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Editorial Today – Law related problems of textile industry


Textiles industry has been one of the most important industry in terms of employment and earning foreign exchange but presently it is facing many challenges and law related challenges are the root cause of many problems.

Importance of textile industry:-

  • Textile industry is the second largest industrial sector of the country after agriculture.
  • It provides direct employment to around 45 million people.
  • The sector also accounts for 14 per cent of India’s total industrial production, which is close to 4 per cent of the country’s gross domestic product.
  • Textile industry in India is one of the few sectors, which is truly competitive world-wide.
  • India has a strong manufacturing base for variety of textile products, particularly cotton textile items of raw materials, trained manpower in manufacturing.
  • Cotton-based readymade goods are among the highest foreign exchange earners.

Problems facing textile sector

  • Textile industry is facing slowdown, which is affecting sector’s ability to keep large no. of workers employed and also in providing employment to fresh manpower.
  • Displaced workers have been forced to join unorganized sector. Problem becomes grave considering the large part of workers consists of women.
  • India’s exports dropped by 2.4 per cent from 2014-15.
  • The high price of domestic cotton, coupled with heavy duties on import of cheaper Chinese varieties, also hampered production of cotton goods.

Labor laws related problem:-

  • Although government has agreed to reform the archaic labor laws, but the biggest challenge is bringing change in legislations.
  • Due to presence of large no. of labor laws (over 200 labor laws) plus state specific amendments to them, it has become quite difficult to comply with all the laws.

Industrial Disputes Act, 1947:-

Most challenging act is IDA, 1947, which provides the job security to workers in organized manufacturing sector.

According to act, an organization employing 100 or more workers need to take permission from labor department before any layoff or retrenchment.

But labor department rarely provides such permissions even in the case firm has rendered unprofitable.

It’s worst affect is that industry may find it advantageous to either employ people on a contractual basis or shift to the unorganized segment.

Effects of act

  • Annual rate of growth in employment in the organised sector has been modest at 2 per cent since 2000-01 with some signs of deceleration, especially from 2007.
  • Period of deceleration was coincided with the removal of the Multi Fibre Arrangement that governed world trade in textiles and garments with quotas on exports from developing countries to developed countries.
  • This period has also seen growing share of contract workers in total workers from 8.42 per cent to 13.45 per cent, with share of contract workers in textile industry has risen from 21.3 per cent to 34.6 per cent during this period.
  • Main cause behind this informalization is that industry may have employed temporary or contract workers in a bid to escape Chapter V-B of the Act.
  • Share of contract workers in total workers is much higher in firms employing less than 100 workers, and not falling under the ambit of Chapter V-B of the IDA.
  • This clearly indicates that the organised industry could be following an escape route by employing contract workers to replace the regular workers.

Recent government initiatives

Government has accepted a Rs.60 billion special package for this sector with an aim to:-

  • Create 10 million new jobs in the next three years.
  • Attract investments of $11 billion.
  • Generate an additional $30 billion in exports.

Additional incentives for duty drawback scheme for garments.

Flexibility in labour laws to increase productivity.

Tax and production incentives for job creation in garment manufacturing.

Government is also considering other specific interventions to encourage value addition so that India becomes an exporter of value-added (garment) products rather than just raw material (fibre and yarn).

Ministry of Textiles would also seek to lower excise duty on man-made fibre to 6 per cent from the existing 12 per cent.

Way ahead

  • Government must focus on bringing amendments in the IDA
  • Government should try to reduce, if not remove labour market rigidities for creation of gainful employment.
  •  Government should consider better wages to casual workers, along with social security and other benefits, which will contribute to higher productivity.
  • Considering fixed-term workers on a par with permanent workers in terms of wages and allowances.
  • Providing tax benefits to firms employing permanent workers for at least 150 days.
  • Making provident fund contribution by employees earning less than Rs.15,000 per month optional.


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