Int. J. Management Concepts and Philosophy, Vol. 8, Nos. 2/3, 2014 181 Indian jute manufactures: adaptation and survival in a sunset industry Amiya Kumar Bagchi Institute of Development Studies Kolkata, Monash University, Calcutta University Alipore Campus, 5th floor, 1 Reformatory Street, Kolkata 700027, India E-mail: amiya.bagchi@gmail.com Panchanan Das* Department of Economics, University of Calcutta, 56A, B.T. Road, Kolkata 700050, India E-mail: daspanchanan@ymail.com *Corresponding author Abstract: The primary motivation of this paper is an inquiry into short-run efficiency, with factory level data, that can throw light on the reasons for survival of the jute industry in India. After briefly recapitulating the history of the rise of the Indian jute industry, and its stagnation in later years, we have tried to figure out the ways in which technical helped the revival or growth of the industry, but could not prevent its stagnation in recent years. The structural change took place in favour of capital that increased profit rate by increasing workload per worker significantly. Structural breaks took place in skilledunskilled employment growth and in wage differentials. In many cases, workers were increasingly displaced by capital without affecting output growth of the industry. The study of the post-independence performance of the Indian jute industry only partially supports the hypothesis that technical advance is the major driver of creative destruction in industries. Keywords: jute industry; technology; capitalist enterprises; India. Reference to this paper should be made as follows: Bagchi, A.K. and Das, P. (2014) Indian jute manufactures: adaptation and survival in a sunset industry, Int. J. Management Concepts and Philosophy, Vol. 8, Nos. 2/3, pp.181 195. Biographical notes: Amiya Kumar Bagchi has been in the profession of teaching Economics since 1958. He has taught and researched in many Universities, including the University of Calcutta, Cambridge University, University of Bristol, Cornell University, Roskilde University, Denmark. He is the Founder Director of the Institute of Development Studies Kolkata, and currently at the Institute as Emeritus Professor. He has published many articles and books. Copyright 2014 Inderscience Enterprises Ltd.
182 A.K. Bagchi and P. Das Panchanan Das teaches Time Series and Panel Data Econometrics in the Department of Economics of the University of Calcutta. He has published several articles on growth, inequality and poverty in referred journals and edited volume. He is a major contributor of West Bengal Development Report 2008, published by Academic Foundation, New Delhi. He has also contributed to the Routledge volume, Productivity in Indian Manufacturing: Measurement, Methods and Analysis, 2014. 1 Introduction Jute may not be a fibre as widely grown, or as well-known as cotton. But in the period of European and North American industrialisation, it was perhaps the leading packing material for grain, oilseeds and other bulky materials. In terms of profitability, investment and growth, worldwide the jute industry probably reached its apogee in the 1920s, and has been on a path of halting movement, if not decline, especially in the old centres of manufacture. There are several conceptual frameworks that can be used to explain the survival of the jute industry in post-independence India even with drastic changes in packaging, storing and transporting technology. One is the use of a vintage model: as older vintages of capital equipment are retired, newer and more productive arrays of capital, embodying new technologies, allow the firms using them to win the competitive game (Johansen, 1959; Solow, 1960). The second is the Marx-Schumpeter vision of creative destruction under which the nature of products, production methods, sources of raw materials, the destinations of products and organisation of the firms change under the pressure of completion (Schumpeter, 1947). However, the idea that ceaseless search for innovations and technical progress drives change can be applied to the long-stagnant industries only with severe modification. Survival within stagnation in the case of an agro-processing industry such as jute in a developing country depends less on buoyant animal spirits than on the exploitation of peasant labour and the reserve army of industrial workers. From the pioneering work of W.E.G. Salter (Salter, 1960) to the studies of diffusion of industrial processes by an NIESR team (Nabseth and Ray, 1974), it has been known that in almost every industry best-practice and lower productivity techniques (and product compositions) co-exist even in advanced capitalist economies. Hence some degree of push for innovations, resulting in the retiring of obsolete capital goods, the retention of capital equipment which is obsolete but can still yield a revenue that pays for the variable cost, and the utilisation of cheap labour can probably be joined together to explain the survival and rapid fluctuations in the jute industry in India. For explaining changes in the Indian jute industry since independence. The Marx-Schumpeter vision of innovative capital and vintage models of change (Stoneman, 1983, Chapter 8) need to be combined with a realistic appreciation of the role of cheap labour. In pre-independence days, the annual rate of investment in the industry reached a peak in 1913 1914 and another peak in 1921 1922 (Bagchi, 1972, Table 8.1), and the number of workers employed reached a high of 343,868 in 1928 1929, and declined to a low of 257,175 in 1932 1933, and hovered a little below 300,00 for most years of the late 1930s, but the numbers of looms and spindles went on increasing until 1939 1940 (Bagchi, 1972, Table 8.3). 1 This probably indicates both an increase in the workload of workers, and intense competition among the mills, since many new mills broke with the Indian Jute
Indian jute manufactures: adaptation and survival in a sunset industry 183 Mills Association (IJMA) regulations, and profitability of the industry declined precipitously (Chakrabarty, 1989, Table 2.7). The Second World War increased the profitability of the industry but prevented any new investment because of restrictions imposed by the British government on the use of shipping for any purpose other than that of the war. The Indian jute industry was badly affected by the partition of India, chiefly because the partition interrupted the supply of the raw material from East Pakistan, the principal jute-producing region. But from 1950 1951 again the output grew until 1964 1965. After that year the general recession in Indian industry, combined with falling exports, affected the output of the industry. The machinery in many mills was badly worn-out and the money provided by the government for modernisation was diverted to other uses or remained unutilised. However, by using more and more casual workers who were badly paid, even in comparison with the badly-paid permanent workers, and continuing to exploit a situation when a tightly knit oligopoly confronted several million small and marginal farmers with no collective ability to resist the manipulations of the mill-owners and traders closely linked to them, many of the mills made large profits. Sen (1983, p.m46) found that The CSO study unmistakably confirms our broad conclusions that: (1) productivity of both labour and capital has improved consider- ably; (2) both fixed and working capital at constant prices have declined considerably over the period 1971 76. Thus increase in productivity and profitability in the jute industry has taken place in the face of a steady erosion in the financial position of the industry. This may explain, in part, industry s reluctance to invest money. Such refusal to invest money, while exploiting the jute growers and workers to a greater extent, may also explain the sickness of a number of units in the industry. The industrial capital seems to have been treated as an exhaustible asset, such as a mine, by many owners. Something like an industrial involution in the sense of a continual increase in the relative (and perhaps also absolute) surplus value generated by labour has also taken place in the jute industry. Up to 1980 or thereabouts, the proportion of contractual workers to the total number was below 50%. But among the small proportion of women workers in the mills, it was much higher: While employment of women in the industry in general [was] very small and also declining, the bulk of the woman labour force [was] employed as piece-rate workers. For example, in 1981, while only 2.44 per cent of total employment was accounted for by women, 77 per cent of the women labourers in jute worked as piece-rate workers and 23 per cent as time raters. (Sen, 1983, p.m42) The contradictions of capitalism become evident as we probe the current conditions and prospects of the jute industry. Take, for example, the contradiction with environmental concerns. The principal use of jute, in spite of diversification in its products, is as packaging material and as carpet backing. The principal competitor of jute in those uses is polypropylene, which is derived from mineral oil, which is a non-renewable resource and whose extraction imposes various environmental costs. If we take into account the cost of replacement, then even with the current prices of oil, it is almost certainly underpriced. Secondly, polypropylene is biologically non-degradable and hence poses a major environmental hazard, especially in developing countries with poor sewerage and public sanitation (Roul, 2009). Yet this material is used in many countries, including
184 A.K. Bagchi and P. Das India, as alternative packaging material because it is cheaper and because the oil lobby is much stronger politically than the poor jute growers of Bangladesh and India. By now, the jute mills in India produce a large variety of goods such as hessian, sacking, carpet-backing cloth, yarn, wearing apparel, and geo-textiles. But hessian, sacking and yarn still remain the major products. In March 2007, the industry employed about 76,500 permanent workers and 133,291 other workers. Thus the proportion of contract workers had gone up enormously since 1980. There were wide variations in the absolute costs and profitability among the mills. There were also large variations in the proportions of wage and raw material costs among the mills. In 2007 2008 the wage share in net expenses ranged from 18.90% to 37.03% in a sample of 34 mills in West Bengal (the state had 52 functioning mills in that year out of a total of 66 mills for India as a whole). 2 The mills use unskilled or de-skilled labour wastefully because it is so cheap. At the same time, the lack of proper maintenance of machines and trained manpower to run the machines leads to frequent breakages and wasteful use of spare parts, many of which are sub-standard. The technologists trained in the Institute of Jute Technology look for better career prospects, because employment in jute mills is regarded as a dirty and dead-end occupation. 3 However, even under these unpropitious conditions, it is important to find out the degree of efficiency with which surviving firms are utilising the inputs available to them. In fact, survival critically depends on whether a firm can use the inputs available so as to maximise the value-added whose sharing between labour and capital then is determined by the respective bargaining power of the owners and the workers. In a sunrise industry, it is possible for a conglomerate enterprise to support a productive unit that is unprofitable in the short run. The controlling firm may consider that getting a foot in the door of the industry is worth temporary loss, and further learning and growth of good will of the firm will compensate for losses in the short run. A firm cannot have any such expectation in a sunset industry, and therefore an inquiry into short-run efficiency can throw light on the survival prospects of the industry. That is a primary motive for combining the analysis of stagnation and growth for the industry with the analysis of short-run efficiency. The case of the jute industry also displays the interesting phenomenon that when costs have been sunk in capital equipment for a long time and amortised perhaps many times over, and technologists have acquired industry-specific skills which cannot be easily transferred to growing sectors, starting and closing down units can be done very rapidly, without incurring the usual start-up costs. Thus stagnation in an industry can make capital malleable, with no benefit to labour but yielding easy quasi-rents to capital. In the rest of the paper we utilise factory level (unit level) data provided by the Annual Survey of Industries (ASI), the main source of information about the industry published by the Central Statistical Organization, Government of India. However, there are problems of both coverage and intertemporal comparability of the ASI data. All firms registered under sections 2m(i) and 2m(ii) of the Factories Act 1948 are supposed to supply relevant information mentioned in the ASI schedules; but many of them have failed to supply them frequently. Hence in any given year there may be a larger number of factories than is reported by the ASI. The ASI distinguishes between the census sector which corresponds to the larger units, and the sample sector which consists of units below the size that qualifies a factory as a member of the census sector. The coverage of the factory units in ASI under census sector was changed in 1997 1998. Previously, factories employing 100 or more workers
Indian jute manufactures: adaptation and survival in a sunset industry 185 were included in the census sector and the rest in the sample sector, but since 1997 1998 factories employing 200 or more workers have been covered on census basis and the remaining factories on sample basis. Also, all public sector undertakings (PSUs), irrespective of the numbers of their employees were included in the census sector. The rest were covered in the Sample Sector by the usual formula of determination of sample size at a given value of the precision of the estimates with at least 99% chance. As a result, for any industry one finds a smaller number of units in the census sector since 1997 1998. It leads to a bias in the results on size distribution, ownership pattern and forms of business organisation. The size distribution in terms of fixed capital of the reported units is highly positively skewed (the coefficient of skewness varies from 2.1 in 1996 to 7.9 in 1979), the share of firms with average capital more than the median value is significantly large. To maintain the meaningful comparison between units of classification as provided in national industrial classification (NIC) used in ASI over time, we have used factory level data over the period 2000 2001 to 2009 2010. 4 The study is organised as follows. Section 2 describes the locational and ownership structure of Indian jute mills. Here, we have looked at the change in the distribution of factory units across the major states in India during the past decade. Section 3 examines growth and structural changes in different sectors of jute manufacturing in India as defined in ASI in terms of NIC categories for different periods. The employment structure of the industry has also been examined in this section. Contributions of different inputs to output in jute manufacturing sectors are explored by estimating the neo classical production function in log-linear form in Section 4. Section 5 describes production and consumption of different types of jute products on the basis of the data taken from the Ministry of Textiles, government of India. Section 7 concludes. 2 Location and organisational structure The jute industry in India is concentrated in West Bengal, mainly on the banks of the Hooghly near Kolkata. The state has enjoyed a cost advantage in producing jute goods since the initial establishment of the industry in India in the middle of the 19th century 5 as the major competitor to the linen and jute industry of Dundee. Kolkata is located in close proximity to the jute growing districts of West Bengal. Jute cultivation expanded in Bengal more than one and a half century back when the Dundee flax mills were converted into jute processing mills, raising the global demand for jute manifold. Bengali peasants were highly experienced in jute cultivation and responded quickly to meet this increased demand. West Bengal, today, contributes roughly three-fourths of the total raw jute output of the country. Table 1 displays the distribution of factory units under the spinning and weaving sector of jute manufacturing by location in India for 2000 2001 and 2009 2010. 6 In 2000 2001 spinning and weaving sector covered nearly 90% of the total jute manufacturing units at the national level, but its share declined to 75% in 2009 2010. The figures as shown in Table 1 indicate the dominance of West Bengal in terms of the number of factory units in this sector during the past decade. While the number of factory units of the state declined, its share to national figure increased significantly during the period 2000 2001 to 2009 2010. This implies that the number of jute mills, particularly in the spinning and weaving sector, declined everywhere in the country mostly in the
186 A.K. Bagchi and P. Das form of lockouts, but at a higher rate in the states outside West Bengal during the first decade in the 21st century. Gujarat registered a sharp fall in jute manufacturing units in this sector. Other major declining states include Andhra Pradesh, Maharashtra and Kerala. Tamil Nadu, on the other hand, had shown a significant improvement both in terms of the number of factory units as well as its share. Orissa also showed a similar trend. In Punjab the number of factory units declined, but its national share increased during this period. Although the spatial distribution of factory units in other sectors of jute manufacturing in India is not shown in tabular form in this study, the data reveal that the manufacture of finished jute fabrics is located mainly in West Bengal, and its number declined during the past decade. The number of factory units of jute carpets, concentrated in Kerala, experienced no significant trend in either direction during that period. The manufacture of rope and cordage, on the other hand, mostly located in Andhra Pradesh and exhibited rising trend significantly during 2000 2010. Table 1 No. of spinning and weaving units of jute manufacturing by major states in India States 2000 2001 2009 2010 Andhra Pradesh 21 (6) 7 (4) Assam 16 (5) 5 (3) Bihar 3 (1) 2 (1) Chhattisgarh 4 (1) 1 (1) Gujarat 17 (5) 2 (1) Haryana 18 (5) 8 (4) Himachal Pradesh 3 (1) 4 (2) Jharkhand 6 (2) 3 (2) Karnataka 11 (3) 4 (2) Kerala 36 (10) 5 (3) Madhya Pradesh 14 (4) 4 (2) Maharashtra 24 (7) 7 (4) Orissa 2 (1) 3 (2) Punjab 12 (3) 9 (5) Rajasthan 17 (5) 7 (4) Tamil Nadu 34 (10) 37 (21) Uttar Pradesh 18 (5) 5 (3) West Bengal 72 (21) 59 (33) All India 349 (100) 179 (100) Figures in parentheses indicate state s share in percentage. As we have taken major states only, column sum does not match with all India figure. Source: Authors estimation with the factory level data, Annual Survey of Industries, CSO, Ministry of Statistics and Programme Implementation, Government of India Table 2 presents the distribution of factory units of the four sectors, as stated above, of jute manufacturing together, by organisation and ownership types, across four major
Indian jute manufactures: adaptation and survival in a sunset industry 187 Indian states in 2009 2010. Over 80% of the jute mills in West Bengal were operated by public limited companies. The respective shares of public limited companies in jute manufacturing in Andhra Pradesh, Tamil Nadu and Kerala were notably low in that period. The organisation type of jute mills in Andhra Pradesh and Kerala were dominated by private limited companies. Jute mills in India are mostly under private ownership, but the ownership pattern, as of 2009 2010, was not similar in different states (Table 2). In Andhra Pradesh, the jute mills, producing mainly rope and cordage, were fully privately owned. In Tamil Nadu also all jute mills were under private ownership. In West Bengal 98% of the jute mills were privately owned. In Kerala the share of stateowned mills, mainly producing jute carpets, was around 35%. Table 2 Percentage distribution of jute mills by types of organisation and ownership: 2009 2010 Public limited company Organisation type Private limited company State ownership Ownership type Private ownership Andhra Pradesh 25 50 0 100 Kerala 9 39 35* 65 Tamil Nadu 15 17 0 100 West Bengal 82 16 2 98 * includes ownership wholly by the Central government (5%), by the state government (17%) and by joint public sector (13%). Source: As for Table 1 3 Growth and structural changes: 2000 2010 After one decade of reforms in industrial policies, as a part of the Fund-Bank structural adjustment programme initiated by the Union government, the annual growth rates of gross output and physical capital (all in real terms at 2004 2005 prices), employment and real emoluments in different sectors of the jute industry in India were highly uneven over the years (Figure 1). Because of their irregular fluctuations over the period of 10 years in this study as shown in Figure 1, it would be inappropriate to calculate growth rates of output and input variables by fitting a trend curve. However, if we look closely at the time path of their logarithmic values, we have some idea about the growth pattern of output, labour and capital experienced recently by jute manufacturing units in the country. In the spinning and weaving sector of jute industry, output increased sharply in 2002, after experiencing a drastic fall in the previous year. Output in this sector was roughly stable in the next two or three years; again after 2006 it showed a sharp upward trend. The other sectors also followed roughly a similar pattern in output changes. Investment in plant and machinery declined during the first half of the previous decade, but it increased thereafter in the spinning and weaving jute textiles sector. In the manufactures of jute fabrics and jute carpets, however, there was no significant increase in the number of machines during this period. Employment of labour in jute mills increased, but at a significantly lower rate. The rate of absorption was higher in spinning
188 A.K. Bagchi and P. Das and weaving of jute, as compared to other sectors of the industry for obvious reasons. While the absorption rate was fluctuating during the first part of the previous decade, the rate of employment of total labour (skilled and unskilled taken together) increased at a steeper rate, particularly in spinning and finishing of jute fabrics during the second half of that decade. There had been no significant increase in labour employment particularly in the manufacture of jute carpets and ropes during this period. The growth pattern of real emoluments was roughly the same for all employees, implying simply that the rate of payment did not improve in this industry (the pay structure had been changed in other sectors, particularly in public sector jobs and in other corporate sectors during that period because of the implementation of the 6 th Pay Commission appointed by the Union government). In many cases jute industry workers were tactfully forced to leave their job, or to accept early retirement with or without compensation. Figure 1 Time path of output, physical capital, labour and emoluments (see online version for colours) Output, capital and emoluments are in lakh rupees at 2004 2005 prices. Source: As for Table 1 The changes in structural ratios of the jute industry in India are presented in Table 3. The structural change that took place was in favour of capital and increased the profitability of the jute industry during 2000 2010 by following the trend in earlier period (Das, 2014). The profitability reached a peak in the mid-1980s and after a sharp decline, it experienced an increasing trend again since the late 1980s. But the profits of the industry were siphoned off to other business, largely through illegal raw jute purchase operations. If we add the profits of the raw jute trade that are accrued to the jute mill-owners, the rate of profit for the jute industry would appear to be much higher. The rate of return on capital and value added per unit of output also moved up from the late 1980s. Capital intensity increased in the spinning and weaving sector as well as in the manufacture of jute carpets
Indian jute manufactures: adaptation and survival in a sunset industry 189 during 2000 2010 (Table 3). The industry became more capital-intensive not simply because of higher investment in plants and machinery but because of the gradual displacement of workers. The manufacture of jute ropes and cordages, and finishing of jute fabrics, however, experienced a fall in capital-labour ratio during the same period. During the past decade, in the spinning and weaving sector of the industry, output per unit of labour increased significantly and at a higher rate than the rate of increase in output per unit of capital. In the manufacture of finished jute fabrics, both the ratios of output to labour and capital increased, but, in contrast to the spinning sector, outputcapital ratio increased at a significantly higher rate as compared to the output-labour ratio. The structural changes in these two sectors of the jute industry increased workload per worker significantly. In the manufacture of jute carpets, on the other hand, both the ratios of output to labour and capital declined and the former ratio at a significantly higher rate. In the manufacture of jute ropes and cordages, output-labour ratio declined, but output-capital ratio improved by more than three times during 2000 2010. Table 3 Structural ratios in the Indian jute industry Structural ratios Output per unit of labour Spinning and weaving of jute 2000 2001 2009 2010 Finishing of jute fabrics 2000 2001 2009 2010 Manufacture of jute carpets 2000 2001 2009 2010 Manufacture of jute ropes and cordages 2000 2001 2009 2010 4.6 7.8 0.4 2.5 32.7 9.8 2.7 2.5 Output per unit of 3.8 5.8 0.3 5.9 11.7 5.8 6.0 18.8 capital Capital-labour ratio 1.2 1.3 1.4 0.4 0.3 1.7 0.4 0.1 Source: As for Table 1 We have mentioned that jute mills in India use unskilled labour wastefully because it is so cheap. At the same time, technical persons employed in jute mills have come to regard their work as a dead-end occupation. Structural breaks took place in skilled-unskilled employment growth and in wage differentials. Both wage and employment experiences of skilled workers indicate that they had become confined to a blind alley, and there was little incentive for undergoing formal training in jute technology. Over 90% of employees were ordinary workers in spinning and weaving in 2000 2001 and the share declined to less than 80% in 2009 2010. But in other sectors of jute manufacturing the share of workers of this type increased remarkably (Table 4). The relative share of ordinary workers increased at the highest rate in the manufacture of jute carpets during the period 2000 2010. Feminisation of workforce had occurred clearly in jute textile industry in India. The share of women workers increased significantly in the spinning sector during this period. However, the women s share declined in the manufacture of jute carpets, and ropes and cordages. The manufacture of jute carpets was performed mainly by contractual workers on a casual basis: a considerable part of them were women workers.
190 A.K. Bagchi and P. Das Table 4 Percentage of workers of different types in jute industry Spinning and weaving of jute Finishing of jute fabrics Manufacture of jute Manufacture of jute carpets ropes and cordages 2000 2009 2000 2009 2000 2009 2000 2009 Workers type 2001 2010 2001 2010 2001 2010 2001 2010 Ordinary worker 92.6 78.6 72.2 91.3 55.2 81.0 89.7 95.0 Female worker 5.4 26.1 2.1 3.5 25.0 21.0 24.8 2.0 Contact worker 8.6 18.7 6.8 68.8 64.2 7.8 14.8 Source: As for Table 1 4 Relative contributions of inputs to output During 2000 2010, the productivity of both labour and capital increased, but at different rates in different sectors of the jute industry. The rate of increase of capital productivity was significantly higher in jute fabrics, and ropes and cordages as compared to spinning and weaving. On the other hand, labour productivity grew more than capital productivity in spinning and weaving sector in jute industry in India. In many cases, workers were increasingly displaced by capital without affecting output growth of the industry. Although labour productivity increased at a considerable rate, wage discrimination was very high between different types of workers performing roughly similar kinds of work. The contractual workers and female workers were paid less than half of the wages of permanent male workers. The contract workers were paid on a piece-rate basis and their earnings were affected badly by the disruption of production due to power cuts or mechanical faults that were beyond the control of the jute workers. In this part of the study we have estimated the contributions of labour, capital and materials used to output of different types of jute manufacturing, as classified by the ASI as we have mentioned earlier, by utilising factory level information for the year 2009 2010. The Cobb-Douglas production function has many limitations (Hall, 1988). However, in a microeconomic context, it can be used as a summary measure of the way output changes as inputs of the major factors of production change. Here a Cobb-Douglas production function is estimated with three inputs, labour, capital and materials, and ex-factory value of products and by-products as output variable, all in logarithmic form, by applying ordinary least squares for the period 2009 2010. The production function is specified as lny = A+ β ln L + β ln K + β ln M + u (1) i L i k i M i i The variables Y i, L i, K i and M i represent output, labour, capital and material respectively of firm i, and u i is the idiosyncratic random error, capturing all other unobserved factors. The use of unit level data across regions captures technological heterogeneity among firms. We have used the ex-factory value of output as output variable, and the value of plant and machinery, and total number of employees as input variables capital and labour respectively. The coefficients β L, β K and β M measure the input elasticities in terms of labour, capital and material respectively representing marginal contributions of them. The sum of the elasticities measures the returns to scale. The intercept component A gives
Indian jute manufactures: adaptation and survival in a sunset industry 191 an idea about the effect of other observable factors not incorporated in the estimated model. Table 5 presents the estimated input elasticities in different segments of jute manufacturing units at the national level, and Table 6 displays the respective estimates for spinning and weaving of jute, the dominating sector in the aggregate Indian jute industry as well as in the states of West Bengal and Tamil Nadu. The contribution of labour was significantly higher than that of capital and materials in every sector of jute manufacturing in India (Table 5). Workers contribution was the highest in the manufacture of ropes and cordages, while capital s contribution was the highest in spinning and weaving as compared to other sectors of jute manufacturing in 2009 2010. In the manufacture of jute carpets, on the other hand, the contribution of materials was the highest and the contribution of capital was statistically insignificant. As the sum of input elasticities is less than unity, the production function specified here exhibited diminishing returns to scale in each sector of the industry. The spinning and weaving of jute manufacturing units have been concentrated mainly in West Bengal, followed by Tamil Nadu. The technological characteristics as revealed in the estimated values of input elasticities were different in these two states. While the contribution of capital to output in the weaving sector was the same, the contribution of labour was significantly higher in Tamil Nadu than in West Bengal (Table 6). Our estimated results suggest that the spinning sector of jute exhibited increasing returns to scale in Tamil Nadu, while it followed diminishing returns to scale in West Bengal. This is really because the industry suffered from excess capacity and the estimate cannot be seen as proof of economies of scale in the proper sense. A major technological change in the jute industry in India took place in the 1950s when sliver spinning replaced spinning from twisted roving. Since then sadly enough, unlike in the case of cotton and synthetic textiles, there has been very little effort to innovate and develop exclusive jute machinery in the country. Mill owners remain reluctant to modernise their plants. In the early 1990s some initiatives had been taken to improve jute machinery in India under a UNDP project. But this resulted mainly in the import of carding machines, shuttle looms and winders designed for jute in the 1960s and 1970s in the UK. Much of the jute machinery operating in India is still very old, some of the machines even date from the 1930s. Table 5 Estimated coefficients of labour, capital and material inputs in different sectors of jute industry: 2009 2010 Spinning and weaving of jute Manufacture of jute carpets Manufacture of jute ropes and cordages Intercept 8.28* 7.03* 10.74* Labour 0.41* 0.34 0.75* Capital 0.27* 0.10 0.04 Material 0.24* 0.70** 0.18 R 2 0.923 0.726 0.898 Adj. R 2 0.922 0.681 0.887 *Significant at less than 1% level. **Significant at 5% level, and the rest are statistically insignificant. Source: As for Table 1
192 A.K. Bagchi and P. Das Table 6 Estimated coefficients of labour, capital and material inputs to output in spinning and weaving of jute: 2009 2010 West Bengal Tamil Nadu Intercept 12.00* 9.68* Labour 0.70* 0.84* Capital 0.13* 0.13* Material 0.04 0.15* R 2 0.804 0.967 Adj. R 2 0.793 0.963 *Significant at less than 1% level. **Significant at 5% level, and the rest are statistically insignificant. Source: As for Table 1 5 Production and consumption of jute products The principal use of jute, in spite of diversification in its products, is as packaging materials and as carpet backing (Table 7). Among the traditional products, hessian and sacking comprised of 18% and over 65% respectively of the total product in 2008 2009. While the share of Hessian declined between 1999 and 2009, the production share of sacking increased. Jute sacks have been very popular because of its mechanical strength, resistance to heat and light, air ventilation, biodegradability and so on. Table 7 Types of jute goods produced (as percentage of total value of output) Period Hessian Sacking Others 1999 2000 21.7 57.2 21.2 2000 2001 20.8 58.6 20.6 2001 2002 17.2 64.6 18.2 2002 2003 20.9 61.7 17.5 2003 2004 19.4 62.3 18.3 2004 2005 19.2 61.5 19.3 2005 2006 20.2 63.7 16.1 2006 2007 18.5 64.5 17.1 2007 2008 19.7 64.4 15.9 2008 2009 18.2 65.6 16.2 Source: Office of the Jute Commissioner, Ministry of Textiles, Government of India The Indian jute industry has faced new kinds of competition in recent years, but survived, and grew slowly, primarily on the basis of domestic consumption (Table 8). In 2008 2009, roughly 12% of the total value of jute goods was exported from India. After the First World War, in 1919, the Calcutta Hessian Exchange Ltd. Was established, and futures markets grew in both raw jute and jute products. The fall in demand for jute fabrics was often blamed on the operations of these future markets (Bagchi, 1972, p.278).
Indian jute manufactures: adaptation and survival in a sunset industry 193 In 1927, the East Indian Jute Association Ltd. was set up for organising futures trading in raw Jute. These two associations amalgamated in 1945 to form the East India Jute & Hessian Ltd. under which trading in both raw jute and jute goods is organised. However, futures trading in raw jute was suspended in 1964. Table 8 Domestic consumption of jute goods (percentage to total production) Period Hessian Sacking Total 1999 2000 83.3 99.8 89.7 2000 2001 79.8 98.1 88.3 2001 2002 88.3 98.7 91.2 2002 2003 74.3 95.5 84.8 2003 2004 83.0 92.9 85.5 2004 2005 78.9 98.0 86.4 2005 2006 74.2 96.7 87.1 2006 2007 83.5 97.7 89.7 2007 2008 77.5 96.4 86.9 2008 2009 83.9 97.3 87.9 Source: As for Table 7 6 Conclusions Schumpeter (1947) hypothesised that technical advance is the major driver of creative destruction in industries. The study of the post-independence performance of the Indian jute industry only partially supports that hypothesis. After briefly recapitulating the history of the rise of the Indian jute industry, and its stagnation in later years, we have tried to figure out the ways in which technical change (along with growth of the domestic market) helped the revival or growth of the industry, but could not prevent its stagnation in recent years. Although, apparently, the approaches of Schumpeter (1947), the vintagecapital approaches of Johansen (1959) and Solow (1960) and the frictional co-existence of best-practice and inferior technologies approach of Salter (1960) are contradictory, they can be reconciled by examining different phases of evolution of the postindependence jute industry in India. Diversification of products and the adoption of new products from the late 1970s and 1980s allowed some big firms to overcome the fall in productivity and increase their market share. This also involved the installation of new vintages of capital. But the emergence of a pool of skilled workers when the industry fell on harder times in the 1990s and the resort to cruder forms of products by smaller and less dynamic firms allowed many of them to survive by operating their factories in seasons when greater profitability beckoned. We have looked into the nature of technical adaptation of the industry by carrying out an empirical estimation of some quantitative indicators of growth and structural changes with firm level ASI data to illustrate the process of growth, stagnation and survival of jute textile industry in India after one decade of structural adjustment reforms. A significant mismatch between labour and capital in terms of their relative contribution to output has been observed. The industry experienced a fall in factor productivities and technical
194 A.K. Bagchi and P. Das efficiency during the 1980s, but survived somehow during the post reform period (Das, 2014). The real capital growth was extremely low; both fixed and working capital even declined during the 1970s (Sen, 1983). This trend followed the general recessionary trend that started in Indian industries in the mid-1960s. However, productivity and profitability increased substantially, in spite of systematic erosion of capital stock. Since the late 1970s, however, fixed capital in jute industry grew at a substantial rate and structural changes took place in favour of capital. While productivity and efficiency declined in the 1980s, they increased in the 1990s and afterwards. The industry s capital stock is made up of machines of different ages with different productive potentials. Many of the machines dated back more than 50 years; new investment took place, propelled by growth in domestic use of jute products, but this incremental production took place without using machines of the latest type. Workers were displaced in the process of structural change, but technological diffusion in the form of use of more recent technologies did not occur by. The contribution of labour to output growth was significantly higher than that of capital. This was achieved partly by increasing the workload of the ordinary workers without technological up-gradation of machinery. References Bagchi, A.K. (1972) Private Investment in India 1900 1939, Cambridge University Press, Cambridge. Chakrabarty, D. (1989) Rethinking Working-Class History: Bengal 1890 1940, Princeton University Press, Princeton, NJ. Das, P. (2014) Productivity, efficiency and capacity utilisation in jute industry in India: a non-parametric frontier analysis, in Kathuria, V., Rajesh Raj S.N. and Sen, K. (Eds.): Productivity in Indian Manufacturing: Measurement, Methods and Analysis, Routledge, New Delhi. Hall, R. (1988) The relation between price and marginal cost in U.S. industry, Journal of Political Economy, Vol. 96, pp.921 947. Johansen, L. (1959) Substitution versus fixed production coefficients in the theory of economic growth: a synthesis, Econometrica, Vol. 27, pp.157 176. Nabseth, L. and Ray, G.F. (Eds.) (1974) The Diffusion of New Industrial Processes: An International Study, Cambridge University Press, Cambridge. Roul, C. (2009) The International Jute Commodity System, Northern Book Centre, New Delhi. Salter, W.E.G. (1960) Productivity and Technical Change, Cambridge University Press, Cambridge. Schumpeter, J.A. (1947) Capitalism, Socialism and Democracy, 2nd ed., Allen & Unwin., London. Sen, S.K. (1983) Crisis and profitability in jute industry, Economic and Political Weekly, Vol. 18, No. 9, pp.m40 M47. Solow, R. (1960) Investment and technical progress, in Arrow, K.J., Karlin, S. and Suppes, P. (Eds.): Mathematical Methods in the Social Sciences, Stanford University Press, Stanford, California, pp.89 104. Stoneman, P. (1983) The Economics of Technological Change, Oxford University Press, Oxford.
Notes Indian jute manufactures: adaptation and survival in a sunset industry 195 1 S.G. Barker, Director of Research, Wool Industries Research Association, report summarised in Bagchi (1972), pp.288 289. 2 Source: Report of the Sub-committee on Analysis of wage structure in the context of costing of various items of expenditure and profitability of jute mills (mimeo) set up by the Ministry of Labour & Employment, Government of India on 28th January, 2009. 3 Report on study demand (sic) for skills and improvement of skill levels of workers in jute industry for enhanced productivity(mimeo) [the committee was set up on 19 December, 2008]. 4 NIC 1998, NIC 2004 and NIC 2008 are perfectly comparable. The latest unit level data we have for the period 2009 2010. 5 The first jute mill was established at Rishra, near Calcutta, in 1855 by George Ackland by importing jute spinning machinery from Dundee. 6 According to NIC08 used in ASI, jute manufacturing units are classified into four main categories: spinning and weaving, finishing of jute fabrics, manufacture of carpets, and manufacture of rope and cordage.