Effecting Integration For Growth

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          Indian Handicrafts are rich in diversity and spread all over the country both in rural and urban areas. Though it is considered a cottage industry, it has evolved as one of the major revenue generators over the years. There has been consistent growth of 15% over the last few years and the industry has evolved as a major contributor for exports and thus, for foreign revenue generation. Since most of the manufacturing units are located in rural and small towns, handicraft industry is a major source of income for rural communities, employing over six million artisans who are mainly poor and majority of them are women. Additionally, with a growing middle class that has spread beyond the four metros, there is market potential for handicrafts in smaller towns in a way not seen before, especially with the spread of retail.

          Handicrafts are complex in terms of products and market segments. In textiles and clothing, there is a more seamless movement of product lines and designs among the segments than before. Products and designs that used to be considered ‘boutique’ are now seen in retail. This provides a market opportunity for artisans to be employed, despite the challenges posed by machines duplicating the designs and use of cheaper fabric. There is a greater thrust for social consciousness and fair trade and these have become worldwide movements. There is a focus on sustainable consumption, social protection, environmental standards and occupational health and safety. These concepts and terms were rarely used a few years ago. Certifications have also become available to assist in branding and socially conscious advertising. The challenge is to widen these benefits to the large number of artisans who are outside the formal sector.

          Much of the work in handicrafts remains dispersed and informalized, mainly in the rural areas. This is both an advantage and a curse. For women it is an advantage because it enables them to work out of their homes thus providing much needed employment to those who would otherwise not be employed. It is a curse because the dispersed nature of production increases costs of developing an efficient value chain for production and marketing. The value chains are long and relationships along the chain are non-transparent. Margin calculations are ad hoc and exploitative with artisans not receiving returns commensurate with their skill or labor. There are no standard or average markups in many cases. Every transaction is a different transaction wherein each transacting party attempts to gain the maximum share. The mark up on lower quality, lower priced goods is low and markups on higher quality, higher priced goods are high.

          The key challenge was, and remains integration across the range of requirements for sustainable production and growth. The integration requirements become more complex with greater differentiation in markets, products, skills to take advantage of the more creative ways that exit to build the value chains. With emphasis on bringing the welfare benefits to the informal sector workers, this is an added dimension to integration for artisans. The key players in developing the backward linkages are the smaller entrepreneurs who have traditionally served the artisans and the NGOs, along with the member-based organizations that they have helped to develop. The key player in financing this sector to enable this integration is the government. The key players in the forward links in the chain (retailers, exporters) have expanded with the market but they are still evolving in their understanding of fair and progressive practices in sustainable production and consumption, including artisan employment and income generation. The issues relating to these players are discussed below.

          The handicraft sector thrives on the dynamism of small-scale agents, entrepreneurs and enterprises. Though the specifics vary in different sub-sectors of handicrafts, entry and exit barriers are probably the lowest at the stage of the village agent or thekedar. In the hand embroidery subsector in Western Rajasthan, for example, since the money investment is not huge for a thekedar, quitting the sector is relatively easy if business does not go as planned. On the other hand, a referral from a relative and very small capital to pay off one or two months wages is all that is required to enter the sector and become a small thekedar. While such thekedars are at the lowest rung of the value chain, they perform an important service of enabling employment for the artisans. Many thekedars are from artisan families themselves and also poor and not educated. However, lack of accessible, graduated financial support, as well as business skills consistent with accessing upscale and diverse markets, prevents thekedars from getting into manufacturing where the real value addition happens and the margin are the highest. This is hampering handicrafts from realizing their true potential and growing formally and with greater transparency and accountability all along the value chain.

          NGOs have for long supported the artisan sector and done pioneering work to build up membership-based organizations of artisans such as cooperatives and producer companies. But financial and capacity gaps in both the artisan organizations and NGOs have prevented them from helping to widen the scope and scale of artisan products and employment. The level of integration required to enable this (from product design, input supplies, business process, finance and marketing not to mention persistent community intermediation to ensure quality and timeless) even for smaller numbers of artisans to get enhanced incomes, is daunting for such institutions. The focus on weeding out the thekedars who are not fair wage providers, building capacity among artisans themselves to do a variety of tasks for artisan enterprises beyond production such as marketing and technical assistance as well as on building member organizations to ensure their ownership and control, has motivated a few NGOs in India to develop such integration internally. They have created value chains that build on existing resources and skills to develop products and take them to the market. However, such examples are few and not all of them are able to scale up.

          The opening up of the retail sector, which has created a diversified market for a variety of products at various price points, offers and opportunity for individual entrepreneurs as well as institutions representing and working for artisans for enhancing employment and accommodating artisans with varying skill levels. These opportunities have not, however, been matched with a business and supply capacity. The retail sector requires and organized and well-controlled supply chain and the lack of integration capability mentioned earlier is hampering traditional and new artisans from taking advantage of the market opportunities. The inefficiencies persist in large measure and the withdrawal of orders from the market due to delays in supply and quality inconsistencies severely hinders growth and sustained motivation to comply with market requirements. Though the informalization along most value chains helps local entrepreneurs (thekedars and small manufacturers) to manage the asymmetries in the handicrafts sector, it shortchanges artisans expecting regular employment and steady income.

          Service institutions in the non-profit space are now emerging to do the integration and provide turnkey services combining at least skill development, design and marketing to artisan member organizations and NGOs. Some of them have used e-commerce marketing platforms for artisan products. Finance, however, is generally not included in this group of services, for the unfortunate reason that it remains difficult to  access despite so much focus and funding going into microfinance and the financial institutions, government and no-government. While this is a market opportunity for service organizations to take advantage of the growth of the handicrafts sector, the impact of this integration to push up artisan incomes and employment consistently is likely to be limited without finance being integrated into the package. Advice and linkages to social protection are also not services generally included in this package offered by service institutions for artisans.

          Additionally, the vast number of local entrepreneurs, especially those operating as thekedars, is, however, not the primary clientele of these integrated services despite the value they have created for artisan employment. They are less able to effect integration than the NGOs and artisan organizations because they are viewed with suspicion. Their capacity to survive and ability to maneuver in the informal economy needs to receive greater attention and they need to be enabled to channel these skills to strengthen, standardize and sustain the supply and services at relevant points in the chain. Downstream are the firms of exporters and retailers most of whom deal with artisans at “arms length” and respond better to regulations that will directly impact their profits (such as those related to use of chemical dyes and discharge of effluents) than to calls for better margin for artisans. They are organized in their own associations and interest formations which are well knit to promote their interests but have not yet progressed to consistently engage with artisans or artisan associations or NGOs working with them in a sensitive and effective manner.

          The financial support for developing more organized value chains in rural areas in the aspects of skill improvement, design and product development, infrastructure, business capacity, market exposure, and working capital provision are not effectively consolidated in government schemes or disbursed sensitively or flexibly to improve chain viability, artisan incomes and welfare as well as their empowerment for market negotiations. There are also aspects that are either not covered or inadequate, such as transportation. Government schemes are actually quite expensive (in terms of human resources and logistics) for artisan-support institutions/NGOs to service/execute in rural areas. They invariably require flexible donor (often foreign) financing to fund the real costs of executing government schemes to reach them to the artisans, especially during the start-up and strengthening phase of developing the chain, including for working capital. Such donor financing is now shrinking for growth countries like India. How this will impact NGO support to the handicraft sector is still to be known but it is clear that integration for growth is an imperative that only the government can finance on the scale required. Government programs need to be more creatively designed to accommodate the various players, various stages of growth of handicraft enterprises, and the various subsectors that have their                                                                                                                                                                                                         own value chain dynamics.  

Author: Sudipta Kumar Sarkar

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