A Stochastic Frontier Production Function Approach to Indian Textile Industry

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India's Manufacturing Sector

Manufacturing sector is the backbone of any economy. It fuels growth, productivity, employment, and strengthens agriculture and service sectors. Astronomical growth in worldwide distribution systems and IT, coupled with the opening of trade barriers, has led to stupendous growth of global manufacturing networks, designed to take advantage of low-waged yet efficient Indian work force. Though agriculture has been the main pre-occupation of the bulk of the Indian population, the founding fathers saw India becoming a prosperous and modern state with a good industrial base. Programs were formulated to build an adequate infrastructure for rapid industrialization. India is fast emerging as a global manufacturing hub. Be it automobiles or computer hardware, consumer durables or engineering products, all are being manufactured by multinationals in India. India's cheap, skilled manpower is attracting a number of companies, planning diverse industries, making India a global manufacturing powerhouse (Adhikary Maniklal & Ritwik Mazumder, 2009). Indian Textile industry is presently one of the largest and most important industries in the Indian economy in terms of output, foreign exchange earnings and employment generation. The diversity and richness of Indian culture reflects in its textile products in terms of variety, colours and patterns it offers to the world. India has a diverse and rich textile tradition. Contemporary Indian textiles not only reflect the country's rich and splendid past, but also cater to the demands of the modern day. In fact, today India is one of the world's leading manufacturers of man-made textiles. India is the world's second largest producer of textiles and clothing after China. The textile and clothing industry forms a major part of India's manufacturing sector and has contributed enormously to the country's impressive economic development in recent years. Furthermore, India has a huge and growing domestic market which is expected to be worth US$140 billion in 2020 as the population increases in size and consumers become wealthier. This huge growth could provide significant opportunities for foreign exporters to India and potential foreign investors in the country, as well as for the Indian textile and clothing industry itself. This report looks at the development of the textile and clothing industry in India and its size and structure as well as textile and clothing production and consumption.

With the introduction of economic reforms since July, 1991, many changes have come upon industrial structure in India. Introduction of various reforms and gradual liberalisation of both domestic and international trade marked the beginning of the end of the earlier regulatory regime and recognition of the urgency on the part of the Indian industries to become efficient so as to be able to withstand successfully the pressure of foreign competition. Over the years several measures have been taken by the government to help domestic industries achieve efficiency. These include not only the fiscal and financial measures such as rationalisation of excise duties, liberalisation of tax laws and rates, reduction in interest rates and so on, but also such physical measures as those meant to remove infrastructural constraints in power, transport and telecommunications sectors.

India's Textile Industry

Indian textile industry largely depends on textiles manufacturing and export. It also plays a major role in the economy of the country. India earns about 27 per cent of its total foreign exchange through textile exports. Further, it contributes about 14 per cent to industrial production, 4 per cent to the gross domestic product (GDP), and 17 per cent to the country's export earnings. The sector is the second largest provider of employment after agriculture. It not only generates jobs in its own industry, but also opens up scope for other ancillary sectors. The industry currently generates employment to more than 35 million people. …