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Evaluation Study on Khadi and village Industries Programme.

During the Freedom Struggle, the development of Khadi and Village Industries was an instrument to meet the twin objective of self-reliance through local production and seeking active participation of the poor in the struggle for Independence through removal of hunger and unemployment. Their potential as an instrument of poverty alleviation was also recognised by our early planners. Accordingly, the Khadi and Village Industries Commission (KVIC) were created by an Act of Parliament to plan, promote and organise their systematic development and expansion.

While the output and employment of Khadi and Village Industries have grown manifold during the last four and a half decades, their role in the context of the new paradigm of development has been questioned. In particular, the effectiveness of the programme in terms of its employment generation capacity, resource-use efficiency and sustainability has come under attack from various quarters. At the instance of Planning Commission, the Programme Evaluation Organisation (PEO) undertook the evaluation of the performance, adequacy, and effectiveness of the implementation mechanism and impact of the KVI programme.

At the instance of KVIC and Planning Commission, the Programme Evaluation Organization (PEO) undertook the evaluation of the performance, suitability and effectiveness of the implementation mechanism and impact of the KVI programme. In addition, the study was designed to examine the adequacy of the planning, execution and monitoring aspects of the programme, and suggest measures to improve its performance. The reference period for the study was the entire period of the Eighth Plan (1992-1997)

 

Main Findings Planning & Resources  Inadequate linkage between production and sales strategies has resulted in accumulation of stocks, low return on investment, non-performing asset build-up, low production and shrinking employment opportunities. Co-ordination among implementing agencies at various levels is lacking. The data base available with KVIC on production, employment, sales, and earnings, stock and on other relevant parameters is inadequate and inaccurate. No scientific planning and implementation of the programme can be designed with this data-base.  The budgetary support constituted more than 80% of resources of KVIC till 1994- 95. It has come down to 35% with the introduction of MMS (Margin Money Scheme). About 67% of budgetary resources of KVIC went to the Khadi sector and one-third to village industries sector during Eighth Plan.

Employment  As per KVIC’s own statistics, during Eighth plan only 8 lakh jobs were created as against a target of 20 lakh set by the HPC (for 1994-97). About 95% of the additional employment generated during the Eighth plan was in the village industries sector, while this sector used only about one-third of the budgetary resources.  A large proportion of the employment opportunities is part-time employment and the annual earning per worker in the Khadi sector was found to be less than Rs. 50 7 for many workers, the average earning per part-time worker being Rs. 433/annum. As per secondary statistics, the average full-time worker earned about Rs. 4835/annum in the Khadi sector and Rs. 4323/annum in the village industries sector during 1996-97.  Converting all part time employment into full-time equivalent employment (FTE), we noted that KVI programme’s current employment level stood at 34.81 lakh in 1996-97, i.e. 59% of what has been reported in secondary statistics. Cost of Job Creation/Maintenance  Average investment for job creation in the Khadi sector is Rs. 27, 259/FTE job. The annual public cost of maintaining a job created is Rs. 4979/FTE job.  In the Village Industries sector, the investment for job creation is Rs. 43,366/FTE job. The annual maintenance cost is Rs. 2158.  The public (delivery) cost works out to 182% of wage payment in the Khadi sector and 50% of the wage payment in the Village Industries sector. Economics of Khadi & Village Industries Production  On an average, a sample Khadi unit was found to have machinery and equipment worth Rs.4, 96,305, invested Rs. 61, 39,744 in working capital and employed about 246 FTE workers during 1997-98. An average Khadi unit generates a surplus of Rs. 5987 per FTE worker under the present pattern of financing. However, this surplus is not translated into profit, as the entire production of the unit is not sold during the year. The average unintended stock build-up is around 35% of the annual production, and for small units, it is as high as 80%. The economics of Khadi production will work out very differently if the inventory of finished goods could be reduced to, say, 5% of annual production. In such a scenario, a Khadi unit will generate a profit of Rs. 5131/FTE worker or more than Rs. 12.6 lakh as total profit for the unit. Another area of concern is the high raw material to output ratio. For some units, the ratio is as high as three-fourth. A ratio of more than 25% is neither justified, nor sustainable. The third area of concern brought out by the survey results is the low wage payment to workers. Not only is this earning much less than what is reported in secondary statistics but, it also forms a relatively small proportion of the value added by an FTE worker. Only 58% of what the government spends on a Khadi unit reaches the Khadi workers. On an average, a village industry unit invested Rs. 6, 97, 940 and employed 16.2 FTE workers. The village industries units are commercially viable and capable of sustaining themselves without much government subsidy. Profile of Beneficiaries & Impact. The annual per capita income of the beneficiary households (workers) is Rs. 5655 and the earnings from KVIC programme constitute 52.71%. The income of an average village industries worker’s family is 70% more than that of a Khadi worker’s family. The Khadi workers’ families get 46% of their annual earnings from KVIC programme, while the village industries workers’ families earn about 58%. The relatively low income of Khadi workers’ families is because of the dominance of part-time employment in this sector.  More than two-thirds of the sample households (workers) originally belonged to the families below the Poverty Line. Of these poor households, about 71% have actually crossed the poverty line with the help of additional income from the KVIC programme. Here too, the performance of the village industries sector (80.5%) far outweighs that of the Khadi sector (62.3%).  The key persons (presidents/secretaries) are also direct beneficiaries of the KVIC programme. Analysis of survey data reveals that more than 50 per cent of the household income of the key persons comes from the KVIC programme. The non-working members of the governing bodies of the units/ institutions also receive financial benefits from the programme. On an average 15% of their annual household income comes from the KVIC programme. Suggestions. The KVI programme has great potential for generating gainful employment opportunities. It can be an effective social safety net during economic reforms. However, it has to be made fiscally sustainable. The implementation of the programme for the Khadi Sector & Village Industries sector runs parallel, and it is appropriate to have two separate implementing agencies- Khadi Commission for the Khadi Sector and the Village Industries Commission for the village industries sector. The former can be placed under the Textile Ministry and the latter may continue under the Ministry of Small Scale Industries and Agro & Rural Industries. Corrective Measures for Khadi Sector The primary concern under the Khadi programme should be to ensure that production of goods actually takes place on a sustainable basis, so that its main objective of generating employment opportunities for the unskilled/ rural poor is met. The quantity and quality of employment are not satisfactory at present, because of low and shrinking production base. Factors, such as unintended stock build-up, constraints to input availability, capital of institutions/units getting locked up for years, non availability of improved technologies and repair facilities, outmoded product mix etc. have all contributed in different degrees to the present sorry state of affairs. The first and foremost requirement is thorough overhaul of the marketing strategy for Khadi products. Product development and marketing need a professional approach. One way of addressing this issue is to leave the entire marketing and product development to the private sector, while the semi processed goods be produced by the KVI units/institutions under the guidance and supervision of KVIC as at present. Production and employment bear a direct proportional relationship. The primary task of the Khadi Commission (KC) under the new regime should be to closely monitor the flows of input and output. This will automatically ensure generation of employment opportunities. The Commission should be made accountable for maintaining the input-output relationship. Rationalize the cost structure of Sliver Mills through better capacity utilisation and other measures of cost control, including purchase of raw materials at fair prices. If the sliver supply from its own mills is inadequate to meet the demand of the institutions, KC can enter into an agreement with the under-utilized NTC mills to supply adequate quantity of better quality sliver for the institutions. KVIC should not undertake any retail sale of Khadi products. Instead, the entire unprocessed Khadi products be sold to the private sector either at cost price or, on auction, keeping cost-price as the floor price. The product development and marketing of Khadi products can be left to the private sector. The reorganisation and reorientation of KC should be done keeping in view the role it has to play in the new scenario. It should concentrate on: – technological upgradation and diffusion; – ensuring supply of raw material and other inputs to all units at fixed prices and reasonable terms; 10 – ensuring delivery of output by the units to KC as per cost charts and inputs supplied, by linking release of concessional funds to delivery of output; – imparting training to artisans and technicians more effectively than being done at present; – monitoring of input delivery, output quality, assessment of needs of the units in response to changes in market demand; – developing an appropriate MIS to get market information feedback from the private sector on the desired product mix, ou
tput quality, demand pattern and respond to the changes by reorienting production pattern of the units; and the like. In the new scenario, no rebate on sale is necessary and the units should be run purely on the basis of bank finance (CBC).  It may be necessary to constitute a Committee to examine the feasibility of the proposed model and to suggest suitable measures for restructuring of KVIC and its various activities, so that the primary objective of the scheme is realised with justifiable level of fiscal support. It is learnt that some specialist organisations (TISS and Arthur Andersen) are already studying various aspects of the scheme. The Committee may look into the findings of these reviews/studies along with those of the PEO’s evaluation study to arrive at a decision on restructuring of the programme and KVIC.

 

Corrective Measures for Khadi Sector: The primary concern under the Khadi programme should be to ensure that production of goods actually takes place on a sustainable basis, so that its main objective of generating employment opportunities for the unskilled/ rural poor is met. The quantity and quality of employment are not satisfactory at present, because of low and shrinking production base. Factors, such as unintended stock build-up, constraints to input availability, capital of institutions/units getting locked up for years, non availability of improved technologies and repair facilities, outmoded product mix etc. have all contributed in different degrees to the present sorry state of affairs. The first and foremost requirement is thorough overhaul of the marketing strategy for Khadi products. Product development and marketing need a professional approach. The present policy of retail sale of Khadi products through KVIC outlets and through the own effort of the units must be done away with, as it has led to unintended inventory build-up, malpractices and unsustainable and unjustifiable public spending (rebate, grants). Even the attempts to boost sales using Khadi as a brand name is unlikely to succeed unless some fundamental changes are brought about. One way of addressing this issue is to leave the entire marketing and product development to the private sector, while the semi-processed goods be produced by the KVI units/institutions under the guidance and supervision of KVIC as at present. However, the existing method of supervision and intervention followed by KVIC must be changed, as it is ineffective and does not contribute to the primary objective of the scheme. Production and employment bear a direct functional relationship. The primary task of the Khadi Commission (KC) under the new regime should be to closely monitor the flows of input and output. This will automatically ensure generation of employment opportunities. The Commission should be made accountable for maintaining the input-output relationship. It should suitably reorient itself to undertake this task. It is, therefore, proposed that the organisational structure of the proposed Khadi commission be reoriented to ensure that:

(a) The Khadi units’ raw material requirement is met at pre-fixed prices (reasonable prices)

(b) The entire production (as per new cost charts) is received back as per certain quality standards.

(c) The units may be prevented from undertaking processing and any retail sale of Khadi products.

(d) Upon receipt of 91 outputs, The Commission must make prompt payment to the Khadi units to enable them to plough back the money, so that the process of production and employment generation does not get affected adversely.

To make this possible, it is necessary to link availability of concessional funds to units with the delivery of output. Rationalize the cost structure of Sliver Mills through better capacity utilisation and other measures of cost control, including purchase of raw materials at fair prices. If the sliver supply from its own mills is inadequate to meet the demand of the institutions, KC can enter into an agreement with the under-utilized NTC mills to supply adequate quantity of better quality sliver for the institutions. The KVIC must ensure that entire raw material requirement of the units/institutions is met at the lowest possible price and that the entire output produced is delivered to it is as per cost-chart. KVIC should not undertake any retail sale of Khadi products. Instead, the entire unprocessed Khadi products be sold to the private sector either at cost price or, on auction, keeping cost-price as the floor price. The auction of Khadi products should take place in the presence of the representatives of the units/institutions to ensure transparency. This would also give an opportunity to the units/institutions to learn about the market demand for their products. The product development and marketing of Khadi products can be left to the private sector. The details of this approach to marketing of Khadi products need to be carefully worked out to ensure its viability and sustainability. The reorganisation and reorientation of KC should be done keeping in view the role it has to play in the new scenario. It should concentrate on: – technological upgradation and diffusion to continually raise labour productivity and improve product mix of units. The allocation to R&D must be substantially raised and the representatives of the units/institution should be involved in R&D activities for this purpose; – ensuring supply of raw material and other inputs to all units at fixed (reasonable) terms; – ensuring delivery of output by the units to KC as per cost charts and inputs supplied, by linking release of concessional funds to delivery of output; – imparting training to artisans and technicians more effectively than being done at present. The entire cost of such training should be borne by the Commission. KC should also provide the necessary financial help to the units /institutions to bring about an improvement in the hygienic conditions of the work places (such as providing pollution mask for Khadi workers); – the monitoring of input delivery, output quality, assessment of needs of the units in response to changes in market demand; and 92 – developing an appropriate MIS to get market information feedback from the private sector on the desired product mix, output quality, demand pattern and respond to the changes by reorienting production pattern of the units; and the like. In the new scenario, no rebate on sale is necessary and the units should be run purely on the basis of bank finance (CBC). The concessional bank finance may be linked to actual production and delivery of output. 9. It may be necessary to constitute a Committee to examine the feasibility of the proposed model and to suggest suitable measures for restructuring of KVIC and its various activities, so that the primary objective of the scheme is realised with justifiable level of fiscal support. It is learnt that some specialist organisations (TISS and Arthur Andersen) are already studying various aspects of the scheme. The Committee may look into the findings of these reviews/studies along with those of the PEO’s evaluation study to arrive at a decision on restructuring of the programme and KVIC.

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