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'The package will help in realising the true potential of employment generation in the textile and apparel sector.'
The government on Wednesday approved a Rs 6,000 crore special package for textiles and apparel sector that aims at creating one crore (10 million) new jobs in 3 years and attract investments of $11 billion while eyeing $30 billion in exports.
The measures approved include additional incentives for duty drawback scheme for garments, flexibility in labour laws to increase productivity as well as tax and production incentives for job creation in garment manufacturing.
"Over the last few years, apparel manufacturing had shifted to countries like China which had cost advantages. However, China's cost advantage has been neutralised to some extent because of increase in labour wages. We have advantages of economies of scale. Therefore, it was decided to take steps to give a boost to the sector.
"The package will help in realising the true potential of employment generation in the textile and apparel sector," Finance Minister Arun Jaitley said.
The decision was taken at a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi.
"The Rs 6,000 package will result in additional investments worth $11 billion, creation of one crore additional jobs and increase in exports worth $30.4 billion which will help boost textile and garmenting sector.
"We will overtake Vietnam and Bangladesh in garment exports within next three years if we properly implement the package," Textiles Secretary Rashmi Verma said.
Among the measures to usher in flexibility in labour laws are increasing overtime hours for workers which are not to exceed 8 hours per week in line with ILO norms and introduction of fixed term employment looking at the seasonal nature of the garment sector. A fixed term workman will be considered at par with permanent workman in terms of working hours, wages, allowanced and other statutory dues.
"The package breaks new ground in moving from input to outcome based incentives by increasing subsidy under Amended-TUFS from 15 per cent to 25 per cent for the garment sector as a boost to employment generation," an official statement said.
A unique feature of the scheme will be to disburse the subsidy only after the expected jobs are created.
The majority of new jobs are likely to go to women since the garment industry employs nearly 70 per cent women workforce. Thus, the package would help in social transformation through women empowerment.
Industry bodies welcomed the initiatives, including labour reforms, saying that the sector has huge potential for job creation. Some said however that support for R&D was missing.
Department of Economic Affairs Secretary Shaktikanta Das said: "...some of the incentives which have been announced in today's package have a sunset clause, these are not open ended incentives which will continue forever.
"Sunset clause is 2019 that is 3 years from now. Three years window has been opened, all the incentives will be valid for the next three years. We expect industries to make use of it and to create additional jobs."
This is in line with the Budget announcement that when new schemes are launched, they should have sunset clause, there has to be a review and based on review further extension, if at all will be decided, he added.
On the government package, Confederation of Indian Textile Industry (CITI) Secretary General Binoy Job said: "We hope once the positive results are out, Government will extend it to the entire value chain of textiles as the sector has huge potential for job creation."
Apparel Export Promotion Council Chairman Ashok G Rajani said: "The industry is very happy especially because of the labour reforms that have been initiated. Measures like fixed-term employment and seasonal flexbility in labour laws will benefit the garment sector immensely.
"However, we were also looking at R&D support and incentives for innovation which have not come through."
The tax incentive relates to enhancing scope of Section 80JJAA of Income Tax Act under which, looking at the seasonal nature of garment industry, the provision of 240 days under Section 80JJAA of Income Tax Act would be relaxed to 150 days.
Besides, the government will bear the entire employer's contribution of 12 per cent under the Employers Provident Fund Scheme, for new employees of garment industry earning less than Rs 15,000 per month, for the first three years.
This marks an increase from the present government provision of 8.33 per cent towards employer's contribution, being provided under Pradhan Mantri Rozgar Protsahan Yojana (PMRPY). With today's decision, Ministry of Textiles will provide the remaining 3.67 per cent share towards employer's contribution, amounting to Rs 1,170 crore over next 3 years.
Among the measures related to labour reforms, EPF will be made optional for employees earning less than Rs 15,000 per month. This will leave more money in the hands of the workers and also promote employment in the formal sector.
The package also entails provision of additional incentives for garments under Duty Drawback Scheme. a new scheme will be introduced to refund the state levies which were not refunded so far.
Further, drawback at All Industries Rate will be given for domestic duty paid inputs even when fabrics are imported under Advance Authorization Scheme.
"The move will greatly boost the competitiveness of Indian exports in foreign markets and is expected to cost Rs 5,500 crore (Rs 55 billion) to the exchequer," an official statement said.
Photograph: Reuters