This paper is about the character and consequence of the response forged by a predominantly rural industry, the handlooms, in Bangladesh, a country with massive poverty and considerable underdevelopment of public initiative, to the forces of economic liberalisation and a certain degree of investment reprioritisation favouring rural development and infrastructure. The period of special interest is the decade following 1976/77—a period, among other things, of steady economic liberalisation, exchange rate depreciation, growth of foodgrain production in excess of population growth, considerable infrastructural development. Against a background of near-total absence of public initiative, the creative response forged by the industry against the forces of competition represents a balance of the interaction between peoples’ own initiative and evolving profit opportunities. The effectiveness of the response as a whole runs substantively counter to the conventional wisdom about the situation of the handloom industry. Handloom yardage grew at a trend of 3.90% annually between 1972/73 through 1986/87—significantly in excess of the population growth. Weaving of polyester fabrics has been assimilated into the capability of the handlooms. Industry-wide loomage has grown at 2.3% during this period; loom-mix has been increasingly weighted towards the “best-practice” handlooms. Producers’ regime, as also to widespread availment of yarn trade credit that is mutually advantageous to both traders and weavers, but highly beneficial to the weavers, even small weavers. Consequently, the ratio of income retention in value added in the handloom industry has risen more recently relative to late 1970s as a result of improvement of the economic environment. The profitability of handlooms also has risen over the same period because the labour productivity has gone up. Growth of establishment has been extensively in evidence on a large sample of handloom units. Handloom industry has coped well with the competition of the imports, frequently illicit, of cotton fabrics from India. Many handloom weavers have left hand-weaving behind and graduated into capitalist rural powerloom weaving. For all its demonstrated capacity for growth and structural adjustment amid increasing economic liberalisation, the handloom industry has had its share of those bypassed. The poverty ratio on BIDS sample of handloom weaver was more than one half. The pattern of growth and structural change has therefore been dualistic. This however is not surprising due to near-total absence of public interventions. The exclusion of the smallest units from favourable change is a frustrated potential that clearly existed.

The present paper is basically a statistical exercise for estimating cloth supplies in Bangladesh during the period 1955/56-1986/87. In this paper, we have estimated the supplies of cloth by taking into account domestic production and imports. Cotton, non-cotton, and second-hand clothing, have all been covered. The data on domestic mill production, and imports of cotton, non-cotton, and of second-hand textiles are available from secondary sources. Whilst the production of the handloom sector (which currently accounts for 69% of the total cloth supply in Bangladesh), factory sub-sector, and unorganised small powerlooms have all been estimated in this paper. An attempt has also been made to assess the smuggling in/out of various textile products. It has been seen that the total supply of cloth (all types) has increased from an average of 477 million yards per year during 1955/56-1959/60 to 989 million yards during 1985/86-1986/87. Per capita availability of cloth has increased slowly over time but still remains at a very low level (around 10 yards).

The paper makes an attempt to estimate nominal and effective rates of protection being provided for various components of Bangladesh’s and spinning weaving economy. The most significant finding of the paper is that handlooms receive significantly lower effective rates of protection (ERP) than powerlooms. Also, the ERP estimates of our study for mill-made, typically relatively coarse, fabrics are found to be lower, too, than for corresponding handloom ERPs. The disadvantage of the handlooms in terms of ERP contributes an interesting factual detail in the background from which one needs to forge the development priorities of Bangladesh’s textile economy, and its weaving economy in particular.

The paper shows that following a bungled implementation of Weavers’ Credit Scheme—a public programme—the weaving industry had reverted to the old days of near-total dependence on non-institutional credit. Trade credit on yarn procurement had become the all-important source. Trade credit brings forth lucrative gains for the traders by way of interest rate mark-up. However, it permits a very fast working capital turnover, of 49 per year, and therefore a high level of capacity utilisation. High mark-up on the interest rate is due to high compounding that is scheduled into the repayments. Such surplus extraction imposes a strictly modest decline in weavers’ profits—of about 10%. The trader does not extract as much surplus as would be indicated by his share of the resources in circulation in the weavers’ business. This is due to the traders’ enlightened self-interest and the want of obvious exploitability on the part of the weavers: the poverty ratio on the study sample is over one-half. Against a background of high costs of yarn relative to the purchasing power of an average Bangladeshi consumer, the compulsion to keep cloth production in motion requires that at least moderate profits can accrue to the weaver, and that his yarn absorption, more than half of which is financed by trade credit on the study sample, is the single most significant determinant of factor productivity, while controlling for statistically significant direct effects of several other non-financial variables.

This paper attempts to examine the effectiveness of the distribution of yarn in the handloom sector in its historical and contemporary perspective. It finds that there is a persistent shortfall in the total availability of cotton yarn in the country in terms of quantity, quality, count and variety. This shortfall very often intensifies and converges towards crisis owing to frequent disruptions and distortions in the supply of yarn. In the face of repeated efforts made by the government institutions, market mechanism has been the prime mover of the distribution of yarn in the handloom sector. It finds that institutional mechanism instead of curbing the involvement of the middlemen traders and controlling the market forces has been virtually instrumental in paving the way for the market mechanism to be more active but inefficient. By and large, the system of yarn distribution has been historically ineffective in meeting the diverse yarn requirement of the handloom enterprises. The paper contends that there is a clear need for controlling the yarn market and emphasizes that an all-out effort be made to improve the quality of the locally produced yarns to international standard and to diversify production.

This paper attempts to analyse the perpetual issue of cotton yarn pricing in the handloom sector of Bangladesh which has gained both historical and contemporary relevance. It investigates the nature of yarn price variation and examines the factors governing formation of yarn price at the level of the handloom enterprises and if the existing parttern is reasonably effective in promoting allocation of yarn conducive to the healthy growth of the handloom sector. It argues that because of several limits mainly excessive price spread across most predominant counts, the existing system of yarn pricing fails to capture and sustain dynamism of the Sector. It shows that any increase in yarn price which inherently results in increased variability of returns can cause negative supply response, and points out that the widely held ‘law of supply’ may fail when generalities of risky multi-count yarn production with risk aversion are introduced simultaneously where diversification is also affected by capacity constraints in local production and import. Contrary to popular belief, it is also found that yarn traders on the average earn only normal and sometimes even below normal profit. The paper contends that price stabilization policy support would beyond any doubt benefit the handloom enterprises at large because a stable price takes account of risk reduction benefits.

This paper seeks to place the development of the handloom industry in a wider social context within which an appropriate set of interventions can be designed. It identifies the continuing importance of the industry in meeting the clothing needs of the country notwithstanding the growth of alternative sources of supply. It is argued that the continuing importance of the handloom industry is however not just an economic issue. The earnings of over three quarters of a million, mainly rural people, are tied-up in the fate of the industry.Through an ongoing process of structural adjustment the handloom industry has maintained its economic competitiveness against imports and managed to remain both absolutely and at the margin the main source of cloth supply to the domestic market. This suggests that any strategy for promoting the development of the industry would satisfactorily reconcile the objectives of cost-effectively clothing the population of Bangladesh with the improvement in the incomes of a large number of relatively impoverished households.