Political Economy of India's Textile Industry: The Case of Maharashtra, 1984-89

Abstract

INDIA'S TEXTILE INDUSTRY is officially divided into two sectors: the organized sector composed of textile mills, situated mainly in metropolitan cities, and the decentralized sector composed of handlooms and powerlooms. Over the decades since independence, the organized mill sector has undergone a gradual decline, given an environment of stringent governmental controls on entry, exit and expansion, limited demand, and most importantly, increasing competition from powerloom production. Powerlooms frequently employ the same technology as mills, but are designated as part of the small-scale sector, and therefore qualify for important tax exemptions and have a much lower wage structure. The 1980s saw the beginnings of the process of economic liberalization in India; the contraction of the state's role in industry and the creation of greater space for the market and for private enterprise becoming the underlining principles of industrial policy making. In keeping with this policy thrust, the New Textiles Policy of 1985 attempted to reverse the decline of the mill sector by withdrawing controls, offering credit supports, fiscal incentives and import liberalization of technology and machinery. The state also announced its intention of discontinuing governmental takeovers of bankrupt mills merely for the preservation of employment, and announced that an exit policy would be implemented with regard to unfit textile mills both in the private and in the public sectors. Despite these policy changes, the decline of the cotton mill sector continued (except for a few firms which shifted to export oriented manufacture). In the 1985 New Textiles Policy, the question of the imbalance between mills and powerlooms was left largely unaddressed. In the post-1985 years, in the competition for a limited domestic market, the