LivelihoodsAugust 07, 2019

The Union Budget is unraveling the handloom sector

With low budgetary allocations and a rising cost of production, the handloom industry—an essential part of India's economy—is struggling.
2019-08-07 00:00:00 India Development Review The Union Budget is unraveling the handloom sector
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Reeling under the twin effects of demonetisation and GST from the previous year, India’s handloom industry received a further blow when the budget was reduced from INR 604 crores in 2017-18, to INR 386 crores in 2018-19. The 2019-20 budget allocations are only marginally better, with INR 456 crores being allocated to the handloom sector.

With a rising cost of production, unfair competition, and subsidies to rival sectors, the handloom industry is struggling.

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A brief background on textiles in India­­

Alongside the economic reforms of the 1990s came a trend towards modernisation and automation. For the textile industry specifically, the World Trade Organisation’s Agreement on Textile and Clothing (1995) offered countries across the globe a 10-year window to prepare themselves for free textile trade by 2005. A precursor to this was a quota system, by which countries would impose a cap, or quota, on the volume of textile production they would import from another country.

With a rising cost of production, unfair competition, and subsidies to rival sectors, the handloom industry is struggling.

It was estimated then that the shift to free textile trade marked a significant change, and was a big opportunity for countries like India and China, where production costs were incredibly low. Both countries were expected to emerge as leading sources for textiles globally, especially since the United States and Europe—also big textile producing economies—had very high costs of production. The estimation at that time was that labour-intensive textile production would score over automated industries.

Based on these estimations, around this time, the Indian government began to convince itself of the value of ‘modernising’ its textile sector. This resulted in  a shift in focus from handloom subsidies to investment in automation. This has steadily persisted, and we are seeing its implications in government policies and schemes, and budgetary allocations.

For instance, the Handloom Reservation Act in 1995 reduced the number of handloom items by half–from 22 to 11. Enforcement of this act is now completely forgotten. Hank Yarn Obligation on spinning mills has also been made redundant. These had a direct impact on handloom weavers, who were now excluded from government subsidies. That commodity prices have risen steadily over the past 15 years has made matters worse, as raw material costs (for silk and yarn, for instance) have increased. Add to that the growing competition from cheap and fake handloom products. Unable to access credit, weavers have now found themselves in a situation where they are unable to increase their incomes to respond to rising costs of living and of raw materials.

A woman weaving a rug in Jaipur

With budget allocations shifting in favour of mechanisation and automation, we are slowly but surely dismantling our handloom sector | Picture courtesy: Charlotte Anderson

There was a time when India had 12 government-backed schemes for the handloom sector. This number was halved in 2013-2014, only to be further reduced to just three schemes by 2015-16. In the case of budget allocations, over a 20-year period there has been much fluctuation from year to year. In 1997-1998 the budget allocated 1 was INR 203.50 crores, which reduced to INR 151.60 crores the following year. In 1999-2000 it was INR 138.30 (the lowest allocation ever). For a three-year period starting in 2014-2015, the allocations were INR 620.51 crores, INR 486.60 crores, and INR 710 crores. Comparatively, budgetary allocations for other sub-sections of the textile industry in India—which are automated, modernised, and mechanised—are far higher.

Allocations for the handloom sector were 27.54 percent of the total textile budget in 1997-98; in 2019-2020, they were reduced to 7.83 percent.

Why automation for Indian textiles has not been a positive change

In western economies where production is automated, all costs—including for instance, the environmental costs of treating textiles dyes and effluents—are baked into the cost of production. In other words, they are internalised. In India however, these costs are externalised and do not factor into the cost of production. Thus, the costs of water usage for instance, which tend to be very high in textile production, are neither calculated nor embedded in production costs. As we move towards greater automation, we are also moving towards higher production costs.

As we move towards greater automation, we are also moving towards higher production costs.

This is significant not only from a cost perspective, but also given how the textile industry in India has been structured historically. Beyond just cheap labour, the textile industry has always been decentralised; and supply chain risks have been fewer because we produce more for our domestic market than for exports. And so, our supply chain is well-developed, unlike in other countries where there is more reliance on global trade. For example, many African countries produce cotton, but don’t have processing industries. Sri Lanka produces garments, but doesn’t produce its own cotton. India has a considerable advantage here, because it has complete supply chains, from fibre production to consumption, across different fibres.

With budget allocations shifting in favour of mechanisation and automation, we are slowly but surely dismantling our handloom sector.

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Three reasons why we must invest in the handloom sector

Employment

The handloom sector used to employ close to three crore people.2 The second handloom census (1995) reported that there were around 65.5 lakh people employed in the sector; by the time of the third handloom census (2009-10), the figure was 43 lakhs. Today, the estimate is that around one crore people are employed in this space.

While there may be gaps in the data, even if we were to consider 43 lakh people as the strength of the handloom sector, its potential for employment generation is significant. To compare, the garment production industry and other allied sectors together generated employment for less than 1 lakh people.3  Let us view this in light of the allocation for handlooms in the budget: INR 456 crore now seems like a paltry sum.

Environment

Textile production has a large impact on the environment. The handloom sector though, has a relatively low environmental impact. Because handlooms are not highly mechanised or automated, electrical consumption is minimal, and the industry utilises less energy than other textile industries do—its energy impacts are almost zero. The sector lends itself to sustainable development policies aimed at reducing negative impacts on environment and ecology.

Additionally, the handloom sector uses chemical dyes and agents in far lower quantities than other textile industries. And because the industry is decentralised, and markets are generally local, its environmental footprint is smaller. Automated textile production in contrast has multiple impacts on environment and climate change, through carbon-based energy consumption, water, transit related carbon emissions, and the non-degradable waste generated.

Economy

India’s handloom sector accounts for around 13-15 percent of the country’s textile production, and is an INR 50,000 crore industry in India. Because it is rooted at a rural level, the government does not need to set up training infrastructure or invest in environment friendly technologies. It is simple, has appropriate technology, the knowledge of which lies with the people. The tech can be assembled quickly, and is not expensive to erect or dismantle.

The handloom sector is rooted at a rural level, the government does not need to set up training infrastructure or invest in environment friendly technologies.

The handloom sector employs a large number of people in rural, semi-urban, and urban areas of India, through both direct and indirect employment. Apart from the direct relationship with agriculture, there are several other sectors that are estimated to be dependent on handloom production, including transportation, financial services, hospitality, and others. This industry also significantly influences tourism, with many handloom centres being well-known tourist spots.

In the pursuit of modernisation, we are failing to recognise a well-established industry, which just needs favourable policies, and decent budgetary allocations, to thrive.

 

  1. Figures have been compiled by the author from annual budget documents, and the 8th report–Demands for Grants (2015-16) [Ministry of Textiles, Standing Committee on Labour (2014-15), 16th Lok Sabha].
  2. Estimation made prior to census.
  3. In a reply to an unstarred question in the Rajya Sabha dated 21-07-17, the Ministry of Textiles stated that in 33 textile parks (a flagship scheme), the total employment was 79,546 (38 percent women). On the other hand, a World Bank report mentions 12.4 million informal workers in the Indian textile and apparel sector.
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