In this article we will discuss about the cotton textile industries in India:- 1. Subject-Matter of the Cotton Textile Industries 2. Progress of Cotton Textile Industries during the Plans 3. Ownership and Management 4. Profits and Wages 5. Problems.
- Subject-Matter of the Cotton Textile Industries
- Progress of Cotton Textile Industries during the Plans
- Ownership and Management of the Cotton Textile Industries
- Profits and Wages of the Cotton Textile Industries
- Problems of the Cotton Textile Industries
1. Subject-Matter of the Cotton Textile Industries:
According to Baines, “the birth place of cotton manufacture is India, where it probably flourished long before the dawn of authentic history”. Mummies in Egyptian tombs dating from 2000 B.C. were found wrapped in Indian muslin of the finest variety. Arrian described Indian cotton as carried by the Arabs from Broach up the Red sea to Aduli and he further spoke of extensive trade in the dyed sheets of Masulipatam.
The ‘woven wind’ of Dacca was known to the Greeks under the name Gangetika.’ However, a number of factors…the imports of cheap machine-made cloth from England, railway development in India, and manipulation of railway rates, govt’s indifferent and even hostile attitude, changes in tastes and fashions —combined to practically ruin this industry and reduce India to “a field for the produce of crude materials subservient to the manufacture of Great Britain.”
Though the first cotton mill on Indian soil—the Bowreah cotton mills—was wet up in 1818, the dawn of India’s second life in the cotton industry broke with the establishment in 1851 and operation in 1854 of the Bombay spinning and weaving company by a parsee merchant, N.C. Davar. In the beginning, the progress of industry was very slow and, by 1861, only 12 mills were in existence.
It was after 1870 that the industry took rapid strides so that by 1879, it had come to occupy the position of the most important factory industry in India with 56 mills employing 43,000 workers. And although, the imports of cotton manufactures from Lancashire continued, Indian exports of cotton manufactures of all sorts also rose to 19 million yards in the later half of the decade, 1870-1880.
Lancashire was alarmed by this tendency and moved for the abolition of the import duties which had been levied by the Indian government for purely revenue purposes.
Their efforts bore fruit when the House of commons passed a resolution that the duties now levied on cotton manufactures imported into India, being protective in nature, are contrary to sound commercial policy, and ought to be repealed without delay. Accordingly, in 1822, all import duties were abolished and India became a free trade country.
This, however, could not check the growth of the industry which showed even more rapid development. For example, in the six years ending 1882, the U.K. held 2/3 of the trade with Hong Kong, China and Japan while in the four years ending 1895, 4/5 of this trade had passed to India.
During the closing years of the century, the industry, particularly the Bombay cotton industry, suffered a series of set backs.
Apart from recurring difficulties due to financial shortcomings and faults in management and equipment, there was a succession of troubles such as the outbreak of plague which led to mass exodus of labour from Bombay, drought that curtailed the supplies of raw- cotton, and famines which reduced the purchasing power of the home consumers.
Further difficulties were created by the fluctuating exchanges and political disturbances in China.
In consequence, many mills went into liquidation, reduced their capital, or underwent reconstruction. There was, however, one improvement. The newly erected mills, being equipped with up-to-date machinery, turned out better quality products.
By 1903—04, there were 204 mills with 46000 looms and 5,21,000 spindles, representing an investment of rupees 17 crores and employing, 1,86,000 persons directly. Of these mills, 84 were in Bombay city and 32 in Ahmedabad.
About 1905, agricultural prosperity had returned in a small measure; the plague had also ceased to frighten people away from industrial centres; the price of raw cotton had resumed its normal level and China was bare of stocks.
In the next few years, therefore, the Bombay industry enjoyed unprecedented prosperity. The process of recovery was greatly helped by the Swadeshi Movement which stirred the country when Bengal was partitioned. The industry maintained steady progress until the out-break of the I world war when there were 264 mills employing 2,60,847 persons.
About this time, a new tendency became noticeable, namely, the rapid growth in the number of looms as compared to that of spindles. There was growing uncertainty of the export market for yarn owing primarily to competition of Japan and Lancashire, particularly in the Chinese market.
On the other hand, the market for cotton cloth, being entirely internal, was more stable. This accounts for the increase in the number of looms and decline in spindlage.
A consequence of great significance followed. So far, the industry had concentrated itself at Bombay on account of certain advantages. The industry exported yarn to China but imported machinery, stores, and even skilled workers. The port of Bombay facilitated this import-export business.
Besides, this localisation at Bombay was favoured by its humid climate, the presence in the city of rich and enterprising Parsee, Bhalia and Khoja merchants who provided financial resources and organisation, and availability of raw-cotton at nearby centres.
The policy of the railways to charge lower freight rates from and to the port towns, increased the transport advantage of Bombay over other up-country centres. With the loss of the Chinese Yarn market to Japan, the industry began to concentrate on the home market for cotton cloth and thus was initiated its dispersal to the interior of the country nearer the consumption centres.
Even earlier, the more far-seeing industrialists like J.N. Tata and Morarjee Goculdas had set the example by establishing factories at Nagpur and Sholapur respectively. This tendency was now greatly accelerated and new mills were set up in North India, Mysore, Punjab and U.P.
The First World War:
The First world war offered an unprecedented opportunity to expand production and earn profits. The home market offered good demand and high prices but little competition as imports of piece-goods and yarn were drastically curtailed.
Moreover, raw-cotton prices and wages did not rise in proportion to the prices of cloth and yarn. Furthermore, Indian manufacturers found expanding markets for their products in the neighbouring markets of Persia, Mesopotamia and East Africa.
Unfortunately, productive capacity could not be expanded—there was only a 15% increase in the number of looms-because of the difficulties of importing machinery and equipment. The existing plant and machinery had, therefore, to be intensively utilised so as to be able to secure the 45% increase in cloth production which took place during the war.
The War-time prosperity continued in the post-war era as well, helped as it was by a genuinely increased home demand and the Swadeshi Movement launched by Mahatma Gandhi. By 1923, however, the tables were turned. Foreign goods began once again to pour in and the industry had to face stiff competition, especially Japanese, which affected the overseas markets as well.
The major difficulty was with regard to the cost of production. As the Tariff Board (1932) pointed out, the labour cost per pound of yarn in a Bombay mill exceeded the cost in a Japanese mill by over 60%. Similarly, the labour cost per loom per day (for plain Grey Cloth) in a Bombay mill was over three times the cost in a Japanese mill.
It was this disparity in labour costs which made the position of the Indian industry difficult in competition with the Japanese industry.
For this state of affairs, industry itself was to blame for it just frittered away the enormous war profits which could have been used for the renovation and modernisation of old, worn-out and obsolete plant. In 1925, the situation was so bad that the industry was forced to cut down wages and this led to a general strike.
This drew the attention of the govt., to the seriousness of the situation and, as a first step, it removed the excise duties on cotton cloth. This, by itself, did not meet the needs of the situation as by that time, Japan had entered the Indian market as a major competitor. The industry applied for protection in 1926 but the same was given in 1927.
During the period of protection, the industry showed all-round progress and development. The number of mills increased from 334 to 389 (16.5), spindles by 15.4%, looms by 25.4%, number of workers by 15.2%, consumption of cotton by 74%, yarn production by 52.8% and production of cotton cloth by 93%.
This growth, though impressive in the absolute sense, was relatively much less when compared with that of Japan. Between 1923—33, Japan completely reorganized its textile industry as a result of which output per worker more than doubled in the weaving section and almost trebled in the spinning section.
It is, however, doubtful if the efficiency of the Indian industry increased during 1927—39. ln-spite of the high tariff walls and the quantitative restrictions on imports from Japan, the industry was struggling to maintain production and retail the markets for its products.
In fact, it was the war which gave the industry a much needed respite and helped it to improve its financial position. One welcome feature of the industry during this period was the accentuation of the earlier tendency to disperse to the provinces.
The factors that had favoured the concentration of mills at Bombay began to loose significance. With the development of hydroelectricity in South India, the industry migrated to Madras and Mysore and also to certain princely states which offered several concessions to attract the industry.
The Second World War:
With the start of the Second World War, a new chapter opened in the history of the industry. As in the case of food, so in the ease of cloth, there was a real and considerable shortage in the country. The home production of cotton cloth in 1942—43 was short by 240 million yards when compared with that of 1938—39.
Imports of cotton piece-goods into India also fell by 634 million yards, thus increasing the total shortage to 834 million yards. At the same time, exports of cotton price-goods from India rose by 641 million yards.
This meant a substantial reduction in the amount of cotton cloth available for home consumption at a time when there was an increasing demand from the army and the united states. This caused a real and considerable shortage in the country which, along with other causes, led to an enormous rise in prices.
The index number of whole-sale cloth prices rose from 100 on 19 August, 1939 to 442 in the last week of March, 1943. Thus, like the food and along with it, India had to face an acute cloth crisis as well. The govt., was compelled to intervene and regulate its production and prices.
With a view to achieving maximum increase in output, the production of utility cloth was encouraged; varieties were reduced and production rationalised.
Additional equipment and machinery could not be imported owing to scarcity of shipping and also because India’s traditional suppliers were busy in meeting their own requirements. Therefore, increased production of over 500 million yards during the war period was mainly achieved by greater utilisation of existing machinery by introducing multiple shifts.
This naturally led to excessive wear and tear so that the Fiscal Commission, 1949—50, found that “the machinery in textile mills was badly in need of rehabilitation and replacement.” Another consequence was a considerable deterioration in the quality of production, the index of quality change (Base 1939 = 100) falling from 101 in 1937 to 85 in 1945.
In-spite of the rise in the costs of production and fall in out-put, profits of the mills showed a tremendous increase. In 1942 alone, profits declared were 5 ½ times as high as those in 1928. The war, however, saw the emergence of India as a leading exporter of cotton cloth to certain Asian and African Countries because of the stoppage of Japanese supplies to them.
The partition of the country saw certain important developments in the industry. In the first place, the industry lost the protection it had enjoyed for 20 years as a result of the summary enquiry conducted by the Interim Board in 1947. Secondly, the Partition deprived the country of about 5% of the total number of mills in undivided India.
The Third and more serious effect was the loss of an assured market to the extent of 800-900 million yards. With the increasing development of the cotton textile industry in Pakistan, the capture of the Pakistani market by- Japan, and the strained relations between India and Pakistan, our textile industry had to seek alternative markets.
Lastly, except for small quantities of long staple varieties, India had enjoyed the advantage of self-sufficiency in cotton. Instead of being in a position to export, India now had to face a large deficit in this essential raw-material.
2. Progress of Cotton Textile Industries during the Plans:
The industry performed reasonably well during the first two plans when it fulfilled the targets laid down and even exceeded them in certain respects. The sixties, however, proved an era of misfortunes, economic and political. After making a promising start which induced many a mill to launch on a heavy programme of expansion, modernisation and rehabilitation, if ran into heavy weather.
The Chinese Aggression in October/November, 1962, unleashed a wave of inflation and a high level of taxation. The vicious circle of costs and prices became more vicious, thanks to three successive years of extremely poor cotton crop which coincided with a rapid growth in spindlage.
Industry’s plight was reduced worse by long spells of poor domestic demand, brought about by the reduced purchasing power of the people and the declining export markets.
The remedy lay in reducing the costs by modernisation of plant and machinery and the use of better methods. The industry, however, had a tradition of wasting away its resources in high dividends to share-holders.
Therefore, when the difficulties came, it was totally unprepared to meet them. That explains why in 1966, the percentage of automatic looms to the total amounted to a bare 16.6 in India in contrast to 100% in U.S.A., 72 in U.S.S.R.. 69% in Pakistan and 59% in Egypt.
The situation could have been still met had the industry agreed to reduce its customary high profits. But that was not to be. It instead chose to slow down investment, modernisation and rehabilitation programmes. Some mills even preferred to close down rather than accept lower profits. As a result, cloth production which stood at 4650 million metres in 1960—61, declined to 4400 million metres in 1965—66.
At the end of the Third Plan, i.e. January 1966, there were 519 cotton mills t representing a capital investment of rupees 1.37 crores. The industry employed 7,89,809 workers and the annual value of its output amounted to rupees 430 crores.
3. Ownership and Management of the Cotton Textile Industries:
In contrast to jute and coal industries, which originally were developed by British agency houses, the cotton textile industry from the beginning “was almost I exclusively owned by natives and was under native supervision” although British financed mills soon came to occupy a substantial position in the industry.
In Bombay city, the industry was set up by persons who made fortunes in the cotton trade. In Ahmedabad it owed its rise to the industrial enterprise of Shroffs and other financiers.
A question may be asked as to why Indian enterprise focused on cotton textiles and played such an important and initiatory role in their development while leaving other fields to British entrepreneurship. Several reasons, as given below, can be advanced for the same.
(1) Cotton textiles was perhaps the one single prominent industry in which Indian traders and entrepreneurs could entirely depend on the domestic market for the sale of its output.
(2) As the home market consisted of individual Indian consumers, the discriminatory purchase policy of the British govt., could not be used against it.
(3) There was the comparative advantage in the local manufacture of inferior varieties where no protection had to be sought from the government which generally was guided and influenced by British manufacturing interests.
(4) The necessary technology could be obtained from abroad without much difficulty.
(5) Requirement of skilled labour was strictly limited.
(6) It is also possible that the British capital was discouraged from entering this industry due to the fear of damaging their home industry in Lancashire.
This unique combination of favourable factors was available only in textiles and no where else. That explains why Indian capital and entrepreneurship concentrated on this industry to the relative neglect of other fields of investment.
The management of the industry was in the hands of managing agents who were paid, apart from a fixed office allowance, a commission either on profits as in Bombay, or on sales as in Ahmedabad or on production as in certain other centres.
In turn, these agents managed and, at times, financed the companies under their control. In 1932, the Tariff Board found that 3/5 of the shares of cotton mills at Ahmedabad and majority shares of the mills at Bombay were held by managing agents. Managing agencies as that of the Birlas, Mafat Lai, Kas- turbhi Lalbliai soon came to dominate the field.
The system led to several abuses such as the inter-company transfer of funds, use of the company’s funds for agent’s personal business and excessive commissions and payments.
Shri N.M. Joshi traced the cause of the troubles of the industry neither to the cotton Excise duty, nor to Japanese competition but to the huge managing agency commissions, mismanagement, and incompetence; Despite restrictions placed on them in 1956, these agents received a total of rupees 16.72 crores as commission charges alone during 1960-61—1964-65. It was only in 1966 that, on the recommendation of the Patel committee, the govt., decided to abolish the system in the industry and gave it three years, ending in March 1970, to make alternative arrangements.
4. Profits and Wages of the Cotton Textile Industries:
A high rate of profit has been an outstanding feature of the textile industry. The first mill in Bombay paid on dividend during the first two years, but then paid back half the capital in one year. In the 1880’s some mills returned their capital in full in the first four years.
The total profits of the Empress Mills, Nagpur, set up in 1877, aggregated rupees 9.22 crores up to 30 June, 1966, which was nearly 61.47 times the original ordinary share-capital of the company.
In the early 20th Century, several mills fell a prey to such calamities as famines, plague and exchange dislocation. Many more suffered from speculation and poor management. However, a fair proportion of mills returned handsome earnings to their investors. For the 21 years ending 1925, the gross profits of the Bombay mills, before Agents’ Commission and depreciation was deducted, averaged 38.8%.
The Tariff Board enquiry (1927) revealed that for 1920,42 mills declared dividend of 40% and over, of which 14 mills paid 100% and over and 2 mills paid over 200%.
During the Depression, profits tended to decline as prices fell. However, the better managed and better equipped mills continued to earn profits. Buchanan gives the example of a large mill at Sholapur which paid a dividend of 250% in 1922, 100% in 1925 and more than handsome 35% in 1929.
The Second World War brought the finest opportunity to the industry. It made record profits and was phenomenally prosperous in-spite of the fact that about 80% of the profits were taken away by the govt., through taxation. The mill-owners of Bombay alone made Rs.920 million in profits, the average index of profits in the industry having risen from 100 in 1939 to 645 in 1943.
Contrary to fears, profits did not show any sharp decline in the post war years. Rather, the profit-making spree continued, thanks to the Partition, the Chinese aggression, the two Indo-Pak wars and a host of other natural calamities.
The index of profits in the industry which stood at 317.7 in 1947 (1939=100) rose to 551 in 1951 and 569 in 1957. And be it remembered that these profits did not include the fabulous illegal gains made by tax-evasion and black-marketing. Dividends tended to decline after the govt., imposed certain restrictions, but they were still reasonable-12.2% in 1960—61 and 11.4% in 1964—65 on the total paid up capital.
One disheartening feature of these profits was that they were recklessly distributed in the form of dividends and were not conserved for financing the replacement of worn-out machinery.
As against the abnormally high profits earned by the industry, the wages paid to the workers were miserably low. Wages were almost stationary between 1.860—1895. They, however, rose with prices between 1895—1914, the average monthly wage of a cotton mill worker in 1914 being about Rs.16.40 .
It was during 1914—1930 that wages recorded the maximum advance. The peak was reached in 1920 when the Index number of wages, which stood at 100 in 1914 jumped to 190 in 1920. With the onset of the Depression and the ensuing cut-throat competition, it became difficult to maintain the old level of profits.
The Bombay mill-owners promptly resorted to a wage-cut which consequently fell by 16% between July, 1826 and October, 1934 .The Second World War depressed the wages further.
It is true that, on account of the rise in the cost of living during the war, dearness allowance was introduced at varying rates in different industrial centres. Additional relief was also given by supply of consumer goods at concessional rates.
But, as Pillai observes, “these spectacular increases in the earnings of factory workers did not compensate them adequately for the steady increase in the cost of living.” During 1939—45, the earnings of factory workers increased by 104% while the working class cost of living index (August 1939 = 100) rose to 255 in Bombay, 297 in Kanpur, and 289 in Ahmedabad.
During the plan-period, nominal wages of all workers recorded a substantial increase, but it was more than counter-balanced by a greater rise in the cost of living. Real wages in 1966, therefore, were lower than at the beginning of the First Plan, the real earnings index being 95 in 1966 as against 100 in 1951.
5. Problems of the Cotton Textile Industries:
The First and foremost problem was that of replacement of old Plant and machinery. At the beginning of the First Plan, it was reported that there were 150 uneconomic mills which needed either extension or modernisation of equipment. Of these, 25 had closed down, 35 were working at a loss and 90 were working at the margin.
Between 1951—1966, a sum of Rupees 534 crores was spent on modernisation but an estimated rupees 1000 crores was further needed for the complete overhaul of the industry. As it was, the cost of production of Indian textiles did not stand any comparison with international prices.
Non-availability of cheap and adequate supply of raw-cotton was another major problem facing the industry. Production in 1964—65 was 5.4 million bales against the Third Plan target of 7 million bales. Besides, the yield per acre was very low. In this connection, it is well to remember that raw-cotton accounts for 30—40% of the sale value of cloth.
Therefore, unless cotton was made available at cheaper rates by improving the yield per acre, there could hardly be any reduction in the manufacturing cost which was so very necessary to boost exports.
Thirdly, the exports of cotton cloth, having touched the peak in 1964, declined in 1965 and 1966. There was fierce competition in foreign markets. Many underdeveloped countries had erected their own mills. Africa, importing only 7% of its total textile requirements from India, however, was one market which could easily absorb more of our textiles.