Amitosh concentrates as he pulls the loops of thread through tiny plastic beads and sequins on the toddler's blouse he is making. Dripping with sweat, his hair is thinly coated in dust. In Hindi his name means 'happiness'. The hand-embroidered garment on which his tiny needle is working bears the distinctive logo of international fashion chain Gap. Amitosh is 10.
The hardships that blight his young life, exposed by an undercover Observer investigation in the back streets of New Delhi, reveal a tragic consequence of the West's demand for cheap clothing. It exposes how, despite Gap's rigorous social audit systems launched in 2004 to weed out child labour in its production processes, the system is being abused by unscrupulous subcontractors. The result is that children, in this case working in conditions close to slavery, appear to still be making some of its clothes.
Gap's own policy is that if it discovers children being used by contractors to make its clothes that contractor must remove the child from the workplace, provide it with access to schooling and a wage, and guarantee the opportunity of work on reaching a legal working age.
It is a policy to stop the abuse of children. And in Amitosh's case it appears not to have succeeded. Sold into bonded labour by his family this summer, Amitosh works 16 hours a day hand-sewing clothing. Beside him on a wooden stool are his only belongings: a tattered comic, a penknife, a plastic comb and a torn blanket with an elephant motif.
'I was bought from my parents' village in [the northern state of] Bihar and taken to New Delhi by train,' he says. 'The men came looking for us in July. They had loudspeakers in the back of a car and told my parents that, if they sent me to work in the city, they won't have to work in the farms. My father was paid a fee for me and I was brought down with 40 other children. The journey took 30 hours and we weren't fed. I've been told I have to work off the fee the owner paid for me so I can go home, but I am working for free. I am a shaagird [a pupil]. The supervisor has told me because I am learning I don't get paid. It has been like this for four months.'
The derelict industrial unit in which Amitosh and half a dozen other children are working is smeared in filth, the corridors flowing with excrement from a flooded toilet.
Behind the youngsters huge piles of garments labelled Gap - complete with serial numbers for a new line that Gap concedes it has ordered for sale later in the year - lie completed in polythene sacks, with official packaging labels, all for export to Europe and the United States in time for Christmas.
Jivaj, who is from West Bengal and looks around 12, told The Observer that some of the boys in the sweatshop had been badly beaten. 'Our hours are hard and violence is used against us if we don't work hard enough. This is a big order for abroad, they keep telling us that.
'Last week, we spent four days working from dawn until about one o'clock in the morning the following day. I was so tired I felt sick,' he whispers, tears streaming down his face. 'If any of us cried we were hit with a rubber pipe. Some of the boys had oily cloths stuffed in our mouths as punishment.'
Manik, who is also working for free, claims - unconvincingly - to be 13. 'I want to work here. I have somewhere to sleep,' he says looking furtively behind him. 'The boss tells me I am learning. It is my duty to stay here. I'm learning to be a man and work. Eventually, I will make money and buy a house for my mother.'
The discovery of the sweatshop has the potential to cause major embarrassment for Gap. Last week, a spokesman admitted that children appeared to have been caught up in the production process and rather than risk selling garments made by children it vowed it would withdraw tens of thousands of items identified by The Observer.
He said: 'At Gap, we firmly believe that under no circumstances is it acceptable for children to produce or work on garments. These allegations are deeply upsetting and we take this situation very seriously. All of our suppliers and their sub-contractors are required to guarantee that they will not use child labour to produce garments.
'It is clear that one of our vendors violated this agreement, and a full investigation is under way. After learning of this situation, we immediately took steps to stop this work order and to prevent the product from ever being sold in our stores. We are also convening a meeting of our suppliers where we will reinforce our prohibition on child labour.
'Gap Incorporated has a rigorous factory-monitoring programme in place and last year we revoked our approval of 23 factories for failing to comply with our standards.
'We are proud of this programme and we will continue to work with government, trade unions and other independent organisations to put an end to the use of child labour.'
In recent years Gap has made efforts to rebrand itself as a leader in ethical and socially responsible manufacturing, after previously being criticised for practices including the use of child labour.
With annual revenues of more than £8bn and endorsements from Madonna and Sex and The City star Sarah Jessica Parker, Gap has arguably become the most successful brand in high-street fashion. The latest face of the firm's advertising is the singer Joss Stone.
Founded in San Francisco in 1969 by Donald Fisher, now one of America's wealthiest businessmen, Gap operates more than 3,000 stores and franchises across the world. In Britain Gap, babyGap and GapKids are very successful, their own-brand jeans alone outselling their retail rivals' lines by three to one.
Last year, the company embarked on a huge advertising campaign surrounding 'Product Red', a charitable trust for Africa founded by the U2 singer Bono and backed by celebrities including Hollywood star Don Cheadle, singers Lenny Kravitz and Mary J Blige, Steven Spielberg and Penelope Cruz. As part of the fundraising endeavour, Gap launched a new, limited collection of clothing and accessories for men and women with Product Red branding, the profits from which are being channelled towards fighting Aids in the Third World.
On its website the company states that all individuals who work in garment factories deserve to be treated with dignity and are entitled to safe and fair working conditions and not since 2000, when a BBC Panorama investigation exposed the firm's working practices in Cambodia, have children been associated with the production of their brand.
Gap has huge contracts in India, which boasts one of the world's fastest-growing economies. But over the past decade, India has also become the world capital for child labour. According to the UN, child labour contributes an estimated 20 per cent of India's gross national product with 55 million children aged from five to 14 employed across the business and domestic sectors.
'Gap may be one of the best-known fashion brands with a public commitment to social responsibility, but the employment [by subcontractors ultimately supplying major international retail chains] of bonded child slaves as young as 10 in India's illegal sweatshops tells a different story,' says Bhuwan Ribhu, a Delhi lawyer and activist for the Global March Against Child Labour.
'The reality is that most major retail firms are in the same game, cutting costs and not considering the consequences. They should know by now what outsourcing to India means.
'It is an impossible task to track down all of these terrible sweatshops, particularly in the garment industry when you need little more than a basement or an attic crammed with small children to make a healthy profit.
'Some owners even hide the children in sacks and in carefully concealed mezzanine floors designed to dodge such raids,' he explains.
'Employing cheap labour without proper auditing and investigation of your contractor inevitably means children will be used somewhere along the chain. This may not be what they want to hear as they pull off fresh clothes from clean racks in stores but shoppers in the West should be thinking "Why am I only paying £30 for a hand-embroidered top. Who made it for such little cost? Is this top stained with a child's sweat?" That's what they need to ask themselves.'
· The investigation was carried out in partnership with WDR Germany.
· This article was amended on Sunday October 28 2007.