This is an archived blog post from The Acorn.
Against initial expectations, the lapsing in December 2004 of the multi-fiber agreement (MFA) that imposed quotas on textile exports from developing countries will not be all good news for the Indian industry. Government policy prevents companies from growing to enjoy economies of scale, and arcane labour laws are an albatross around the industry’s neck. Asia Times reports many small manufacturers are diversifying into IT-enabled services & call centres !
Some of the government policies hindering growth in the Indian textile/garment sector:* Differential rate of taxation for organized and unorganized sector, making the organized sector un-competitive.
- Labour laws that did not allow the hire and fire of labour, while allowing for unionization, thereby promoting a culture of low accountability and productivity.
- Limitation of investments in the apparel manufacturing sector to restrict it to an SSI (small scale industry), thereby not promoting “scale”.[Asia Times]
The government should shed its longstanding dogma about ‘small-scale’ industry. Instead of proactively ensuring industry remains small-scale, the economic policy should focus on industry competitiveness. With the game going global, scale is important - as is flexibility.
Related Post: The $14b textile industry was expected to be on a comeback path.
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