Studies in the small-large issue in the Indian textile industry : no. 1

STUDIES IN THE SMALL-LARGE ISSUE IN THE INDIAN TEXTILE INDUSTRY: NO.1. THE DEVELOPMENT OF THE INDIAN TEXTILE INDUSTRY AND ITS THREE SECTORS By ' Dipak Mazumdar Series: Studies in Employment and Rural Development No.76. Division: Employment and Rural Development Department: Development Economics Development Policy Staff International Bank for Reconstruction and Developmeit This is part of the series of papers being produced as part of the World Bank Research Project 671-59 Small-Scale Enterprise De- velopment. The views expressed are those of the author and the report may not be published or quoted as representing the views of the World Bank or its affiliated organizations. Washington, D. C., December 1981. TABLE OF CONTENTS Page No. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 - 2 SECTION I Production in the Small and Large Sectors, 1900-39 . . . . . . . 3 - 8 SECTION II Outline of the Government Policy on Cotton Textile after World War I . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7 -17 SECTION III Production of Cloth in the Large and Small Sectors (1951-1979). 18 -31 SECTION IV Adjustments in the Mill Sector to the Policy of Protection of the Small Scale . . . . . . . . . . . . . . . . . . . . . ... 32 -36 SECTION V Consumption, Employment and Exports since World War I 37 -47 SECTION VI Some Concluding Remarks . . . . . . . . . . . . . . . . . . . .. 48 -50 Introduction The Handloom Industry is the oldest industry of the country, and provides employmenc'to a. large number of people. Different types of handloom are used, but the most common is the fly-shuttle pit loom. Although some factories or Karkhanas accomodating a large number of handlooms exist, the vast majority of handlooms are small units mostly located in the household premises of the weavers. Generally they have relationships with master weavers who provide them with the raw material (yarn), and help with the marketing of the product. The powerloom industry started in the early part of the century when some handloom weavers set up small factories with second hand non-automatic looms sold off by the mills. But the rapid growth of the powerloom industry is really a post 1950 phenomenon. It has been in response to the Textile Policy pursued by the Government of India which is discussed in greater detail below. Some handloom units are operated solely by household labor, but this is rather a rare form of organization. Much the most common type is for powerloosto be operated by hired labor with members of the owners' family sometimes participating in the production process. Some instances of powerlooms being rented out to a group of workers have also been known. The large-scale Textile Industry has had a difficult history in the last two decades and a large number of mostly smaller mills went into bankruptcy They were in many cases taken over by the Government and have been subjected to a policy of retooling and modernization. These mills (now under the umbrella of the National Textile Commissioner) came to be known as sick mills which accounted for around 20 per cent of the entire large-scale sector of the Indian Textile Industry. -2- It should be remembered that the three sectors referred to above are only concerned with the weaving industry. Technology in spinning has made much greater progress in the mechanical age, so, that there is very little of spinning done in the small-scale sector (in spite of some attempts at helping domestic spinning in parts of the country). The handlooms aad powerlooms as much as the mills obtain their supply of yarn from the large-scale spinning or composite sp inning-weaving mills. -3- SECTION I Production in the Small and Large Sectors, 1900-39 There are no direct data on the amount or value of cloth produced in the three sectors. They have to be estimated from statistics on the production of yarn. The amount of yarn produced each year in the country is known by the nature of its use - consumed by large-scale mills for further production, exported, and available for "civil consumption*." The last item gives a measure of the amount of raw material used by the small-scale or "decentralized" sector including handlooms and powerlooms. The Indian Textile Bulletin has been providing estimates of cloth produced in the decentralized sector on the assumption that (a) 90% of civil yarn deliveries are consumeiby handlooms and powerlooms and (b) on an average 1Kg of yarn is used to produce 10 meters of cloth. Before the Second World War II the powerloom sector was not of much importance, hence the output from the decentralized sector was that of handlooms. The figures ,on the quantities of cotton cloth consumed jnIndia in the four decades before the Second World War are brought together in Table 1. The outstanding fact revealed by these figures - which could be of some surprise to non-specialists-was the importance of handlooms in the supply of cloth to the Indian economy through- out this period. It is not just that handloois held their own against competition both from imports and the expanding domestic mill-industry. -4- Table 1: PRODUCTION AND AVAILABILITY OF COTTON CLOTH, 1900-39 (Million Yards) Years Indian Mills handlooms Imports Total Exports 1900-3 482.8 792.8 1,967.7 3,243.3 113.3 1912-15 1,187.0 1,048.5 2,738.7 4,974.2 121.7 1918-20 1,575.8 712.4 1,132.0 3,420.2 220.0 1927-30 2,195.6 1,155.5 1,916.3 5,267.4 171.7 1936-39 3,629.6 1,420.5 654.7 5,704.8 173.3 1900-1915 +704.2 +255.7 +771.0 +1,730.9 +8.4 1917-1939 +2,053.8 +708.1 -477.3 2,284.6 -46.7 Sources: A.K. Bagchi Private Investment in India, 1900-1939, Cambridge, 1975, Table 7.1, pp. 226-7. The original sources for the figures of production in mills and handlooms are derived from Reort of the Fact-Finding . Committeeliandloom and Mills), Delhi 1942. The estimates of production of cloth in the two sectors have been made on the basis of conversion factors of yarn into cloth: 1 lb of yarn = 4 yds of cloth (handloom) 4.78 yds of cloth Cmills). The original sources for the figures on Imports and Exports are from the Indian Tariff Board. Reports on the Cotton Textile Industry (Delhi: 1972, 1932 and 1936), and Government of India Commerical Intelligence and Statistics Dept.) Statistics of British India (Calcutta, annuall. -5- Eandlooms continued, to grow, and provided a significant share of the increase in cottom cloth consumed by the Indian population. In the period upto the First World War the very large increase in the consumption of cotton cloth in India (rather more than 50 per cent of the level at the beginning of the century) was satisfied by imports, the mills and the handlooms to the extent of 44,40 and 16 per cent respectively. Handlooms in this period did enjoy a small amount of (unintended) fiscal protection. In 1896 an excise duty of 3f per cent on Indian mill-made cloth was imposed to offset the duty of 3-per cent imposed on imported cotton price goods for revenue purposes. (This duty was abolished in 1925). On the other hand, efforts at improving the technology of handloom weaving were confined largely to private organizations. For example, it was generally recognized that fitting a fly-shuttle sley to the ordinary pitloom increased the productivity of handlooms by 50-100 per cent. But as late as 1942 the Fact Finding Committee of 1942 found that out of a total of 2 million handlooms in India about 64% were throw-shuttle looms, and only 35% fly-shuttle looms.-/ The nature of direct competition between handlooms on the one hand, and mills and imports on the other, in the first decades of the 20th century have not yet been researched. But it is likely that the specialization of handloom in coarse cloth (using yarn of less than 1Os count) which we notice in later years (see below) probably accounts for a good proportion of the factors responsible for this sector playing a significant role in the increase in cloth consumption of this period. 1/ Government of India, Report of the Fact-Finding Committee (Handloom and Mills), Delhi, 1942, p. 31. -6- The First World War and the years imediately following it saw a remarkable drop in the availability of cloth in India, such that the level of consumption '(in quantity) in 1917-20 nearly fell back to the level of the years at the beginning of the century. The years of the Second World War saw a similar marked fall in cloth consumption - and is a spectacular feature of the war economy of a country like India. As can be seen from the figures of Table 1, while imports took the brunt of the fall in cloth consumption, handlooms also shared in (or contributed to) the decline. It is only the mill sector which increased its supply of cotton cloth to the Indian market - and it did so very strikingly with a 40 per cent jump in production between the years 1912-15 and 1917-20. In 1917-20, handlooms accounted for 22 per cent of total cloth consumption, mills 50 per cent, and imports 28 per cent. In the absence of detailed research we can again only speculate about the decline of handloom production during the war years. Most likely the crucial factor was the supply of raw materials - viz cotton yarn. The war-induced fall in the import of yarn in the higher counts clearly affected the class of handloom products directly which made use of finer yarn. (The Indian spinning mills in the first three decades of the century were heavily specialized in the production of coarse yarn of under 20s count). At the same time the shortage of cloth in the economy meant that it became more profitable for composite mills to make more usecf the yarn in their own weaving sheds rather than sell it to the handloom sector. The period of recovery and growth of cloth consumption in the inter-war years again showed that handlooms had a significant role to play in the supply of cloth to the Indian economy - though a quantitatively smaller role than the mill sector. A new actor entered the scene in this oeriod - protection against imported cotton cloth. The major factor in the policy of -7- protection gradually accorded to the Indian Textile Industry was the rise of Japan as a big exporter of cotton cloth. Import of piece goods from Japan started during the war years and became increasingly important in the 20's accounting for a third of total imports in 1928-9. Initially the import duty was used as a budgetary weapon rather than a protectionist device against the growing Japanese imports. By the end cf the twenties, however, protection of the Indian Textile Industry became a declared objective of Tariff policy. Import duties were increased several times in 1930 and 1931 ending up at the end of 1931 at rates of 25 per cent and 31.25 per cent respectively on British and non-British goods. The depreciation of the Japanese yen in the thirties threatened to overcome this Tariff policy, so that quantitative restricitons had to be resorted to by the Government of India following a Trade Conference involving the Japanese. The upshot of these developments was that, as shown in Table 1, the quantity of cloth imports into India fell by 477 million yards.Of the total increase in cloth production of 2,300 million yards by the Indian industry in the.inter-war years as much as 30 per cent was supplied by the handloom, and the remaining 70 per cent by the mills. It is clear that the handlooms benefited from the policy of protection from imported piece goods along with the mill industry, though the latter took the bigger share of the market created by the trade barriers. The relatively low productivity (and higher labor costs) of the Indian mill-industry, which made it incapable of survival in open competition with Japanese factories, also allowed the handlooms to continue to play a substantial role in the Indian weaving industry. It might be mentioned in this connection that Japan also had a substantial handloom sector until after the First World War. It was the spectacular increase in productivity in the Japanese mills, particularly in the latter half of the 1920's, which caused the handlooms in Japan to go into rapid decline after the War. -9- SECTION II Outline of the Government Policy on Cotton Textile after World War II As during the First World War availability of cloth in the Indian Economy was severely reduced during World War II. The years following the end of the war, therefore, saw a big expansion in cloth production to make up for the shortage of the war years. As can be seen from Tables 1 and 2 the import of cloth in India in 1936-39 accounted for a little more than 10 per cent of the 5.5 thousand million yards. The virtual shutting out of this import, together with some fall in domestic production led to a reduction of nearly one thousand million meters of cloth consumed in 1951 compared to the level of the pre-war years. After independence the Indian Government pursued a policy of import substitution in the Textile Industry, with quantitative restrictions on the import of cloth. The imediate post-war years, therefore saw a rapid expansion of cloth production in India. It is seen from the figures given in Table 2 that cloth production in Indian mills increased by more than a thousand million meters in the five-years period 1951-56, that is to say, the void left by the cut-off of imports, and the shortages of the World War II period, were almost entirely made up by increased production in the early fifties. - 10 - Table 2:. TOTAL PRODUCTION OF COTTON CLOTH, 1951-79 Calendar Year Mill Cloth Percentage of Total Cloth Percentage of CXillion Meters) Total Cloth Production Cloth Production Production (Million Meters) in Handloom and Powerlooms 1951 3,727 78.6 4,740 21.4 1956 .4,852 74.5 . 6,515 25.5 1961 4,701 66.4 7,073 33.6 1966 4,239 57.8 7,336 42.2 1971 3,957 53.8 7,356 46.2 1976 3,881 48.9 7,945 51.1 1979 3,206 42.5 7,540 57.5 Source: Handbook of Statistics of Cotton Textile Industry. Indian Cotton Mills Federation, Bombay, 1980 Table 12, p. 26. - 11 - Protection of the Handloom Industry The post-Independence Textile Policy, however, introduced for the first time the reality of the protection of the small-scale sector in India vis-a-vis the large scale (as opposed to the conception which. had been in the air for sometime). The two principal instruments in the policy of protection are: (i) the physical restriction on the output of the mill sector and (ii) the excise duty imposed on this sector. (i) The suggestion that certain fields of production should be reserved for the handlooms was made as ealy as 1932 in the case presented to the Tariff Board Enquiry favoring the grant of protection the Textile Industry. The Tariff Board gave reasons to show that the issue of reservation was full of difficulties but recommended that the large-scale industry should "regard it as an essential obligation arising from the grant of protection to refrain from entering into unfair competition with the handloom industry so as 1?/ not to impair its relative position. - No action was taken, but the issue was a constant element in the discussion of public policy during the ensuing years. It was after Independence that the Government of India directed the reservation of certain areas of production for the handloom and prohibited their manufacture by mills from June 30, 1950. The reservation was on a generous scale. The policy of protecting the handlooms was further developed at the initiation of the Second Five Year Plan. It took a theoretical justification from a model of industrialization which was articulated by Professor ?.C. Mahalonobis in particular. The crux of the "model" was that investment resources should be heavily devoted to building up heavy industry (e.g. steel) while the need for consumption goods during the period of growth of capital goods industries should be met by the existing capacity in the small-scale sector which was presumably underutilized. In this way scarce - 12 - resources for new capital formation will be saved for strengthening the industrial infrastructure of the economy. The build up of the capital goods sector of large scale industry would, however, make sense only if it provided opportunitisfor increased supply of machines to produce consumer goods (including textiles) sometime in the future. The models of planned development in the Indian discussion of this period did not directly address the question how and when the transition from small to large scale production in the consumer goods sector was supposed to take place. Be that as it may, the Government of India banned the installation of new looms by large-scale factories in 1956. Since then mills have been allowed to buy looms only for replacement or for export production. (ii) A second instrument-of discrimination against the mill sector has been the excise duty. Throughout the post-Independence period the excise duty has been partly seen as a consuvption tax, and has been "progressive" in the sense that a higher rate has been imposed on the finer varieties of mill cloth. The current (1979-80) excise duty structure for cotton cloth is: 15% ad valorem tax on mill cloth with an average of 41s and above count of yarn. For cloth using counts of yarn of less than 41s, the tax increases with ex-mill value per square meter varying from 2% for cloth costing upto Rs. 4 per square meter, to 3% for cloth costing Rs. 4-6, and increasing progressively to 15% on cloth costing more than Rs. 15.-/ The impact of the differential excise duty would, at first sight, seen to penalize the mill sector vis-a-vis the handloom sector Cwhich is exempt from the excise duty) 1/ This statement gives only the basic rate of duty and should not be interpreted as showing the overall burden of duty on mill made cloth. There are special excise duties in addition to the basic rates. For details see "Indirect - Taxes and their effects on the Textile Industry," by C.V. Radhakrishnan, IC Journal , May 1980, XVII, 1, pp. 4-19. - 13 - more in the finer varieties of cloth. But this is not necessarily so. Value added per square meter is higher for the finer varieties while the excise duty is a percentage of gross value. Thus the effective rate of the excise duty as a percentage of value added would vary much less as between the different varieties of cloth. At the same time, as will become clearer in the discussion later in this section, mills have found it easier for technical and marketing reasons to leave much of the production of coarse cloth to the decentralized sector. This effect on the production structure threatened to create shortage of coarse cloth at a price which poor consumerscould afford at various periods of the post-war history. The government tried to counter this problem through another important instrument of Textile policy - the direction to the mill sector that a certain proportion of the mill output should consist of coarse cloth which had to be sold at or below a controlled maximum price. This policy was pursued with varying intensity in the years between 1965 and 1978. One effect of this policy was to impose serious financial burden on the weaker mills and was clearly a factor in what became known on the "sick mill problem," with a large number of mills going bankrupt at regular intervals. The problem of sick mills has led to another facetof the Textile policy - the taking over of the bankrupt mills by the government which uses them to produce the bulk of the cheap mill cloth for sale. The nationalized sector of the mill industry - specializing in the production of coarse cloth - has become quite large, accounting for perhaps a third of the total number of factories in the large scale cotton Textile sector. It is clear that the policy of production of subsidized coarse cloth in the nationalized mills runs counter to some extent to the policy of protection of handlooms in so far as the latter supply a large share of che output of coarse cloth. The quantitative importance of this particular effect has not yet been analyzed. - 14 - In addition to the excise duty on cloth discussed so far, duty on cotton yarn (which is entirely produced by the mill sector) has also been imposed and follow the same principle of "progressivity". The duty on yarn of under 30s count is very small, but becomes significant for yarn of counts higher than 40s. As with the excise duty on cloth yarn produced in hank form (most 1/ of which, it is pressumed, is used by handlooms)-, is exempt from the excise duty, thus adding to the tax on the mill sector vis-a-vis handlooms. It is useful to make the point once again that in spite of the lower burden of excise duties on coarse yarn compared to yarn used for finer cloth, the mills have on balance, found it more profitable to shift from the coarser to the finer varieties of cloth. This interesting feature of the development of the Indian Textile Industry is discussed further below. The cuestion of the Powerloom Sector It is now necessary to bring into the discussion the development of the powerloom sector which has played such an important role in the post-World War II development of the Textile Industry. The powerloom industry had established itself as an industry with a future even before and during the Second World War. Thus the high-level Fact-Finding Committee (Handloom and Mills) of 1942 put on record its view that the markets lost by the handlooms were anrLexed not by the organized sector but their new rivals, the powerlooms. At first the powerlooms were installed in the handloom sector by the weavers themselves to improve their earnings, but later they grew with. amazing rapidity 1/ These is a general feeling in Indian Textile circles that some of the yarn produced by mills in this farm are in fact diverted from handlooms to consumption by powerlooms. See below. under the ownerhip of outsiders. In the Bombay Province for instance, there were barely 2,500.powerlooms in 1939, but in two years their number rose to 6,400. The Committee estimated that there were 15,000 powerlooms in the country and said that their number was growing daily."-- The post-war policy of protection of the handlooms at first had the effect of protecting the powerlooms as well. The quantitative restriction and excise duties were applied to the mill industry only. In fact, during the early years of the new policy of protection of the small-scale, an influential body of opinion was looking upon the powerlooms rather than the handlooms as the major feature of the decentralized sector of the Textile Industry in India in the medium-term future. The most important Report on this question was that of the Kanungo Committee, submitted to the Goverment of India in 1954. The substance of the recommendation of the Kanungo Committee is best summarized in the following paragraph from the study of the industry by V.3. Kulkarni:- The essence of the Kanungo Comittee's proposals was its conversion scheme. It considered that for ordinary cloth "the prime and simple handloom is and most be a relatively inefficient tool of production." Except in the case of those piece goods which required an "intricate body pattern" there appeared "to be no variety of fabric which the handloom industry could produce in better quality or at a lower price (consistent with a reasonable 1/ V.B. Kulkarni, HistorY of the Indian Cotton Textile Industry, Bombay 1979, p. 175, sumarizing the findings on this point of the Report of the Fact-Finding Committee (Government of India, 1942) 2/ Ibid, pp. 181-82, citing Government of India: Report of the Textile Encuiry Committee, September 1954. The quotations within the passage cited refer to ?aragraphs 75 and 81 respectively in the above report. - 16 - wage being paid to the handloom weaver and his assistants) as compared to the mill industry." The Committee noticed that there were many powerloom centers such as Ichal Karanji, Malegaon, Bhiwandi, Surat and Cambay which were at one time the strongholds of the handloom sector.....Evidently the Committee wanted this process to be hastened through organized effort. It accordingly recommened that the handloom industry should be "technically more efficient oy converting the handloom either into a semi-automatic loom and/or into a powerloom, as power becomes available more generally in areas where the handloom industry is widely prevalent." This view of the role of powerlooms in the coming years was not shared by another body of opinion which was more devoted to the cause of handlooms. This point of view was forcefully put forward by another Committee under the chairmanship of Professor D.G. Karve which was appointed by the Planning Commission while the Kanungo Committee recommendations were still being considered by the Government. This Committee suggested that the weaving capacities of both the mills and the powerloom sectors should be frozen at their existing levels. It went even further by recommending that efforts should be made to build up the production capacity of spinning as well in the non-mechanical sector. This was the basis for the Government's brief honeymoon witthe policy of promoting a new type of hand spinning machine - the Ambar Chankha. As far as weaving was concerned, the final policy for the Second Five Year Plan favored only a small role to powerlooms Can additional 35,000 looms producing only about 10 per cent of the additional output envisaged). Mills were to be allowed expansion only for the export sector with the help of newly installed automatic looms. The bulk of the new production of cloth was expectad to come from handlooms. - 17 - The translation of the government's declared objective to actual policy has, however, been much less effective for powerlooms than for the mills. First, the two instruments of control on mill-made cloth - the excise duty, and the reservation of specified lines of production for the decentralized sector - were not applied to powerloom units employing less than 3 looms until 1974. Secondly, the lines of production prohibited have always been a much longer list for mills than for powerlooms. At the same time the excise duty has been much heavier on mill cloth. For example, the excise duty on "Medium A" cloth produced by mills in 1974 was 17.90 paise per square meter: for powerlooms it varied from 4.52 paise for units employing less than 5 looms to 5.65 paise for units employing 25-49 looms.-/ Thirdly, and probably most importantly, although powerlooms (like new loom capacity created in the mills) are supposed to be set up only after a license has been granted by the government, the government's ability to enforce this policy has been meagre. "Unauthorized" powerlooms have mushroomed all over the country. Sometimes they are nominally broken up into units of less than 5 workers, to give some legal validity to their evading the heavier controls and duties on units of larger sizes. 1/ Report of the High-Powered Study on handlooms (Shivaraman Committeel, Government of India, New Delhi, July 1974. - 18 - SECTION III Production of Cloth in the Large and Small Sectors (1951-1979) 1. Total production of cloth No definite estimate of production of cotton cloth is available for either the powerloom or the handloom sectors. The amount of yarn produced by the mills and sold for "civil consumption" is the only definite statistic. The Indian Textile Bulletin produces a series for the production of cotton cloth in the decentralized sector (i.e. outside the mills) on the assumption that (a) 90% of civil yarn deliveries are consumed by the two industries; and (b) an average 1 kg of yarn is used to produce 10 meters of cloth. The figures of cloth production estimated in this way for the decentralized sector as a whole and the known figures of production of cloth by mills are given in Table 2. They show the extraordinarily high growth of production in handloom and powerloom (taken together) in the post-World War II period relative to the mill sector. In fact, the only sub-period in which the mills were able to increase their production was the first Plan period during which the decline of the level of production of cotton cloth during the war years was more than made. up. In 1956 total cloth production in India was higher by about 20% compared to the level just before the war, and the mills reached their highest level of production, although the share of the decentralized sector in total production had already started to increase. Since 1956 there has been a continuous decline in the absolute quantity of cloth produced by mills, until at the end of the seventies mill production was only two-thirds of what it was in 1956. The total quantity of cotton cloth produced has continued to increase in this period, as the decentralized sector has stepped in a big way - 19 - to increase its share of total production from 25 to 57 per cent. But the rate of growth of the total quantity of cotton cloth produced has been much slower than in earlier periods. No direct or immediate link should, however, be established between the increasingly important rate of the decentralized sector in meeting the demand for cotton cloth, and the slow growth of production. Many other factors are involved in the latter phenomenon notably the growth of the man-made fibre industry. Some attempt to underline the more important of these factors is made in a later section. 2. The relative importance of handlooms and powerlooms The task of estimating production separately in handlooms and powerlooms is even harder than that of arriving at a figure of total production in the decentralized sector. A first attempt at this estimate was made by M. Padmanabhan for the years between 1956 and 1963 "based on such factors as the increase in the number of powerloom, pattern, of cloth production in the two-industries, level of yarn consumption by them "etc."- More detailed data on yarn delivered for "civil consumption" has been published in the Indian Textile Bulletin since 1968. These statistics give details of yarn supply by "form" as well as by count groups. It is generally believed that yarn which is supplied in the form of hanks is used by handlooms. This is the major information which provides a clue to the production of cloth by the handloom sector. However, it is known that powerlooms do use some yarn in hank form, particularly in the production of coloured sarees. On the basis of a field study in Maharashtra, Padmanabhan found about 7 per cent of yarn supplied in hank farm was used by powerlooms. Padmanabhan was also able to provide a more refined estimate of production in 1/ M. Padmanabhan, "Estimates of Production by Handlooms and Powerlooms," indian Textile Bulletin, August 1956. - 20 - the three sectors by allowing for the different yarn to cloth ratio in different count groups of yarn supplied to the decentralized sector. Based on past studies he assumed that 8, 10 and 15 meters of cloth are produced from one kg of yarn in the 1-20, 21-40 and 40 and above count groups of yarn. Padmanabhan's estimate of cloth production in the three sectors was made on the basis of the above principles, for the period upto 1971. We have extended the estimate to 1979 on the basis of the same methodology, and the information published by the Indian Cotton Mills Federation. The data for the entire post-World War II period are presented in Table 3. TL. Table shows the predominant influence of powerlooms in the production of cotton cloth in the Indian economy in the last two decades. In fact throughout the sixties and the seventies most of the additional production in the decentralized sector has been due to powerlooms. Taken in conjunction with the data given in Table 2, it would seen that at the end of the seventies handlooms, powerlooms, and the mill sector accounted for 24,33 and 43 per cent respectively of the total quantity of cotton cloth produced. The estimate is, of course, as described above based on rough procedures. In particular, the assumption that most of the yarn supplier's in hank farm is used by handlooms would seem to be a fairly loose one. 3. Distribution of cloth by count-groups in three sectors A question of great importance is the share of coarse and fine cloth produced in the three sectors. The indication of the degree of coarseness is provided by the counts of yarn used in the production of the particular type of cloth. As already mentioned since 1968 figures are being published showing (a) the total quality of yarn available fot civil consumption (i.e. in the - 21 - Table 3: ESTIMATIS OF PRODUCTION IN HANDLOOMS AND POWERLOOMS, 1956-79 (Million Meters) Year Handlooms Powerlooms Total 1956 1,379 (84) 255 (16) 1,634 1960 1,527 (72) 606 (28) 2,133 1963 1,891 (66) 985 (34) 2,876 1968 2,050' (58) 1,180 (42) 3,530 1971 1,770 (52) 1,630 (48) 3,400 1979 1,700 (39) 2,548 (61) 4,348 Source: 1956-71, Calculation made by M. Padmanabhan Estimates of Production by Handlooms and Powerloom Indian Textile Bulletin, August 1965. and The Sick Mill Problem in the Indian Cotton Textile Industry, Ph. D. Bombay 1974, pp. 360.63 1979: Calculated from data given in the Handbook of Statistics (ICMF), 1980 and following the method of Padmanabhan. - 22 - decentralized sector, (b) the total quantity of yarn in hank form (consumed mostly by the handlooms), and (c) the total quantity of yarn consumed by mills - all broken down by broad count groups. It is, therefore, possible to construct for the 1970's percentage distribution of count-groups of yarn consumed by the three sectors. These data are given in Table 4. The Table includes another important set of figures for 1942 giving the distribution for mills and handlooms constructed specially for the Fact Finding Commission. (Powerlooms were unimportant at this date). Looking first at the picture for 1979, the following points stand out: a. Handlooms produce a considerable proportion of their total output in the very coarse variety (10s count and less), much more so than either mills or powerlooms. b. Both powerlooms and handlooms have a proportionately higher share of the output of very fine cloth (higher than 40s count) compared to the mills. Powerlooms also have a major share of their output in the "finer than medium" count group, 31s-40s. c. The major share of the mills output is in the medium (21s-30s) and the "coarser than medium" (11-20s) count groups. Some rough specialiation by sector thus does seem to emerge with handlooms concentrating in the coarser types of cloth, mills in the medium and the powerloom in the finer types. A word of caution should, however, be entered here. The strength of the cloth produced depends not only on the count of yarn used, but also on the closeness of the weave. Some reference to this point is made in Section 7 when we look specificall7 at the adjustments made in the mill sector in response to the post-world War II Textile policy. Lat us now consider changes in the count-wise distribution over Table 4 : PERCENTAGE DISTRIBUTION OF THE TOTAL QUANTITY OF YARN CONSUMED IN DIFFERENT SECTORS BY COUNTS GROUPS, 1942-1979 Count Mills Ilandloom Mills Powerloom Ilandloom Mills Powerloom 1landloom Mills Powerloom 1landloom Croups Is -105 8.1 20.0 8.4 3.9 27.2 5.9 6.0 24.8 10.7 8.7 24.1 l1s-20s 49.6 34.4 26.5 20.8 31.1 28.7 23.5 37.0 34.1 18.2 33.2 21s-30s 25.7 19.6 39.3 23.6 13.6 38.0 22.0 9.2 37.3 21.3 13.8 31s-40s 11.6 14.2 19.7 21.9 15.8 20.9 22.0 15.6 18.2 32.4 15.5 40s 5.0 11.8 6.5 29.8 12.3 6.6 26.5 13.5 4.5 19.4 13.4 100 100 100 100 100 100 100 100 100 100 100 1 Source: 1942 Report of the Fact Finding Committee 1970, 1975 Indian Textile Bulletin, Annual Number 1976. 1979, Handbook and Statistics, ICMF, 1980. Note: Civil deliveries of yarn in ilank farm are considered to.be consumed by the Ilandloom Sector; the rest by the Powerloom. - 23 - time. Little change seems to have take place in the decade of the seventies. The only point which remotely strikes one as might be indicative of a perceptible trend is the increase in the share of the "finer than medium" (31s-40s) count group within the powerloom sector at the expense of the "fine" group of above 40s count. More interesting is the comparison of the distribution of 1942 with that of the seventies. The pattern of prodution in the handloom sector has not changed very much. But it is clear that mills have "gone finer". Between 1942 and 1979 there has been a reallocation of 15 percentage points from the 11-20s count group to the 21s-30s and 31s-40s count groups. As already mentioned earlier a large proportion of the output of the increasingly important powerloom sector is in the finer count groups. These trends therefore reflect a major change in the pattern of consumption of cloth in India. Much more finer cloth is being consumed now compared to the situation in the early fourties, - and the more mechanized sector, including mills and powerlooms, has been in the vanguard of this change. 4. Man-made Fibres Policy and Trends It is now time to bring into the picture the other major development . in the Textile scene of the post World War II period - second only to the development of the powerloom sector. It is well known that in the world economy man-made fibers and blended fabrics have made great strides at the expense of pure cotton products. It is estimated that the share of man-made fibres in total cloth production is probably as much as 50 per cent in the world today. The synthetics and blended fabrics have been, comparatively speaking, new-comers to the Indian scene. The data on production of cotton and non-cotton fabrics are brought together in Table 5. It shows the strong increase in non-cotton fabrics in the last decades -increasing from about 10 Table 5 :PRODUCTION OF COTTON AND NON-COTTON CLOTHS BY SECTOR, 1951-79 (Million Meters) Cotton Cloth Man-Made Cloth Blended Mixed Total Year Mill Decentralized Total Mill Decentralized Total Mill Decentralized Total Cloth Production 1951 3727 1013 4740 13 287 300 - - - 5,040 1956 4852 1663 6515 6 430 436 - - - 6,951 1968 4366 3530 7896 4 980 993 - - - 8,889 1973 4169 3602 7771 1 886 887 129 121 250 8,908 1978 3251 4074 7325 12 1,463 1,475 983 765 1,748 10,548 1979 3206 4334 7540 6 1,308 1,314 942 731 1,673 10,527 - 25 - per cent in 1968 (in quantity) to around 30 per cent in 1979. The development of man-made fibres in India has been like the rest of the Textile Industry, severely affected by government policies. From the point of view of the present study of the large-small issue, two element of the govermennt policy are of particular significance: (a) the package of policies which sought to encourage the production of man-made fibres in the small scale sector as much as in the cotton industry; and (b) the system of taxes and physical controls which has tended to dampen down the growth of man- made fibre demand and has indirectly had an impact on the role of the small- scale sector in the Textile Industry as a whole. Man-made fibre yarn used for weaving cloth can be subdivided into filament yarn and spun yarn. The filament yarn is manufactured by chemical processing and is produced by some recently established large scale units outside the organized mill sector. Spun yarn, on the other hand, can be manufactured by spinning man-made fibre in the mills using the spindle already installed for spinning cotton yarn. Blended yarn obtained by mixing two or three fibres is alsoproduced by the spindles in the organized mill industry. The government policy of protection of the small-scale units in the production of cloth using man-made fibres has been the simple one of "sectoral demarcation" in the supply of raw material, rather than reservation of lines of production as in the case of the cotton industry. Sectoral demarcation meant that 100% man-made fibre fabrics was left entirely to the decentralized sector, and was futher enforced by loom permits allowing use of only one the raw materials - viz cotton, out-silk and natural silk or jute or wool - depending on the sectoral location of the loom. Naturally it is easier to enforce the loom permits in the organized sector, so that mills have been effectively excluded from 100% man-made fabric production. The government - 26 - policy has, however, permitted cotton mills to use filament in weft, so that blended fabrics can be produced in both the organized and the decentralized sectors. As far as excise duties are concerned, the structure of duties were transferred from fabrics to yarn in 1974-5, so that both sectors are equally affected by it. (The representatives of the decentralized sector seems to have been very much in favor of this change - it would be useful to find out why) I/ At the fabric stage there is (smaller) additional duties to be paid, dependlng on the cloth produced, and also a handloom cess. These duties presumably affect the powerlooms producing grey man-made cloth less than the mill sector, and should affect the handlooms even less. The net effect of the policies has been to encourage a very large increase of specialized powerlooms involved in the production of man-made fabrics. Handlooms have been involved in the development of this industry to only a small extent (producing only about 7% of the total quantity of cloth). The Federation of Indian Art Silk Weaving Industry estimates that there is a total of 200,000 powerlooms involved in the industry, of which 91% are in the decentralized sector .2/ The average size of the powerloom units is about 8 powerlooms. Many of them are "unauthorized" which means that they are not licensed by the authorities, and can escape excise taxes on the fabric produced.3/ The grey fabric produced by the small powerloom sheds are finished in larger units, normally in the same town. The relationship between the small powerloom units and the larger mills which are involved in the dyeing, printing, finishing and marketing of the fabrics is close. A large 1/ 41st Annual Report of Silk and Art Mill's Association Ltd., Bombay, August 1980, pp. 19-21. 2/ Memorandum of the Federation, dated 9 January 1981. T/ The situation seems to have been a fairly open (i.e. unforceable) one. The government recently tried a scheme for voluntary registration of the unathorized looms on payment of a small fee. - 27 - part of the powerloom industry can then be said to be in the nature of ancilliary units, specializing in one important aspect of the processing of man-made fabrics. We now turn to the second major aspect of government policy towards man-made fibres. The basis of the policy throughout the post-war years has been the assumption that cloth produced out of man-made fibres is a luxury item compared to cotton cloth. Consequently a very high import duty (of the order of 120-200 per cent) is imposed on imported yarn, and imports are also subject to a countervailing duty equal to the excise duty on the indigenous yarn. There is an additional problem in so far as the capacity of the domestic plants licensed to produce man-made fibre have been limited by government to discourage the development of very large units, even though there appears to be strong economies of scale in the chemical plants producing filament chips.l/ An example given in January 1981 by a representative of the industry would underline the order of magnitude of the problem. The international price of polyester fibre was Rs. 12 per Kg. The ex-factory price of fibre produced in India was Rs. 35 per Kg. The excise duty on the fibre was Rs. 45 per Kg. making the domestic cost of the yarn 6-7 times the international price (at the official exchange rate). Imports of synthetic yarn/filaments have been permitted under the open general licence only since 1976. It can be seen from Table 7, that in spite of the heavy import duty, much of the growth of the man-made fibre industry in India has been possible due to the removal of the quantitative restriction on imported yarn/filament. Domestic capacity for producing raw material for the new industry has lagged behind the strength of demand. 1/ While plants with capacity of 120-135 thousand tons a day are normal in other countries, Indian plants have capacity of the order of 35 thousands tons a day. - 28 - The relatively high price of the raw material, which the producer in India of man-made fabrics has to pay, suggests that these newer types of textiles are still available only to high income groups. Table 6 reproduces some relevant data on consumption of different kinds of textiles in households of varying income levels. It shows as is to be expected (a) that non-cotton textiles are 4 or 5 times as expensive per meter as cotton textiles and (b) it is only at a level of household income of above Rs. 3000 per annum that non- cotton textiles become a significant part of the household's textile budget. But it must be emphasized that the household income group of Rs. 3,000-6,000 or even Rs. 6,000-Rs. 10,000 cannot by any means be called the high income households in the Indian context. Many blue collar workers will be in these groups, and it is significant that in the Rs. 6-10,000 group nearly half of total expenditure on cloth is spent on non-cotton textiles. The evidence for strong middle class consumer preference for non-cotton textiles - in spite of the relatively high price per meter is very clear. 'While government policy has been instrumental in producing a very high cost raw material for man-made fabrics, and contributed to the high price-low quantity Textile economy in India, it is not clear that a policy of making available cheaper raw materials would have made a big difference to the relative importance of small and large sectors in the Textile Industry. We have seen how the structure of the industry has been shaped with the small powerloom units playing a dominant role in the production process of man-made fabrics. The profitability of these units would, if anything, be increased by policies which tend to reduce the raw material costs. The Federation of India Art Silk Weaving Industry maintains that "75 per cent of the units in the decentralized sector operate round the clock i.e. for three shifts. Because of the shortage of yarn they only keep some looms idle but the units as a - 29 - whole actually works for three shifts."1/ They estimate that the raw material problem Lorces the powerloom units to work at 33 per cent of installed capacity. The over-all picture of the production of cotton and non-cotton cloth, broken down by the small (decentralized) and large (mill) scale of production is presented in Table 5 . It will be seen that even in the blended- mixed fabrics, in which the large scale mills have some advantage (and in which restrictions on the use of the raw material in mills do not apply), the mills have not overtaken the small sector. 1/ Memorandum dated 9th January 1981. Table 6 : ESTIMATED TEXTILE PURCHASES PER HOUSEHOLD AT DIFFERENT INCOME LEVELS, ALL-INDIA, 1978 Annual Household Cotton Textiles Pure Non-Cotton Mixed All Textiles Income (Rs.) Quantity Value Quantity Value Quantity Value Quantity Value (meters) Rs. (meters) Rs. (meters) Rs. (meters) Rs. less than 1,500 38.02 189.92 0.90 17.02 2.16 34.36 41.08 241.31 1,500-2,999 52.20 277.20 1.58 25.09 2.63 52.77 56.41 355.06 3,000-5,999 70.09 411.54 3.87 83.41 6.04 147.95 80.00 642.10 6,000-9,999 91.26 598.35 7.26 172.46 10.97 286.48 109.49 1056.29 10,000-19,999 114.16 806.27 16.52 436.27 17.42 508.21 148.10 1750.75 20,000 above 141.46 1,031.48 25.34 770.49 27.13 909.21 193.99 2711.18 Average for all Income Groups 74.69 449.96 5.53 132.53 7.67 198.8 87.88 781.37 Source: Handbook of Statistics. on Cotton Textile Industry (13th edition), ICMF, Bombay September 1980 Table 21, p. 36. (Quoting data from the Market Research Textiles Committee). - 31 - Table 7 DOMESTIC PRODUCTION AND LORT OF MAN-AE FIBRES/FILAMENT YARN (Thousand Tonnes) 1974 1979 Type Production Imports Production Imports Stavle Fibre Viscose 77.3 91.8 65.3 Acetate 0.2 0.4 4.5 Polyester 24.9 107.8 (including Synthetic) Total 85.5 1.7 117.1 177.6 Filament Yarn Vicose 36.6 42.0 4.4 Acetate 2.0 2.1 - Nylon 9.1 17.8 5.2 Polyester 1.3 9.4 7.4 Total 49.0 2.6 71.3 17.8 Source: Handbook of Statistics, ICMF Bombay (13th edition), Staff 1980, Tables 34.35 pp. 53-4. - 32 - SECTION IV Adjustments in the Mill Sector to the Policv of Protection of the Small Scale The major developments in the decentralized sector, particularly in powerlooms, under the pclicy of protection of the small scale since the Second World war, left the mill industry with considerable pressures to change and adjust. This section describes some of the major features in this process of adjustment which has shaped,the future of the Textile Industry in India for many years to come. We have noted in the preceding pages that the policy of protection of the small-scale was directed at the weaving section of the industry. Nevertheless, in so far as the spinning mills in the large scale sector were expected to supply the raw material (yarn) for the development of the small scale sector as well as its own requirements for weaving, the package of policies to help the small-scale units had inevitably some repercussions on the spinning factories. There has been a general presumption among Indian policy makers that the small-scale sector is in difficulty in getting an adequate supply of mill-spun yarn. It is felt that the mill industry first meets its own requirement of yarn for weaving in the integrated factories, and only the surplus which is-left over is sold for the decentralized sector. Some observers who have studied the problem have expressed doubts about the small-scale sector being a "residual" market for yarn. Thus Ashok V. Desai writes: "According to our reading, given the differential excise duties, the wage differentials, and the restrictions on technological change in weaving by the mill, the small-scale powerloom sector has enjoyed a competitive edge over the mills. Spinning yarn for sale is more profitable than weaving even for composite mills, and the small-scale sector's complaints of yarn shortage are -33- only a reflection of powerlooms' profitability.".1 Desai cites as evidence in support of this view that in years when total yarn output fell as in 1964-7 and 1974-7, the proportion of yarn sold to the decentralized sector rose sharply. Nevertheless, the climate of opinion in government circles, which favored a potential shortage of raw material to Liall units, has resulted in a policy of liberal licensing of capacity in the large-scale spinning industry which contrasts sharply with the freezing of capacity in large-scale weaving sector. A large number of new spinning mills have come up - increasing from 94 in 1950 to 370 in 1979. The government policy has, however, given preference to a policy of limiting the size of mills, so that much of the expansion of spindlage have come from an increase in the number of mills rather than the number of spindles per mill- which have remained at around 20 thousand spindles per mill. There might have been some effect, in this policy, on failure to exploit economies of scale through we have no evidence on this point at the moment. However, composite mills - i.e. mills with both spinning and weaving capacities - have been able to expand their spindlage from about 32 thousand per mill in 1950 to 43 thousand in 1979. The creation of new capacity in the spinning sector has led to substantial technological change in this sector of the industry. The new spinning mills utilize ring spindles of post war design which are significantly faster than in the other mills. The latter, and the composite mills, had to respond to their competition by (a) increase in the capacity utilization of their machinery and (b) significant new investment in cotton preparation. Second and third shift operation in spindles (for the industry L/ Ashok V. Desai, "Technology and Market Structure under Government Regulation,: A Case Study of the Indian Textile Industry," National Council of Applied Economic Research, mimeo, Jan 81, p. 10. This section of the paper draws heavily on Desai's ideas . -34 as a whole) increased from 76 and 25 per cent respectively in 1950 to 80 and 78 per cent respectively in 1979. Old mills also made use of new engines to improve the quality of slivers, and of high draft conversion attachments which increased the capacity of draw frames and ring frames by a significant amount. Technological progress in the spinning section of the organized Textile Industry - induced by the competition of new licensed capacity - has been paralleled in the weaving sector due to the compet,ition of powerlooms. While many powerlooms in the decentralized sector have used second-hand machinery sold off by the larger mills, the phenomenal growth of the former have meant that a large proportion of the looms are, in fact, new and better maintained. These looms are as efficient as the looms utilized in the mills- except for possible economies of scale which are an unknown quantity at the moment. The powerlooms had a great advantage in lower wages and lower (and more easily evadable) excise taxes and because of the progressivity of the tax depending on the fineness of the cloth, the diversion of production to powerlooms was, as we have seen, particularly strong in the finer varieties. Mills could and had to respond to the competition from the powerl.ooms in three principal ways. First, some mills have installed automatic loom. In recent years, government policy while freezing the number of looms in the mill sector have permitted replacement of plain looms by automatic looms. But while automatic looms clearly produce superior and wide cloth suitable for the export market, it is not clear that at factor prices prevailing in India automatic looms are profitable in either private or social sense (This point will be investigated in a separate paper). The proportion of automatic looms installed in India mills remains low. Secondly, in the spinning sector, the capacity utilization of looms - 35 - increased throughout the period. Second shift operation increased from 73 per cent of all looms in 1950 to 85 per cent in 1979, and third shift operation from 10 per cent to 66 per cent. Further the number of looms per worker continued to increase, and in the third shift operation in particular it was doubled from 0.82 in 1950 to 2.07 in 1979.1/ Thirdly, the mill sector started to specialize in more strongly woven and durable cloth by increasing the number of picks per meter. The meterage woven per kilogram of cloth went down throughout the sixties. Equally important was the very substantial increase in pre-shrinking, dyeing and printing-within the mill sector. A large diversion of mill output from grey to processed cloth took place. The organized sector thus tried to create for itself a niche of the textile market, differentiated from powerloom cloth not so much by the finenes of the yarn used, as by more durable and mechanically processed cloth produced. A number of mills in the large scale sector were unable to respond to the competition of the powerlooms - aided and abetted by the discriminatory government policy. A total of 111 mills went bankrupt in the late sixties and seventies, constituting the notorious sick mill problem of the industry. These were mostly composite mills, a majority of them of smaller than average 2/ size and concentrating on the production of coarse and low-medium cloth- These mills have been taken over by the government, and put under the control of a public enterprise called the National Textile Corporation of India (NTC). The size of this sector is large. The NTC has a hundred and eleven mills with about 3 million spindles and 45 thousand looms. It employs 150 1/ Ashok V. Desai, op. cit., Table 7, p. 23 quoting figures from the Textile Commissioners' Office and the Millowness Association. 2/ M. Padmanabhan: The Sick Mill Problem, Bombay PH. D. Thesis 1974. - 36 - thousand workers. In terms of installed machines and employment its size is about 15-20 per cent of the private large scale mill sector. The NTC mills have incurred considerable losses since their date of nationalization. When they were first taken over they were looked upon as unemployment benefit schemes. But the growth of this sector has meant that policies have to be evolved to make them into profitable ventures, or at least reduce the flow of tax payer's money going into the support of these units. Two different lines of policy are discerqible in the still evolving strategy of the government with respect to the NTC mills. On the one hand, there is an attempt to "modernize" the mills (subject to the important constraint of limited availability of labor) and to diversify the production structure of the mills away from coarse and unprocessed cloth. On the other hand, the NTC mills are looked upon as partly a vehicle for producing "controlled cloth"-i.e. cloth produced and distributed to the poorer sections of the society at subsidized prices. The difference between the costs of production and the sale price is being reimbursed to the NTC by the government. The NTC mills in 1980 were producing about 310 million meters of controlled cloth - which accounted for 40 per cent of the total cloth produced by the mills, and around 20 per cent of all cotton cloth production in the large scale mill sector (in terms of meters produced) l/ 1/ Cf. Address by the Chairman of the XTC to the Textile Institute Annual Conference held at Asterville, North Carolina, 12-15, October, 1980, mimeo, p. 17. - 37- SECTION V Consumption, Employment and Exnorts since World War II It is now time to attempt an evaluation of the performance of the Textile Industry in India with special references to the policy of protection of the small-scale. Three questions are singled out for consideration: (i) What has bee the effect of the policy on the availability of textiles to ultimate consumers in the country? (ii) What is the assessment of the likely effect on the creation of employment? (iii) Is there any definite point which comes through on the impact of the policy on the performance of Indian textiles in international markets? Consumption Table 8 gives the series on per capita availability of cloth (in meters), both cotton and non-cotton. It is clear that in terms of meters consumed, there was stagnation in the per capita consumption of cotton cloth from 1955 until 1965, and there has been a steady decline since then. Consumption of cotton cloth per capita in 1979 was a little below the level of 1951 - about a third below the peak reached around 1965. Man-made and blended fabrics have filled the gap increasingly in the last decade, so that the per capita quantity of cloth consumed in meters, taking all types together, have not changed very much since 1964. It has been seen in Section III that non- cotton fabrics are much more expensive than cotton fabrics per meter, and it has also been noticed in the last section that mill-made cotton cloth has been improving in quality in recent years as a direct result of the competition of -38 - Table 8 PER CAPITA AVAILABILITY OF WOVEN CLOTH Per Cavita Availability (Meters) Period Cotton Cloth Blended/ Man-Made Mixed fibre Fabrics fabrics 1951 10.99 - - 1956 14.71 - - 1957 14.50 - - 1958 14.28 - 0.92 1959 13.72 - 1.15 1960 13.80 - 1.20 1961 14.76 - 1.15 1962 14.35 - 1.17 1963 14.69 - 1.24 1964 15.22 - 1.63 1965 14.72 n.a. 1.73 1966 13.95 n.a. 1.65 1967 13.57 n.a. 1.74 1968 14.37 n.a. 1.90 1969 13.61 0.20 1.79 1970 13.56 0.28 1.71 1971 12.40 0.45 1.72 1972 13.18 0.36 1.59 1973 12.04 0.44 1.46 1974 12.88 0.36 1.36 1975 12.58 0.61 1.37 1976 11.36 0.97 1.58 1977 9.57 2.32 1.86 1978 (P) 10.21 2.73 2.27 1979 (P) 10.19 2.54 1.98 Table 9: CONSUMPTION IN INDIA 1960-1977 1970-71 prices Year Total Clothing Population (end yr) Total (per capita) Clothing (Per capita) in crores in crores in millions in Rupees in Rupees 1960-61 21978 1422 437.39 502.5 32.5 61-62 21969 1438 446.97 491.5 32.2 62-63 22223 1483 456.64 486.7 32.5 63-64 22981 1660 466.59 492.5 35.6 64-65 24417 1926 476 83 512.1 40.4 65-66 23551 1816 487.35 483.2 37.3 66-67 24532 2079 498.16 492.5 41.7 67-68 27763 2124 509.25 545.2 41.7 68-69 26869 2243 520.65 516.1 43.1 69-70 28136 2147 532.37 528.5 40.3 70-71 28870 2086 544.28 534.0 38.3 71-72 30579 2265 556.36 549.6 40.7 72-73 30157 2295 568.35 530.6 40.4 73-74 30978 2466 580.14 533.4 42.5 74-75 31162 2371 591.97 526.4 40.1 75-76 32502 2520 603.57 538.5 41.8 76-77 32455 2603 617.64 525.5 42.1 - 40 - the small-scale sector. The stagnation of per capita consumption of the quantity of cloth in the last decade and a half should then represent an increase in term of value. Surprisingly this is not what is revealed in Table 9 which gives the growth of expenditure on clothing at constant prices. Per capita consumption of cloth seems also to have stagnated in terms of value since 1966. There might be an index number of problem here which should be investigated. We have already noticed that the relative price of mill-made cotton fabrics, as well as of non-cotton fabrics produced by both sectors, have been increased by the government's excise and other policies. But it is precisely these areas in which consumer demand for cloth has been stronger over the years. It is clear that the relative stagnation per capita of the consumption of cloth in Inaia is partly a result of the price policies which have discouraged consumption in these growing areas . But this particular effect cannot be traced to the policy of protection of the small scale. We have argued that a reduction of the burden of duties (both excise and import) would have increased the supply of man-made fibres from the small-scale sector. EmVloyment The employment of workers in the mill sector is given in Table 10. It should be emphasized that the data refer to the spinning and the weaving sector together. We have seen in this paper that the spinning sector of the large-scale mills has expanded strongly, so that much of the increase in employment should be attributed to the expansion of yarn output. However, the increase in employment over the entire period has been modest-surprisingly so in view of the increase in spinning capacity. Another striking feature is that whatever increase in employment has taken place over time has been due to the working of a third shift. - 41 - Table 10: EMPLOYMEN OF WORKERS IN COTTON MILLS (Thousands) Average Number of Workers Actually Employed in Year First Shift Second Shift Third Shift Total 1 2 3 4 1951 7,15 1956 - - 8,07 1961 4,17 2,66 1,10 7,93 1962 4,17 2,65 1,16 7,98 1963 4,18 2,63 1,23 8,04 1964 4,22 2,71 1;38 8,31 1965 4,18 2,67 1,37 8,22 1966 4,04 2,54 1,30 7,88 1967 4,00 2,54 1,35 7,89 1968 3,83 2,43 1,34 7,60 1969 3,70 2,34 1,36 7,40 1970 3,73 2,35 1,41 7,49 1971 3,61 2,24 1,34 7,19 1972 3,78 2,35 1,49 7,62 1973 3,87 2,37 1,60 7,84 1974 3,85 2,36 1,66 7,87 1975 3,80 2,36 1,63 7,79 1976 3,70 2,30 1,60 7,60 1977 4,00 2,45 1,72 8,17 1978 4,10 2,51 1,81 8,42 1979 4,18 2,54 1,95 8,67 -42- There are, of course, no data on the increse in employment in the small-scale sector of the Textile Industry. But considering the substantially muore use of labor per unit of output (which is discussed in another paper) 1/ the employment effect of the protection of the small scale must have been substantial. The following data suggest rough orders of magnitude involved. According to the Bank's Survey of Handloom and Powerlooms in a town in Norther India 1.94 adult male worker worked per each handloom (on the average) producing 11 meters per day. Thus.employment content in handlooms is 0.49 adult male workers per annual production of 1000 meters of cloth produced (excluding auxilliary workers like women and children of the household). In powerlooms 0.75 workers were employed on average per loom with an output of 27 meters per loom - giving a figure of 0.09 workers per 1,000 meters of such cloth per year. Thus referring to figures of cloth production given in Table 3, employment in handlooms would have increased between 1956 and .1979 by 157 thousands and employment in powerlooms by as much as 206 thousands. In addition the powerloom sector in particular has contributed significantly to employment in the man-made fibre industry. On the assumption that all the man-made fabrics reported to be produced by the decentralized sector is, in fact produced by powerlooms (an assumption which underestimates the total increase in employment because some man-made fabrics are in fact, produced by the more labor intensive handlooms) and applying the same labor content of production to man-made fabrics in powerlooms as in cotton, this sector will account for another 200 thousand workers in 1979. Thus in the period 1956-79 the decentralized sector has probably provided new employment of about 560 thousand adult male workers. With all the doubts and difficulties about the 1/ See study No. 2 in this series Draft, September 1981. -43- statistics of production in the Indian Textile Industry, this figure contrasts markedly with the statistic of new employment in the mill sector of 50-60 thousand workers. Admittedly, cloth production in the mill sector has fallen, but the production of yarn has increased very strongly. We conclude that the protection of the small-scale sector in the India Textile Industry has added significantly to new employment. As is reported in another paper, the wage level in the decentralized sector is at a considerably lower level than in the large-scale mills. The choice facing Indian authorities has been one of large increase in employment at a low wage as against a smaller addition to employment at a higher wage. This conclusion, of course, immediately begs the hypothetical question: what would have been the increase in production, and the associated increase in employment in the mill sector in the absence of a policy of protection of the small-scale. This raises a whole series of subsidiary questions: What would have been the rate of increase of labor productivity in the mill sector? What would have been the increase in the export market? What would have been the relative price of cloth bought by the Indian consumers, and the price elasticity of demand? Speculations on most of these questions do not carry very far. Probably something can be said from comparative historical experience - which might be attempted in another paper. In any event the answers to the sort of questions in this paragraph depend on whether or not restrictive policies other than that of small-scale protection are assumed to exist in this hypothetical world. ExDorts It has often been maintained that the policy of protection of the small-scale, by putting restrictions on the mill sector, has severely damaged India's prospects in international markets. This is again a hypothetical -44- question on which some light might conceivably be thrown by looking at comparative historical experience. All we can do here is to set out the facts (i) if in fact, India's share in Textile Trade has been declining in the last two decades and (ii) what are the trends in India's exports of Textiles from the different sectors. Table 11 brings together data on Exports of Cotton Textile from India for the period 1961-79. It is seen that the quantity of cloth exported from the mill sector has declined substantially over the period (by about 25 percent), but that this decline has been partly made up by increased export from the decentralized sector. The buyont sector of exports in Cotton Textiles has been cotton apparel - and here India shared in a world wide development of exports from third world countries. Another significant aspect of the poor performance of Indian exports in cotton Textiles proper is brought out in Table 12. The share of India in the total quantity of exports of cotton yarn and cloth has been halved in the last two decades. Equally important to note is that India's traditional competitors - Japan, U.K. and USA - have also had a drastic decline in their shares of world exports. India, in other words, failed to take advantage of the relative decline in the competitiveness of the traditional rivals. New exporters of cotton textile like Hongkong, Taiwan, Pakistan and South Korea emerged strongly in the world market. It is clear that many of these countries have consciously pursued a policy of cultivating the export market. The introduction of automatic looms in a number of mills have no doubt helped in the process. Automatic looms as a proportion of tot I loom Table 11: EXPORTS OF COTTON TEXTILES FROM INDIA, 1961-79 Cotton Yarn Ilandloom Cloth Millmade Cloth Powerloom Cotton Apparel Total Year Quantity Value Quantity Value Quantity Value Quantity Value Value Value (Mn Kg) (Mn Rs) (Mn Meters) (tin Rs.) (Mn Meters) (Mn Rs.) (Mn Meters) (Mn Rs.) (Mn Rs) (Mn Rs.)A* 1961 7.14 3.73 25.92 4.78 525.14* 46.15 n.a. n.a. 0.14 60.10 1965 12.75 6.02 39.69 9.53 506.85 47.26 1.03 0.16 3.28 76.62 1970 30.45 26.88 27.50 7.42 413.42 65.66 4.56 0.61 7.74 130.18 1975 3.87 6.25 47.85 31.84 332.37 100.28 7.03 1.79 111.90 309.58 1979 5.90 14.65 65.85 61.38 395.00 185.92 49.00 17.99 343.09 719.05 * Linear Meters * Includes other miscellaneous items Source: Handbook of Statistics on Cotton Textile Industry (ICMF) Table 12: EXPORTS OF COTTON TEXTILES FROM THE MAIN EXPORTINC COUNTRIES (YARN and CLOTH) RELATIVE SHARES (in percentages) OF TOTAL QUANTITY 1960 1965 1970 1975 1979 India 8.8 8.5 8.2 4.1 4.1 TRADITIONAL COMPETITORS: Japan 19.0 14.4 6.1 4.3 2.0 U.S.A 6.0 4.1 3.9 8.3 7.2 U.K. 5.0 3.3 2.4 2.4 2.4 Sub Total 30. 0 21.8 12.4 15.0 11.6 NEW COMPETITORS; Hongkong 5.0 6.6 7.1 5.0 3.8 a Taiwan 1.0 2.1 5.2 6.8 5.1 1 Pakistan 4.9 4.7 12.3 13.8 9.4 South Korea 0.4 1.1 1.6 4.3 6.6 Sub Total 11.3 14.5 26.2 29.8 24.9 TOTALS Including others 100.0 100.0 100.0 100.0 100.0 - 47 - capacity have been in 1967 as high as seventy percent for Pakistan and Taiwan and 100 percent for Hongkong, as against only 13 percent for India. 1/ The adoptions of automatic looms, however, is dependent on many factors. The policy of small scale protection cannot be considered to have been a crucial factor. In fact, recent government policy of allowing replacement of loom capacity in the mill sector by any type of loom of the factory's choice might, indeed, have encouraged the use of automatic looms than otherwise. 1/ Deepak Nayyar: "An Analysis of the Staanation in India's Cotton Textile fxports during the Sixties, Oxford Bulletin of Economics and Statistics,February 1973, p.9. -48- SECTION V1 Some Concluding Remarks ,e conclude by emphasizing a few points which seem to be the more noteworthy in the bird's eye survey of Indian Textile 'History and Policy given in this paper. The three sectors of the Textile Industry -F andlooms, Powerlooms and Mills - have come to stay ostensibly under the umbv4lla of the governments' protective policy, but it is not clear that they would not have co-existed as important components of the Industry even in the absence of such policies. In the Survey of the development of the Industry before the Second World War we found that Handlooms expanded all the time in absolute terms, except durir-g the years of the First W6rld War, even though it was losing relatively to the factory industry. In the free trade period before the First World War, handlooms contributed as mu-c as 16 percent oi the increase in cloth consumption in -India, in competition not only with Indian factory industry, but also with imports from Lancashire. After protection was introduced in the late twenties (triggered off by Japanese competition), handloom production along with factory production increased in the ratio of 3:7. As far as the small-scale powerloom sector in concerned, we have seen that an important body of opinion in India after Independence was looking on the powerloom sector as the natural evolution of the handloom industry. (The powerlooms, indeed, were initially introduced by handloom weavers). The government officially rejected this policy, but through its inability to enforce controls against powerlooms have in fact, allowed this sector to be -49 - the fastest growing sector of the Industry. The restriction on the mills seems to have helped the powerlooms more than the handlooms. It has been shown above that some rought specialization by count groups has existed in the three sectors of the cotton Textile Industry which partly explains the co-existence of the three technologies. Handlooms have traditionally specialized in very course cloth (using 10s count of yarn or less), although a sizeable proportion of very fine cloth is produced by them. Mills have contributed most of the output in the medium varieties of cloth (using 11-30s count yarn). Even the recent trends in the mill industry "going finer", partly in response to consumer preference moving in the direction of finer cloths, have not resulted by 1979 in mills overtaking the powerlooms in cotton fabrics using higher than 30s count of yarn. It was shown in Section IV, however, that mills have been producing more closely woven cloth to differentiate their products from the output of powerlooms. Two other factors which help to explain the co-existence of the three sectors are first, the very large difference in wages between the decentralized siector on the one hand, and the mills on the other; and secondly, the relatively low efficiency of the mill sector compared to say, the Textile Industry of the far East. The problem of relative profitabilities, of the three sectors has been analyzed in Study No. 2 in this series. It is not very clear if the policy of protection of the small scale sector has had a net adverse effect on the efficiency of the large scale sector. In fact as discussed in Section IV, by conributing to the bankruptcy of smaller less equipped mills ind by encouranging retooling of the surviving mills, the policy might indeed have had the opposite effect of making the mills more efficient in the last two decades. It is, however, a pertinent - but hypothetical - question to ask if in the absence of the phenomenal growth - 50 - of the powerloom sector (which the policy of small scale protection undoubtedly enouraged) the output of the Textile Industry would have grown faster? Also would the rate of growth of output in Indian mills been sufficiently strong to result in a higher growth in employment (in spite of a lower input of labor per meter of cloth produced) than what has been contributed by the decentralized sector? This paper does not pretend to begin to research this question - which probably can only be tackled on the basis of the comparative history of other Textile producing countries. But an important point to note, which has been discussed in this paper is that the policy of small scale protection is only an element and probably a minor element in the development of the high price - low quantity Textile economy in India in the last two decades. A major aspect of the package of policies which might have conributed to this outcome is the fiscal and import control measures which have discriminated against man-made fibres, and also against superior cloth - areas in which consumer preference has been most strongly growing both nationally and internationally. These fiscal and import control policies are not inevitably associated with the policy of protection of the small scale.