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IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 Make in India and Productivity of Indian Textiles Industry: A Case Study Bombay Dyeing & Mfg. Co. Ltd Dr. Asiya Chaudhary Associate Professor Department of Commerce Aligarh Muslim University Aligarh, India Mohammed Pervej & Neshat Anjum Research Scholars Department of Commerce Aligarh Muslim University Aligarh, India measure its productivity in the recent Abstract The Indian Textiles Industry plays a past so as to understand how it can be pivotal role in Indian economy through further be exploited in context of ‘Make its contribution to industrial output, in India’ campaign, which may promote employment export production and job creation in the sector. earnings. Currently, it contributes about Productivity in any industry measures 14% to industrial production, 4% to the the level of production as well as GDP, and 27% to the country’s export employment. earnings. It provides direct employment proposed to find the productivity of to over 45 million people. The Textiles textiles industry by taking a sample sector is the second largest provider of study employment and manufacturing Company Ltd., so as to therefore cannot be ignored, forcing the find out how the industry is contributing Government to include the Industry and can further be improved in order to amongst the 25 key sectors, which have fulfill the objectives of the ‘Make in the potential to compete with the best in India’ mission of the Government. the world, for ‘Make in India’ mission. Researcher has opted Bombay Dyeing As this industry has always been because it is one of the largest producer contributing of generation, after and agriculture extensively to GDP, of textiles So the Bombay in India. researchers Dyeing & Productivity employment generation, total industrial Accounting Model introduced by H. S. production, etc., it becomes necessary to Davis has been used in the paper to 144 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 measure the productivity of the sample and in turn the manufacturing and selected. The results depict that the employment productivity performance of industry has industry level in the Textiles not been very satisfactory due to several reasons discussed in the paper. Finally Keywords: Textiles industry, Bombay the Dyeing & Mfg. Co. Ltd., Productivity paper also discusses various measures that can be adopted by the accounting model. government to enhance the productivity Introduction: India is the second largest producer of textiles and garments in the world. The Indian textiles and apparel industry is expected to grow to a size of US$ 223 billion by 2021, according to a report by Technopak Advisors. This industry accounts for almost 24% of the world’s spindle capacity and 8% of global rotor capacity. Abundant availability of raw materials such as cotton, wool, silk and jute as well as skilled workforce have made the country a sourcing hub. The textiles industry has made a major contribution to the national economy in terms of direct and indirect employment generation and net foreign exchange earnings. The sector contributes about 14 per cent to industrial production, 4 per cent to the gross domestic product (GDP), and 27 per cent to the country's foreign exchange inflows. It provides direct employment to over 45 million people. The textiles sector is the second largest provider of employment after agriculture. Thus, growth and all round development of this industry has a direct bearing on the improvement of the India’s economy. (India brand Equity Foundation, 2016).Realizing the importance of the industry, it has been allowed for a 100% FDI for its further development and growth. Adding to its importance, the Government has recently identified the Textiles Industry amongst the 25 key sectors, which have the potential to compete with the best in the world. These sectors have been listed on the ‘Make in India’ web portal and separate brochures for these sectors will be released along with a general brochure to guide companies in the industry. (Make in India, n.d.) As this industry has always been contributing extensively to GDP, employment generation, total industrial production, etc., it becomes necessary to measure its 145 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 productivity in the recent past so as to understand how it can further be exploited in context to ‘Make in India’ campaign, which may promote production and job creation in the sector. The researchers have selected to undertake a case study of Bombay Dyeing & Mfg. Co. Ltd in Maharashtra, as it is one of the largest producers of Textiles in India. Productivity is measured with the help of various appropriate variables using the Productivity model. The paper analyses and explores into existing deficiencies responsible for low productivity and suggests strategies that must be adopted to overcome and develop so that it can largely participate in the ‘Make in India’ campaign. Maharashtra & Its Textile Sector: Maharashtra has a flourishing economy which is based on the edifice of a strong infrastructure. The state has a sound economic and social structure. Maharashtra is rich in two main industries i.e. Sugar and Textiles. Maharashtra is also one of the largest producer of cotton in India. In 2012-13 a total 79 lakh bales of cotton was produced in Maharashtra that amounted to 21.64 per cent of the country’s total production. The state has witnessed 122 major textiles projects with an investment of USD 224 Million. Largest number of sector’s 100% Export Oriented Unit (EOU) with a count of 560 is based in Maharashtra. Maharashtra has abundant raw material available pulling the cost of textile industry further down. It has one of the best human resource pools because of traditional textile hubs in the state. It has highest FDI in the country and highest contribution to India’s GDP. It has top textile players and strong infrastructure. (Maharashtra Textile Sector, 2014) In Maharashtra, Bombay Dyeing & Mfg. Co. Ltd is one of the India’s largest producers of textiles. The daily production at Bombay Dyeing exceeds 300000 meters of fabrics and it has a distribution chain consisting of 600 plus exclusive shops spread all over the country. Bombay Dyeing, exports to advanced countries such as U.S.A, countries in European Union, Australia and Newzealand and its sales turnover is more or less equally divided between National and International markets. The company was ranked 68 in the Business India Super 100 list in 1997 and was ranked 300 in the ET 500 list in 2010. The company sponsors many events, including Bombay Dyeing Gladrags Mrs. India contest. 146 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 So the researchers aim to analyse the productivity and efficiency of Maharashtra textiles Industry by taking the case study of Bombay dyeing & mfg. Co Ltd. (Bombay Dyeing, n.d.) Literature Review: The growth of an Industry can be well measured by its productivity with the passage of time. The growth of Industry in any economy reflects the growth and economic development of that economy. Lots of research work has been done to measure the productivity of different sectors in India. Productivity is defined as a measure of quantifying the output against the amount of input. It expresses the relationship between the quantity of goods and services produced (output) and the quantity of labour, capital, land, energy, and other resources to produce it (input) (Zandin, 2001). Productivity is the only meaningful measure of industrial competitiveness.(Khurana & Talbot, 1998) and hence this topic is widely discussed especially in the manufacturing sector due to its solid link to the organisational profitability. Profitability of a firm is mainly impacted by two parameters of which one is productivity and the other is market dynamics. The relationship between the productivity and profitability indices is analysed in metal industry of India (Abhishek Sinha, Prabir Kumar Bandyopadhyay, 2014). A comprehensive study undertaken on firm productivity of Bangladesh manufacturing industry by Fernandes (2008) has found that the age of the firm has an inverse U-shape relationship with TFP, whereas the firm size has a negative correlation on TFP. A range of factors for low productivity has been identified from different studies across the region. Margo and Sharma (2006) identified the ownership (Private or Public) of the entity has caused the technical inefficiency of the food sector and the location and size of the entity have contributed to the technical inefficiency of the textile sector. In the chemical and metal production sectors, ownership and age of the entity have contributed to the technical inefficiency. After reviewing various research papers and literature on this issue, the researchers found out that though productivity analysis has been done for many industries like steel, paper, sugar, tea and food sector but very scarce work have been done for Indian textile industry, particularly the Bombay Dyeing & Mfg. Co. Ltd. The present study is an 147 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 attempt to analyse productivity of textile industry in India using Accounting productivity model introduced by H. S. Davis on Bombay dyeing & Mfg. Co. Ltd. Objectives: 1. To explore into and select the variables to measure the productivity of Bombay Dyeing & Mfg. Co. Ltd; 2. To measure and evaluate the productivity of Bombay Dyeing & Mfg. Co. Ltd with the help of selected variables applying them on an appropriate model; and 3. To conduct a trend analysis of the productivity of Bombay Dyeing & Mfg. Co. Ltd. in the past years. Database and Methodology: The present study is based on secondary data and covers the period from FY 2010-11 to 2015-16. To achieve the objectives of the study, data has been extracted from financial statement of the selected company for the period of 5 years. Productivity Accounting Model used is as follows: Total Productivity = Qt ÷ (L+C+R=Q) 1. Total Productivity = Monetary value of Production Monetary value of Total input required 2. Partial Productivity = Monetary value of Production Monetary value of particular input required 148 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 Productivity Model for a Textiles Industry: Input and Output for textiles IndustryIn textiles industry, the following factors of production constitute the input parameters for measuring productivity of the textiles industry. They are, 1) Labour input (L). 2) Capital input (C). 3) Material input (R), Miscellaneous input (Q) and the output (Qt) comprises of the quantity of textile made. Entering these inputs and outputs in the Productivity Accounting Model researchers obtain the productivity measurement model suited for a textiles industry. The model is shown below: Total productivity = Qt ÷ (L+C+R=Q). In this modified model, all values relating to output and inputs are in monetary equivalent deflated to a base year using a suitable price index or an average inflation rate so as to take care of quality. Output to the Modified Model: Total Output (Qt): The output (Qt) represents the total sale of textiles in monetary terms. Inputs to the Modified Model The input to the modified model consists of labour, capital and material. All the inputs to the model are expressed in monetary terms. Detailed description regarding various inputs to the model in reference to Textiles Industries is presented below: i) Labour input (L): Labour input comprises the following costs incurred by the textile industry. a) Wages for factory workers directly attached to the manufacturing. b) Wages for indirect factory workers like drivers, electricians etc. c) Salary of staff. d) Salary of executives. e) Contribution to provident and other f) Workmen and staff welfare expenses g) Fuel and electricity provided to the workers and staff. h) Water charges 149 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 i)Repairs: Buildings , Machinery and Others. ii) Capital input (C): The capital input includes the following expenses of the textiles estate. a) Interest on working capital. b) Interest on long-term expenditure. c) Depreciation on plant machineries and other capital assets. d) Other capital input. iii) Material input (R): This input includes the following costs of the textiles estate. a) Cost of materials purchased : 1. Cotton 2. Fibre 3. Grey cloth 4. Dyes and chemicals 5. Purified Terepthalic Acid b) Other material cost. Miscellaneous input (Q): The expenses relating to the following heads are considered as miscellaneous input (Q) to the productivity measurement model. a) Various contract work. b) Purchased repairing. c) Security cost. d) Head office expenses. e) Social overheads. f) Demurrages. g) Loading and unloading charges. h) Telephone and charges. i) Legal cost. j) Traveling and transportation expenses of staff. k) Accommodation and messing charges of guests. l) Infrastructure maintenance like road, bridge etc. m) other overhead. n) Taxes and levies input o) Transportation input. (Gupta & Dey, 2010) 150 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 Data Implementation on Model : Table-1.Annual output and consumption of resources in Bombay Dyeing and Manufacturing Company Ltd. Year Labour Material Capital Miscellaneo Total Total input, L input, M input C us Input, Q Input Output, (Rs.Cr) (Rs.Cr) (Rs.Cr) (Rs.Cr) (Rs. Cr) Qt (Rs.Cr) 2011 1095.15 1258.54 241.24 140.48 2735.41 2761.78 2012 1103.57 1423.25 241.96 125.13 2893.91 2968.76 2013 327.53 1367.88 236.77 171.57 2103.75 2201.56 2014 285.87 1593.06 251.04 214.73 2344.7 2377.84 2015 819.02 1509.52 274.04 196.25 2798.83 2833.77 Source: http://www.moneycontrol.com Table-2.Percentage share of different inputs in total input from 2011 to 2015. 151 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 Labour Material input, L M C Input, Q 2011 40.04 46.00 8.82 5.13 2012 38.13 49.18 8.36 4.32 2013 15.57 65.02 11.25 8.15 2014 12.19 67.94 10.70 9.16 2015 29.26 53.93 9.79 7.01 Year input, Capital input , Miscellaneous Source: Prepared by researchers from the Table No. 1 Table-3. Total and partial productivity ratios on yearly basis from 2011 to 2015 for Bombay Dyeing and Manufacturing Company Ltd. Year Labour Material Capital Miscellaneou Productivity Productivity Productivit s y Total Factor productivity Productivity 152 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 2011 2.52 2.19 11.44 19.65 1.00 2012 2.69 2.08 12.26 23.72 1.02 2013 6.72 1.61 9.29 12.83 1.04 2014 8.32 1.49 9.47 11.07 1.01 2015 3.46 1.87 10.34 14.44 1.01 Source: Prepared by the Researchers from the Table No. 1 Table-4: Relative productivity levels from 2011to 2015. Productivity 2011 2012 2013 2014 2015 Labour productivity index 100 106.74 266.65 330.13 137.28 Material productivity index 100 94.97 73.51 68.03 85.38 Capital productivity index 107.17 81.21 82.78 90.38 100 153 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 Miscellaneous productivity 100 120.71 65.29 56.33 73.47 102 104 101 101 index Total productivity index 100 Source: Prepared by the Researchers from the Table No. 1 Following data of relative productivity index from 2011 to 2015 has been represented in graphical form better understanding. Source: Prepared by the Researchers from the Table No. 4 Source: Prepared by the Researchers from the Table No. 4 154 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 Source: Prepared by the Reseaechers from the Table No. 4 Source: Prepared by the Researchers from the Table No. 4 Source: Prepared by the Researchers from the Table No. 4 155 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 Interpretation and Conclusion: Productivity increases when the growth in output is greater than the growth in input, or when the rate of growth of output minus the rate of growth of the composite input is positive. Economic growth can be obtained either by increasing inputs or by improving productivity factor. Productivity growth occurs when a higher output can be attained with a given amount of input, or a certain level of output can be attained with smaller amounts of factor input. This productivity growth is obviously preferable to growth due to increase in factor inputs, since the later might be subject to diminishing marginal return. Productivity growth is necessary not only to increase output but also to enhance competitiveness of the industry in as well as outside a country. The estimation of factor productivity is very useful to evaluate the variations in the performance of an industry over a period of time. The prosperity of a new developed nation has been attributed mainly to the sustained growth of their Total Factor Productivity (Prescott, 1997). In this paper the researchers have analyses productivity through input and output of Bombay Deing & Mfg Company Ltd. The monetary equivalent of output is calculated by multiplying the quantity of made textiles (output) expressed in metre with the price of made textiles in the concerned year.The monetary equivalent of textiles output computed this way truly represents variation of quantity and quality of the product (Gupta & Dey, 2010). Once the output is measured, all the four inputs are measured in the same fashion. Table-1 summarizes annual consumption of four resources (input) and output for the five years under study. Table-2 shows the percentage share of different inputs in total input. From these data Partial Productivities with respect to each of the four inputs computed for each year along with the corresponding annual Total Factor Productivity which is presented in Table-3. Labour productivity is measured by the ratio of output over labour input. Material productivity is measured by the ratio of output over material input. Capital productivity is measured by the ratio output over capital input. Capital input is expressed as sum of depreciation, operative interest, premiums and other capital expenditures. The cost structure for different measurement periods was easy to achieve, because of the regular maintenance of the scientific accounting system. 156 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 Table: 1 reflects that the industry is facing major challenges in the form of rising production cost from increasing wages, power, interest cost and miscellaneous expenses. Key threats for the Company continue to be cheap imports from China, launch of new brands and competitors in the market. Also, existing market players have become more aggressive through competitive pricing. Higher margin demand from large retailers is also putting pressure on the Company’s margin. Additionally, EU has given a special status of “GSP+” to Pakistan w.e.f. 1st January, 2014 resulting in a price disadvantage of almost 9% to Indian exporters to this region. Further, the Indian currency after huge depreciation during the last year has started appreciating against the US$ which might erode India’s price competitiveness against other exporting countries. To explore the causes of poor productive efficiency we have to work out and analyse the partial productivity level. Two major inputs such as labour and material which form 80% to 85% of the total input for the years studied has followed a general declining trend in their productivity indices during the entire period as depicted in Table-4. This establishes that the efficiency in the utilization of these major inputs has gone down causing apparent encouraging trend in capital productivity level as a result of input substitution effect. Concluding that the causal factor for the productivity decline in the Bombay Dyeing and Mfg Co. ltd is the poor resource utilization of major inputs namely labour and material. (Annual report of Bombay Dyeing, 2014) Reasons for the low productivity of the Bombay Dyeing and Mfg. Company Ltd are that due to inaccessibility of resources or excessive time expended to acquire and use them, most of the cotton textile mills are working with old and obsolete machinery. Obsolete machinery leads to low output and poor quality of goods as a result of which textile goods are not able to face competition in the International market. It is also identified that poor management practices are often the main underlying factors behind the ineffective use of resources in Bombay dyeing and Mfg. company Ltd .As a result, workers and machines often get idled which impede the work sequence and progress. 157 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 It is also found that the rainfall is likely to be below average as per the India Meteorological Department (IMD), which may push raw material prices higher, resulting in pressure on both sales as margins. Due to this profitability has been affected which leads to reduction in average net sales in Bombay Dyeing and Mfg. Co. Ltd. (Annual Report of Bombay Dyeing, 2015) Problems like outdated technology and fragmentation of operations, which were more prevalent in most of the Textile industry in Maharashtra, lead to low level of labour Productivity. The Bombay dyeing and Mfg. Company Ltd in Maharashtra found it difficult to retain the best workers and hence the cost of retention went up. There was no proper planning to cater to the needs of this fast growing industry leading to water pollution and congestion. Intermittent power supply, water scarcity, infrastructural problems and other bottlenecks affected the business performance and labour productivity level. Suggestion and Recommendation: Productivity is considered the main value adding strategy within the manufacturing sector. Therefore, productivity issues and related problems faced by manufacturing industry will need to be considered and viewed from various angles. The evidences suggest that the low productivity is a critical issue that hinders economic growth of developing countries. Most of the time low productivity in manufacturing industry is attributable to labour unrest, poor working attitudes, inefficient organisational culture/management, etc. which are directly related to labour productivity. Labour Productivity can be improved by imparting knowledge and skills to the workforce by arranging training programmes with experts both from India and abroad. With the advent of latest trends in the production process textiles, the textiles units should establish collaborative arrangements with similar industries in India and abroad. It was also concluded that in order to achieve more efficiency in productivity, the textiles industry should focus on: 158 IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 5, No.1, Jan-Feb 2016 I. Employment of skilled labor II. Training of existing labor II. Up gradation of technology III. Setting up of more centers for excellence IV. Government support in international collaboration for technical knowhow. Conclusion: After analyzing the productivity of Bombay Dyeing & Mfg. Co. Ltd., it may be concluded that the Textiles Industry in general and Bombay Dyeing & Mfg. Co. Ltd. in particular is possessing several weaknesses which is responsible for poor productivity. The researchers strongly believe that until and unless the government does not focus upon the thrust areas overall improvement in textile productivity is unattainable. Making efforts to monitor, control and improve these factors is the only way to upgrade the productivity of this Industry. Hence to make the mission of ‘Make in India’ a success government must concentrate and remove the weaknesses of the Industry and make all efforts for up gradation and improvement of the existing Industry. Reference: 1. Annual Report of Bombay Dyeing (2014).Retrieved from http://teknowits.com/bombaydyeing/Document/Annual%20Report%202013-14.pdf 2. 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