In the last few years, it has become a practice for State Governments to organize business conclaves to facilitate investment for various industries. These much-hyped business conclaves may be bringing in some promised investment, but have failed to generate desired number of employment opportunities to the masses who are uneducated and unemployed. The state yet again played a host to UP Investor’s Summit (UPIS) 2018, held on 21st and 22nd February. But is the State Government itself aware that it can improve the plundering economy of the state by giving a little more consideration to the garment manufacturing and export industry? We all agree that big ticket projects are equally required, but certainly not at the expense of a large employment generating industry like garmenting… An analytical take by our Editor-in-Chief.
Advantages of Apparel Industry
To its advantage, the garment manufacturing industry is not capital-intensive, a mere US $ 200 (Rs. 10,000) investment on a sewing machine can give employment to around 2 people (in accordance to industry standards, man-machine ratio is 1:1.75 and at some places, it is even higher at 1:2.5) by training them for just 8 days (even if some might put the days as 30); these freshly trained people can be put on to lines. So, an investment of US $ 100 million has the potential to give employment to around 1 million (10 lakh) people. Consider the impact that billion dollars can have on the employment of this industry while the investment of billion dollars in car manufacturing industry may not create even 5,000 jobs (I have not considered the ancillary industry since I know that textile and apparel industry would require multiple entrepreneurs to address the needs of the industry as compared to the car ancillary industry).
However much one may argue that manufacturing is moving back to the west, as cost of production increases in Asia, but I would still give this industry about another 15-20 years’ time before it really moves back to the developed nations, and there is wide spread adoption of automation and robotics even in a country like ours, which takes away the mass jobs.
It would be interesting to note that the number of unemployed youth in Uttar Pradesh in the age group of 15-35 years as per the 66th round of the National Sample Survey Organization (NSSO) report is estimated to be a whopping 10 million, and this number can be drastically reduced or removed with an informed investment initiative in the garmenting industry.
UP is a prominent agriculture state and today with agriculture becoming more technology-dependent, it would be requiring much less manpower to work on the fields. The NSSO report also shows that there was a net decline of 4.9 million (49 lakh) agricultural workers in the last five years in Uttar Pradesh and this is only going to increase with more and more people in agriculture finding less and less jobs in their fields and moving on to other manufacturing sectors, which though considered as the cornerstone of the economy, have grown at snail’s pace of only 1.64%, showing very little chances of covering up the growing employment shortfall.
Apart from eradicating unemployment, the investment and support to the garment manufacturing and exports industry would also add substantially to the state’s economic positioning. The perspective to be kept in mind is that the investment of a mere US $ 100 million on machines also helps to generate an export turnover of around US $ 4 billion (Rs. 24,000 crore) a year, a double gain for the Centre and the State.
Why Uttar Pradesh as a case study?
Firstly, and most importantly, the garment industry is widespread in Uttar Pradesh – Noida in knitted and woven dresses; Meerut in sports goods; Kanpur in kidswear; and Lucknow in Indian ethnicwear – are few among the important natural and man-made garment and textile clusters/hubs for garment manufacturing. (Here it is essential for us to understand that it is easy to piggyback the already existing cluster rather than create new clusters). Already around 1.5 million (15 lakh) workers in some form or the other are associated with the industry and it would not require much efforts to bring up the industry.
Similarity of Bangladesh to Uttar Pradesh
I think the ideal situation would be to follow the Bangladesh model which was earlier the US and European model of growth as well, rather than the Gujarat and other state business models which invite foreign investments through the big spending conclaves for capital intensive industries… Let’s draw some comparisons, putting our submission in perspective. The total population of Uttar Pradesh is 199.5 million, according to the census of 2011, whereas Bangladesh is approaching the 159.5 million mark with unskilled workers forming the major force in both the places.
Even the surface area of 1,47,570 sq. km. of Bangladesh compares well to 2,43,290 sq. km. in Uttar Pradesh.
Uttar Pradesh Textile Industry
• The state has 58 spinning mills and a total of 74 textile mills in the non-SSI sector.
• UP is the third highest fabric producing state of India producing 13.24% of national production.
• The state ranks 5th in total silk production in the country.
• Has around 2.58 lakh handloom weavers and about 4.21 lakh powerloom weavers.
• Home to 6.71% of the total handlooms in India with fifth highest number of handlooms in the country.
• The state is also known for its carpets, and produces around 90% of India’s carpets.
• UP is the biggest market for Textile and Handloom, with a consumer base of over 200 million people.
• The state exported readymade garments worth INR 10,866.70 crore in FY 2016-17, accounting for 7% of total exports.
Advantage: Uttar Pradesh
I can go on to put forth many similarities and advantages in perspective, but the major one is its existing infrastructure of 500 textile training centres such as NITRA, NIFT, Pearl, AMITY, NIFD, IIFT, ATDC and 300 ITIs spread all across the state providing middle-level as well as shopfloor level education and training for the garment industry. It is by all means much more than Bangladesh. Add to this the Government of India’s budgetary provision of 2,000 crore towards skill development.
We all know that Bangladesh lacks in its fabric producing capability, but strategically they have converted this weakness into their strength by implementing policies to import the best of fabrics at the best of price from all parts of the world and add further value to this by converting the fabrics to garments for export. Thus, successfully creating employment opportunities and the required foreign exchange!
Whereas, UP as an integral part of India has the advantage of a strong textile industry, as the country is the second largest producer of cotton, with the second largest spinning capacity and the third largest fabric producing centre. However, the country has still not been able to support its front end sufficiently because of its treating the textile supply chain as four separate identities which are: Cotton production, Spinning, Weaving and Garmenting.
To reiterate, if a little focused attention is given by the Government of UP towards the state’s latent potential as a garment manufacturing hub, it can be the richest and most powerful state in the country…
Incentives for investors
• Allotment of land by Government agencies will be subsidized: 30% in Gautam Budh Nagar and 50% elsewhere – UPSIDC etc., limited to 5% of the total project cost. After commercial production begins incentive to private textile industrial estates or parks also – minimum 25 acres.
• Ready to use plug-and-play infrastructure – sheds after investor’s commitment.
• Incentives for the construction of staff quarters/hostels/dormitories – includes reimbursement of 60% interest for 7 years (except Gautam Budh Nagar); Maximum INR 5.00 crore/year, and INR 30 crore in totals.
• Stamp duty exemptions – 100% exemption, except Gautam Budh Nagar; 75% exemption in Gautam Budh Nagar; 50% exemption for first buyer in a textile park/estate developed by SPV.
• SGST reimbursement for l0 years – MSME Textile units – @ 90%; Textile units (other than MSME); Poorvanchal and Bundelkhand @ 90%; Madhyanchal and Pashchimanchal (except Gautam Budh Nagar) @ 75%; Gautam Budh Nagar @ 60%; Mega and Super-Mega textile units @ 80%.
• Capital Interest Subsidy – @ 7% for 7 years with a cap of INR 1.5 crore/year/unit; Cap of INR 75 lakhs/year/unit in Gautam Budh Nagar.
• Infrastructure Interest Subsidy – @ 5% for 5 years with a cap of INR 1 crore/unit.
• Quality Development Subsidy – @ 5% for 5 years with a cap of INR 1 crore per Lab/Tool-room.
• Capital Subsidy – @ 25% of plant and machinery to textile and garmenting units.
• Working Capital Interest Subsidy – For Silk reeling units @ 5% for 5 years with a cap of INR 50,000/year.
But the similarity ends here
While Uttar Pradesh employs only 1.5 million in garment and textile for an annual export of not more than US $ 2 billion, Bangladesh employs 5 million to fetch exports to the tune of US $ 20 billion. Everyone knows how Bangladesh has risen over the last 10 years riding the bandwagon of a booming global garment trade, driven by a dedicated workforce backed by unclenching Government support to gain a per capita income of US $ 1,190. On the other hand, a technically more resource rich Uttar Pradesh has per capita of only US $ 605; even India with all its frills has a per capita of just US $ 1,720.
Support to Skill Development and Training
• Scholarship of INR 500/month/student of vocational subjects of textiles.
• A grant of INR 5 lakhs per college for the purchase of new handlooms, accessories and raw-materials.
• Honorarium to assistant of handloom weavers – INR 1000 per month for two years,
• Top-up in the Gol’s Scheme by the State Government.
• Integrated Skill Development Scheme for The Textiles and Apparel Sector, including Jute and Handicrafts’ Scheme – 25% additional grant.
• Easy loans to weavers under the ‘PM Bunkar Mudra Yojna’.
• ‘Stand-up India’ scheme tapped extensively for potential SC and ST entrepreneurs, especially in silk reeling.
One would ask why the industry has not flourished on its own in Uttar Pradesh
Here I would like to lay out few problems the industry faces today in UP. The points discussed are without any prejudice to anyone or the system.
It is no secret that exporting garments today is a tough business, as besides being competitive, one also has to work under all kinds of compliance norms (not only social and environmental but also technical) stipulated by the buyers, which incidentally are basic compliance relating to ‘the law of the land’. Sadly, the industry is struggling to be compliant and is daily facing the wrath of inspectors from all kinds of Government departments, police and lately the goons of the political class. Though it is claimed that the state is electricity surplus, there is no regular electricity. Water is always a problem and it’s going to be bigger problem in time to come.
I can go on with many other bottlenecks including filth and dirt all around the industrial areas or clusters which is a complete eyesore for the visiting foreign buyers. They all require certain minimum hygiene, but these issues can be addressed at the local level…
UP has finally got its own textile policy, but the most surprising fact is that even after the announcement of the textile policy, the State Government has taken no active measure to promote and create awareness of the incentives offered. Other states like Gujarat, MP, Maharashtra, Rajasthan, Odisha, Jharkhand and even their western and eastern neighbours Punjab and West Bengal, have rolled out an inviting textile policy and held seminars in major garmenting hubs to spread the word, the Uttar Pradesh Government is strangely quiet, almost as if they themselves are not sure of the direction… Such attitude needs to change as the first step in the direction of progress.
Some long-term suggestions
Garment manufacturing should not be looked down upon but looked up as a major employer in the country and these employment opportunities can happen if the Government ensures export of value-added products. Now if a country allows exports of raw cotton and no value add yarn to appease the farmer and textile lobby rather than creating opportunities for garments and export, any policy would fail to give results. The starting point for the state would be to come out with a common textile policy with a theme to value export.
One model does not fit all… The Government in Uttar Pradesh has to ensure good governance and follow a path designed especially for the kind of demographics and available resources, and in this case, those can be channelized through internal sources and not by imitating business model of other states…
Noida, the nerve centre of garment exports from UP
With 700 registered garment exporters generating around Rs. 14,000 crore of export business in 2017 and engaging over 10 lakh workers, Noida is among the fastest growing garment hubs of the country. Exporters in the region are finding it exceedingly difficult to expand operations as land has become both scarce and expensive in the area. Sensing the potential and supporting expansion, the Noida Apparel Exporter Cluster (NAEC) has taken the initiative to sign a MoU with Yamuna Expressway Authority for 200-acre land for a proposed Apparel Park with an investment of Rs. 5,000 crore (excluding land).
Though the MoU is just the first step towards the Apparel Park with all incentives as recognised by the state of UP for other designated Apparel Parks, namely in Bareilly and Farukkhabad, the move is in the right direction. The President of NAEC, Lalit Thukral has been invited to the Investors Summit, to be held later this month to take the discussion forward. In the meanwhile, Thukral has already met the Chief Minister, Yogi Adityanath, who has assured him of support in making UP the next big apparel manufacturing hub.
The newly announced textile policy of the state envisages an employment generation potential of 11 lakh workers over the next three years. If the proposed Apparel Park gets the nod on similar lines as the other two Apparel Parks of UP, it has the potential to generate employment opportunities to over 5 lakh workers on its own. Since the workers in Noida are predominately from UP and Bihar, the state would benefit largely in its target of job creation.
The hub is already known for its fashion garments, knitted garments and home furnishing. In fact, over the last decade, a number of integrated knitting units, supported by world class processing have come up in the area. There are over 2,500 manufacturing units in the region of Noida and Greater Noida and 70% of the work force is of women. The thrust on the domestic market has also increased and last year the hub did domestic business of around Rs. 4,000 crore.
“There is certainly an atmosphere that is building up, but still the state is lacking on facilities be it basic infrastructure as we still need better roads and improvement in electricity supply. At policy level, the State Government should aggressively come forward to support us as industry is paying taxes from 12 to 18 per cent while it should not be more than 5 per cent. There is assurance on the issue of textile parks but not much is going concrete on ground level. Law and order is also an issue that needs more attention. Overall more efforts for ease of doing business are required, local administration across the state needs to work speedily.” – Dr. Deep Shankar Vyas President, Eastern UP Exporters’ Association
“There are improvements in UP but still a lot needs to be done, especially regarding product development, design development and overseas marketing. The thing the state needs to change is the perception or the overall image. There are two interesting and positive things which are only in UP. First, it is the only state having its own export promotion council which is moving towards its agenda of export promotion; secondly, it is the only state offering subsidy regarding container/warehousing. The state is having enough labour and reasonable minimum wages compared to many other states. Connectivity is also good and overall infrastructure is not an issue. Recent announced programme of ‘One District, One Product’ will also help the industry.” – Rakesh Kumar ED, Export Promotion Council for Handicrafts (EPCH)
“There is no facility to support this industry in the state. We work with many hubs across India and they are far better compared to most of the hubs of UP. Our state is lacking on various fronts as it doesn’t have proper industrial estates across the major hubs. Even today, in UP, power shortages and breakdowns disrupt production schedules; inadequate and unreliable transport increase costs, and which adversely affects timely shipments. Besides, lack of communication facilities hinder growth of exports. Everyone is struggling on e-way bills which is purely a state subject. Still the State Government is not prepared to execute e-way bill properly and immediately. There is no subsidy or any kind of support by the State Government regarding installation of new machinery, etc.” – Sumit Chhabra Director, Creative Concepts India, Moradabad; Core Group, UP, Buying Agent Association