Incentives for Competitiveness and Employment: The Case of India’s Apparel Sector

• In Event: Taxes and Firms in Developing Countries

Abstract

This paper assesses the effect of the Indian government's 2016 reform aimed at strengthening and formalizing the apparel manufacturing sector. The apparel sector holds strategic importance for many other low- and middle-income countries due to its contributions to employment generation, value addition, and export earnings. The reform combined fiscal incentives with labor law reforms and emphasized gender-inclusive growth. While the estimates of the effect are not positive and statistically significant, I discuss potential reasons for these results and explain why the findings for apparel exporter firms are particularly unexpected. The paper also offers valuable policy insights for designing tax incentives and behavioral nudges to improve compliance with existing laws.

Author

• Chinmay N. Korgaonkar, University of Kentucky