This is to certify that Mrs. T.

Jeyanthi Vijayarani (Reg No : 0020) worked under

my supervision and guidance on the topic “A Study on Textile Exports of India with

Special Reference to Cotton Yarn” from November 1999 to May 2006. The thesis has

not been submitted elsewhere for any degree, diploma, fellowship or other similar

titles.

Place: Madurai – 21. Dr. (Mrs.) PUNITHAVATHY PANDIAN

Date :

CHAPTER I
INTRODUCTION AND DESIGN OF THE STUDY

1.1 INTRODUCTION
India’s foreign trade has undergone far-reaching changes in the nineties and has

become one of Asia’s leading exporting economies. Opening up of the economy

gradually to foreign investment, encouraging the private sector to participate in the large

sphere of the economic activity and liberalising the acquisition of foreign technology

have promoted the exports of India. The Indian export sector experienced a growth of

20 per cent in US $ in 2004 and the world trade revealed a 20.5 per cent growth in value

terms in the same period1. The growth in the world trade was driven principally by

higher demand for raw materials from the developing economies of Asia, Europe and

Latin America and continuing demand expansion in the US2. The acceleration in exports

was spread across major commodity groups including textiles, ready-made garments,

made-ups, handlooms, handicrafts, gems, jewellery, tea, rubber, cashew, spices, marine
products, steel and the like. Textile as one of the oldest industrial sectors in the world

has contributed to meeting the basic human needs and economic growth. By earning a

reasonable foreign exchange, the export of textiles has an important role in the

economic growth of India and of many developing countries.

A piece of cotton stuck to the silver vase and some spindles discovered in the

excavation of Harappa revealed that the spinning and weaving of cotton is very old in

India. Method of spinning and the various materials used are mentioned in the Vedic

literature. Before the introduction of mechanised means of spinning, all Indian cotton

and silk were hand-spun and hand-woven. The modern textile mill industry, which

began in the 1980’s were able to compete against British yarn industry both at home

and abroad. During the world wars, there was a spurt in the Indian yarn production. In

1950, there were 94 spinning mills with 10.5 mn. spindles3. The number of spinning

mills increased from 94 spinning mills with 10.5 mn. spindles in 1950 to 1565 with 35.1

mn. spindles in 20004.

The growth rate of cotton yarn export was two per cent per annum over the period

1950-19805. The export of cotton yarn was 7.14 mn. kg. in 1961 and it increased to 8.96

mn. kg. in 19806. In the early seventies the export of textiles was marginal. The industry

got revitalised and concentrated more on exports in the eighties. The growth in the world

textile industry in the nineties led to the derived demand for yarn. During this period

the destinations of cotton yarn exports were extended to more than sixty countries.

According to the Cotton Textile Export Promotion Council (TEXPROCIL), the target

for cotton goods in 1991-1992 was Rs.2,703 crore while the actual was Rs.3,134 crore.

The textile policy of 2000 placed a target of 15.5 billion US $ in 2000-2001 for cotton
textiles and yarn exports as one of its primary objectives7. The tariff was reduced for

yarn, which was placed under Open General License (OGL), from 65 per cent in 1995

to 20 per cent in 20008.

The Multi Fibre Arrangement that came to an end on 1st January, 2005 has

opened up a plethora of opportunities for the Indian textile industry. The global textile

trade is expected to increase to US $ 600 billion by 2010 from US $ 356 billion in 20039.

The phasing out of Multi Fibre Arrangement has ensured that quota restrictions in US,

EU and Canada which restricted textile exports from India to these regions have been

removed. This would give a fillip to the cotton yarn exports.

Despite the inherent strengths of the Indian cotton yarn industry, it is beset with

certain problems. Aggressive plans by Chinese textile industry for increasing their

exports to 800 mn. kg. by 2010 signal a formidable and fierce competition for Indian

spinners10. It is said that high interest rates, delay in the clearance of loans, complicated

export procedures and difficulties in transporting the yarn to the port are some of the

problems faced by the exporters.

1.2 STATEMENT OF THE PROBLEM

India is a large producer of cotton with world class spinning mills located around

the country. India has the second largest spindleage in the world11, Modernisation of

spindleage has resulted in the installation of state-of-the-art machinery and equipment,

which includes electronic cleaners, auto-cleavers, splicers, two-in-one twisters,

automatic winders and spinning machines together with systems that meet ISO 9000

standards12. All these factors contributed towards an increase in the production of cotton

yarn from 2022 mn. kg. during the year 1998-99 to 2177 mn. kg. during 2002-0313.
Over the years, cotton yarn has emerged as one of the most important items in the Indian

textile export basket14. Yarns of various counts ranging from the lowest of 6s to the

highest of 180s are produced. In the early periods, the destinations for cotton yarn were

limited and then the markets were widened covering many countries of the Asian and

Oceanic continents.

India occupies the third position, among the leading countries exporting cotton

yarn. Pakistan and China are the leaders in exporting cotton yarn; Taiwan, Turkey,

Spain, Republic of Korea and Brazil are some of the other important exporters of the

cotton yarn15. Though the markets are diversified, India has to meet fierce competition

from the other countries in yarn exports. Yarn from China and Pakistan with their low

cost of production poses a threat for Indian cotton yarn. Trade fairs are conducted by

the promotional agencies to find out new vistas for marketing. Texprocil was

established in 1954 to promote the textile trade by providing information about the

foreign markets. The Ministry of Trade and Commerce in its Exim policies gives a

special place for cotton yarn exports. Policies are revised frequently to meet the

challenges of changes in the international markets. Financial assistance through banks

and other financial institutions is provided to the exporters because export capacities of

the mills are largely determined by their capital structure and their sources of finance.

In view of the country’s increasing need for foreign exchange, it is imperative to

analyse both the growth of the cotton yarn exports in relation to exports of textiles in

particular and the diversification of the market. Further analysis has to be carried out to

find out their market access methods, the quantum of exports, number of countries of

export and sources of finance at the exporter level. To achieve the target fixed by the
Government in the Textile Policy of 2000, the opinion of the exporters regarding

competition, transportation and the policies of government should be studied. To create

a niche for the Indian yarn in the world market, the problems of the exporters have to

be closely examined. It is in this context “A Study on Textile Exports of India with

special reference to Cotton Yarn” has been undertaken.

1.3 REVIEW OF LITERATURE

The export pessimism of the fifties, the sixties and the seventies led to studies

on export trends in cotton textiles. A number of hypotheses were examined to explain

the declining trend in terms of stagnating world demand, and widening cost

differentials because of increasing domestic raw cotton prices, wage rates, low

capacity utilisation, the influence of capital on labour productivity and the finances of

medium and large public limited companies in the cotton textile industries

(Manmohan Singh, 196416, Dharma Kumar, et.al., 196517 , T.S. Papola, 196818 , Asit

Baneji 197519 and N.R. Kothari, et.al., 197720). Here, an attempt is made to review the

recent studies pertaining to exports of cotton yarn.

Sastry (1984)21 analysed the structure, growth, capacity utilisation, productivity

and exports of textiles from 1950 to 1980. He stated that in 1981 as cotton occupied

the pride of place, the spinning mills dominated the industry and the number was 429.

The percentage growth rate for exports of cotton yarn using semi log trend equation

was 1.74 and about 2 per cent of the yarn produced was exported during 1951 to 1980.

The trend rates showed that there were 2 per cent per annum increase for yarn over

the study period. He also mentioned that the United Kingdom (UK), the United States
(US), Canada, Australia and New Zealand were the major textile markets among the

developed countries and Kenya, Uganda, Sudan, Malaysia, Sri Lanka and Nepal were

among the developing countries. He suggested that the main objective of the textile

industry was to raise productivity by modernisation to improve the competitive

efficiency.

Tulsi (1993)22 had studied the India’s Textiles Exports for the period 1985-92.

The study showed that, the cotton yarn exports had almost doubled during 1986-89.

Production of cotton yarn had increased significantly but not at the rate at which exports

were grown. Limited domestic demand for yarn had seen adverse impact on cotton yarn

production. Policy liberalisation had made export of cotton yarn profitable. Further, the

quality of cotton yarn had also improved significantly. Even though the exports of

cotton yarn to East European Countries (EEC’s) had fluctuated during the study period,

the per unit value realization had progressively increased.

Amol Dharia (1994)23 had studied the reasons for growth in the textile exports

in 1993. According to him the achievement was the result of the increasing cotton

production in that year. There was an increasing demand for cotton yarn counts under

40 because of its wide acceptability. The cotton yarn exporters faced opposition from

the garment exporters who preferred the use of cotton yarn for higher value added

products than exporting the yarn itself. Indian cotton yarn gained acceptance in the

international market, especially in non-quota countries. According to him, the

increasing shift towards the integration of the global market place had led to a

structural transformation with re-location/shifting of the units in the developed

countries to developing ones, mainly due to an increase in labour cost. Cotton yarn

being a highly labour intensive industry, with labour cost becoming exorbitant, most

countries prefer the import of cotton yarn over its manufacture.

Tamhane (1994)24 had analysed the progress of cotton textile industry in 1992.

According to the study, the world trade in cotton yarn was on the increase. The world

trade was estimated to be 1600 mn. kg. in 1992. For the export of cotton yarn from India

a ceiling of 100 mn. kg. was fixed by the government. Exports made under the advance

licensing scheme and by 100 per cent Export Oriented Units (EOU’s) were not subject

to this ceiling. The total exports of 128.63 mn. kg. in 1992-93 accounted for 62 per cent

against the annual ceiling, exports under advance licensing and by 100 per cent EOU’s

amounted to 19 per cent each. The greater parts of these exports were of counts upto

40s.

Indra Doraiswamy (1996)25 felt that export of cotton yarn sometime lead to

increase in domestic prices. But, in the long run yarn export would benefit the

indigenous trade and market. This is because of better profit margin and higher spindle

utilisation leading to reduced conversion cost. It was suggested that the establishment

of a number of export oriented units as well as additional spinning capacity could meet

the increasing requirements both quantitatively and qualitatively. It was expressed that

the global trade in cotton yarn had doubled from 1981-91 as many countries imported

yarn for their local production. It was concluded that India has a vast potential for yarn

exports in the 20th century provided modernization, high quality, and productivity are

ensured.
 Shah, T. Hopkins and J.M. Bailey (1998)26 had stated that Indian cotton yarn had

a low profile in the global yarn market, despite being the fourth largest producer of

cotton fibre in the world during 1994-97. This was due to the low quality yarn in terms

of international standards. Even though India had the advantage of low labour cost, it

was more offset by low productivity level than those of countries like Korea. They had

reasoned that the low quality and low productivity were due to the out-dated technology

used in most of the spinning units in India. The increase in the spinning capacity also

had been very low compared to the other countries.

Ladia (1999)27 had analysed textile exports from India in 1997-98. The study

revealed that among the cotton textiles, the cotton yarn in mn.kgs. covered 65 per

cent, fabrics 25 per cent and made up 10 per cent. He mentioned that, about 50 per

cent of the cotton yarn produced was exported to USA, Hong Kong and Bangladesh.

They were the largest buyers of cotton textiles from India. He added that restructuring

of the industry is essential to face the quota free regime. He concluded that any

successful strategy should be based on entrepreneurial ability to meet global demands

in respect of quality and price.

Ajit Kumar (2000)28 in his article, “Decline in Cotton Yarn exports worry trade”

expressed that though the cotton yarn exports for the calendar year 1999 hit an all-time

record of 535 mn. kg., the exports to the major European Union (EU) markets like Italy,

the United Kingdom (UK) and Germany fell significantly. He also observed that Turkey

remained the top supplier of cotton yarn to the EU markets because of several vantage

points on its side like nil import duty, and low freight charges compared to India. It was
pointed out that India exported fine and medium count yarns compared to Turkey,

which exported only coarser count yarns. He stated that there was a multifold increase

in exports of cotton yarn to Korea during 1999 in spite of the currency crisis in 1998.

Monica Gupta (2000)29 in her paper “The New Textile Policy 2000”, had pointed

out that the number of shuttleless looms were low in India compared to countries like

China. According to her, huge investment in research and development, technology

upgradation and improvement in quality were needed to face the global competition.

She opined that lifting the cap of 24 per cent on the Foreign Direct Investment (FDI)

would enable the flow of capital and technology into the sector.

Saxena (2000)30 had studied the growth of cotton yarn in the nineties. There

was an increase of three and a half time in the cotton yarn export. He found out that

the increase in cotton yarn export was due to the increase in the exports of lower

counts (1 – 40s). But, the export of higher count yarn had experienced only a modest

rise. The export of lower counts had exceeded the ceiling fixed by the government

because of the exports to quota countries (EEC and USA) by 100 per cent Export

Oriented Units/Export Processing Zone units and Advanced Licensing Scheme against

the raw cotton imported by these spinning units. The unit value realisation of yarn

export of lower counts was much lesser than higher counts.

Prem Malik (2000)31 studied the export of cotton textiles with its various

components for the years 1997-99 and found out that the unit value realisation was

lower in cotton yarn compared to other textile products. The dependence on few

markets like Bangladesh, South Korea and Hong Kong was the major reason for it. By
producing double yarns, dyed mercerised yarns, fibre and top dyed yarns, target value

markets like Japan, Germany, United Kingdom, and USA could be targeted in medium

and fine counts.

Amanullah Basher (2001)32 focused on the Multilateral Trade Arrangement

made among China, India and Pakistan. He pointed out that, China had offered

Pakistan to export yarn of 30 counts and below and that India would export yarn of

above 30 counts. The mutual understanding helped to eliminate the element of harsh

competition between the two countries to gain the export market. He concluded that

if the two sides agree to operate within the stipulated framework of yarn count, both

of them would be benefited and could get good prices for their yarn in the

international market in general and from China in particular.

India Infoline Sector Reports (2001)33 stated that, in 1998, manufacture of cotton

yarn for exports had registered a quantum jump of 43 per cent compared to 1997.

According to the report, the financial performance of the new units was more favourable

than that of the older units. Spinning units on the whole had performed better than the

integrated composite mills. The export-oriented units had registered superior

performance compared to the units catering to the domestic market.

Reshma Krishnan (2001)34 had analysed the performance of cotton yarn

production and export for the year 2000. In his opinion, contaminated cotton and poor

ginning facilities had affected the ability of cotton yarn to compete in the international

markets. Good quality raw cotton had to be imported to manufacture international

quality yarn. High import duty on cotton made the production of cotton yarn for the
export market an expensive proposition. He pointed out that the power, wages and

interest rates were higher in India than they were in China. Even after the rupee-dollar

depreciation, the interest rates were three per cent higher than they were elsewhere in

the world.

It was stated in the article, “Indian Cotton Yarn Exports Slacken” (2001) 35 that

the slowdown in the textile and apparel demand in the United States (US) and the

European Union (EU) started to have an impact on Indian cotton yarn exports and

resulted in the price war for cotton yarn in the international market. The weavers and

knitters importing cotton yarn squeezed the spinners by demanding price discounts.

It was noted that as the Indian rupee was not much depreciated, the Indian spinners

could not give price discounts.

Sanjeev Saran (2002)36 stated that, as the spinning capacity of India was based

on the state of the art technology with abundant supply of locally grown cotton, India

was able to spin any count of yarn and export yarn of high quality to global markets.

Weavers and knitters around the world preferred Indian yarn for high value added

fashion textiles. The export of cotton yarn to Korea in the Asian continent, Mauritius

in African continent, Italy in European continent and Canada in American continent

topped the other countries in the respective continents during January - December

2001.

Verma (2002)37 stated that the garment sector would get a strong footing in the

major markets namely, the US and the EU unlike textiles in the post Multi Fibre

Agreement (MFA) regime. The exports of apparel to these two markets were
constrained in the quota regime but it protected the export of cotton yarn and fabrics.

The level of modernisation was low in the spinning sector and about 65 per cent of the

spindleage was more than 10 years old. He also found out that, an average garment

exporting firm in India had only 119 machines compared with 698 in Hong Kong and

605 in China.

Ganesh (2002)38 had analysed textile export performance from 1996-97 to

2000-01. He found out that, compared to the prior period, unit prices of yarn, grey

fabrics respectively had decreased whereas those of processed fabrics had increased.

The strategy of China was different from that of India. China vacated the commodity

end comprising yarn and grey fabrics and moved into high value processed fabrics with

sizeable investments in value added processes. Meanwhile India is still in the phase of

upgrading the commodity end.

Soundariya Preetha (2002)39 in her article, “Cotton Spinning Welcome Signs of

Revival”, had stated that the number of spindles for cotton spinning had increased from

26.27 mn. in 1991 to nearly 36 million in 2001 and the utilization of spindle capacity

was around 85 per cent. She mentioned that, with the expansion of spindles, a wide

range of counts of cotton yarn were exported and the major destinations for Indian

cotton yarn exports were Korea, Bangladesh and Hong Kong. She concluded that there

had been revival both in the domestic and export markets with modernization and value

addition.

Pooja J. Rajaney (2003)40 had studied the export of cotton textiles from 1990-91

to 1999-2000. According to her, even though the government had allowed 100 per cent
foreign investment in textile sector it was unable to attract any substantial foreign

investment. The poor quality of the exports had acted as a dampener on increasing the

export share in the international market. Most of the Indian textile industries had been

hard-pressed to deliver the quality merchandise to the buyer. In her opinion, the

spinning sector had kept itself healthier through timely investments in technology

upgradation compared to the weaving sector.

Gurumoorthy (2003)41 had analysed textile exports from 1996-2002. According

to him the Indian textile exports in the world market ranged from 4.36 per cent 5.24

per cent. To achieve more growth he felt central and sales tax rationalisation was

needed. Interest rates for export credit should be uniform in all banks in India.

Different interest rates were charged by bank for export credit. Difference in interest

cost had led to difference in cost of production among the exporters. In his opinion,

exporters paying high interest rates were not able to compete in the export market.

Further, he suggested that the import tariff should be reduced to facilitate the textile

industry to import their requirements because import tariff was very low in European

unions.

Sohoni and S.M. Dalal (2003)42 in their article titled, ‘Improvement in Technical

Performance of Mills – An Analytical Approach’, had analysed the factors involved in

the improvement of the technical performance of mills. In their study, they said that

both the global and Indian textile industries have witnessed drastic changes in the post-

GATT era. In their opinion, market forces like raw material price and yarn sales rates

were responsible for the dismal performance of the mills. Techno-commercial

parameters such as utilisation, machine productivity, labour productivity, utility

consumption, raw material rates and yarn sale rates have a great impact on profitability

of the spinning mills.

The Gherzi report (2003)43 suggested that India had to focus on cost reduction

to compete with Asian Textile giants like China, Indonesia and minnows such as Sri

Lanka, Pakistan and Bangladesh. It was stated in the report that China remained the

leader with cost advantages in all factors of production but India was fast losing its

traditional advantages in homegrown cotton and low labour cost. The study noted that

besides technology, cost of raw materials, energy, dyes and chemicals, and wages

were crucial for Indian cotton textile industry to stay cost competitive. The report

noted that the cost of raw material in India was 15 per cent more than in China and

suggested the need to reduce the raw material cost atleast by 10 per cent. It was

concluded that the low interest rates in China contributed to the technology

upgradation in the textile sector and that India has to learn from China.

Rama Prasad (2003)44 had analysed the textile exports including cotton yarn for

the period 1994-2002. He had stated that the demand for cotton yarn by the textile

sectors was on the rise from Rs.16.1 billion in 1994 to Rs.103.4 billion in 2002. The

upswing in the international and domestic markets was the result of free market

access facilitated by GATT. Indian textiles, with the strong raw material base

penetrated the international markets and succeeded with quality, cost, and customer

service along with the technology sourced from European countries. He had opined

that many countries had imported cotton yarn from India for their local production.
He had concluded that, as the cost of cotton comprised 60 per cent of the cost of

production, the crop yield should be improved to enable a step up in exports.

Brain Carver, Christy He, Jonah Hister (2004)45 in their project report stated

that, the determinants of competitive position were the quality and the cotton price

in the spinning sector. Though the Indian textile industry underwent changes to tailor

products which were traditionally different in order to meet the international

competition, it lagged behind China, Taiwan and Korea. The analysis of share of world

trade in textiles from 1980-2000 showed India’s share was 1.3 per cent whereas it was

5.6 per cent, 4.2 per cent and 4.1 per cent respectively for China, Taiwan and Korea. It

was cheaper to reach the US from the ports of Hong Kong and China compared to

India. They concluded that if India fails to invest in modern processes it would not be

able to compete on a global scale in the future.

Punithavathy Pandian and Jeyanthi Vijayarani (2004) 46 had analysed the

problems faced by the Tamil Nadu cotton yarn exporters, the factors influencing the

export of cotton yarn and the measures needed to boost the exports of cotton yarn. It

was found out by the Garret’s ranking technique that transportation was the major

problem experienced by the exporters, as most of the mills are situated away from the

ports. The study revealed that majority of the sample mills exported cotton yarn to

more than five countries and the average cotton yarn exports (Rs.24.443 crore) in

more than to five countries category was higher than the average exports (Rs.5.167

crore) in the upto five countries category. Among the measures suggested to boost

export of cotton yarn, technology upgradation was given the first preference.
 Vijay Venkataswamy (2004)47 in his article, “Textiles – Light at the End of

Tunnel” had stated that in the post 2004 scenario, India would be the source of yarn and

fabric for the Bangladesh and Sri Lankan garment industries. He also had pointed out

that the main problem for the textile industry was the high power cost per kg. of yarn

compared to the United States of America (USA), Korea, Indonesia and Brazil.

Highlighting the strength of Indian textile industry such as, high entrepreneurial skill,

skilled and educated manpower and strong raw material base, he concluded that

necessary initiatives should be taken at the macro level to make the industry a

competitive one.

Ramachandran (2005)48 had stated the pros and cons of the WTO - post quota

scenario and its impact on the spinning sector. Through a SWOT analysis, he had

showed that India is one of the largest producers of cotton. He had highlighted that the

abundant raw material availability, low cost skilled labour, and the growing domestic

field as the strengths of the industry. In a comparison chart between China and India,

China had an edge over India in terms of infrastructure and thereby it had increased

productivity, efficiency and profitability. To conclude, he had opined that a rethinking

of strategies especially technological upgradation, enhancement of productivity, quality

consciousness, strengthening of raw material base, product diversification and

integrated human resources development can help in the growth of the spinning sector.

Danish A. Hashinm (2005)49 had attempted to examine the factors that determine

the competitiveness of cotton yarn and garment industries using panel data analysis for

the period 1989-97. According to him, the cost competitiveness was the most important

determinant of exports, in which India’s performance was poor. To analyse the

determinants of productivity, Multilateral Total Factor Productivity Index (TFP), cost

function and the production function were used in his study. Cotton yarn witnessed a

high increase in the price of materials (11%), whereas the garment industry experienced

a high increase in the price of labour by 12 per cent. The findings of the study stated,

that a 10 per cent increase in the capacity utilisation in spinning mills enhanced around

2 per cent productivity showing a significant relationship between TFP and capacity

utilisation. It was concluded that the disbursement of credit at low interest rates, higher

availability of electricity at reasonable price, better capacity utilization would help the

cotton yarn industry be more cost competitive in the post-Multi Fibre Agreement era.

Deepa Krishnan (2005)50 stated that the textile sector particularly the spinning

industry re-weaved its growth with the increase in demand in the post-quota

period. The rise in demand forced the spinning sector to install an additional capacity

of 6.2 mn. spindles to enhance production in 2005. As more than 70 per cent of the

exports of yarn belonged to lower counts (less than 30), there was a need to spin

higher counts of yarn to access new markets. A commendable increase of 13 per cent

in the textile exports from India to the European Union (EU) was seen during January

– May 2005 whereas Pakistan, Indonesia and Bangladesh experienced a negative

growth in the EU market.

Most of the research studies which were reviewed here have not made any

comparative analysis of yarn exports in the pre and post-liberalisation periods.

Further, the opinions of the sample mills regarding the yarn exports were also not
examined. In view of the limitations of these studies, the present study has been

undertaken.

1.4 SCOPE OF THE STUDY

The study is confined to the exports of Indian cotton yarn only. An analysis is

undertaken from the point of view of the spinning mills, which export cotton yarn. The

study also includes the opinions of the spinning mill owners and managing directors on

the various aspects of exporting of cotton yarn.

1.5 OBJECTIVES OF THE STUDY

The specific objectives of the study are:

· To trace the growth performance of India’s exports, textiles and cotton yarn
exports in particular.

· To analyse the continent, country and count-wise export of cotton yarn.

· To assess the capital structure of the sample mills.

· To identify the sources of market access of the sample mills.

· To study the opinions on cotton yarn exports by the sample mills.

· To offer suitable suggestions based on the findings.

1.6 HYPOTHESES

To give specific focus to the objectives, a few hypotheses have been drawn up

and tested using appropriate statistical tools.

 · The pre and post-liberalisation periods regressions for exports on production

are the same.

· There is no significant difference in the problems faced by the sample mills to

avail credit on the basis of different export categories.

· There is no significant difference between the mean exports of the two

different production categories.

· There is no significant difference between the mean exports of the two

different categories of number of countries.

1.7 DATA

For the study purpose, Tamil Nadu has been selected because, out of 1565 mills

in India, 834 mills are situated in Tamil Nadu51. Highest concentration of spinning mills

is found in Coimbatore in Tamil Nadu. To find out the names of the exporting mills,

the Southern India Mills’ Association (SIMA) was approached by the researcher. There

were 95 exporting spinning mills registered with SIMA in 2000. To have a complete

survey the questionnaire was sent to all the 95 mills. After repeated requests 43

responses were obtained. The spread of the responses are as follows:

Area Total Exporting Mills Number of Mills that Responded

Coimbatore 48 23

Other Districts 47 20

Total 95 43
 The number of responses indicates that nearly 50 per cent of the exporting mills

have responded positively.

To study the growth of cotton yarn exports, secondary data regarding total

exports, textile exports and yarn exports were obtained for a period of 23 years (1980-

81 to 2002-03), which consisted of a decade before liberalisation and 13 years after

liberalisation. To study the continent and country-wise export of cotton yarn, data

were obtained for a period of seven years from 1996-97 to 2002-03 as the export of

cotton yarn from this period was incredible with diversified markets.

The secondary data pertaining to the study have been gathered from various

government publications, the records maintained by The Cotton Textiles Export

Promotion Council (TEXPROCIL), The Southern India Mills’ Association (SIMA), Ministry

of Textiles, The Indian Cotton Mills Federation (ICMF) and various libraries. Secondary

data have also been collected from journals like, Compendium of Textile Statistics and

Hand Book of Export Statistics.

1.8 OPERATIONAL DEFINITION

Opinions of the sample mills: The opinions of the sample mills here mean the

opinions given by the managing directors of the respective mills.

1.9 FRAMEWORK OF ANALYSIS

To analyse the primary data and secondary data the following statistical tools

have been used:

 The descriptive statistical tools like arithmetic mean, standard deviation and co-

efficient of variation52 were used in order to describe the data along with simple

percentage analysis.

σ
Co-efficient of Variation = ----- x 100
X
Where,

σ = Standard Deviation

X = Arithmetic Mean

Curve-fit Equations: Curve fit equations53 given in Statistical Package for Social

Sciences (10.1 versions) were used to estimate the growth trend of the cotton yarn

exports for the entire study period, pre-liberalisation and post-liberalisation

periods and the average unit value realisation on export for the entire study period.

The fitted equations were:

Linear (LIN) : Y = b0 + [b1t]

Logarithmic (LOG) : Y = b0 + [b1ln(t)]
Inverse (INV) : Y = b0 + [b1/t]
Quadratic (QUA) : Y = b0 + [b1t] + [b2t2]
Cubic (CUB) : Y = b0 + [b1t] + [b2t2 + [b3t3]
Compound (COM) : lnY = ln[b0] + ln[b1]t
S (S) : ln(Y) = b0 +[b1/t]
Growth (GRO) : ln(Y) = [b0 + (b1t)]
Exponential (EXP) : ln(Y) = ln[b0] + [b1t]

Cobweb Phenomenon: To analyse whether exports react to price with a lag of

time, the export function on the basis of cobweb phenomenon54 was used
 Export = b1 + b2 Pt-1 + ut

Where,
P = Price

t = Period

Pt – 1 = Price in the last year

The functional form55 (Yi = a + β1 Xi) was used to study the relationship between

production and export of cotton yarn.

Yi = Exports; Xi = Production

Chow Test: To find out whether there is a structural change in the export and

production relationship between the pre and post-liberalisation periods, the assumption

underlying the Chow test56 are:

a) u1t ~ N (0, σ2) and u2t ~ N (0, σ2)

b) u1t and u2t are independently distributed.

With the said assumptions, Chow test is shown that

S5 / k
F = ----------------------
S4 / (n1+n2 – 2k)

S1= Residual sum of squares for both the pre and post-liberalisation periods

S2 = Residual sum of squares for pre-liberalisation period

S3 = Residual sum of squares for post-liberalisation period

S4 = S2 + S3

S5 = S1 – S4

n1 = number of observations in the pre-liberalisation period

n2 = number of observations in the post-liberalisation period

 k = number of parameters

Which follows ‘F’ distribution with df = (k, n1+n2 – 2k)

If the ‘F’ computed exceeds the critical ‘F’ value at the chosen level of a, the

hypothesis that the regressions in the pre and post-liberalisation periods are the same is

rejected, that is, the hypothesis of structural stability is rejected.

Geographic Concentration Index: To find out the degree of concentration of

cotton yarn exports to various continents and countries, geographic concentration

index57 was used. To find out the degree of concentration of count-wise export of

cotton yarn, commodity concentration index was used.

Geographic / Commodity Concentration Index, C = å ( Xi / X)2 x 100

Xi – refers to the exports of cotton yarn to a particular continent, country

and of a particular count
X - refers to the total exports of cotton yarn from India

Volatility Index: To analyse the volatility in the export of cotton yarn from India

to the continents, countries and for the various counts, the volatility index has been used.

To estimate volatility index, Coppock’s Log-variance method58 has been adopted.

According to Coppock, the volatility index equals the antilog of the square root of the

logarithmic variance of the series and that is given in algebraic terms as:

1 1
V log = ------- . å [ logX t+1 – log X t – ------ . å(log X t+1 – log X t)]2
N–1 N–1

Where, V log = logarithmic variance

X = value of exports
 t = year; N = Number of years

Garret’s Ranking Technique: The reasons for non-advertisement, the measures

to boost exports of cotton yarn, sources of working capital, and the production of

various counts of yarn were ranked with the help of Garret’s ranking technique 59 using

the following formula.

100(Rij – 0.5)
Per cent Position = ---------------------
Nj
Rij = Rank given for the ith item by the jth sample mills
Nj = Total rank given by the jth sample mills.

Likert’s Scaling Technique: To study the reasons for an increasing trend in

exports, six reasons were framed and for each reason Likert’s60 scaling technique has

been used. The scores were given in the order of six, five, four, three, two and one

respectively for each reason. The intensity value has been calculated as follows:

Intensity Value: [R1*6+R2*5+R3*4+R4*3+R5*2+R6*1]

R – Represents the Ranks.

Rank Correlation: To study the ranking pattern of reasons among the different

categories of exports of cotton yarn rank correlation co-efficient61 is calculated using

the following formula:

6 ΣD2
Rank Correlation (r) = 1 – -------------
N3 – N
 D = Difference of ranks between paired items in two series

N = Number of ranks
Kruskal Wallis Test62: This test has been applied to find out whether equal

ranks are given by the different categories of sample mills for the problems faced in

availing credit. The test statistic H is worked out as under:

12 R1 2 R22 R32
H = ----------- ------ + ------ + ------ - 3(N + 1)
N(N + 1) n1 n2 n3
ν = (k – 1) degrees of freedom
Where,
n = number of observations

R = sum of the Ranks

‘Z’ test: ‘Z’ test was used in order to test the significance of difference between

the means of quantitative variables like production, number of countries to export and

exports. The formula for the computation of ‘Z’ test63 is as follows:

/ X1 – X2 /
Z = -----------------
S12 S22
------ + ------
n1 n2
Where,

X1 = Mean production of the sample one

X2 = Mean production of the sample two

S12 = Variance of the sample one

S22 = Variance of the sample two

n1 = Number of sample mills in the production category one

 n2 = Number of sample mills in the production category two

If the calculated value of ‘Z’ is greater than the table value of 1.96 at 5per cent

level of significance, there exists a significant difference between the two means.

Factor Analysis64: Factor analysis is a very useful method of reducing data

complexity by reducing the number of variables being studied. There are two stages

in factor analysis. The first stage is called the factor extraction process where the

objective is to identify how many factors can be extracted from the data. Principal

component analysis is used for this purpose. An Eigen value indicates how many

factors to extract. The concept of Eigen value translates approximately to the ‘variance

explained’ concept of regression analysis. The higher the Eigen value of a factor, the

higher is the amount of variance explained by the factor.

The second stage is called rotation of principal components. The rotated factor

matrix gives the loading of each variable on each of the extracted factors. This is similar

to a correlation matrix, with ‘loadings’ having values between zero and one. Values

close to one represent high loadings and those close to zero represent low loadings.

The objective is to find variables which have a high loading on one factor, but low

loadings on other factors. If any factor is loaded heavily by other variables, it is

assumed that the highly loaded factor is a linear combination of the other variables,

and it is given a suitable name, representing the essence of the original variables, of

which it is a combination.
1.10 LIMITATIONS OF THE STUDY

This study pertains to a period of about twenty three years starting from 1980-

81 to 2002-03. Such a long time span has been chosen to ascertain the changes in the

cotton yarn exports of India with changes in the production and policies related to

textile trade. However, regarding the export of cotton yarn to the continents and

countries, data relating to a shorter period from 1996-97 to 2002-03 has been

selected, as the market for cotton yarn was highly diversified and the yarn export was

also distinct during that period. Also, the data were not available in a complete form

for the entire period under study.

This study is also based on the analysis of the primary data collected from the

representative samples of the spinning mills. As the spinning mills are widely

dispersed, for the easy location, SIMA registered spinning mills have been chosen and

contacted.

1.11 CHAPTER SCHEME

The thesis has been organised and presented in eight chapters.

The introduction, statement of the problem, review of the related studies,

scope of the study, objectives of the study, hypotheses, data, sample, frame work of

analysis and the chapter scheme are presented in the first chapter.

An overview of the textile industry is given in the second chapter.

Export of cotton yarn from India in relation to total exports and textile exports

are analysed in the third chapter.

 The continent, country and count-wise analysis of export of cotton yarn are

examined in the fourth chapter.

The export marketing of cotton yarn by the sample mills are analysed in the

fifth chapter.

The production and export of cotton yarn by the sample mills are studied in the

sixth chapter.

The opinions on cotton yarn export by the sample mills are discussed in the

seventh chapter.

The eighth chapter is a summation of findings. Suggestions are also offered for

the improvement of cotton yarn exports.

 FOOTNOTES

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2. Ibid., p.569

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