To Challenge China, India Needs to Get Out of the Way of Its Factory Owners

Trump’s promised tariffs on Chinese goods offer an opening for India but the travails of its garment industry are a cautionary tale

By Shan Li and Megha Mandavia of The WSJ. Excerpts:

"economists and manufacturers say that countries such as Bangladesh and Vietnam have also done a far better job of smoothing the way for firms than India where regulations, especially around labor, discourage companies from expanding.

Factories in India with over 100 employees require government permission to fire workers. Those with at least 50 female workers must set up an on-site nursery. Adding a second shift to turnaround large orders quickly also requires prior government approval."

"Bangladesh has streamlined its permitting process by handing over some regulatory powers to the country’s main trade group, the Bangladesh Garment Manufacturers and Exporters Association."

"Nearly 60% of Bangladesh factories have 3,000 workers or more, compared with an average of 150 workers per factory in India."

"It takes factories in Bangladesh two or three weeks to produce and ship an order, compared with twice as long in India"

"In the southern city of Bengaluru, A. Dhananjaya, who has run a garment manufacturing company for nearly three decades, says he grapples with high labor costs and hundreds of labor-compliance rules. He wouldn’t dare grow beyond about 100 workers, because that would mean more forms to fill out, more licenses to apply for, and more expenses."

"Economists and policymakers say it is a pattern that is repeated across many parts of India’s economy that have the best chance of employing lots of workers, from furniture to shoes."

"An overhaul of the labor code by Modi’s government aimed to loosen labor laws, including allowing firms of up to 300 to fire workers without government permission. But they have yet to be widely implemented after facing pushback from labor unions, which organized marches this year calling for the repeal of the laws.

Manufacturing firms in India said they are wary of operating large factories because of the power of organized labor."

"“No manufacturer wants to set up a 10,000 person factory because it really makes them a target,” said Rahul Ahluwalia, founding director of Foundation of Economic Development, a New Delhi think tank. “The politicians will round up your labor and try to extract rents from the businessmen through that.”

India’s failure to sign free-trade agreements with other countries that would slash tariffs on its exports has also made Indian garments increasingly too expensive for global retail companies. At the same time, the country levies high duties on the types of synthetic fabric that factories need to fill fast-fashion orders."