Comment on “Labour Regulations, Employment and Wages Evidence from India's Apparel Sector”

• Published date: 01 January 2017
• DOI: http://doi.org/10.1111/aepr.12162
• Author: Mohamed Ariff
• Date: 01 January 2017

Comment on “Labour Regulations,

Employment and Wages Evidence from India’s

Apparel Sector”

Mohamed ARIFF†

InternationalCenter for Education inIslamic Finance (INCEIF)

JEL codes: J31, J46, J48, L11,L67, O14, O17

Based on solid research, Hasan et al. (2017) has an interesting insight to share about India’s

apparel sector. Notwithstanding the fact that India is among the largest producers and

exporters of apparel products, the study suggests that the main reason why the sector has

not been up to its potential lies in the firm size distribution which is heavily dominated by

small firms. Hasan et al. argue that small firms suffer from a serious lack of scale economies

which deprives them of access to modern production and management technologies, and

attribute it largely to India’s labor regulations and enforcement regime.

While the above findings and explanations, supported by a sound analysis, do make

considerable sense, one wonders if there is more to it than meets the eye. Cross-country

comparisons are no doubt helpful, but India is not a homogenous entity by any measure

as there are hugeinter-state differences.Using nationally representativefirm-level and labor

data does notfully take care of the diversityissue. It would be interesting tofind out if states

where small firms account for a relatively smaller proportion tend to perform better than

those with a disproportionately larger presence of small firms. More intrusive inter-state

comparisonsmay shed more light on the contribution of firm size to theunderperformance

of the apparel sector in India.

As Hasan et al. have pointedout, labor market regulations alsodiffer across states. It is

unclear if the lacklustre performance of India’s apparel sector is primarily due to the

dominanceof small firms which in turn is attributedmainly to labor regulations.One might

expect that small firmswould play a lesser role in states with flexible regulations compared

to states with rigid regulations. By this token, one might also expect states with flexible

regulations to have a larger share of registered firms relative to those which are not

registered. For firms might prefer to operate in the informal sector with small outfits to

escape from rigid regulations. One might ask if there is any empirical evidence to support

these hypotheses.

Although it is recognized that firm size and labour regulations do matter, there may well

be other plausible explanations for the underperformance of the apparel sector in India. This

†Correspondence: Mohamed Ariff, International Center forEducation in Islamic Finance (INCEIF),

Global University of Islamic Finance, Lorong Universiti A, 59100 Kuala Lumpur, Malaysia. Email:

mohdariff19@gmail.com

doi: 10.1111/aepr.12162 Asian EconomicPolicy Review (2017) 12, 93–94

©2017 JapanCenter for EconomicResearch 93

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