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Khadi Sector – Longing for Reforms

Khadi Sector – Longing for Reforms

By Lekhsmi Nair and Dhanuraj

A recent report in the Times of India shows that the Khadi fabric and garments sales witnessed a 29% growth and crossed ₹1,500 crore mark for the first time. This announcement is very exciting in its nominal terms. However, a recent study conducted by CPPR in 2015-16 on the Khadi sector  provides quite contrasting insights on the sector. The study shows that the Government of India has spent large sums on Khadi sector. However, this sector has experienced a decline in production, sales and employment. Moreover, the huge amount spent for the economic empowerment of the poor artisans is not reaching their hands.

All Is Not Well

The annual reports of Ministry of Small and Medium Enterprises (MSME) show a rise in the plan and the non-plan amount spent on Khadi sector. The plan amount shows a rise from ₹194.27 crore to ₹ 1,454 crore and non-plan amounts from ₹43.7 crore to  ₹229.1 crore respectively in the period 1994-95 to 2014-2015. The interest subsidies to Khadi institutions increased from ₹ 9.63 crore to ₹ 31.45 crore in this period.

At the same time, production and sales of Khadi fabrics, adjusted for inflation, declined from ₹9.19 crore and ₹ 11.58 crore to ₹5.19 crore and  ₹6.09 crore respectively in the same period. The Comptroller and Auditor General (CAG) of India Audit report (Report Number 25 of 2014) on Khadi and Village Industries Commission (KVIC) also reveals that KVIC is ineffective in utilizing the plan and non-plan funds for the Khadi sector promotion, clearly indicating the wastage of public money.

The Inconvenient Truth

According to MSME, only KVIC and KVIC certified institutions namely some NGOs are allowed to produce Khadi. This creates significant entry barriers. The Government imposed the certification process to protect the industry. However, it is not market-friendly and does not cater to the interests and tastes of the customers.  Many weaving units have not produced any Khadi products. They emerge with the sole intent of getting KVIC rebates and other benefits. At the same time, this has also resulted in many piracy problems associated with Khadi industry. These include producing spurious products in the name of Khadi through unofficial channels. Moreover, the study proves that individual certification marks are becoming less important to the consumers in choosing products. This is because consumers select products largely based on the brand image rather than the certification marks.

Khadi fabrics are available mostly in KVIC certified stores only, restricting the availability of Khadi products to the consumers. In the Khadi retail outlets, the working times are the government office timings – from 10 am to 5 pm.

When the whole marketing is adopting e-commerce, the stereotypes in Khadi sector are not doing anything good for the marketing. Only Khadi institutions undertake its marketing.

Repercussions of Regulation

Over-protection of the sector has resulted in poor branding and marketing plans. Furthermore, not many big players are in the field. The traditionalists still resort to the conventional print advertisements or banners and rebate schemes for marketing. The above mentioned restricted practices have resulted in the decline of the production and sales of Khadi fabrics. It is mainly due to overbearance of KVIC in the sector.

The primary objective of KVIC is employment generation in the rural economy through the promotion of Khadi. Unfortunately, it has not achieved this in India. The employment in Khadi sector declined from in the period 1960-61  to 2014-15, from 1.7 crores to 0.11 crore, with a significant negative growth rate of 5.2 per cent.

The employment in Khadi sector declined from in the period 1960-61 to 2014-15, from 1.7 crores to 0.11 crore, with a significant negative growth rate of 5.2 per cent.

Tribulations and Turmoil

Khadi institutions contract Khadi artisans, mainly women spinners and weavers. They are piece rate workers. Khadi institutions decide the wages, according to the minimum wage rate fixed by KVIC. In addition to the wages, the MSME has implemented different measures for the economic empowerment of the poor artisans. These include schemes like Market Development Assistance Schemes and different Welfare Schemes. The women spinners and weavers, however, receive only the guaranteed minimum wage in hand everyday. This ranges from ₹ 100 to ₹125 only, which is very low compared to those working in sectors like match industry (₹336 per day).


Uncertain wages and poor living conditions of the artisans and weavers | Photo Courtesy: Visual Hunt

These wages are not sufficient for maintaining their livelihood. Furthermore, there is a mandatory requirement from MSME to give the artisans’ wages only through banks or post offices. In spite of this, majority of the Khadi institutions give wages in cash.

There is no certainty on when the artisans are  getting the other allowances.

For Khadi cloth worth ₹100, ₹38.75 goes to the wages for the poor artisans, as shown by the Khadi cost chart 2015 of Kerala. It, however, is split into spinning and weaving wages. Considering the spinning and weaving wages separately, spinning and weaving are only 15 per cent each of the total cost. At the same time, the private wage standards of weavers who work for the textile entrepreneurs in the handloom industry in many states as shown by studies are 25 per cent.

Call for Reforms

The government, through KVIC regulates the entire production process, sales, distribution, and marketing. The restrictive practices adopted by the government, implemented through KVIC, have resulted in making the Khadi industry ineffective, inefficient along with failing to deliver economic empowerment to the poor artisans working in the sector.

The government should remove the entry barriers in this market and make the fabric available to private retail stores. This way, consumers would have a wide range of choices. It is important to add here, that the opening up of Khadi retailing to private players such as Raymond and Fabindia are good initiatives in this regard. However, at present, both require the prior permission of KVIC to retail Khadi. This is counterproductive.

The new initiative to tie up with Paytm for online selling of products is also appreciable here. Similarly, the government must undertake marketing techniques for the promotion of Khadi rather than relying on outdated techniques. Here, the spinners and weavers should be allowed to work with private textile designers without the approval of KVIC. This will free up the labour market and will prevent leakages to middle men. The increase in the number of purveyors of Khadi will also prevent price monopolisation, and will increase the supply available. This will also prevent piracy problems associated with the Khadi industry such as the production of fake products being sold as Khadi through unofficial channels.

Lekhsmi Nair is the Centre Manager, Centre for Comparative Studies & Dhanuraj is the Chairman of Centre for Public Policy Research (CPPR).

This article was originally published on Centre for Public Policy Research.

Featured Image Credits: Visual Hunt

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