Import of Chinese silk and its effect on the Indian silk
industry
Import of Chinese silk and its effect on the Indian silk
industryImport of Chinese silk and its effect on the Indian silk
industry BUSINESS, GOVERNMENT AND SOCIETY
Import of Chinese silk and its effect on the Indian silk
industry
Group no 3
1411229 GOKULRAM K 1411242 MALA HARISH 1411246 NASEEF.K.P.O
1411263 SASIDHARAN M 1411266 SHWETA BHARTI 1411275 USHA B 1411241
MADHANAGOPAL P
ContentsINTRODUCTION2Methodology2Silk Industry Supply
Chain2Sericulture3Reelers4Weavers4Retailers/wholesalers4Import of
Silk in India5Chinese Silk imports5Competitiveness of Chinese
Silk5Bivoltine vs Multivoltine5Technology and Price5Impact of
Chinese Silk Imports6Government Response and Its Impact6Changing
Trends in Chinese Silk Imports7Insights Gained AND
RECOMMENDATIONs7Leveraging Power loom7Dried cocoon
methodology8Reeling Technology8Quality Assurance8Leakages in the
system8
INTRODUCTIONChina leads the global silk production with more
than 80% of the global share followed by India, the second largest
producer of raw silk with 16.58% (26480 MT) of global share. India
with its tradition of silk has a high domestic demand and is also
the worlds largest importer of raw silk[footnoteRef:1]. [1:
http://texmin.nic.in/sector/Silk_Industry_cental_silk_board.pdf]
The focus of this paper is to study the Indian silk industry in
the context of high volumes of Chinese silk imports. It aims to
understand how the various stake holders in the silk supply chain
are affected by the imports, their conflicting interests and the
role played by the government as a welfare agency in balancing the
needs or requirements of the stake holders. MethodologyThe study
was done through secondary and primary research. As part of the
secondary research, review of reports and studies done by the
Central Silk Board and newspaper articles related to the issue was
done to get a preliminary understanding of the topic and its
different dimensions. For primary research, field visits and
interviews of people associated with the different stages of the
silk supply chain was conducted. The places visited and the people
contacted for this purpose are listed below.1. Sericulturist2.
Ramanagara cocoon market 3. Reeling units at Ramanagara and Chikpet
4. Weavers colony , C.K palaya Bangalore5. R.M.K.V and Prasidhi
silks 6. Central Silk Board
Silk Industry Supply Chain
Silk manufacturing process starts with the production of raw
silk, which is obtained from the cocoons of specific varieties of
moths. The raw silk is converted to silk threads by a process
called reeling. These threads are spun (throwing process) to form
silk yarns. The yarn goes through the weaving process to produce
silk fabric[footnoteRef:2]. The supply chain for this industry
consists of the sericulturists, reelers, weavers, silk goods
manufacturers, and silk goods merchandisers including exporters,
silk goods retail customers. [2:
http://www.teonline.com/knowledge-centre/silk-manufacturin-process.html]
SericultureCocoon production is done by private farmers in areas
where the temperature is in the range of 28-32 degree celsius. The
farmers get the cocoons or eggs from the silk-board or from
mediators. The hatched caterpillars are then allowed to feed on the
mulberry leaves for a period of around 18 days after which they
form cocoons. Once the cocoons are formed they should be sold
before 15 days as they would start hatching after that. Below are
some facts about this process.
Conversion rate egg to caterpillararound 80%
Price of eggRs. 5 per egg
Price of hatched caterpillarRs. 14 per caterpillar
Amount of silk obtained1 kg from 6.5 kg of cocoon (for good
quality cocoons)
Price of 1 kg of silkRs. 150 450
Subsidy by TN Govt.50,000 to 90,000 for 1.5-2 acre of land
Subsidy By Karnataka Govtadditional 50 Rs. Per kg of silk sold
in Karnataka
The cost to the farmers include setting up of shed, mulberry
trees, drip irrigation, labor for maintenance, pesticide,
fertilizer etc. the cost will be around 3-5 lakhs for 1.5-2 acre of
land for the same.In 2012 custom duty was completely done away with
for Chinese silk by the former finance minister P. Chidambaram
which led to the fall in the price of Indian silk from 400/kg to as
low as 150/kg. This lasted for few days before the decision was
revoked and duty was re-imposed on Chinese silk to reduce the
influx of cheap Chinese raw silk into India.As of now Ramnagar is
the leading hub for selling cocoons in southern India. All 5
southern states namely Tamil Nadu, Kerala, Karnataka, Andhra
Pradesh and Maharashtra trade their cocoons at Ramnagar even though
there are smaller hubs in every state.
Reelers Reelers buy the cocoon from farmers and then they take
the yarn out of it. In India reelers use four different reeling
methods. Charka, Multi-end, Automatic Reeling Machine and Cottage
basin. Out of this nearly 85% of reeling is done using the cottage
basin method. Reeling that is done using Cottage basin method is
difficult to learn. Normally reelers train their children from
their early ages, to acquire this skill. As per our study most of
the reelers are women. At present due to child labor prevention act
and MNREGA there is a reduced labor supply for reeling.
Weavers Weaving segment is generally organized as many weavers
working under a master waver. The contract for weaving including
the designs and the silk yarn required are procured by the master
weaver. Major silk retailers like RMKV silks function as master
weavers and employ weavers under them. The weavers working on the
loom are paid on a per piece basis, where the rate depends on the
intricacy of the design to be weaved. Both power looms and
handlooms are used for weaving the fabric but the prevalence of
power looms is showing an increasing trend attributed mainly to its
higher productivity. ParameterPower loomHand loom
Setup time for a design7 hours7 days
Weaving time / saree3 hours1 3 days
Labor rate / sareeRs. 450Rs. 750
Raw material requirementNeed bivoltine silk in the mixNo need of
bivoltine variety
A regular silk saree will require 650 grams of raw silk. Here
270 grams will be Chinese silk and remaining 380 grams will be
Indian silk. This difference is mainly because of the warp and weft
in a saree. For warp, tensile strength should be high for which
weavers prefer Bivoltine silk.
Retailers/wholesalersRetailers are at the end of the supply
chain in a silk industry. There are big names in this part of
supply chain like RmKV, Manyavar, Pothys who also act as
manufacturers of the end products in this industry. They also buy
silk products from other small manufacturers providing livelihood
to many weavers. Especially in case of RmKV who buys only sarees
made of handloom, they are the major customers for the handloom
industry. Retailers either buy directly from the weavers or from
intermediaries. They again keep a premium over the cost price to
sell it to the end customers. As the sales of the final product
cannot be predicted, the manufacturers settle to get the money
upfront rather than with high margin after the final product being
sold.
Import of Silk in IndiaTraditionally silk plays a very important
place in Indian culture and society and hence there is a huge
domestic demand for silk in India. Hence in spite of being the
second largest producer of silk in the world, India is also the
largest importer of raw silk and silk yarn[footnoteRef:3]. [3:
http://texmin.nic.in/sector/Silk_Industry_cental_silk_board.pdf]
Chinese Silk importsMajor imports of silk to India is from
China, the worlds largest producer, accounting for about 80 - 85%
of global silk production. China has superior technology and
production methods which enabled it to export raw silk at prices
that were less than that of the domestically produced silk in
India. In order to get a good understanding of the issue of Chinese
silk imports to India, it is pertinent to understand certain
significant differences between Chinese and Indian silk.
Competitiveness of Chinese SilkBased on the interview with Dr. P
Kumeresan, Scientist at Central Silk Board, Bangalore we gathered
the following following information about Indian silk variety and
Chinese silk variety.Bivoltine vs Multivoltine95% of silk yarn
produced in India is from the multivoltine variety of cocoons
whereas the Chinese yarn is produced from bivoltine variety of
cocoon. The yarn produced from multivoltine variety of cocoon is
well suited for handloom weaving. It has a very good color
absorption capacity, which results in the vibrant colors of
traditional Indian silk sarees. On the other hand its tensile
strength is not as good as the yarn produced from bivoltine variety
of cocoons. Hence it is not suited for power loom weaving as the
yarn cannot withstand the heat produced in a power loom and breaks
while weaving. Bivoltine variety yarn has uniform thickness and is
well suited for power loom weaving. Bivoltine cocoons require
temperate climate to grow whereas multivoltine grow in tropical
climate.Bivoltine cocoon have a higher silk yield. Nine Kg of
multivoltine cocoon is required to produce 1 Kg of silk whereas six
kilograms of Bivoltine cocoon is sufficient for the same output. A
single bivoltine cocoon can generate 900-1000 meter yarn whereas a
multivoltine gives only 600 meters of yarn.Technology and Price
Chinese silk industry use superior automated technology which makes
it more productive. An average Chinese reeling factory has a
production capacity 10000 times higher than that of Indian reeling
units that use a very old method called cottage basin. The cottage
basin methodology used by Indian reelers is quite outdated and was
used by the Japanese around 100 years ago. This had made Indian
yarn production a labor intensive as well as less efficient
process. The cocoon drying method of China is also superior which
lends higher shelf life to their cocoons whereas Indian cocoons
have a shelf life as short as 15 days.The above mentioned factors
of higher yielding variety and better methods and technology
enables China to price its raw silk competitively. The lower price
and the amenability to power loom usage makes Chinese raw silk
attractive to Indian power loom weavers.Impact of Chinese Silk
ImportsThe import of cheaper and stronger Chinese raw silk and
yarn, affected the various entities in the silk supply chain in
different ways.The cheap Chinese imports drove down the price of
domestic raw silk and this adversely impacted the Seri-culturists
and the reelers. But for the rest of the silk supply chain the
cheap imports were beneficial. The weavers could procure their raw
material at cheaper rates and the stronger (tensile) Chinese yarn
made power loom production of silk more profitable. It also
benefited the exporters as they could price their products
competitively in the international market. At the other end of the
supply chain retail customers could get silk fabrics of reasonable
quality at lower prices. This was mainly at the mass market level
rather than at the niche silk market level.In the period 2001-2002,
there was large scale dumping of Chinese raw silk and yarn. In the
foreign trade parlance, dumping implies exporting goods either
below the cost of production or below the domestic market rates of
the exporting country with the intent of under-cutting competition
in the importing country. This predatory pricing hurt the cocoon
farming and the reeling community badly. In addition to this there
was dumping of silk fabrics from China, which cut into the
livelihood of the weavers as well[footnoteRef:4]. [4:
http://texmin.nic.in/sector/Silk_Industry_cental_silk_board.pdf]
Government Response and Its Impact In order to protect the
interest of the Seri-culturists and the reeling community, the
Government of India, advised by the ministry of textiles and the
Central Silk Board levied import duty on Chinese raw silk and silk
yarn. The intention was to protect the price of domestic raw silk
by forcing the imports to be expensive. Till 2011 the basic custom
duty on imported raw silk was 30% and this was reduced to 5% in
2011. This reduction impacted the cocoon and raw silk prices
negatively. Subsequently in the 2013-14 the basic duty was revised
back to 15%.Levying of custom duty on the raw silk and yarn import
provided relief to the farming and the reeling community as they
did not have to reduce their price to face the Chinese competition.
In fact the landing price of Chinese silk was more compared to the
cost of Indian silk. But this had an adverse impact on silk
weavers, especially power loom weavers and exporters who needed
bivoltine Chinese silk. The Chinese variety of silk from bivoltine
cocoon is a required raw material for power loom working. From our
interaction with the weavers in Bangalore, it is understood that
power looms use either 100% Chinese (bivoltine) silk or mix Indian
and Chinese silk in the ratio of 40:60. The Chinese silk is used
for the warp and Indian silk is used for the weft. The increase in
the landing price of Chinese silk increased their input costs. This
affected the Varanasi weaving community more, where power loom
weaving of silk fabrics had become prevalent. Hence the higher cost
of Chinese yarns due to higher import duties, cut into the margins
of the power loom weavers. Similarly exporters found it difficult
to price their products competitively in the international
market.Exhibit 2 shows the custom duty trend on Chinese silk for
the past 5 years.After examining the allegation of dumping of silk
yarn and fabrics by China, which was filed by CSB, the Directorate
General of Anti-dumping and Allied Duties imposed anti-dumping
duties on Chinese imports. This duty was in force till January
2014. This was first imposed with a reference price of $27.27/Kg
and then renewed in 2008 with a reference price of $37.32/Kg.
Imports done below the reference price would lead to the levy of
anti-dumping duty[footnoteRef:5] [5:
http://www.csb.gov.in/assets/Uploads/pdf-files/CSBAR-1314English.pdf]
Changing Trends in Chinese Silk Imports In the year 2009 the
demand for silk yarn in India was 19000 Metric Tons (MT). Nearly
27% of this demand was met by Chinese imports. The demand for raw
silk yarn in India during 2012-2013 was nearly 26000 MT and 10% of
this demand was met by the Chinese imports.In spite of the increase
in silk demand in India, there is a steady decrease in the Chinese
imports since past 5 years. The central Silk Board has proposed
that by the end of 2020, Indian silk industry will be able to meet
the entire domestic demand and curtail the import of silk from
China [footnoteRef:6] [6:
http://www.thehindu.com/news/national/karnataka/india-preparing-for-zero-import-of-silk-by-2020/article6877187.ece]
As a result, domestic production has increased during the last
few years as shown in Exhibit 1. From the exhibit, it can be found
that import of raw silk has declined from 7338 MT in 2009 to 3260
MT in 2013. On the other hand, raw silk production has increased
from 19690 MT in 2009 to 26480 MT in 2013.The declining trend of
imports can be attributed to the following reasons: The import duty
imposed on the Chinese raw silk (Exhibit 2) Increased production of
bivoltine and hybrid variety of cocoons that can be used by power
looms. Establishment of Automatic Reeling Machines in AP, Karnataka
and Tamilnadu[footnoteRef:7] [7:
http://texmin.nic.in/sector/Silk_Industry_cental_silk_board.pdf]
Establishment of high capacity cold storage plant for silkworm
eggs being set up by the Central Silk Board (CSB) Increase in
quantity of domestically produced silk yarn over the last five
years reduced dependence on imports leading to decline in imports
[footnoteRef:8] [8:
http://www.thehindu.com/business/Industry/rising-silk-yarn-output-helps-cut-imports-from-china/article5368449.ece]
Insights Gained AND RECOMMENDATIONsLeveraging Power loomThrough
this study we find that levying import tariffs to protect one
segment of the supply chain is a short sighted measure which can
only give temporary relief to one section of the industry. The
basic issue as uncovered by the study is that production of mass
market silk is achieved through power loom weaving which requires
bivoltine variety of silk. Hence the aim should be to increase the
production of bivoltine silk or any variety which is amenable to
power loom weaving will reduce our dependence on Chinese imports.
Given the fact that our domestic demand surpasses our domestic
production, thrust should be given to increase the overall
production.Dried cocoon methodologyDried cocoon methodology used in
China enables them to store and use the cocoons for a longer period
unlike the Indian cocoons that have a shorter shelf life. The
shorter shelf life also adds to the time decay of the price.
Efforts should be made to adopt such practices that improve the
overall value chain of the industry.
Reeling TechnologyAnother issue identified was the usage of
outdated technology for reeling that is impacting the productivity
of reelers. Reeling is an area that is facing severe labor shortage
and automation of this activity was found to be very pertinent.
Measures should be taken to improve the technology and to install
Automatic Reeling Machines.Quality AssuranceSilk saree consumers
cant judge the quality of a silk saree by themselves. For this
purpose government has formed the Silk Mark Organization of India
(SMOI). But the operation of this entity has not been successful.
At present the wholesalers get the silk labels from SMOI by paying
the license fee to manufacture Silk sarees. But many manufacturers
use these labels in synthetic sarees and SMOI doesnt have enough
support staff conduct audits or inspections on the usage of these
labels. This mechanism should be strengthened so that customers are
not cheated as well as the original silk producers do not lose
their revenue. Leakages in the systemCentral silk board provides
schemes and subsidiaries to the entire silk supply chain by
exercising its Catalytic development program (CDE).In the silk
supply chain, farmers and reelers exclusively contribute to silk
whereas the weavers can use other synthetic yarns as well,
especially in the power loom. This has led to misuse of the
Technology Upgradation Fund (TUF). It has been observed by the Silk
governing bodies that weavers had used the TUF provided to improve
silk production for other synthetic garment productions. This had
led to the cancelling of schemes given to weavers. Hence mechanisms
should be put in place to plug such leakages and to ensure that the
welfare schemes reach the genuine beneficiaries.
Exhibit 1
Data Source :
http://texmin.nic.in/sector/Silk_Industry_cental_silk_board.pdf
Exhibit 2
Data Source :
http://texmin.nic.in/sector/Silk_Industry_cental_silk_board.pdf
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