Clothing is one of the basic amenities required by the 1.2 billion strong, and growing, population of India. The Indian textile industry, which caters to this need, has an estimated market size of $108 billion. There are two broad segments within the industry, namely the traditional hand-woven and hand-spun textile segment, and the modernised mill one.

Khadi is defined as any cloth woven on handlooms and hand-spun from cotton, woolen or silk yarns in India or the combination of two or all of these yarns, as per the Khadi and Village Industries Commission Act 1956. In the first and second industrial policies of 1948 and 1956 of independent India, khadi and village industries were mentioned as important opportunities for providing rural employment. It was felt that this was a good way to provide non-farm employment opportunities to the poor artisans, who were otherwise unemployed and suffering from acute poverty, at very low per capita investment. The successive five-year plans have also designated the same role for khadi.


Khadi is also considered a symbol of self-reliance by the Gandhian ideology, which, in the post-independence period gave the Swadeshi programme a definite and positive meaning. It is also a product which is highly sustainable, eco-friendly and an all-weather fabric which keeps the wearer warm in the winters and cool in the summers.

Despite its benefits to the consumer and the market, the khadi sector is an over-regulated one in India, where the entire production process, sales, distribution, and marketing are fully regulated by the government through the Khadi and Village Industries Commission (KVIC). Formed in 1957, the KVIC is under the administrative control of the ministry of micro, small and medium enterprises (MSME).

The commission has three broad objectives for promoting rural development – employment generation, saleable article creation and self-reliance. The government has spent huge sums of money for the promotion of khadi programme as plan and non-plan amounts. The khadi institutions registered under KVIC are subsidised significantly (at an interest rate of 4 percent) through a scheme called the interest subsidy eligibility certification (ISEC) introduced in 1977. In spite of all this, the khadi market still constitutes only 1 percent of the Indian textile market.

The government spending on the khadi sector in the form of plan and non-plan amounts increased from Rs 194.27 crore and Rs 43.7 crore to Rs 1,962.97 crore and Rs 229.1 crore respectively in the period 1994-95 to 2014-15. The interest subsidies to khadi institutions increased from Rs 9.63 crore to Rs 31.45 crore in this period. At the same time, production, sales and employment declined from Rs 919.4 crore, Rs 1,158 crore and 0.14 crore persons to Rs 669.5 crore, Rs 880.93 crore, and 0.11 crore persons respectively in the same period. It is evident from these figures, that there is significant wastage of public funds in the khadi sector. This inference is substantiated by the report (No. 25 of 2014) of the comptroller and auditor general (CAG) on KVIC, revealing that the institution is ineffective in utilising the plan funds for the khadi sector promotion.



Stakeholders and value chain

With respect to the finances, at the nodal level, funds are allocated to KVIC from MSME in the form of grants and loans. KVIC reallocates these funds to its different implementing agencies.

Khadi institutions are NGOs that have been set up under KVIC or Khadi and Village Industries Board (KVIB), and report to them, which are certified by a certification committee appointed by KVIC.

The three aspects of certification are: safeguarding the purity and genuineness of khadi, providing suitable wages to artisans, and assuring fair price and quality to the customer. If the khadi institutions are not found abiding by these rules, their certification would be cancelled by KVIC as instructed by the government. KVIC is, thus, the regulator-cum-protector of the khadi sector in India.

The certification rules, though, are not based on current market realities but on those formulated during Mahatma Gandhi’s time. Artisans (spinners, weavers, and other artisans) – mostly women (65 percent) – are contracted by the institutions for different stages of production for khadi.
The production process of khadi starts with the production of cotton bale in the farm by farmers. It is sent to the six silver plants of KVIC and khadi institutions. Cotton tapes are made using cotton bale in these silver plants. From the cotton tapes, silver, which is a textile fibre strand that is loose, soft and untwisted, is made by a carding machine. It is sent to khadi institutions. Spinners convert the silver traded to them by khadi institutions, to yarn on hand-powered spinning equipment called charkhas.



Among the total yarn produced, majority (79 percent) is cotton, with wool and silk constituting 19 percent and 1 percent only, according to KVIC reports. Yarn is brought back from spinners by khadi institutions after paying charges for conversion. Weavers weave fabric on handlooms with the yarn traded to them by khadi institutions on payment of conversion charges. The foundation process of the value chain is spinning, upon which all the other value addition processes depend. Spinners are thus considered the backbone of the khadi industry.
The other workers are permanent staff members employed by either KVIC or KVIB. Sale of khadi fabrics/garments is done through KVIC-run gramodyog bhavans or retail outlets of khadi institutions certified by KVIC.

Production of khadi

According to regulations laid out by MSME, only KVIC and KVIC-certified institutions are allowed to produce khadi. The MSME notified the Khadi Mark Regulations 2013 on July 22, 2013 to ensure the genuineness of khadi produced in India and the khadi mark was launched on September 30, 2013. No textile can be sold or otherwise traded as khadi or khadi product in any form or manner if the khadi mark tag is missing.

There are thus recognisable barriers to entry in the market for khadi, created by the government through KVIC. Our field visits showed that many weaving units, however, emerged only for getting KVIC rebates and other benefits but have not produced any khadi product. It is also supported by the CAG report (No. 4 published in 2001) which shows the mix utilisation of funds by KVIC for helping fraudulent units. Moreover, no choices are available in the market for producing khadi other than through the approval of KVIC. The restrictive practices of the government have resulted in the significant decline in the official production of khadi – in the 1990s khadi experienced a negative growth rate of 3.7 percent.

It is vital to add here that the government entering the certification process of khadi further leads to entry barriers in this sector. The certification needs to be market-driven based on the requirements of the customers rather than on those imposed by the government.
Moreover, individual certification marks are becoming less important to the consumers in choosing products since their selection of products is largely based on the brand image rather than the certification marks, as proved by studies.

Sales and marketing

KVIC undertakes sales activities through its 12 departmentally-run khadi gramodyug bhavans and around 7,050 institutional sales outlets (certified by KVIC) located in different parts of the country. There, discounts on khadi apparel fixed by the MSME can be availed. In our interviews with KVIC officials, it was pointed out that the discounts decided by the ministry are aimed at making the khadi products available at cheaper prices.



There are many schemes such as a rebate scheme, continued by the government through KVIC, on sale of khadi and khadi products till 2009-10 and then replaced by the market development assistance (MDA) scheme. Large sums, from Rs 2.1 crore to Rs 81.22 crore, were spent for the rebate scheme in the period 1957-58 to 2009-10 (up to December 2009) and Rs 119.53 crore to Rs 177.29 crore in the period 2011-12 to 2013-14.

In spite of the discounts availed at KVIC stores and the significant amount spent by KVIC and MDA, the khadi sales show a declining trend in India, especially in the 1990s with a negative growth rate of 2.4 percent. This, however, does not include the sale of khadi through private outlets like Fabindia and Raymonds, for which time series data is not available. Based on a policy decision of KVIC, private parties are allowed to sell khadi through a franchisee model while the approval of KVIC is required for using the khadi logo and also with no rebate for the franchisee.

In addition to this, the work times followed by the khadi retail outlets are the same as government office timings in India, from 10 am to 5 pm. This has created inconvenience to the employed customers and those who come from distant places for purchasing khadi products. This is revealed from our field visits and shown by other studies.

The marketing of khadi is mainly done by khadi institutions. The government’s intervention in the khadi marketing has resulted in the reliance on outdated techniques, namely print advertisements or banners and rebate schemes. The lack of appropriate marketing strategies has resulted in the failure for mass consumer attraction towards khadi fabrics. At the same time, in our interviews with KVIC officials, it was revealed that regular mill clothes similar to khadi, and fakes, are being sold through unauthorised stores. There are several other studies that also make similar claims. This shows that while there is a demand for khadi, it is unwittingly being met by spurious products, mainly because of the government’s restrictive practices.

Cost of production

Based on a KVIC circular dated April 28, 2011, the khadi institutions are granted complete flexibility in the khadi and its products pricing through the introduction of market-linked pricing. The circular allows the institutions to sell the khadi products at prices based on the acceptability of the products in the market and their demand rather than the product cost. It demands the institutions to use the surplus created from the market-linked prices for the artisans’ wage enhancement and for undertaking reforms in production and marketing. This is called benefit chart of pricing. In spite of this, the khadi institutions continue to follow the old cost chart pricing and not the market-linked pricing, as shown by our field visits. According to a 2015 cost chart for khadi institutions in Kerala, for khadi cloth worth Rs 100, 75 percent of price is determined by the prime cost, which includes raw material costs and wage costs. Among the prime costs, major share is for raw material costs (36 percent), followed by wage costs (37 percent).

The development of cost chart for the certification of khadi was done by Mahatma Gandhi, based on the market conditions of that time. These rates are obviously not in keeping with present market conditions, as shown by the high share for establishment expenditure, no share for publicity and the low wage costs for weavers compared to those in the handloom industry. The costs of the products, mainly the raw material costs, are translated into the prices of the khadi products, according to the cost chart. By implementing benefit chart, the costs involved in producing the khadi products will have no role in pricing, which will be based on the market demand and acceptability of the product.

Employment

There has been a significant decline in the employment generated by the khadi sector in the period between 1960 and 2014-15 with a negative growth rate of 5.2 percent. The primary objective of KVIC, which is employment generation in the rural economy through the promotion of khadi, has not been achieved in India. The audit reports by CAG (No. 4 of 2001) also showed the lack of credibility in the claims made by KVIC on employment generation.
Spinners constitute the majority of the khadi sector’s workforce, followed by weavers. The ‘others’ category which includes the salaried staff and the pre-processing workers, constitute only a very limited share of the workforce.

Economic empowerment of artisans

The khadi artisans contracted by the khadi institutions are piece-rate workers who get the pay rate for the amount of output made, decided by the khadi institutions separately, based on the minimum wage rate fixed by KVIC over different time periods. In addition to the wages, the MSME has implemented different measures for the economic empowerment of the poor artisans through KVIC like market development assistance schemes. There is assistance provided at 20 percent of the production value under this scheme to the khadi institutions among which there is mandatory allocation of 25 percent to artisans as incentives along with the wages.

There is a mandatory requirement by KVIC for the state KVIBs and the khadi institutions to contribute 12 percent of the artisans’ wages to the artisan welfare funds. There is also a mandatory requirement by the khadi coordination director, MSME, for distributing wages to the khadi artisans only through banks or post offices and not through cash.

There is a huge gap between the per capita earnings of the weavers and spinners and the salaried staff of the KVIC. The per capita earnings for spinners and weavers are very low compared to the other categories.

Our field visits helped us know that the spinners and weavers get a guaranteed minimum wage of only Rs 125 and Rs 100 respectively every day in hand as cash. They get the other allowances as lump sum amounts once in a year or so, while there is no certainty on when they are getting these other allowances. The reason is that in majority of the institutions, the wages are given as cash and have no arrangements for providing them through banks or post offices. This is in spite of the mandatory requirement from MSME to give the artisans’ wages only through banks or post offices. KVIC is supposed to cancel the certification to all such institutions which do not follow these requirements, which they have not done. This shows the inefficiencies associated with the systems and procedures of KVIC.

Khadi spinners find Rs 125 extremely insufficient to meet their day-to-day expenses, as pointed out in our interviews with them. Their earnings are very much lower than the average daily earnings of women workers (Rs 336 per day) in other similar sectors like match industry. Out of khadi cloth’s price, 38.75 percent 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 two separately, spinning and weaving are only 15 percent 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 percent. It is thus clearly evident that the huge amount spent for the economic empowerment of the poor artisans is being eaten by the government machinery rather than reaching the artisans.

In addition to the job to be done in the work sheds, they have to take the cotton and yarn to their homes and continue the work there for achieving their targets most days, as reported by the weavers and spinners during the field visits. The physical labour or the number of man-hours involved is also reportedly very high. In spite of these, they get only very little wages. During our field visits, the spinners and weavers reported that many skilled artisans left the field and joined the textile shops nearby as piece workers, where they get more wages. Due to these, there is unavailability of the spinners and weavers willing to work in this sector now. The young generation, who are more educated, is not willing to work in this sector due to the low wages and the hardships involved, while those who remain in this sector are mostly the old workers who do not have any other choice for their livelihood.

Recommendations

The entry barriers to the khadi market needs to be removed. Rather than limiting the production and sales of khadi only through KVIC and its subsidiaries, there needs to be different options. The availability of the khadi fabrics need to be ensured in the private retail stores at competitive prices. The opening up of khadi retailing to private players like Raymond and Fabindia are good initiatives in this regard which are reported to have generated high demand for khadi products among the customers. At the same time, they need to compete in the market without getting the approval of KVIC. This along with appropriate marketing techniques like awareness campaigns among the youth on khadi fabrics featuring its quality can help to increase the demand for khadi products.

Already there are some initiatives for enhancing khadi sales and competitiveness in the global market. Examples include the launching of khadi jeans for attracting the youth market and the exhibition of khadi products in the international fashion weeks by private textile designers like Gaurang Shah. The spinners and weavers need to be allowed to work with the private designers without the approval of KVIC so that they get the wages directly from these designers. By increasing the choices available in the khadi market for production and sales, piracy problems associated with the khadi industry can also be solved.



Nair is a senior researcher and Dhanuraj the chairman at Centre for Public Policy Research.


(The article appears in the September 1-15, 2016 issue of Governance Now)

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