Is Odisha losing its edge for apparel manufacturing?

by Dheeraj Tagra

23-May-2019  |  16 mins read

Odisha

Odisha, one of the Indian states with the most stable State Government wherein the current Chief Minister has been in power for the last 19 years, was once among the top emerging destinations for apparel manufacturers; but is it now losing its charm…? At least recent developments give such indications about this ‘most low-cost apparel manufacturing hub’.

The State Government of Odisha hiked the minimum wage after a period of three years and that too by massive 40 per cent to 65 per cent. This is amidst ongoing issues like local labour who are exceedingly working hard in Tirupur or Bangalore, but do not work with the same spirit in their hometown (high absenteeism is another added worry). So far, the state has even failed to develop an ancillary support structure, which is the backbone of any successful manufacturing hub. Apparel Resources talked to some of the industry stakeholders having units in Odisha, and involved in some projects, and tried to figure out Odisha’s current movement towards apparel manufacturing. More or less, as of now, it seems difficult for Odisha to be a successful apparel manufacturing hub.

2015: Full of activities and promises

In 2011, StitchWorld (Stitching and technology-based magazine of Apparel Resources) published an article ‘Orissa: The New Apparel Manufacturing Destination’, based on a study by Priyanka Sinha of NIFT, comparing 113 locations in India on 50 different key performance indicators to settle on the best and most low-cost apparel manufacturing hubs.

The actual stir of activity started more than four years later. At the beginning of 2015, Madura Fashion & Lifestyle (MFL) announced that it will be setting up a garment manufacturing unit in Odisha and has sought 8 acres of land. The total investment across three phases was estimated to be US $ 11.7 million, with a total production capacity of 4.2 million pieces per annum. It was announced to generate a total employment for around 4,600 people across all three phases. The company also had a plan to create three washing units, three goods packaging units and five embroidery units.

In September the same year, Naveen Patnaik, Chief Minister, Odisha laid the foundation stone of the new unit of Shahi Exports. The company announced to invest Rs. 36 crore. Naveen Patnaik at that time expressed hope that this step of Shahi Exports will encourage others to invest in the state, but that actually did not happen. According to official information, currently the company has one factory which has a monthly capacity of 4 million pieces. A second unit was in the pipeline but the fate of this unit is yet uncertain.  Shahi Exports employs more than 2,000 workers here, most of them being women. The MFL has a strength of 1,500 people overall.

In September 16-30, 2016 edition of Apparel Resources, we did a detailed report on invitation from the Odisha Government, with interviews of top bureaucrats of Odisha on how the state can be the next frontier for apparel manufacturing. The story detailed on the benefits of the state for the garment manufacturing industry and how the State Government is proactively working in this regard. The outlook was indeed very positive, but today three years later, the picture is not that rosy…

Wage hike impact

Wage hike is one of the major setbacks for apparel manufacturing in Odisha apart from the labour availability issue. Its low cost was one of the major reasons of motivation for the apparel manufacturers to start their operations in the state. Now with the increase in wages, even for an unskilled worker, every day a unit has to pay Rs. 80 more compared to earlier wage. This means Rs. 2,080 per month (for 26 working days) as extra cost per work. Similarly, for a skilled worker, the factory has now to pay daily Rs. 130 extra, that is Rs. 3,380 per month. According to this calculation, a factory having total workforce of 100 workers (50 unskilled and 50 skilled) has to pay monthly Rs. 2,73,000 extra, which is a big burden for a small factory having 50-70 machines.

Category Old wage New wage Hike percentage
Unskilled 200 280 40
Semi-skilled 220 320 45
Skilled 240 370 54
High Skilled 260 430 65

Wage per day (in INR.)

 High absenteeism

Increased wages were applicable from November 2018 and it is being hoped that it will not increase further as this is a massive hike, though done after three years. Another allied and more serious problem is that of high absenteeism which has adversely affected the apparel industry of the state. Monk & Mei, just a year old SME unit in the Mancheswar Industrial Area, Bhubaneswar where the giants have their units, is facing very high absenteeism rate which is totally against the planning or imagination of the company’s management. Raj Kumar, COO of the company who has over four decades’ experience, having worked with various giant companies, shared, “We are facing at least 15 per cent monthly absenteeism which is quite high and totally unjustified. And this is without any pre-planning or information by the workers. SMEs like us can’t afford to have extra workforce to overcome this absenteeism.” The company initially hoped that these workers are now close to their hometown and will work more ‘happily’ and ‘comfortably’ compared to their working as ‘migratory workers’ in Tirupur or any other such hubs. But while working near to their home, workers take leave even for petty reasons. Despite the best efforts, like counselling and motivational schemes, the issue of absenteeism has not solved much. “More or less, the situation here is similar for most factories, but while big factories can manage, for us it is a bit hard,” added Raj Kumar.

Combination of wage hike with high absenteeism is like spoiling the game, because factories were expecting benefits due to lucrative policies of the state (see box – Some of the major facilities offered in Odisha).

Organised units operational in Odisha

  • Shahi Exports • Madura Fashion & Lifestyle • Monk & Mei

Units planned, but no major breakthrough*

  • Kitex Garments (announced investment ofRs. 177 crore a year ago)
  • Page Industries (got approval for a unit with an investment of Rs. 135.50 crore in 2017)
  • Texport Industries (announced investment of Rs. 75 crore in 2017)

[*Information based on market sources and media reports]

  • One of the incubation centres for apparel industry was announced in Odisha and even tenders were invited, but even after many months there is nothing concrete on ground level.
  • In October 2015, Delhi had an annual conference of State Textiles Ministers where Apparel Resources asked Snehangini Chhuria, Textile Minister, Odisha about upcoming garmenting set-ups in the state apart from giants like Shahi Exports and Aditya Birla Group to which she had no concrete answer… Still after four years, things have not improved…!

No ancillary support

Apart from the above-mentioned reasons, one of the main reasons that is still a hurdle for many medium or good size companies is not availability of ancillary support yet even after four years. “In case of requirement of any raw material – be it fabric or trim/accessory – we are not able to get that in Odisha as we can get the same in any developed hub. We have to pay much more; quality product is not available or it is not available on time,” shared Raj Kumar, adding further that industry needs concentrated efforts so that all facilities can be available here.

As per the official information, Odisha Polyfibre Ltd. (Odisha Synthetics) has a project of Rs. 14.17 crore at Dhenkanal; Baikuntha Cotton Mills of Rs. 1.12 crore at Cuttack; and Premier Threads has a project of Rs. 1.26 crore in Khurda.

Textile park planned, but…

Almost four years ago, MoT had urged the Odisha Government to submit a proposal to set up a textile park. Recently it was informed by the State Government that Odisha will set up three textile parks – Bhadrak textiles park, Chattabara textile park and Ramdaspur textile park. The State Government also approached some companies to invest here. One of them Madhu Sudhan Bhageria, CMD, Filatex India, New Delhi shared his experience: “You can’t just come up with the policy only like Odisha. I explored Odisha as it is now developing, but as far as infrastructure is concerned, there is nothing… If there is no surrounding market, what can one do…? You need basic support. If basic facilities are not there, then you will incur more expenses for running that project. If you want people to come first, then create the infrastructure… That does not happen anymore.”

Is Ranchi gaining…

Ranchi (Jharkhand), another emerging hub for apparel manufacturing is getting better momentum compared to Odisha. Orient Craft and Arvind Ltd. have already started their units while some others are running their training centres and are in process to start their operations. Triburg is also running a project there; and recently, the Epic Group has also announced its intent to invest in Odisha in a big way. Is the Ranchi project gaining better traction because it is being led by industry stalwarts like Sudhir Dhingra, CMD, Orient Craft who are having full faith in the potential of the region and are also standing by the authorities through thick and thin overcoming challenges… This is an interesting question that needs retrospective.

Some of the major facilities offered in Odisha

Employment and investment-based incentives: Rs. 1,500 per worker per month for 36 months to apparel units with minimum 200 workers. Additional incentives available in the case of more than Rs. 50 to Rs. 100 crore investments in backward/other districts

Incentives to apparel parks: Capital grant – 20 per cent of project cost of the park up to Rs. 20 crore, interest free loan up to 10 per cent, and maximum limit of Rs. 10 crore

Anchor tenant subsidy: 25 per cent subsidy on cost of land, VAT reimbursement for up to 9 years

Additional fiscal incentives: 5 per cent interest subsidy per annum on term loan for a period of 5 years

100 per cent reimbursement of ESI and EPF: 3 years for displaced workers and 5 years for persons with disabilities

100 per cent exemption on Stamp Duty

Electricity Duty exemption up to a contract demand of 5 MVA for a period of 5 years

VAT reimbursement of 100 per cent for 7 years to new industrial units

100 per cent Entry Tax reimbursement on acquisition of plant & machinery and purchase of raw materials for 5 years

Other benefits…

  • Odisha too has better connectivity, be it of road, rail, air or port.
  • The state also boasts of many training centres for the apparel industry under the Skill India and Integrated Skill Development Programmes. NIFT is also there from almost a decade.
  • Bhubaneswar is a clean and green city with all the amenities that justify its position as the capital city of the state on the growth curve.

“It is not only about Odisha or Ranchi, we have to see this issue with a holistic approach. Delhi is already saturated, and similarly Bangalore too is on the way as issues are not only limited to real estate, or increased wages, but also to heavy traffic being an impediment for workers. Overall industry’s efficiency level is still down while wages will grow continuously… Professionals exploring or leading the initiatives in the emerging hubs are not trained to start and execute properly these kinds of projects. Irrespective of the state or emerging hubs across India, the administrative bodies have to be more aggressive and have to deliver as per Government’s promise. All of us have to change our mindset accordingly.” – Nimish Dave, Founder and CEO, The Idea Smith, Gurgaon

 “Yes, it is true that there are not many names as far as Odisha’s garment manufacturing is concerned. And to develop it, steps from both sides are required like apparel manufacturers have to come forward and take risk. State machinery has to speed up its working and the State Government does need to think about its freebies policies. As far as wage hike is concerned, it is totally justified and apparel manufacturers are getting enough subsidies. So they should have no much issue in this regard,” shared a Government official, who is involved in skill development initiatives regarding the apparel industry, on the request of anonymity when Apparel Resources approached him for official comment.

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