From Jewellery To Handicraft, India’s Labour-Intensive Exports Are Struggling

A drop in outbound shipments from these sectors not only impacts the country’s export earnings but also jobs provided by small and medium scale units in these industries.

Labour-intensive exports contracted for the third straight year in FY19 in dollar terms, according to data from the Ministry of Commerce compiled by BloombergQuint. For the analysis, gems and jewellery, textiles, handloom products, leather, handicraft and carpets were classified as labour-intensive industries.

As a result, the share of exports from labour-intensive industries fell to 22.9 percent in FY19 from 28.6 percent in FY17.

Each individual segment is under pressure for different reasons.

For instance, gems and jewellery, which is the largest segment among labour-intensive exports, has struggled with financing options. This has reduced their ability to import gem stones for use in export products. Gems and jewellery exports have fallen from $43.2 billion in FY17 to $41.5 billion in FY18 and $40 billion in FY19.

Even as costs continue to rise, stagnating exports have brought down profitability, said Colin Shah, vice chairman at the Gem and Jewellery Export Promotion Council. However, the depreciating rupee helped cushion exporters last year, he added.

Ready-made garments, which constitute the second-largest subset of labour-intensive exports, has seen outbound shipments decline from $17.4 billion in FY17 to $16.7 billion in FY18 and $16.1 billion in FY19. Countries like Bangladesh and Vietnam have gained share in the textiles and garments segment, putting Indian units at a disadvantage.

Both segments together account for three-fourths of all labour-intensive exports.

Among the other segments, exports of leather goods, handicraft and carpets remained flat or saw marginal declines. Handloom was the only segment which saw an increase in exports over the three-year period.

The weakness persisted in the first month of the new financial year.

Exports from labour-intensive industries fell to $5.7 billion in April 2019 from $6.2 billion in the same month the previous year and $7.2 billion in April 2017.

Trade data for April 2019 isn’t encouraging as almost all the labour-intensive sectors and various other segments of exports dominated by small and medium enterprises are in negative territory, said Ganesh Kumar Gupta, president of the Federation of Indian Export Organisation.

The Structural Challenges

Exports in some of these segments suffer from structural challenges such as the relatively higher cost of labour and lack of economies of scale.

“India’s effective cost of labour remains inordinately high both because of strict labour laws (on the demand side) and educational/health/skill constraints (on the supply side),” said Sajjid Chinoy, chief India economist at JPMorgan, in a note dated May 3. This meant that India’s growth has been more capital-intensive than labour-intensive.

The trend has been reflected in the export sector, where the share of labour-intensive exports has dramatically declined over the last two decades, Chinoy said.

The NITI Aayog, in its ‘Three Year Action Agenda’ published in August 2017 had highlighted the need to push up labour-intensive exports. It had blamed India’s loss of market share on the lack of economies of scale in these sectors.

“Recognising this critical role of exports in the creation of well paying jobs, India needs a focused strategy for creating an environment in which export competitive firms can emerge, especially in labour intensive sectors,” the report said.

Such a plan, however, is yet to emerge.

So far, according to Shah from GJEPC and Chandrima Chatterjee, director at the Apparel Export Promotion Council, strong domestic demand has offset the impact of lower exports in the gems and jewellery sector and ready made garments.

However, any slowdown in the domestic market could hurt the sector further and add to India’s problem of inadequate job creation.