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Labour, tax reforms to boost apparel and leather sectors: Economic Survey

The Economic Survey for 2016-17 has said that labour and tax reforms are needed to boost employment creation in apparel and leather sectors as the two segments can become vehicles for broader social transformation in the country today. Noting that in both apparel and footwear sectors, tax and tariff policies create ‘distortions’ that impede India gaining export competitiveness, the Survey said that there is a need to undertake ‘rationalisation’ of domestic policies which are inconsistent with global demand patterns.

The Survey notes that India has an opportunity to push exports from apparel and leather sectors since rising wage levels in China have resulted in China stabilising or losing market share in these products and has recommended labour and tax reforms to make the country globally competitive. Apparel and Leather & Footwear sectors are eminently suitable for generating jobs that are formal and productive, providing bang-for-buck in terms of jobs created relative to investment and generating exports and growth, as per the Survey, which was tabled by Finance Minister Arun Jaitley in Parliament today.

However, it observes that the space vacated by China is fast being taken over by Bangladesh and Vietnam in apparels; and Vietnam and Indonesia in case of leather and footwear, while Indian companies struggle in face of a set of common challenges related to logistics, labour regulations, tax and tariff policy and disadvantages emanating from international trading environment compared to competitor countries.

An FTA with EU and UK in the case of apparel will offset an existing disadvantage by India’s competitors like Bangladesh, Vietnam and Ethiopia, the Survey notes. In case of leather and footwear, the FTA might give India an advantage relative to competitors. In both cases, the incremental impact would be positive,” it maintains.

The introduction of GST offers an excellent opportunity to rationalise domestic indirect taxes so that they do not discriminate in apparels against the production of clothing that uses man-made fibers, the Survey observes.