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Factory Closings Strangle India’s Textile Employment

India has suffered massive job losses attributable to a shocking number of shuttered factories, according to a study just issued.

The report, “State-Wide Assessment of Textile Sector and Recommendations,” revealed that more than 30 percent of India’s textile factories are “non-operational,” the root cause of a staggering 42 percent loss of employment in the sector. The study states: “Of the total 17,987 textile factories across India, about 12,688 factories were operational and about 5,300 non-operational as of 2010-11.While the total number of textile factories grew at a compounded annual growth rate (CAGR) of about 5 per cent during the decade of 2000-01 to 2010-11, the number of non-operational textile factories grew a whopping 23 per cent, and the number of textile factories under operation grew at a CAGR of a meagre 2 per cent.”

The impact the closing of factories has had on employment in India has significantly spiked in the last ten years. In 2000, these non-operational factories only accounted for a 6 percent loss of jobs.

Industry insiders have expressed considerable anxiety over the threat the factory closings could have on the future of the textile industry in India. D. S. Rawat, general secretary of of Assocham, said, “This is a matter of grave concern as organized textile sector, apart from creating 14 lakh jobs, also contributes four per cent to the Gross Domestic Product ( GDP) and 10.1 per cent to the total exports earnings.”

Tamil Nadu, Gujarat, Punjab, Maharashstra and Uttar Pradesh were the cities hardest hit, collectively comprising 88 percent of all factory closings. Tamil Nadu and Gujarat were particularly stricken by the effects not only on their textile industries, but economies at large.

The report cited a litany of causes for the non-operational factories, no single one of which was decisive. “Low productivity, lack of advanced manufacturing technologies, lack of foreign investments, supply chain bottlenecks, lack of economies of scale, labour-related challenges, issues arising due to a fragmented industry and weak brand positioning are key reasons for non-operation of textile units. Increased domestic competition, together with competition from global players and high initial investment cost for state-of-the-art production facilities, are other emerging challenges being faced by the Indian textile industry.”

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India’s textile manufacturing industry has become increasingly ambitious, always on the hunt for new ways to draw business away from more expensive China. And there are unmistakeable signs of economic promise. India’s exports are expected to leap 30 percent over the next year, coming in close to $44 billion. The government has been revising its cumbersome oversight rules, erasing a limitation on how much money could be invested in garment factories.

And now India is reporting a considerable leap in its apparel exports to the US in August. Indian exports to the US rose by an astonishing 17.2% compared to August 2012, while textile imports rose 8.3 percent.

Still, India is hamstrung by the high cost of its labor, unwieldy and complex labor laws and infamously inefficient bureaucratic management. For India to draw business from China, it has to improve its often underdeveloped infrastructure and unwieldy labor regulations. As it stands today, India isn’t large enough to absorb the capacity of China or cheap enough to lure away bargain hunters from Bangladesh. But it does have a large enough population, and a skilled enough workforce, to become one of the world’s top exporters.

However, the new report highlights one of the many ways in which India’s chronic economic mismanagement often squanders the potential projected by impressive resources.