-By Kirti Singh, Richa Mishra, Ajith Narayanan (PGP-FABM batch of 2023, IIM Ahmedabad)
Introduction
Silk exports from India have increased after hitting a six-year low in 2021-22, with an increasing demand for silk carpets and garments in the USA and Europe. India is the only country in the world that produces all five varieties of commercial silk, i.e., Mulberry, Tropical Tussar, Oak Tussar, Eri, and Muga with a combined global market value of $16.86 Bn.
Problem
India, despite being the second-largest producer of silk (~35,000 MT), is ranked as the number one importer of raw silk, whereas it is the 9th largest exporter of raw silk in the world. India is the second-largest producer of raw silk as well as the largest consumer of raw silk and fabric. The unfulfilled demand is dependent on imports from China, Vietnam, Uzbekistan, Brazil, and the United Arab Emirates.
Observations
The Indian supply chain sector of silk is a highly unorganised and decentralised chain of activities. Activities are scattered cluster-based and community-based, and it has impacted the quality and quantity of export. India is mired by domestic challenges like use of outdated manufacturing technology, primitive and unscientific “reeling” and “weaving” techniques, use of poor-quality seeds, low production of bivoltine seeds, use of nongraded and diseased seeds, poor knowledge of farm disease amongst farmers, poor supply chain management, highly unorganized and decentralized sector, high production cost, and recurring droughts.
Analysis
As per the data collected through primary and secondary research, silk has high export demand, and India generates around 200 million USD annually by exporting silk and silk products. Mainly exported items include readymade garments, followed by silk fabrics, silk waste, silk carpets etc. There is a decrease in the value of silk exported from India. The reasons can be attributed to intense competition from China as less production of quality silk from India.
To analyse the productivity factors and the impact of varied factors on the export potential, the production data was taken for the last five years for all the states under silk production. Assuming silk production depends on the GDP of the state, the change in GSDP for that period, the wage rate of farmers, no. of silk farmers & reelers in the state and the fund allocated by the Govt. for silk development, data analysis was performed.
Silk production= f (GSDP, % change in GSDP, Wage rate, % of silk farmers, % of reelers, Govt. investment)
The correlation analysis shows that an increase in wage rate has a strong negative correlation with production, i.e., an increase in wage rate decreases production. An increase in GSDP has increased production, but after a certain time, it has a negative effect. It might happen due to alternative livelihood practices adopted by the silk farmers.
As per regression analysis, production is mostly affected by the wage rate. An increase in wage rate decreases production. Reeling has no significant effect on production, which shows that the processing & production of silk are not integrated. It is an identified gap in the silk value chain. The correlation analysis also shows a negative effect of public investment on silk production. This may be the result of leakage in the chain or diversion of the fund towards personal use by the farmers.
According to the silk demand and production trend, it is fairly observed that there is a gap in domestic silk production. For example, in 2021-22, India imported 1377 MT of raw silk. The trend analysis of silk production across various states shows a decline in production except in some north-eastern states like Assam, Meghalaya etc.
As per the data of the global market, there is a huge opportunity for export into Canada, Turkey, Vietnam, Japan, EU etc. The market demand is more than the total supply of silk. In Malaysia, the trade barriers are quite low, which allows India to make Malaysia as a major importer of Indian silk. Though global market shows attractive prospects for export, Indian reelers are unable to capitalize on the opportunity due to importing countries’ quality requirements and domestic problems like lack of transport & storage facilities, poor information on market trends, and lack of finance.
Recommendations
To combat domestic challenges and export quality silk, India has to increase public investment in the sector, renovate existing infrastructure, infuse networking services to quash information asymmetry, increase collectivization and farmers clusters pan India, primary processing near production facilities, ensure uniform quality by setting a rigid homogenous standard under “Silk Mark” through quality control, testing, & certification, and finally engage in “Make in India” branding. The government must raise the customs tax up from 20% and strictly condemn dumping of cheap silks to India to protect the indigenous reelers.
The existing policies & initiatives like FCA, RKVY, STEP, SRC, SAMARTH, TSP, SILKS Portal, e-Cocoon, SILK Mark must be revitalized in favour of the sericulture industry after understanding the nuances at a microscopic lens. Only if there is an overall development in the sector, there would be less attrition due to wage rate increase as the sector can attract and retain labour.
Vidya Vemireddy 