thanks mainly to textiles, it was a no-brainer. But as the first country that domesticated cotton production and developed technology to weave fine and colourful fabrics to dominate the world textile market, India has since ceded place to China, Vietnam and Bangladesh. Apart from logistical bottlenecks and lack of modernisation, India’s failure (producing 5.8 per cent of global textile exports, as opposed to China’s 35.6 per cent) has been due to inflexible labour laws that prevented large-scale production. Without granting the industry the flexibility of hiring and firing the government has now simply expanded the scope of seasonal work, making it more attractive with fixed-term employment and higher overtime and increased take-home pay.


On 22 June the ‘special package’ for the textiles and apparel sector was presented. It was aimed at increasing employment and making the industry competitive but the government cleverly camouflaged the labour reform aspect of the move. Reform that could remove this bottleneck to industrial growth has been held back due to labour opposition and electoral consideration. But nobody could complain that the government was earmarking a subsidy of Rs 5,000 crore to create 10 million jobs in the next three years. The fact that the new jobs would be seasonal and thus not subject to unionisation has led to grumbling by trade unions but it has not set the Ganges on fire. The industry, of course, has welcomed the move and is holding out promises of new investments of Rs 5,000. Business groups have praised the innovation of fixed-term employment hoping such stealth reforms could be applied to other industries as well.


While the labour ministry is still hesitant to introduce legislation giving hiring and firing power to the industry, sectorial reforms like the textile package might help. But the march of technology sweeping over industrial landscape make such relief only temporary. Although about 32 million people are currently employed in the textiles and garment sector – the largest provider of jobs after agriculture – increasing labour-saving and efficiency-enhancing automation is set to change its ability to absorb unskilled labour. The Industrial Revolution and mechanised mills once rendered tens of thousands of Indian weavers jobless. In its newest avatar, automation threatens to replace nine in 10 workers. A recent industry study has warned that automation, necessary for being competitive, would create only 290,000 rather than 10 million jobs that the government hopes to generate in the next five years.


India’s textile industry overcame the challenge of Industrial Revolution by modernising itself. In the face of new challenge it needs to reinvent itself with labour reform and technological innovation. The stealth reform can only buy a little time but not save the industry that once made India a great exporting nation.

Nayan Chanda is the author of Bound Together: How Traders, Preachers, Adventurers and Warriors Shaped Globalization and is consulting editor of YaleGlobal Online, published by the MacMillan Center, Yale University.

Copyright BW BUSINESSWORLD 2016. All Rights Reserved.

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