How are the Key Labour-Intensive Sectors Performing in India?

May 5, 2024

Why in News?

While India’s exports have been largely flat, the country’s exports from labour intensive sectors such as textiles, leather, gems and jewellery and marine products are seeing a sharp dip.

India’s shipments from these four high jobs generating sectors have declined nearly 12% compared to the pre-pandemic levels five years ago (FY18).

This is due to an overall weakness in demand from developed nations and stiff competition from Vietnam and Bangladesh.

What in Today’s Article?

What are Labour Intensive Sectors?
India’s Exports from Textile Sector
India’s Exports from Gems and Jewellery Sector
What Challenges Lie Ahead for India's Labour-Intensive Sector Exports?

What are Labour Intensive Sectors?

Labour Intensive means the production activity that requires a large amount of labour to manufacture the product or services and therefore has a higher proportion of labour input than capital input.
Most developing economies are labour-intensive as it costs less as compared to the cost of machines and drives their growth.
From a strategic point of view, even developed economies sometimes believe in outsourcing to developing economies to benefit from lower production cost.
Labour costs are considered variable, while capital costs are considered fixed.
- Because labour costs can be adjusted during market downturns through layoffs or reductions in benefits, labour-intensive industries have some flexibility in controlling their expenses.
These sectors collectively contribute to about one-third of the global trade, amounting to over $ 7 trillion.
While India's current market share in these sectors stands at a mere 1%, India's imports of these goods are substantial, hovering around $ 100-120 billion.
During the last financial year (FY 2023-24), when overall goods exports shrank 3%, the outbound shipments of textiles, leather, gems and jewellery and marine products saw a much steeper 9% decline.
- This results in a $78 billion exports from these key sectors as against $86.32 billion in FY 2022-23.
- The comparable number in FY18 and FY19 stood at $90 billion and $88.14 billion respectively, as per commerce and industry ministry data.

India’s Exports from Textile Sector:

India’s textile and garments exports: During the last seven years, these have remained flat at around $35 billion.
- Struggling to stay afloat in tough times, small and medium-scale textile industry in India is forced to shut down or let go of artisans, weavers, and workers whose livelihoods depend on the vitality of the textile trade.
Comparing with Other Countries:
- According to the Federation of Indian Export Organisation (FIEO), the global trade in knitted garments expanded by 6% (over the last five years) at a time when India’s exports in the segment declined.
- According to the Global Trade and Research Initiative (GTRI), China exported $114 billion worth of garments in 2023, followed by the EU ($94.4 billion), Vietnam ($81.6 billion), Bangladesh ($43.8 billion), and India (just $14.5 billion).
- This shows India significantly trails behind China and the EU and is also falling behind smaller countries like Bangladesh and Vietnam.
- Vietnam and Bangladesh have gained market share on the back of free trade agreements (FTAs) and least developed countries (LDC) status that amount to 10-15% concession on duty.
What are the Steps Taken by the Indian Government?
- Mega Investment Textiles Parks (MITRA): To make the industry more globally competitive, the Union government had launched the MITRA programme in 2021 to increase investment and acquire a competitive edge over global competitors.
- Remission of Duties and Taxes on Exported Products (RoDTEP): The scheme was extended to 18 items to support the textiles sector.

India’s Exports from Gems and Jewellery Sector:

The sector, which employs nearly 50 lakh people, saw exports declining by over 20% to $32.7 billion compared to $41.54 billion in FY18.
Last year (in October), the gems and jewellery industry was forced to ban imports of rough diamonds for two months amid declining demand from large economies such as the US and China.
The industry is facing several global headwinds such as slow growth and tightening financial conditions, and heavy indebtedness that could weaken investment and “trigger corporate defaults”.
However, the India-UAE FTA that came into effect in May 2022 has helped gems and jewellery exports to the UAE.
- For example, India’s gems and jewellery exports have surged nearly 40% to $8.04 billion in FY24 compared to the previous financial year after India-UAE FTA came into effect in May 2022.
Exports are also expected to pick up after India concludes its FTA with the UK and EU.

What Challenges Lie Ahead for India's Labour-Intensive Sector Exports?

Exporters have warned that export goods will feel the impact of the disruptions in the Red Sea area during the ongoing financial year.
The Red Sea shipping disruptions could add 0.7 percentage points to global core goods inflation during the first half of 2024 if the recent jump in container shipping costs
Container shipping costs are two-and-a-half to three times their early December 2023 levels, prices along routes that typically go through the Suez Canal have surged nearly five-fold.