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After textiles, NITI Aayog for reforms in other job-intensive sectors

Business Standard:  July 12, 2016

New Delhi: In the wake of the Cabinet clearing a Rs 6,000-crore package for the textiles sector recently, NITI Aayog is pushing for similar reforms in other labour-intensive sectors such as footwear, electrical and electronics engineering, besides light manufacturing segments such as umbrella, cutlery and furniture to generate mass employment.

A NITI Aayog official said under-employment is bigger problem for India than unemployment. Citing a survey on employment by the National Sample Survey Office (NSSO), he said India’s unemployment rate was around three per cent but under-employment could be much more. He said the problem arises because small-scale industries, which have less than 20 workers, employ 73 per cent of the working population, but contribute only 12 per cent of the total output.

While the package for the textiles sector included duty drawback for the garments sub-sector, the most notable feature was the introduction of the fixed-term employment. To encourage hiring, the government would contribute to the employees’ provident fund (EPF), 12 per cent of basic salary, on behalf of the employers. All new employees in the garments sector earning less than Rs 15,000 a month would benefit from this scheme for three years.

In a recent presentation to the Prime Minister’s Office, the Aayog said much of the demand for these labour-intensive sectors might be lying in export markets. For example, China exported footwear worth $55 billion in 2014, while India’s outbound shipment of footwear stood at merely $3 billion. The Aayog official said the $18 trillion global export market presented a huge opportunity for India to increase its share from just 1.7 per cent at present.

The official said development of coastal economic zones (CEZs) could help in attracting big players to such sectors. NITI Aayog Vice-Chairman Arvind Panagariya has been pushing for Shenzhen-style CEZs on India’s western and eastern coasts.  These should be near deep-draft ports that could handle very large and heavily-loaded ships, said the official. He has also been calling for tax breaks to such zones.

“Apart from conventional infrastructure, the zones should create urban spaces to house the workforce. For firms that create certain level of direct employment (50,000 jobs) tax holiday for a pre-specified period may be offered. To incentivise early investments in such zones, the tax holiday may be limited to investments made in the first three or four years of the creation of such zones,” Panagariya wrote in his blog. According to an estimate by ICRA, footwear industry holds a crucial place in Indian economy for its employment potential, especially for weaker sections. It can also support the economy through its foreign exchange earnings. India is the second-largest global producer of footwear after China, accounting for nine per cent of the global annual production of 22 billion pairs, compared with China’s share of 60 per cent.

India produces 2.1 billion pairs a year, of which 90 per cent are consumed domestically while the remaining are exported, primarily to European countries. According to a report, the country’s footwear sector is highly fragmented with 15,000 small and medium enterprises operating largely in the unorganised segment and the limited presence of the organised segment.

With the influx of a large number of global brands and organised footwear companies’ penetration in Tier-II and Tier-III cities, these players’ market share has gained significantly in the recent past and it continues to be on the rise. India exported $2.1 billion worth of leather footwear in 2015-16, down six per cent from the previous year.

According to the ministry of heavy industries and public enterprises, the size of domestic electrical equipment industry exceeded $25 billion, contributing 1.4 per cent to the country’s gross domestic product.

The industry provides direct employment to about 0.5 million people and indirect employment to about one million. The industry contributes about 1.5 per cent of India’s total exports, whereas its share of imports is 3.2 per cent of the total imports.

India’s trade deficit in this sector has been widening, which is a matter of serious concern. The Electronic Industry Association of India estimates that the demand for electronic products would grow to about $400 billion by 2020, but domestic production would be able to meet only one-fourth of it. India exported $5.7 billion worth of electronic items in 2015-16, down five per cent from the previous year.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.