PRODUCTIVITY AND EXPORTS OF TEXTILE INDUSTRY IN TAMILNADU CHAPTER-I

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1 PRODUCTIVITY AND EXPORTS OF TEXTILE INDUSTRY IN TAMILNADU CHAPTER-I INTRODUCTION 1.1 TEXTILE INDUSTRY HISTORY The wearing of clothing is exclusively a human characteristic and is a feature of most human societies. It is not known when humans began wearing clothes but anthropologists believe that animal skins and vegetation were adapted into coverings as protection from cold, heat and rain, especially as humans migrated to new climates; and an alternative premise is that covering may have been first used for other purposes, such as magic, decoration, cult, or prestige, and later found to be practical as well. Clothing and textiles have been important in human history and reflects the materials available to a civilization as well as the technologies that had been mastered. The social significance of the finished product reflects their culture. India has a varied and rich textile tradition. The origin of Indian textiles can be traced to the Indus valley civilization. The people of that civilization used homespun cotton for weaving their garments. Excavations at Harappa and Mohenjo Daro, have unearthed household items like needles made of bone and wooden spindles, suggesting that the people would spin cotton at home to make yarn and finally garments. Fragments of woven cotton have also been found at these sites. The first literary information about textiles in India is available in the Rig Veda, which refers to weaving. The ancient Hindu epics, the Ramayana and the Mahabharata mention a variety of fabrics in vogue during those times. The Ramayana refers to the rich garments worn by the aristocracy, and the simple clothes worn by the commoners and ascetics. Information about ancient textiles of India can also be garnered from the various sculptures belonging to the Mauryan and the Gupta ages as well as from ancient Buddhist scripts and murals. Legends say that when Amrapali, a courtesan who lived in the kingdom of Vaishali (in present day Bihar), went 1

2 to meet Gautama the Buddha, she was attired in a richly woven sari, which testifies to the technical achievements of the ancient Indian weaver. India had numerous trade links with the outside world and Indian textiles were popular in other countries of the ancient world. Indian silk was popular in Rome in the early centuries of the Christian era. Several fragments of cotton fabrics from Gujarat have been found in the tombs at Fostat (older areas of Cairo city, the country s capital). Cotton textiles were also exported to China during the heydays of the silk route. Silk fabrics from south India were exported to Indonesia during the 13th century. India also exported printed cotton fabrics / chintz to Europe and the Asian countries like China, Java and the Philippines, long before the arrival of the Europeans. The cotton cloth weavers of India have been famous since the earliest days of recorded history. A fragment of madder-dyed cloth found in the Indus Valley excavation in northern India showed that weaving and dyeing were flourishing arts over 5,000 years ago. They were skills that were to increase and diversify down the centuries, attracting wider and more lasting praise. The Roman historian, Pliny, bewailed the flight of Roman gold to India because of the Roman passion for Indian fabrics. St. Jerome's Latin translation of the Bible (4th Century A.D.) quotes the ancient patriarch Job as saying that wisdom was more enduring than the dyed colors of India. Arab travelers in 9th Century India reported that "...they make garments of such extraordinary perfection that nowhere else is their likeness to be seen..." Marco Polo observed that the art of Embroidery, as practised in Gujarat in the 13th Century, was incomparable. It was not only the technique of dyeing that made India's textiles famous. The fabrics were blown up with luminous designs which India alone could offer. There were some of which every thread of distort and weft was dyed before being placed on the loom; a design appeared as the weaving progressed and was identical on either side. It was the craft of the individual artist who inherited his skill from his forbears and who gave his own aesthetic beginning to the products he made with his own hands ORIGIN The 19th Century brought with it the industrial revolution and the era of massproduced goods, versatile and cheap but with the impersonality of the machine. Hand- 2

3 woven products, rich and warm as they were, became costly luxuries. The Indian textile industry unchallenged for nearly 30 centuries had to adapt to the new age or perish. A modest beginning was made in West Bengal in 1818 with British investment but the real foundation of the India's modern cotton mill industry was laid 36 years later in Mumbai (formerly known as Bombay). On 2nd February 1854, the Bombay Spinning Mills started functioning with 20,000 spindles. It was the beginning of an era, not only in the sphere of textiles, but also in the entire industrial world of India. Thus the new foundations were firmly laid; there was no looking back and despite upheavals, booms, depressions and all the uncertainties that have marked the last 156 years, the industry has gone further ahead, growing at the rate of an average of four mills a year over that period. The pioneers of the Indian industry were men of purpose, vision, integrity and devotion who were able to graft modern industrial techniques on to the inherent genius of the Indian textile craftsman. In spite of the many challenges they faced notably from the long established and vigorously promoted cotton textile industry of Lancashire these men never wavered in their belief that the Indian industry could lead the world. Had they been alive today they would have seen their dreams abundantly fulfilled. The cotton textile industry is the cornerstone of India's industrial progress held in esteem for the superiority of its products the world over. At present, textiles are the largest organized industry in India. It employs more than 35 million workers, and has more than 34 million spindles and 2 million looms. It produced the massive quantity of 3,052 million kilograms of yarn and 42,109 million square meters of cloth in 2004, and this does not include the 27,945 million square meters produced by the hand-loom and power-loom weavers. More significantly it is one of India's major sources of foreign exchange, being the second largest exporting industry and accounting for about 20 per cent of the total foreign exchange earnings of the country. The Indian textile industry has a great inheritance, which is perhaps unmatched in the history of India s industrial development. India s textile industry evolved and developed at a very early stage and its manufacturing technology was amongst the best. Prior to colonization, India s manually operated textile machines were among the best in the world, and served as a model for production of the first textile machines in newly 3

4 industrialized Britain and Germany. Indian textiles were sought after for their finesse, quality and design. According to Chouta-Kuan, the Chinese observer preference was given to the Indian weaving for its delicacy Prestige trade textiles such as Patola from Patan and Ahmedabad, coasts were sought after by the Malaysian royalty and wealthy traders of the Philippines. Textiles have historically formed an important component of India s exports. Marco Polo s records show that Indian textiles used to be exported to China and South-East Asia. Textiles have also comprised a significant portion of the Portuguese trade with India. These included embroidered bedspreads, wall hangings and quits of embroidered wild silk on a cotton or jute ground. The attractiveness of the fast dyed, multi-colored Indian prints on cotton (chintz) in Europe led to the formation of the London East India Company in 1600, followed by Dutch and French counterparts. By the late 1600s there was overwhelming demand for their governments to ban the import of these cottons from India. The legacy of the Indian textile industry stemmed from its wealth in natural resources silk, cotton and jute. The textile industry stemmed from its wealth in natural resources silk, cotton and jute, the technology used was superior and the skills of the weavers gave the finished product a most beautiful and ethnic look COLONIZATION VS INDIAN TEXTILE INDUSTRY Colonization put an end to India s glorious textiles legacy. The British knew that they could not compete with Indian textile industry and as a result resorted to complete destruction of the industry. By 1880 the domestic market had grown to be serviced solely by the British manufacturers: India, once the world s leading exporters of textiles, was forced to become a net importer. Tariffs were kept out of the British market. One of the aspects of India s freedom struggle, led by Mahatma Gandhi, was to weaken the British textile industry by wearing homespun clothes. Gandhiji was convinced that the textile sector could a catalyst in advancement of the Indian population by creating employment for the excess labour pool. Post-independence, till about the late 1980s, the Government of India put numerous policies and regulations in place to ensure that mechanization did not occur 4

5 and that labour-intensive textiles were produced, large-scale production was discouraged by restrictions on total capacity and mechanization of mills. The labour regulations did not allow capital investment and resulted in high production costs. Imposition of price restrictions, along with decreased productivity, severely hampered the competitiveness of the sector. Till 1985, the main concerns of Government policies were centered on import substitution, protection of existing employment in the organized sector and support for decentralized sector. These concerns were reflected in the government policies such as imposition of quotas on yarn export, strong exit barriers even for unviable operations, general discouragement of automation, stringent licensing for organized sector and price regulations to handle the shortages resulting from the licensing restrictions. Restrictions of such nature only resulted in increasing costs, declining productivity and loss of competitive edge. The textile industry had to be set free from these regulatory burdens so that it could evolve, grow and remain competitive in the global market TEXTILE INDUSTRY IN INDIA The Indian Textile Industry is a vertically integrated industry which covers a large gamut of activities ranging from production of its own raw material namely, cotton, jute, silk and wool to providing to the consumers high value added products such as fabrics and garments. India also produces large varieties of synthetic and manmade fibres such as filament and spun yarns from polyester, viscose, nylon and acrylic which are used to manufacture fabric and garments. The textile sector plays a significant role in Indian economy by contributing to the Gross Domestic product, generating employment and earning foreign exchange. An estimated 35 million people are directly employed in the Indian Textile Industry, which contributes to 4 per cent of GDP and 21 per cent of total export earnings REFORMS PERIOD OF THE INDIAN TEXTILE INDUSTRY The last decade has seen a progressive relaxation of regulatory policies with a view to increase the efficiency and competitiveness of the industry. The textile policy of 1985 heralded a new beginning in the history of the Indian textile industry. It accepted that the crisis in the industry were neither cyclical nor temporary but were rooted in deeper structural weaknesses. It identified the main task of the textile industry as industry 5

6 as increase in production of cloth of acceptable quality at reasonable prices to meet the clothing requirements of a growing population. It identified the main task of the textile industry as increase in production weaknesses. It identified the main task of the textile industry as increase in production of cloth of acceptable quality at reasonable prices to meet the clothing requirements of a growing population. It was envisaged that this basic objectives would be met through cost efficiencies and a freer play of market forces rather than through controls and restrictions. Among other things, the Textile Policy of 1985 addressed the issues of raw material supply at reasonable and stable prices, progressive reduction of duties on synthetic raw material, removal of entry and exit barriers along with emphasis on technology modernization and increasing the competitiveness of Indian textiles in the international market. According to the 1985 Textile Policy, the government attempted to relax the regulatory burden on the composite mill sector by elimination of compartmentalization in the industry, lifting of restrictions on composite mill loom capacity expansion and equalization of taxation among composite mills, power loom and independent processing units. The ushering in of reforms in the 1990s provided a further boost to the Indian textile industry. In line with the general policy of liberalization, several measures were undertaken to reduce controls and bring about greater transparency in the textile sector. The textile industry was de-licensed as per the Statement of Industrial Policy 1991 and the Textile Development and Regulation Order of Reforms on the fiscal and external fronts were also pursued with renewed zeal. Those measures liberated the Indian textile industries from the restraints of regulation that were in place up to the late 80s.These steps were only a beginning in ensuring that the different segments of the textile industry become competitive in the wake of liberalization. The Indian textiles industry is extremely varied, with the hand-spun and handwoven sector at one end of the spectrum, and the capital intensive, sophisticated mill sector at the other. The decentralized power looms, handlooms / hosiery and knitting sector form the largest section of the Textiles Sector. The close linkage of the Industry to agriculture and the ancient culture, and traditions of the country make the Indian textiles 6

7 sector unique in comparison with the textiles industry of other countries. This also provides the industry with the capacity to produce a variety of products suitable to the different market segments, both within and outside the country. The Indian textile industry is in a stronger position now than it was in the last six decades. The industry which was growing at 3 to 4 per cent during the last six decades has now accelerated to an annual growth rate of 9 to 10 per cent. There is a sense of optimism in the industry and textiles sector has now become a sunrise sector. Considering the domestic availability of cloth, the per capita availability of cloth is sq. mtrs. By the end of the Eleventh Plan period, as against sq. mtrs. in , registering an annual rate of growth of 9.70 percent per annum. The per capita availability is estimated based on the projected population and expected export trend 1. In the past, there has been massive upsurge in the textile industry of India. The size of the industry has been expanded from 37 billions of US Dollars in to 49 billions of US Dollars During this era, the local market witnessed a growth of 7 billions of US Dollars. The export market increased from 14 billions of US Dollars to 19 billions of US Dollars in the same period. 1. India covers 61 per cent of the international market 2. India covers 22 per cent of global market 3. India is the third largest manufacturer of cotton across the globe 4. India claims to be the second largest manufacturer as well as provider of cotton yarn and textile in the world 5. India holds around 25 per cent share in the cotton yarn industry across the globe 6. India contributes to around 12 per cent of world s production of cotton yarn and textiles. Indian Textile Industry can essentially be categorized into two segments: 1. Organized Textile Industry 2. Unorganized Textile Industry Industries Department, Government Of Tamil Nadu 7

8 1. Organized Textile Industry is a highly organized one with immense importance on capital intensive production process. This sector is characterized by sophisticated mills where technologically advanced machineries are utilized for mass production of textile products. 2. Unorganized Textile Industry sector is the dominant part in this industry which mainly utilizes the traditional practices (woven or spun) in cloth production and hence is labour intensive in nature. This industry is characterized by the production of clothes either through weaving or spinning with the help of hands PRODUCTION OF TEXTILE INDUSTRY IN INDIA Indian textile sector s performance continues to lag substantially behind that of China even in the post quota era. China s export of textiles and clothing reached a new peak of billions of US Dollars in 2005 which accounted for per cent of global trade. In comparison, India s share was a miniscule 3.37 per cent amounting to billions of US Dollars. The Indian textile sector continues to suffer from ageing machinery, inadequate infrastructural facilities (power and ports), and rigid labour laws. The continuing scheme such as the Technology Upgradation Fund (TUFS) and the Scheme for Integrated Textile Parks launched recently are aimed at addressing some of these problems. The Indian textile industry has approximately 1200 medium to large scale textile mills in India 20 per cent of these mill are located in Coimbatore. The total cloth production has declined by 4.74 per cent during April-December The decline in production has been due to two major segments, namely power loom (-2.54 per cent) and hosiery ( per cent). Cloth production for the mill and handloom sectors is increased by 1 per cent and 2 per cent respectively during the period. During April - December 2011, man-made fibre production and filament yarn production recorded a decrease of about 2 per cent and 7 per cent respectively. Production of cotton yarn is decreased annually by 13 per cent during this period. However, blended and non-cotton yarn production increased by 5 per cent. 8

9 The industry has 34 million cotton spindles for manufacturing cotton yarn which account for 70 per cent of India s textile exports. The domestic knitting industry characterized by small scale units with facilities for dyeing, processing and finishing. The industry is concentrated in Tirupur and Ludhiana. Tirupur produces 60 per cent of the country s total knitwear exports. According to Annual Report of Ministry of Textiles, The Indian textile industry constitutes 14 per cent to industrial production 4 per cent to country s gross domestic production and 17 per cent to country s export earnings TEXTILE INDUSTRY IN TAMIL NADU The cities of Coimbatore, Erode, Gobichettipalayam, Perundurai and Tirupur, in Tamil Nadu are the largest garment exporters in India and sometimes referred to as the Textile valley of India. In 2004, the export turnover from here was more than 1 billion of US Dollars. Some 7,000 garment units in the town provide employment opportunity to 1 million people. About 62 per cent of India's textile trading takes place only in the city of Erode and 56 per cent of India's total knitwear exports come from Tirupur. The Export Import Policy of acknowledges Tirupur for its contribution to the export efforts. Coimbatore accounts for nearly 700 million of US Dollars and next to Coimbatore, the town of Karur and Erode generates around 300 million of US Dollars a year in foreign exchange through home textile exports such as bed linens, kitchen linens, toilet linens, table linens and wall hangings. Madurai and Kanchipuram is very famous for handloom sarees. This handloom sarees are on sale all over India. Tamil Nadu, Karnataka, and Kerala are the main states for wholesale sarees. For these sarees manufacturing, raw materials are purchased from Coimbatore, Erode and Salem. Gobichettipalayam has the India's first automatic silk reeling unit. Textile mills and engineering industries are present around the city of Coimbatore. It is home to textile, automotive spare parts and motor pump manufacturing units. Cities of Tirupur and Erode are the country's largest exporters of knitwear. They are well known for textile manufacturing industries and exports to such extent that the Annual Report, Ministry of Textiles

10 districts of Coimbatore, Tirupur, Karur, Erode, Namakkal and Salem. Coimbatore is known as the "Manchester of South India" for its cotton production. The region around Coimbatore, Tirupur, Karur and Erode is referred to as the "Textile Valley of India" with the export from the Tirupur Rs million (1,000 million of US Dollars) and Karur generates around 35,500 millions of Rupees (750 million of US Dollars) a year in foreign exchange. 56 per cent of India's total knitwear exports come from Tirupur and Karur make above 60 per cent of India's home textiles. Gobichettipalayam, Pollachi, Theni and Vedasandur are known for its cotton spinning mills. Rajapalayam is famous for its cotton market. Gobichettipalayam is a prominent producer of white silk with the country's first automated silk reeling unit present here. Kanchipuram and Arani are world famous for their pure zari silk sarees and handloom silk weaving industries. Aruppukottai, Salem, and Sathyamangalam are also famous for art-silk sarees. Aundipatti, Tiruchengodu, Paramakudi, Kurinjipadi, Chennimalai are major handloom centres. Negamam, Chinnalapatti, Woraiyur, Pochampalli are famous for its soft cotton saree weavings. Madurai is well known for its Chungidi cotton saree. Bhavani is famous for carpet PRODUCTION OF TEXTILE INDUSTRY IN TAMIL NADU The Textile Industry of Tamil Nadu has its significant presence in the National and State economy. It is the precursor in Industrial development. Handloom, Power loom, Spinning, Processing, Garment and Hosiery are the various sectors of the Textile Industry in Tamil Nadu and known for the largest economic activity next only to Agriculture in providing direct and indirect employment. Tamil Nadu possesses the second-largest economy ( ) among states in India after Maharashtra. It is the second most industrialized state next to Maharashtra. As of , Tamil Nadu had a per capita GDP of US Dollars 1,622, the sixth highest in India. Tamil Nadu's Gross State Domestic Product for was 4.28 trillions of Rupees or 145,868 millions US Dollars. The state had a growth of 9.4 per cent in Tamil Nadu has etched a name for itself in the manufacture of cotton textile and its leading position in this area is well known not only in India but world over. The state 3 Economy Of Tamil Nadu, Government OF Tamil Nadu 10

11 contributes more than 22 per cent of the country's exports of cotton yarn and fabrics. The exports of cotton textile in were 2.1 billions of US Dollars and it is estimated that it would reach 5.0 billions of US Dollars by the end of USA, UK, France and Germany are among the principal buyers of cotton textile from Tamil Nadu. Approximately 21 per cent of India's exports of ready-made garments originate from Tamil Nadu. In actual terms it translates to around 1.5 billion of US Dollars garments being exported from the state, the two main centres being Chennai (Madras) and Tirupur. In fact, Tirupur has emerged strongly as a major industrially township. As a consequence, several important spin-off industries have emerged in neighbouring regions the textile machinery industry is one such off-shoot. While Tamil Nadu continues to maintain commanding position in this industry, many international corporate are looking at the state as a global sourcing point for readymade garments with an eye on the comparatively low production costs and high quality of output offered. According to annual survey of industries Tamil Nadu was the third largest industrial state in the country. The gross output of its industrial sector was 37,986 crores, accounting for 10.3 per cent of national output. Its net value added was Rs 7303 crores. Cotton textile was prominent among the industry groups that contributed to this ranking. In terms of gross output value, cotton textiles increased from 18.8 per cent of national in to 32.2 per cent in In terms of net value added, the corresponding figures were 18.4 per cent and 37.4 per cent. Other textile products accounted value for 20.3 per cent in and 22.3 per cent of that year s net value added the textile sector as a whole in Tamil Nadu registered distributing negative growth rate in In the Tamil Nadu s textile sector, the total yarn production in the state was 695 million kgs, fully 33.3 per cent of country s production in The production of cotton yarn was 611 million kgs, being 38.5 per cent of country s output and blended and manmade fibres accounted for 84 million kgs, 16.7 per cent of the national output. This was the output of 617 textile mills(44.2 per cent of the country) comprising 595 spinning mills, 52.7 per cent and 22 composite mills (8.2) per cent accounting for a total of 98.7 lakh spindles (32.5 per cent). Included spinning mills are 18 co-operative spinning mills 11

12 accounting for 4.69 lakh spindles and 34 million kgs of yarn, a quantity sufficient to meet roughly half the hank yarn requirement of the state. In , Tamil Nadu also produced 187 million meters of cloth, 11 per cent of the national production of which cotton accounted for 93 million meters, 8.4 per cent and blended variables accounted for 94 million meters (15.8 per cent). This was the output of 7.7 lakhs of looms, being 5.1 per cent of the country s loomage. Of this 4.3 lakh of looms were in the hand loom sector and 3.4 lakh in the power loom and composition mill sectors. The power loom sector has been playing an increasingly important role in textile production. The number of power looms has grown from 9.58 lakhs in to a registered number of nearly lakhs in , including the ones not registered. It is estimated that there are a total of about 17 lakhs power looms in the country. The majority of them are in the western zone, followed by southern zone. Its growth has come primarily at the expense of the organized mill sector. The production of mill sector in was about 2589 million of square meter which fell to 1880 million square meters by During the same period the production of power loom sector increased from 1334 million square meters to million Square meters (55 per cent of country s fabric production). The exports of fabrics and made-up of the power loom sector in were Rs 5603 crores (54 per cent of the national total) while comparable figures for the handloom and mill sectors only Rs 1780 crores and Rs 2633 crores respectively. The knitwear industry had made tremendous strides within the state and has emerged as a export earner. For instance, thiruppur itself accounts for nearly 70 per cent of knitwear export of about Rs 3621 crores in this sector accounts for nearly 13 per cent of the textile production of the country. Against 2696 million square meters produced in by this sector, the production in was about 5102 million square meters nearly 16 per cent of the country s fabric production. There are nearly 7000 hosiery units in the country. 12

13 During the year , these societies have produced lakh metres of cloth at the value of Rs crore and the turnover realized was at Rs crores. The textile mills in the State are predominantly spinning oriented which provide mass employment. There are 3069 large, medium and small spinning mills in the country, out of which 1889 mills (61.55 per cent) are located in the State and provide employment to 2.40 lakh persons. The spinning mills comprise of 18 Cooperative Spinning Mills, 17 National Textile Corporation Mills and 1854 Private Mills including 23 composite mills. During 2008 (April September), the production of spun yarn by the mills was 7.9 lakh tonnes and showed the negative growth of 1.7 per cent. Likewise, the production of fabrics fell to 53.5 million sq. mts. and registered a negative growth of 4.6 per cent STATE S INDUSTRIAL INITIATIVES The transparent and pro-active Industrial Policies of the State Government towards industrialization has attracted more investment into the State economy since liberalisation. As per the Centre for Monitoring Indian Economy (CMIE) the total investment in the State was Rs crore in June, 2006, increased by more than three times to Rs crore in March Based on the New Industrial Policy of Tamil Nadu Government, a number of Package Assistances were announced by the State to attract more investment. During the discussions regarding the Demand on Industries Department for in the Legislative Assembly (TN), it was announced by the Government to sign MOUs for attracting investment in excess of Rs crore in Against this announcement, the Government have signed 12 Memorandum of Understandings (MOUs) with an investment of Rs crore and issued structured package sanctioning orders for 7 other projects separately for an investment of Rs.5462 crore. Thus, the total the investment of Rs crore during 2008 for 19 projects were found to be higher than the total investment attracted since liberalization of Indian Economy in 1991 till the year of During the last three years (between and ) the Government have signed 23 Memorandum of Undertakings (MOUs) in addition to sanctioning structured Packages of Assistance for projects separately with the total investment of all these projects at Rs crore and expected to generate employment to 2.14 lakh persons. 4 4 Industries Department, Government of Tamil Nadu. 13

14 The present Global Economic Slowdown has its impact in the State economy also. The manufacturing sub-sectors of the State economy such as textiles, wearing apparels, leather, wood products, chemicals, non-metallic minerals, basic metals, software and hardware of IT industries, transport equipments, automobiles have experienced lower production compared to that of the previous year s level due to lower demand and power shortages. The recent recession is termed as Rare Recession in the developed economies heavily affecting the exports from India to these countries. A sharp contraction is 70 resulted in demands for Indian goods in the global market and massive job losses in various sectors across the country. This affected the export-oriented sectors like textiles, leather, gems and jeweler, petroleum products, automobiles etc. that are major portion of the India s export basket. At the national level, the industrial scenario of Tamil Nadu continues to retain its position as in the previous year. As per the ASI data , Tamil Nadu occupies the first position in having the number of factories and the total number of persons engaged in the industrial process. In respect of all the other principal characteristics, fixed capital, productive capital, gross value of output and net value added; the State retains its third position as in the previous year. At the national level, the State is sharing per cent of factories, 9.94 per cent in fixed capital, per cent in persons engaged, and 9.76 per cent in gross value of output and 8.97 per cent in net value added. At the national level, the industrial scenario of Tamil Nadu continues to retain its position as in the previous year. As per the ASI data , Tamil Nadu occupies the first position in having the number of factories and the total number of persons engaged in the industrial process. In respect of all the other principal characteristics, viz. fixed capital, productive capital, gross value of output and net value added; the State retains its third position as in the previous year. According to Associated Chambers of Commerce and Industry, Over two lakh jobs were lost as over 2650 textile factories remained non-operational in Tamil Nadu during 2000 to Of the total textile factories across India, about were operational and about 5300 non-operational an on Infra woes: TN textile look for greener pastures, The Indian Express, New Delhi, January

15 The five states are Tamil Nadu, Gujarat, Punjab, Maharashtra and Uttar Pradesh accounted for about 88 per cent of non-operating textile factories. Tamil Nadu alone accounts for about 54 per cent of non-operating textile units followed by Gujarat 16 per cent, Maharashtra 10 per cent Punjab 4 per cent and Uttar Pradesh 3 per cent. 1.4 PRODUCTIVITY IN TEXTILE INDUSTRY There is a general belief among many economists, that participation in international trade increases productivity. For a long time many economists viewed that increases in exports would increase productivity levels. Increases in exports, it was argued, increased the level of productivity through, utilization of economies of scale. Recent theoretical works suggest that trade may increase not only the level of productivity but also the growth rate through its effects on technology. Total factor productivity (TFP) is as a measure of overall productivity, has been gaining recognition not only for its theoretical correctness but also for its peculiarity among policy makers and economic analysts. Growth of total factor productivity (TFP) provides society with an opportunity to increase the welfare of the society. Productivity growth is defined as the efficiency with which inputs are transformed into output in the production process (Van Den Berg, 2001). According to the neo classical growth model and subsequently confirmed by several empirical studies, productivity growth is significant determinants of long run economic performance (Solow 1957, Denison 1985, Hall and Jones 1999, Federal Reserve Bank, 2003) 6. Productivity is the ratio of output to inputs in production; it is an average measure of the efficiency of production. Efficiency of production means production s capability to create income 7. Traditional theory on trade is clear about the effect of more trade because it increases competition and enhances efficiency. Market grows not only from increased domestic demand but also from external demand. Therefore, foreign trade is also important source of growth. In addition to its effect on economies of scale, exposure to Sarbapriya Ray, Factors influencing Productivity Efficiency in Specific Manufacturing Industry: A Case Study on Indian Aluminium Advances in Information Technology and Management 98. Vol. 1, No. 3, 2012 Wikipeadia, fom free encyclopedia 15

16 foreign competition may improve productivity has been increased entrepreneurial effort and improve technical efficiency. Foreign investment plays an important role in several ways. Foreign firms may raise productivity by enhancing competition, introducing new capital goods and technology, and encouraging an increase in skilled workers. Multinational activity may lead to technology transfer to domestic firms. If foreign firms introduce new products or processes to domestic market, domestic firms may benefit from accelerated diffusion of new technology. TFP growth was an important component of economic growth in the past, especially in advanced countries. In contrast, previous productivity studies on Indian industry did not report satisfactory TFP growth performance. Since the restrictive policy framework prevailing earlier was partly blamed for India s poor TFP growth contribution in the past, the liberalization process initiated significantly during 1991 is expected to change TFP growth situation in India. In the words of J. N. Sinha and P. K. Sawhney The cotton textile industry in India recorded significant advances in partial as well as total factor productivity during the period under study. Total factor productivity increased at a trend rate of 2 to 4 per cent per annum. The productivity movements, however, show three distinct phases: (i) rising productivity in the period , (ii) stagnant or even declining productivity in , and (iii) accelerated rise in productivity during, Variations in productivity are significantly explained by such factors as the extent of capacity utilisation, scale of operation and factor proportions 8 According to Pushpha Trivedi, For textile industry, Maharashtra and Gujarat were the topper states and Bihar and Karnataka featured at the bottom. Madhya Pradesh and Maharashtra had highest levels of TFP in metal industry, whereas, West Bengal and Tamil Nadu featured at the bottom. Inter-state differences in growth rates of TFP (TFPG) in textile industry widened over time, as measured by CV. The lowest TFPG for textile industry was recorded for Bihar and the highest for Karnataka 9 8 Productivity Trends and Factor Compensation in Cotton Textile Industry in India Indian Journal of Industrial Relations, Vol. 3, No. 4 (Apr., 1968), pp An Inter-State Perspective on Manufacturing Productivity in India: to Indian Economic Review, New Series, Vol. 39, No. 1, (2004), pp

17 Chiranjib Neogi and Buddhadeb Ghosh state that Total factor productivity growth (TFPG) which is a reflection not only of pure technical progress but also of the growth of overall efficiency with which factors are combined, have fallen very sharply during the period of reforms with the exception of chemical industry. This study does not find any indication of rise in productivity and efficiency during the post-reform period. Hence, competitive environment, which is the major determinant for efficiency improvement, has not yet been created through reform. Our study also suggests that Indian industry is still under the grip of monopoly elements. Only a limited number of big firms are lying on the frontier level while most firms are gradually losing out of the market. Hence, appropriate policy intervention is urgently called for in order to create proper competitive environment 10 Anup Kumar Bhandari and Subhash C. Ray view that There were significant technological differences across states. However, firms from states with more productive technologies often ended up performing at low levels of efficiency as is evident from the case of Gujarat in the year There is some evidence that states with less productive technologies are gradually catching up to the national benchmark. Private sector firms were more efficient than and also technologically superior to firms from the public sector. Firms organized as limited liability companies (public or private) performed better than firms of other organizational types. Average level of technical efficiency seems to be on an increasing trend over time. The sharp fall in might reflect the disruptive effects of structural adjustments during early years of the post- Reform regime EXPORTS OF TEXTILE PRODUCTION The role of textile industry in India has been quiet beneficial in the economy of the country. The world wide trade of textiles and clothing has boosted up the GDP of India to a great extent as this sector has brought in a huge amount of revenue in the country. 10 Impact of Liberalisation on Performance of Indian Industries: A Firm Level Study,Economic and Political Weekly, Vol. 33, No. 9 (Feb Mar. 6, 1998), pp. M16-M24 11 Technical Efficiency in the Indian Textiles Industry: A Non-Parametric Analysis of firm-level data Bulletin of Economic Research 64:1, 2012,

18 During , textile exports recorded an increase of 6.9 per cent over During April-October 2007, textile exports increased marginally by 1.49 per cent on year-on-year basis. Though the textile sector seemed to have gathered momentum consequent to the termination of the quota regime in December 2004, the export performance of the Indian textiles continues to lag substantially behind that of China in the post-quota era in terms of rate of growth of exports and share in world textile exports. Despite steady growth in production, the textile industry has been plagued by factors like high transaction and power costs, technological obsolescence and labour issues. The production of cotton textiles may have been affected considerably by the recent appreciation of Rupee against US dollar. Textile products may also have been affected to a lesser extent. Textiles and clothing worth US Dollars billion were exported during as against US Dollars billion during , registering an increase of about per cent. During April-November 2011, exports of textiles and clothing were of the order of US Dollars billion as against US Dollars billion during the same period of 2010, registering a considerable growth of per cent. In respect of global exports of clothing, India ranked sixth largest exporter as per the World trade Organization (WTO) trailing behind Turkey, Bangladesh, Hong Kong, EU-27, and China. In respect of global exports of textiles, India ranked third, trailing EU-27 and China. 1.6 FOREIGN EXCHANGE EARNINGS FROM EXPORTS Indian Export Sector has improved immensely over the years and has earned 125 billion of US dollars in the current fiscal year. The goods exported from India mainly include wide variety of agricultural products, textile, chemicals, Jeweler, garments, leather goods and so on. During , India earned 27 per cent of export earnings from textile exports. During , the export earnings from chemical industry was million of US dollars, whereas export earning of gems and jeweler was million of US dollars and the engineering industry was performed consistently and it secured million of US dollars in and it increased to millions of US dollars during The performance of textile industry has fluctuated as little as the earnings of the textile 18

19 industry from exports was millions of dollars and it came down to million of dollars PRESENT STUDY Most of the earlier studies have identified that the negative growth of total factor productivity for manufacturing industry in general and textile industry in particular during the pre reform period. Some researches have identified positive growth in total factor productivity during post reform period. In this context, the present study makes an attempt to analyse whether it is positive or negative growth for textile industry in India during pre and post reform periods. The present study also attempts to verify the export performance on the textile industry in Tamil Nadu and to find out the relationship between total factor productivity and exports of the textile industry in Tamil Nadu. Export Sector of Indian Economy, Business Maps of India.Com 19