Rescuing textiles
NREGA Extension Better Than Protectionism
THE global meltdown has hit the textile industry hard. Global demand for garments and cloth has dried up, so over a lakh workers are unemployed. Competition between developing countries for the reduced global market has shrunk profits and led to dumping below cost in some cases. A lazy response to the crisis will be protectionism, whereas an activist response will convert the crisis into an opportunity for radical reform. Textiles minister Dayanidhi Maran seems inclined toward a lazy protectionist response. Faced with cheap Chinese textile imports, he wants to channel all such imports through just two ports to check their volume. “If imports are allowed at all the entry points it becomes extremely difficult for the customs department to police them”, he told ET. Maran seems to equate imports with criminal activity, which should be policed. In fact only smuggling should be policed, not imports. Far from being a crime, imports are blessings that keep domestic prices low, induce Indian producers to raise their productivity, and so benefit Indian consumers. Ministers want the flexibility whereby the industry competes globally, and simultaneously provides work to a lakh unemployed workers. They instinctively want to subsidise exports and ban imports, part of the old licence-permit mentality that ruined India for so many decades. In fact, we need entry of imports at all possible points precisely because that serves consumers best.
Economic theory says if a government insists on promoting a specific industry, this should be through a specific subsidy or benefit, not protectionism. Going by this logic, the right way to help Indian textiles will be to extend the National Rural Employment Guarantee Act to textile production. Textile producers should be allowed to hire workers at up to 100 days a year, who will be paid the minimum wage by state governments. This will provide textile producers with free labour, so they should be asked to supplement the minimum wage by 50%. This will make the Indian textile industry highly competitive, give it labour flexibility, and employ idle workers. The scheme should automatically lapse after 12 months by which time the recession should be over. This is the way to help the industry, not protectionism.
Source: ET
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