With elections around the corner, political parties and their representatives are going around promising the ‘moon’ to their constituencies, little realizing that many of their statements and promises could have long-term ‘negative’ impact in critical growth areas. One such ‘loose’ statement by Haryana Chief Minister, Bhupinder Singh Hooda at a rally recently has shocked the Apparel Manufacturing Industry in the state…
A promised hike of 55 per cent in minimum wages will severely cripple the garment export industry, which is already fighting for survival. The impact is so great that irrespective of the size of the factory the impact will add 10-15 per cent to the expenditure of each factory, and while a medium-sized factory of 100 machines with about 140 workers would lose Rs. 4 lakh per month, a large export house with 25,000 workers stands to lose around Rs. 7 crore per month!
How does the Government expect the industry to function with this added burden, is anybody’s guess. Not surprisingly, the industry has reacted very strongly to the announcement, which according to top level officers of Labour Department would be implementing in a few months. Associations are deep in negotiations trying to find a win-win path… with many tight lipped about what is the actual position.
We received many letters voicing concern… A few of the interesting comments are presented below, while the letter from Gautam Nair, MD, Matrix Clothing is reproduced as is. Gautam has very aptly and practically summed up the crisis and the dilemma of the exporters having factories in Haryana… – Editor-in-Chief, Deepak Mohindra
Gautam Nair, MD, Matrix Clothing
The proposed hike in minimum wages will be devastating for the apparel manufacturing industry in Haryana. The Indian apparel export industry has been languishing for the last 5 years – and only over the last few months, it is seeing growth and a good future ahead. With increasing shift of apparel buyers from China towards India, this is the time to gain market share and set a firm foothold for the future. This is the time for State Governments to partner with industry to encourage the growth of this hugely labour-intensive industry, which along with the Textile Industry, is the second largest employer in India after Agriculture. Haryana is already amongst the highest minimum wages in the country. In recent years we have had significant increases in power tariffs, freight costs, fuel price increases and increase in cotton yarns/fabrics – all of which have an inflationary impact on general price levels. Worker’s wages are adjusted twice a year, based on linkage with the Consumer Price Index. With all these increases in our costs, the proposed huge hike in minimum wages will be the last straw for the Haryana based apparel manufacturer exporter. And this will have a multiple effect as the minimum wage is the base rate for calculation of social security benefits such as provident fund, ESI, gratuity and leave with wages so the actual impact will be much higher. Units will either shut down or be forced to shift out of Haryana at a huge cost.
Alternates available with the industry to counter balance the proposed hike and remain competitive…
In theory, we should try and recover these higher costs through higher productivity. In practice, this is very difficult. India has found a competitive advantage in the design/development intensive apparel product – these orders tend to be small to medium size runs per style with large number of styles. At the best of times, it is a challenge to get good efficiency in this kind of production as styles are changing frequently. Also, the efficiency of the Indian supply chain leaves a lot to be desired – without a smooth supply of ready to cut inputs, the production lines work on a stop start basis which further compromises on efficiency. Furthermore, the Indian apparel industry is today plagued by high absenteeism and attrition, all of which contribute to lower efficiency. Therefore, it is well-nigh impossible to recover these costs through higher efficiency – any increase in costs impact already strained bottom lines.
If the Government does not accept our point of view, industry will be severely compromised. A number of small to medium sized units have shut down in the last few years; those who have survived and were getting onto a firm footing based on recent growth will again suffer a setback. Many will shut down – the rest will be forced to try and shift manufacturing out of Haryana.
Message to the Government…
The key message is that India has less than 6 per cent of workers in the organized sector – the overwhelmingly large majority of workers are in the unorganized segment. And a key agenda for today’s Government – and whatever Government is in place tomorrow – is to increase India’s manufacturing strength and to have manufacturing create more employment and contribute more to the country’s GDP. The labour-intensive industries such as apparel manufacturing are key to achieving this critical objective. Given this, every effort should be made to design policies which increase the share of the organized sector and increase manufacturing activity in the country, particularly labour-intensive manufacturing industries. The current hike in minimum wages will actually work against the interests of the organized work force – if industry shuts down, how will workers be helped?
Another important point to note is that minimum wages should be sector specific – a minimum wage of Rs. 8,100 as proposed in Haryana may be affordable for the automotive industry, where the contribution of labour to final output is less than 5 per cent. It is devastating for the apparel manufacturing industry where the contribution of labour to output is over 20 per cent! Therefore, do not treat our industry the same way as you would treat other much more capital-intensive industries – our needs are different, our contribution much more in terms of providing employment, in terms of easily absorbing workers from agriculture or home workers after minimal training and in terms of reducing the gender bias in the Indian work place by
providing gainful, dignified employment to women.
Instead, help defray costs of workers by partnering industry in skill development programs as is being done today by the Central Government. Help build worker housing so that the current high-handed practices which our workers have to contend with in renting accommodation from exploitative landlords is eliminated or reduced. Provide transport arrangement and subsidies to workers so that they can reach the workplace safely at reasonable cost. Have a special program which incentivizes industry to employ more women in the workplace perhaps by sharing the employer’s social security costs for a defined period. Tweak the current one-sided labour laws, so workers are allowed to work 50 hours per month overtime legally. Allow women to work in the second shift and use the good offices of the Labour Department to partner industry to create congenial conditions so that safe second shift working can be introduced to reduce costs and increase employment. Work with industry to create a culture of better efficiency and higher productivity.
Few Immediate Reactions…
Harish Ahuja, MD, Shahi Exports
Garment industry has been working very peacefully in Haryana and that too without any labour unrest unlike other industries. It provides employment to illiterate, semi literate coming from rural agriculture humble background. Being labour-intensive, it can generate large employment for needy youth from Haryana… Any step like this has to be done in consultation with the industry rather than resorting to it unilaterally. Industry can flourish in the state where the Government creates conducive environment. Industry cannot survive where Government turns deaf ear to the pleadings of the industry. Our submission is, do not stretch beyond certain limits, lest it will break! This is in nobody’s interest.
Lalit Gulati, Chairman, AEMA and MD, Modelama Exports
According to me, such major hikes need to be implemented in phased manners, while justifying the Apparel Industry to make them offset the hike by subsidised power tariff, availability of PNG, abolishing VAT system, etc. The Apparel Industry in Haryana has also sought immediate intervention of the Central Government for justified increase in minimum wages being proposed by the Haryana Government. On the other hand, AEPC has been constantly pleading the Central Government to be considerate with the Indian Apparel Industry in view of the facilities and liberalized policies being availed by the Apparel Industry in the neighbouring Asian countries so as to survive the global competition.
Sri Ram Goyal, MD, Dhruv Globals Ltd., Faridabad
If we shift from Haryana, that is also a loss for State Government as well as for an exporter. Industry is looking for good growth in 2014 but this announcement will affect in a big way. The Centre Government asks us to increase the export, while the State Government is imposing such a hike!
It is also imperative that the unskilled workers salary needs to be streamlined industry-wise in all the sates in view of the manpower vs. machines. For instance, in North India itself an Automobile Company with a whopping annual turnover of Rs.40,000 crore has about 1,00,000 unskilled workers whereas an Apparel Company with an annual turnover of Rs. 1,000 crore has to employ a minimum workforce of about 10,000.
Rakesh Vaid, President, Garment Exporters Association
Our industry is already suffering on account of high cost compared to competitors from Bangladesh, Vietnam, Sri Lanka, Cambodia, Indonesia, China and this increase will add fuel in fire leading to closure of a number of garment manufacturing units. We appeal to the Government to reconsider…
G S Madan, MD, Madan Trading Co., Faridabad
It is going to be very-very difficult as normally we expect or saw 10 to 15 per cent hike related to inflation but this time the hike is from Rs. 5,212 to Rs. 8,100 which is very tough to follow. Overall cost will increase near about 15 per cent which will make us uncompetitive… I don’t see any solution in this regard.”
