data envelopment analysis and productivity analysis on handmade paper clusters

SMALL SCALE INDUSTRY IN INDIA:

A CASE STUDY ON HANDMADE PAPER INDUSTRY

Lavanya Jain 2007CH10069

Puneet Yadav 2007CH60137

Mohit Khatri 2007CH60106

TERM PAPER

SML 780 MAY, 2010

Supervised By

Dr. Seema Sharma

Assistant Professor

Department of Management Studies

IIT Delhi

1. INTRODUCTION OF MSME

In accordance with the provision of Micro, Small & Medium Enterprises Development

(MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two

Classes:

(a) Manufacturing Enterprises- The enterprises engaged in the manufacture or production

of goods pertaining to any industry specified in the first schedule to the industries

(Development and regulation) Act, 1951). The Manufacturing Enterprise are defined in

terms of investment in Plant & Machinery.

(b) Service Enterprises: The enterprises engaged in providing or rendering of services and

are defined in terms of investment in equipment.

1.1. CLASSIFICATION

Manufacturing Enterprises Service Enterprises

Micro Upto Rs.25 lakh ($50 thousand) Upto Rs.10 lakh ($20 thousand)

Small Above Rs.25 lakh ($50 thousand) & upto

Rs.5 crore ($1 million)

Above Rs.10 lakh ($20 thousand) &

upto Rs.2 crore ($0.40 million)

Medium Above Rs.5 crore ($1 million) & upto

Rs.10 crore ($2 million)

Above Rs.2 crore ($0.40 million) &

upto Rs.5 crore ($1 million)

Source: http://www.msmefoundation.org/

1.2. SECTORS

There are about twenty-one major industry groups in the small scale sector. These are

listed below:

- Food Products

- Chemical & Chemical Products

- Basic Metal Industries

- Metal Products

- Electrical Machinery & Parts

- Rubber & Plastic Products

- Machinery & Parts Except Electrical goods

- Hosiery & Garments - Wood Products

- Non-metallic Mineral Products

- Paper Products & Printing

http://www.msmefoundation.org/

- Transport Equipments & Parts

- Leather & Leather Products

- Miscellaneous Manufacturing Industries

- Other Services & Products

- Beverages, Tobacco & Tobacco Products

- Repair Services

- Cotton Textiles

- Wool, Silk, Synthetic Fiber Textiles

- Jute, Hemp and Mesta Textiles

- Other Services

The limit for investment in plant and machinery / equipment for manufacturing / service

enterprises are as under:

Manufacturing Sector

Enterprises Investment in plant & machinery

Micro

Enterprises

Does not exceed twenty five lakh rupees

Small

Enterprises

More than twenty five lakh rupees but does

not exceed five crore rupees

Medium

Enterprises

More than five crore rupees but does not

exceed ten crore rupees

Service Sector

Enterprises Investment in equipments

Micro

Enterprises

Does not exceed ten lakh rupees:

Small

Enterprises

More than ten lakh rupees but does not

exceed two crore rupees

Medium

Enterprises

More than two crore rupees but does not

exceed five core rupees

Table 1.1. Classification

2. INDIA AT A GLANCE

Gross Domestic Product (GDP) $1.10 trillion

Per capita GDP $830

GDP by sector

Agriculture

Industry

Services

17%

29%

54%

GDP growth rate 6.7%

Inflation rate 8.4%

Labour force 523.5 million

Labour force by occupation

Agriculture

Industry

Services

60%

12%

28%

Unemployment rate 6.8%

Exports $169 billion

Main partners US, UAE, Singapore, China, UK

Imports $288 billion

Main partners China, Saudi Arabia, UAE, US

Foreign debt $231 billion

Forex reserves $252 billion


2.2. MSME INDUSTRY

Quick Estimates of 4th Census (2006-07)

Number of MSMEs 26.1 million

Number of Manufacturing Enterprises 7.3 million

Number of Service Enterprises 18.8 million

Number of Women Enterprises 2.1 million (8%)

Number of Rural Enterprises 14.2 million (54.4%)

Employment 59.7 million

Per unit employment 6.24

Per unit fixed investment Rs.33.78 lakh

Per unit original value of Plant & Machinery Rs.9.66 lakh

Per unit gross output Rs.46.13 lakh

Employment per one lakh fixed investment 0.19

Source: http://www.dcmsme.gov.in/ssiindia/

2.3. MSME POLICY

The evolution of the policy framework and support measures of the Government can be

broadly grouped into the following three periods:

2.3.1. 1948-1991

In all the Policy Resolutions from 1948 to 1991, recognition was given to the micro and

small enterprises, termed as an effective tool to expand employment opportunities, help

ensure equitable distribution of the national income and facilitate effective mobilization of

private sector resources of capital and skills. The Micro, Small and Medium Enterprises

Development Organisation [earlier known as Small Industries Development Organization


(SIDO)] was set up in 1954 as an apex body for sustained and organised growth of micro,

small and medium enterprises. Within next two years, the National Small Industries

Corporation, the Khadi and Village Industries Commission and the Coir Board were also set

up. The era provided the supportive measures that were required to nurture MSEs, in the

form of reservation of items for their exclusive manufacture, access to bank credit on

priority through the Priority Sector Lending Programme of commercial banks, excise

exemption, reservation under the Government Purchase Programme and 15% price

preference in purchases, infrastructure development and establishment of institutes for

entrepreneurial and skill development.

MSME – Development Institutes [earlier known as Small Industries Service Institute (SISI)]

were set up all over India to train youth in skills/entrepreneurship. Tool Rooms were

established with German and Danish assistance for providing technical services essential to

MSEs as also for skill-training. At the State level, District Industries Centres were set up all

over the country.

2.3.2. 1991-1999

The new Policy for Small, Tiny and Village Enterprises of August, 1991 laid the framework

for government support in the context of liberalisation, which sought to replace protection

with competitiveness to infuse more vitality and growth to MSEs in the face of foreign

competition and open market. Supportive measures concentrated on improving

infrastructure, technology and quality. Testing Centres were set up for quality certification

and new Tool Rooms as well as Sub-contracting Exchanges were established. The Small

Industries Development Bank of India (SIDBI) and a Technology Development and

Modernisation Fund were created to accelerate finance and technical services to the

sector. A Delayed Payment Act was enacted to facilitate prompt payment of dues to MSEs

and an Industrial Infrastructure Development (IID) scheme was launched to set mini

industrial estates for small industries.

2.3.3. 1999 onwards

The Ministry of MSME [earlier known as Ministry of Small Scale Industries and Agro & Rural

Industries (SSI & ARI)] came into being from 1999 to provide focused attention to the

development and promotion of the sector. The new Policy Package announced in August,

2000 sought to address the persisting problems relating to credit, infrastructure,

technology and marketing more effectively. A Credit Linked Capital Subsidy Scheme was

launched to encourage technology upgradation in the MSE sector and a Credit Guarantee

Scheme was started to provide collateral-free loans to micro and small entrepreneurs,

particularly the first generation entrepreneurs. The exemption limit for relief from payment

of Central Excise duty was raised to Rs.1 crore ($0.25 million) and a Market Development

Assistance Scheme for MSEs was introduced. At the same time, consultations were held

with stakeholders and the list of products reserved for production in the MSE sector was

gradually reduced each year. In 2006, the long-awaited enactment for this sector finally

became a reality with the passage of the Micro, Small and Medium Enterprises Act. In

March, 2007, a third Package for the Promotion of Micro and Small Enterprises was

announced which comprises the proposals/schemes having direct impact on the promotion

and development of the micro and small enterprises, particularly in view of the fast

changing economic environment, wherein to be competitive is the key of success.

Source: http://www.dcmsme.gov.in/ssiindia

3. PROBLEMS OF MSME IN INDIA

The micro, small and medium enterprises face problems at every stage of their operation,

whether it is buying of raw materials, manufacture of products, marketing of goods or

raising of finance. These industries are therefore not in a position to secure the internal

and external economies of scale.

The major problems confronting the sector have been identified as:

� Technology obsolescence

� Managerial inadequacies

� Delayed Payments

� Poor Quality

� Incidence of Sickness

� Lack of Appropriate Infrastructure

� Lack of Marketing Network

There is lack of trained and experienced employees because small firms cannot pay high

salaries and cannot spend much on training their employees. Small scale firms find it

difficult to recruit and motivate skilled managerial and technical personnel as they look for

better opportunities in the large scale industries. Therefore, they get the second rate talent

or have to depend on family members who do not have diversified skills.

Small scale units have to face several difficulties in the marketing and distribution of their

products. Most of them do not have their own marketing network. They find it difficult to

sell their output at remunerative prices due to higher cost of production and non-

standardized quality of products. They cannot afford to spend much on advertising, sales,

promotion, marketing research, etc. They have to sell their products at throwaway prices

due to weak bargaining power and immediate need for money. They also face stiff

competition from large firms.

4. CURRENT STATUS & PROGRESS

4.1. PRODUCTION

The small-scale industries sector plays a vital role in the growth of the country. It

contributes almost 40% of the gross industrial value added in the Indian economy.

It has been estimated that a million Rs. of investment in fixed assets in the small scale

sector produces 4.62 million worth of goods or services with an approximate value addition

of ten percentage points.

The small-scale sector has grown rapidly over the years. The growth rates during the

various plan periods have been very impressive. The number of small-scale units has

increased from an estimated 0.87 million units in the year 1980-81 to over 3 million in the

year 2000.

When the performance of this sector is viewed against the growth in the manufacturing

and the industry sector as a whole, it instills confidence in the resilience of the small-scale

sector.

Year Target Achievement

1991-92 3.0 3.1

1992-93 5.0 5.6

1993-94 7.0 7.1

1994-95 9.1 10.1

1995-96 9.1 11.4

1996-97 9.1 11.3

1997-98 * 8.43

1998-99 * 7.7

1999-00 * 8.16

2000-01 (P) * 8.90

P-Projected (April-December)

* Target not fixed at constant prices

Source: http://dcmsme.gov.in/ssiindia/performance.htm

4.2. EMPLOYMENT

SSI Sector in India creates largest employment opportunities for the Indian populace, next

only to Agriculture. It has been estimated that 100,000 rupees of investment in fixed

assets in the small-scale sector generates employment for four persons.

4.2.1. Generation of Employment - Industry Group-wise

Food products industry has ranked first in generating employment, providing

employment to 0.48 million persons (13.1%). The next two industry groups were Non-

metallic mineral products with employment of 0.45 million persons (12.2%) and Metal

products with 0.37 million persons (10.2%).

In Chemicals & chemical products, Machinery parts except Electrical parts, Wood

products, Basic Metal Industries, Paper products & printing, Hosiery & garments, Repair

services and Rubber & plastic products, the contribution ranged from 9% to 5%, the total

contribution by these eight industry groups being 49%.

In all other industries the contribution was less than 5%.

4.2.2. Per unit employment

Per unit employment was the highest (20) in units engaged in beverages, tobacco &

tobacco products mainly due to the high employment potential of this industry

particularly in Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil Nadu.

Next was Cotton textile products (17), Non-metallic mineral products (14.1), Basic metal

industries (13.6) and Electrical machinery and parts (11.2.) The lowest figure of 2.4 was in

Repair services line.

Per unit employment was the highest (10) in metropolitan areas and lowest (5) in rural

areas.

However, in Chemicals & chemical products, Non-metallic mineral products and Basic

metal industries per unit employment was higher in rural areas as compared to

metropolitan areas/urban areas.

In urban areas highest employment per unit was in Beverages, tobacco products (31

persons) followed by Cotton textile products (18), Basic metal industries (13) and Non-

metallic mineral products (12).

4.2.3. Location-wise Employment Distribution – Rural

Non-metallic products contributed 22.7% to employment generated in rural areas. Food

Products accounted for 21.1%, Wood Products and Chemicals and chemical products

shared between them 17.5%.

4.2.4. Urban

As for urban areas, Food Products and Metal Products almost equally shared 22.8% of

employment. Machinery parts except electrical, Non-metallic mineral products, and

Chemicals & chemical products between them accounted for 26.2% of employment.

In metropolitan areas the leading industries were Metal products, Machinery and parts

except electrical and Paper products & printing (total share being 33.6%).

4.2.5. State-wise Employment Distribution

Tamil Nadu (14.5%) made the maximum contribution to employment.

This was followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal (8.5%)

the total share being 27.7%.

Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%) and Punjab (5.6%) together

accounted for another 27.4%.

Per unit employment was high - 17, 16 and 14 respectively - in Nagaland, Sikkim and

Dadra & Nagar Haveli.

It was 12 in Maharashtra, Tripura and Delhi.

Madhya Pradesh had the lowest figure of 2. In all other cases it was around the average of

6.

Year Target

(lakh nos.)

Achievement

(lakh nos.)

Growth rate

1992-93 128.0 134.06 3.28

1993-94 133.0 139.38 3.28

1994-95 138.6 146.56 5.15

1995-96 144.4 152.61 4.13

1996-97 150.5 160.00 4.88

1997-98 165 167.20 4.50

1998-99 170.1 171.58 2.61

1999-00 175.4 177.3 3.33

P-Provisional


4.3. EXPORT

SSI Sector plays a major role in India's present export performance. 45%-50% of the

Indian Exports is contributed by SSI Sector. Direct exports from the SSI Sector account for

nearly 35% of total exports. Besides direct exports, it is estimated that small-scale

industrial units contribute around 15% to exports indirectly. This takes place through

merchant exporters, trading houses and export houses. They may also be in the form of

export orders from large units or the production of parts and components for use for

finished exportable goods.

It would surprise many to know that non-traditional products account for more than 95%

of the SSI exports.

The exports from SSI sector have been clocking excellent growth rates in this decade. It

has been mostly fuelled by the performance of garments, leather and gems and jewellery

units from this sector.

The product groups where the SSI sector dominates in exports are sports goods,

readymade garments, woolen garments and knitwear, plastic products, processed food

and leather products.

The SSI sector is reorienting its export strategy towards the new trade regime being

ushered in by the WTO.

Year Exports

(Rs. Crores)

(at current prices)

1994-95 29,068

(14.86)

1995-96 36,470

(25.50)

1996-97 39,249

(7.61)

1997-98 43946

(11.97)

1998-99 48979

(10.2)

1999-00 (P) 53975

(10.2)

P-Provisional


http://dcmsme.gov.in/ssiindia/performance.htm

Major Export Markets

An evaluation study has been done by M/s A.C. Nielsen on behalf of Ministry of SSI. As

per the findings and recommendations of the said study the major export markets

identified having potential to enhance SSIs exports are US, EU and Japan. The potential

items of SSIs have been categorised into three broad categories.

4.3.1. Export Destinations

The Export Destinations of SSI products have been identified for 16 product groups.

5. OPPORTUNITY

The opportunities in the small-scale sector are enormous due to the following factors:

• Less Capital Intensive

• Extensive Promotion & Support by Government

• Reservation for Exclusive Manufacture by small scale sector

• Project Profiles

• Funding - Finance & Subsidies

• Machinery Procurement

• Raw Material Procurement

• Manpower Training

• Technical & Managerial skills

• Tooling & Testing support

• Reservation for Exclusive Purchase by Government

• Export Promotion

• Growth in demand in the domestic market size due to overall economic growth

• Increasing Export Potential for Indian products

• Growth in Requirements for ancillary units due to the increase in number of

greenfield units coming up in the large scale sector. Small industry sector has

performed exceedingly well and enabled our country to achieve a wide measure of

industrial growth and diversification.

By its less capital intensive and high labour absorption nature, SSI sector has made

significant contributions to employment generation and also to rural industrialisation.

This sector is ideally suited to build on the strengths of our traditional skills and

knowledge, by infusion of technologies, capital and innovative marketing practices. This

is the opportune time to set up projects in the small-scale sector. It may be said that the

outlook is positive, indeed promising, given some safeguards. This expectation is based

on an essential feature of the Indian industry and the demand structures. The diversity

in production systems and demand structures will ensure long term co-existence of

many layers of demand for consumer products / technologies / processes. There will be

flourishing and well grounded markets for the same product/process, differentiated by

quality, value added and sophistication. This characteristic of the Indian economy will

allow complementary existence for various diverse types of units. The promotional and

protective policies of the Govt. have ensured the presence of this sector in an

astonishing range of products, particularly in consumer goods. However, the bugbear of

the sector has been the inadequacies in capital, technology and marketing. The process

of liberalisation coupled with Government support will therefore, attract the infusion of

just these things in the sector.

Small industry sector has performed exceedingly well and enabled our country to

achieve a wide measure of industrial growth and diversification.

By its less capital intensive and high labour absorption nature, SSI sector has made

significant contributions to employment generation and also to rural industrialization.

This sector is ideally suited to build on the strengths of our traditional skills and

knowledge, by infusion of technologies, capital and innovative marketing practices. So

this is the opportune time to set up projects in the small scale sector. It may be said that

the outlook is positive, indeed promising, given some safeguards. This expectation is

based on an essential feature of the Indian industry and the demand structures. The

diversity in production systems and demand structures will ensure long term co-

existence of many layers of demand for consumer products / technologies / processes.

There will be flourishing and well grounded markets for the same product/process,

differentiated by quality, value added and sophistication. This characteristic of the

Indian economy will allow complementary existence for various diverse types of units.

The promotional and protective policies of the Govt. have ensured the presence of this

sector in an astonishing range of products, particularly in consumer goods. However, the

bug bear of the sector has been the inadequacies in capital, technology and marketing.

The process of liberalization will therefore, attract the infusion of just these things in the

sector.

Table 5.1. Total number of MSME units functioning in different states and UTs of India


6. HANDMADE PAPER INDUSTRY

The Handmade Papermaking is a traditional industry of India. Innovation of papermaking

was taken in 105 AD by China but there is a controversy on that issue. However, recent

researches have given credit to India for this innovation of Paper from cellulose fiber even

in third century B.C. The Handmade Paper Industry has been recognized as traditional craft

of village industry under Khadi & Village Industries Commission (KVIC) Act-1957". KVIC

provides special assistance to this industry for the development of rural craft and artisan

work. In India it has been developed as cluster based industry. The most effective clusters

are situated at Kalapi(Uttar Pradesh), Sanganer in Jaipur(Rajasthan), and Mahaboobnagar(

Andhra Pradesh). Apart from these clusters there are some small clusters spread in all over

India.

The KVIC has developed separate programme for Handmade Paper (HMP) industry during

last fifty years in the association with Khadi and Village Industries Board and other Khadi

Institutions.

Source: http://www.kvic.org

6.1. DEVELOPMENT OF HANDMADE PAPER INDUSTRY BY KVIC

Phase-I

A period of 1925-1953 &1955-56 is the first phase of development of Handmade Paper

Industry. In the first phase KVIC itself was established by Govt. of India. The main objective

of Phase-I was providing assistance to traditional kagazis (Traditional Paper Maker) in

different production areas of Handmade Paper. In that period industry has small size of

production and sales. The numbers of production units were less than forty and employees

were not more than one thousand. It was era of craft, and that's why the industry became

popular in next phase.

Phase-II

The second phase is a period of 1956-57 to 1966-67. In this phase Handmade Industry has

got better position in production. The cooperative societies and registered institutions

entered in this field through KVIC and KVIB's assistance programe. In this phase the

numbers of units were increased. Production was more than rupees 39 lacks and

employment generated five times as against first phase. At the end of this phase the actual

numbers of working units were 149 and annual installed capacity was 3870 metric tons. It

was the age of development in this phase all kagazis and artisans were motivated for

producing craft paper and they innovated the different types of handmade paper using

botanical fibers.

Phase-III, IV & V

Since 1967 -68 to 1991-92 We can divide it into three phases. The period of 1967-68 to

1976-77, 1977-78 to 1986-87 and 1987-88 to 19991-92 were III, IV & V phases respectively.

In all the above phases hand made paper industry was flourished and got good sales

position. In the period of 25 years (1967-1992) of development the size of industry became

large, more than 350 production units were established in India in different states and

7000 employees / workers directly and indirectly involved in to this.

Phase-VI

The sixth phase of development was the period of 1992-93 to 1998-99. This was an age of

accelerated growth of individual and private entrepreneurs. In this phase KVIC and other

developmental agencies concentrated on research and development of handmade paper

industry. In this era KVIC started survey and study of international market and domestic

market and organized workshops, seminars and exhibition of hand made products.

Government of India organized UNDP project on this industry titled Strengthened the

handmade paper industry in India (1991-98). UNDP-KVIC-Project emphasized at consumer

behavior and value addition in handmade paper industry. At the end of sixth phase this

industry had more than 415 production units in India and the production grown up to Rs 30

crores and generated employment for 10,000 skilled and unskilled people.

Source: Dwivedi Amit Kumar, Development of handmade paper industry in India; Lecture

6.2. ACHIEVEMENT OF HANDMADE PAPER INDUSTRY

In 1953 this industry was having 35 -40 units for production but today after half century

hand made paper industry is having more than 3000 production units and increase of 35

times (1991 Rs 6 millions to Rs 210 millions in 1999-2000) recorded in hand made paper

industry and its value added items. The Handmade Paper Industry has provided gainful

employment to around 18000 direct and indirect people today. Rural artisans are benefited

through this industry.

The handmade paper units are scatter throughout the country with concentration most in

the Kalapi (Jhansi, Uttar Pradesh), Sanganer (Rajasthan), Pune (Maharastra), Kurukshetra

(Haryana), Mahaboobnagar (AndhraPradesh) and some clusters are in West Bengal. The

production capacity of the units ranges from 50 kg to 700 kg per day. Kalapi is main cluster

of handmade paper production and its value added products. This cluster has more export

oriented units. Today more than 60 production units are working. Registered institutions,

co-operative societies, entrepreneurs and individual artisans are running their units. The

capacity utilization of Handmade Paper Industry stands at 60-62 percent.

Source: Dwivedi Amit Kumar, Development of handmade paper industry in India; Lecture

6.3. MARKETING OF HANDMADE PAPER

The marketing of handmade paper is different than any other goods and products. In spite

of, so many qualities and attraction could not reach at the optimum level of its market

share. Still in this global era the handmade paper industry does not have systematic and

planned marketing strategies for its promotion at a wider level. The wide publicity about

the use of handmade paper and its promotion activities will surely increase its acceptability

and people habit to use it frequently. It has cyclical effect on the overall industry like

acceptability increases its uses or demand which leads to more employment generation as

well as increase in the income level of factors of production. The cost of production will be

decreases because at large level of production industry can obtain large production

economies and technical up-gradation in the product and this will certainly increases

quality of product. In this present scenario customer are more quality conscious. Industry

must know the customer's preferences, their perception about the products and its uses. In

customer survey we have got few factors which influence the consumer's behavior for

handmade paper products:

1. Quality of products

2. Price

3. Multiple uses

4. Availability

5. Durability

6. Advertisement and awareness

7. Substitute goods etc.

Source: Dwivedi Amit Kumar, Development of handmade paper industry in India

The handmade paper industry can produce variety of papers and its value added products

but due to lack of awareness the demand of all varieties is not sufficient at various stages.

Many countries like Philippines, Japan, Korea etc are producing handmade paper in

different varieties on the basis of colors, shades, thickness, smoothness, size etc. To the

limited extent the people are recognizing this paper for eco-friendliness.

6.4. MARKET OF HANDMADE PAPER

The handmade paper industry has its own reputation for craft paper as well as its

converted products. Some HMP products have very god demand in the market like carry

bags, albums, stationery items, gift items, packaging items, drawing papers, greeting cards,

invitation cards, business cards, miscellaneous fancy and decorative items etc. The drawing

paper produced by industry has a unique demand. The handmade paper industry is having

a demand of 10,000 to 12,000 tons per year. The major consumers of handmade paper are,

Govt. Offices, Hotel Industry, Publishers, Printing Press, Craftsmen, Export Agencies, etc.

After survey in the potential consumes of handmade paper fallowing factors have came

through this industry can increase its market demand for domestic market like Price,

Shades/colors, Craftsmanship, Style, Trade visibility, Feasibility, Eco-friendliness etc.

Graph 6.1. Per capita consumption of hand-made paper; Source: www.kvic.org

6.5. HANDMADE PAPER CLUSTERS IN INDIA


6.6. DEA ANALYSIS

6.6.1. DATA SELECTION

The following date was available for 2 units for 5 years, 2004-09:

• Total Sales

• Total Production

• Labor, Wages

• Capital Expenses

• Raw material Expenses

• Energy Expenses

Output:

Y1: Production in Kg

Input:

X1: Raw material usage (Kg)

X2: Labor (Number)

0

2

4

6

8

10

1996 2000 2004 2008

http://www.kvic.org/


X3: Capital expenses (Rs)

X4: Energy expenses (Rs)

6.6.2. PROCESS

Since the number of firms is only 2 and the data is also avaialbel for 5 years, applying

malmquist results in efficiency as 1 for each firm. Thus DEA doesn’t produce productive

results.

However, to facilitate DEA analysis we assume each firm’s performance for each year as a

separate firm. Thus, now we have a set of 5 X 2, i.e. 10 firms. Now, efficiency can be

measured.

S.No. Year Firm Sales

(kg)

Raw

Material

(kg)

Labour

(No.)

Capital

Expenses

(Rs.)

Energy

Expenses

(Rs.)

1 2004-05 Firm1 38181 46880 19 1443482 477784

2 2004-05 Firm2 183500 262143 48 355495 1841020

3 2005-06 Firm1 47357 49785 21 1443482 418472

4 2005-06 Firm2 183000 261429 48 400000 2350150

5 2006-07 Firm1 38807 56657 19 1443482 474850

6 2006-07 Firm2 224500 320714 48 530482 2120427

7 2007-08 Firm1 36426 33047 19 1443482 475837

8 2007-08 Firm2 168500 240714 48 51025 1820486

9 2008-09 Firm1 52355 58214 19 1543482 505610

10 2008-09 Firm2 140000 200000 40 17950 1452083

6.6.2.1. Input File

6.6.2.2. Instructions File

6.6.2.3. Output File

EFFICIENCY

SUMMARY:

Firm Te

1 0.851

2 0.993

3 1.000

4 0.990

5 0.767

6 1.000

7 1.000

8 0.999

9 1.000

10 1.000

Mean 0.960

Results for firm: 1

Technical efficiency = 0.851

PROJECTION SUMMARY:

variable original Radial Slack Projected

value movement movement value

output 1 38181.000 0.000 0.000 38181.000

input 1 46880.000 -6999.274 0.000 39880.726

input 2 19.000 -2.837 0.000 16.163

input 3 1443482.000 -215514.631 0.000 1227967.369

input 4 477784.000 -71334.068 0.000 406449.932

LISTING OF PEERS:

peer lambda weight

9 0.352

6 0.005

3 0.126

7 0.346

Results for firm: 2


PROJECTION SUMMARY:

variable original radial slack projected


output 1 183500.000 0.000 0.000 183500.000

input 1 262143.000 -1951.332 0.000 260191.668

input 2 48.000 -0.357 0.000 47.643

input 3 355495.000 -2646.223 0.000 352848.777

input 4 1841020.000 -13704.131 0.000 1827315.869

LISTING OF PEERS:

peer lambda weight

7 0.025

10 0.718

6 0.348

3 0.082

Results for firm: 3


PROJECTION SUMMARY:



output 1 47357.000 0.000 0.000 47357.000

input 1 49785.000 0.000 0.000 49785.000

input 2 21.000 0.000 0.000 21.000

input 3 1443482.000 0.000 0.000 1443482.000

input 4 418472.000 0.000 0.000 418472.000

LISTING OF PEERS:

peer lambda weight

3 1.000

Results for firm: 4


PROJECTION SUMMARY:



output 1 183000.000 0.000 0.000 183000.000

input 1 261429.000 -2507.504 0.000 258921.496

input 2 48.000 -0.460 0.000 47.540

input 3 400000.000 -3836.613 0.000 396163.387

input 4 2350150.000 -22541.537 -492390.525

1835217.937

LISTING OF PEERS:

peer lambda weight

10 0.689

7 0.132

6 0.364

Results for firm: 5


PROJECTION SUMMARY:



output 1 38807.000 0.000 0.000 38807.000

input 1 56657.000 -13207.579 0.000 43449.421

input 2 19.000 -4.429 0.000 14.571

input 3 1443482.000 -336496.865 -39268.987

1067716.147

input 4 474850.000 -110694.513 0.000 364155.487

LISTING OF PEERS:

peer lambda weight

9 0.448

3 0.255

6 0.015

Results for firm: 6


PROJECTION SUMMARY:



output 1 224500.000 0.000 0.000 224500.000

input 1 320714.000 0.000 0.000 320714.000

input 2 48.000 0.000 0.000 48.000

input 3 530482.000 0.000 0.000 530482.000

input 4 2120427.000 0.000 0.000 2120427.000

LISTING OF PEERS:

peer lambda weight

6 1.000

Results for firm: 7


PROJECTION SUMMARY:



output 1 36426.000 0.000 0.000 36426.000

input 1 33047.000 0.000 0.000 33047.000

input 2 19.000 0.000 0.000 19.000

input 3 1443482.000 0.000 0.000 1443482.000

input 4 475837.000 0.000 0.000 475837.000

LISTING OF PEERS:

peer lambda weight

7 1.000

Results for firm: 8


PROJECTION SUMMARY:



output 1 168500.000 0.000 0.000 168500.000

input 1 240714.000 -259.315 0.000 240454.685

input 2 48.000 -0.052 0.000 47.948

input 3 51025.000 -54.968 0.000 50970.032

input 4 1820486.000 -1961.164 -73521.440

1745003.397

LISTING OF PEERS:

peer lambda weight

10 1.169

7 0.014

6 0.019

Results for firm: 9


PROJECTION SUMMARY:



output 1 52355.000 0.000 0.000 52355.000

input 1 58214.000 0.000 0.000 58214.000

input 2 19.000 0.000 0.000 19.000

input 3 1543482.000 0.000 0.000 1543482.000

input 4 505610.000 0.000 0.000 505610.000

LISTING OF PEERS:

peer lambda weight

9 1.000

Results for firm: 10


PROJECTION SUMMARY:



output 1 140000.000 0.000 0.000 140000.000

input 1 200000.000 0.000 0.000 200000.000

input 2 40.000 0.000 0.000 40.000

input 3 17950.000 0.000 0.000 17950.000

input 4 1452083.000 0.000 0.000 1452083.000

LISTING OF PEERS:

peer lambda weight

10 1.000

6.6.3. RESULTS

Firms 3, 6, 9 and 10 are found to be most efficient. For those firms whose efficiency is not

1, the slack value has been given which means the amount by which input/inputs must be

reduced for obtaining the efficiency to be 1.

EFFICIENCY SUMMARY:

firm crste vrste scale

1 0.851 1.000 0.851 irs

2 0.993 0.996 0.997 drs

3 1.000 1.000 1.000 -

4 0.990 0.994 0.997 drs

5 0.767 1.000 0.767 irs

6 1.000 1.000 1.000 -

7 1.000 1.000 1.000 -

8 0.999 1.000 0.999 drs

9 1.000 1.000 1.000 -

10 1.000 1.000 1.000 -

mean 0.960 0.999 0.961

Note: crste = technical efficiency from CRS DEA

vrste = technical efficiency from VRS DEA

scale = scale efficiency = crste/vrste

Firm 1 and 5 are going through the phase of increasing returns to scale. Therefore, these

firms are under utilizing their capacity when they could they have produced more. Firms

2, 4 and 8 are having decreasing returns to scale, i.e. they are employing more inputs

for producing a given amount of input when it can be produced with lesser amount of

inputs.

6.6.4. LABOR PRODUCTIVITY

Graph 6.2. Worker efficiency over the years for Firm1

7.

Graph 6.3. Worker efficiency over the years for Firm2

The graphs show no significant increase in the worker efficiency over the years, in fact a

decrease is observed some times. The firms need to skill their workers and run training

programs from time to time to increase the worker efficiency.

6.6.5. SIGNIFICANT INFORMATION ABOUT FIRMS

6.6.5.1. HAATH KAGAZ UDYOG

The region has several units like Haath Kagaz Udyog and there are 4-5 other units in

the whole cluster. The person though himself was confused, but on conversation

with Swastik Handmade Paper Ind, they confirmed it.

The difficulties in procurement of raw materials are:

a. There is high variability in supply of raw materials, thus they need to keep large

inventory which often leads to wastage.

b. The competitors offer better price margins and give orders for larger batches of

raw materials which are more favorable to raw material suppliers and they tend

to favor them.

c. The cost of raw materials is not regulated by government but often by the large

mill owners who control the demand. Thus, high degree of variability for small

units like Handmade paper industry.

6.6.5.2. SWASTIK HAND MADE PAPER INDUSTRY

Similar to Haath Kagaz Udyog, Swastik Handmade paper is also one of the 4 units in

the region. The difficulty in procurement of raw materials is quite similar to as Haath

Kagaz Udyog

Graph 6.4. Efficiency curves for both the firms over the years

There is a sudden drop in efficiency of the Haath Kagaz Udyog in the year 2007-08. On

being asked Mr. Man Singh, Manager seemed unaware of the fact. However, he provided

an explanation that during recession government was pushing large industries to revive the

economy that included paper and textile industry. This is led to an increased competition

with the paper mills that dropped their prices significantly. The production received a

setback and there was a sense of insecurity and restlessness in the handmade paper

industry. Thus efficiency declined drastically.

6.7. PRODUCTIVITY ANALYSIS

The objective of this project is to study the productivity performance of the Handloom

paper industry by capturing TFP as well as the partial productivity measures using the

growth accounting approach. In this method, the observed growth of output is sought to

be explained in terms of growth in factor inputs. The unexplained part or the residual is

attributed to growth in productivity of factors. This approach consists of assuming a certain

functional form for the production function and then deriving an index number formula

that is consistent with the assumed functional form.

6.7.1. TPFG

6.7.2. Trend growth rate in TFP

TFPG, as mentioned in the preceding section, gives annual growth rates, which exhibit the

year-to-year fluctuations. In order to arrive at a trend growth rate over the study period,

the following relationship is estimated:

where β is the coefficient of the trend growth.

6.7.3. Partial productivity indices

PPI are calculated by dividing the output by the value of the input in the total cost. It is

obtained as follows:

6.7.4. CALCULATION:

Firm 1: Haath kagaj udyog, Khadi Aashram Yamuna Nagar, Haryana

Firm 2: The Swastik Hand Made Paper Industry, Kurukshetra, Haryana

Firm Year Production

(kg)

Raw

materials,

R1 (kg)

Raw

materials,

R2 (Rs)

Labor,

L1

(no.)

Labor,

L2 (Rs.)

Capital

Investment,

C (Rs)

Investment

on Energy,

E (Rs.)

1 2004-05 38181 46880 656349 19 598272 1443482 477784

1 2005-06 47357 49785 696992 21 614232 1443482 418472

1 2006-07 38807 56657 1019836 19 493079 1443482 474850

1 2007-08 36426 33047 660950 19 713000 1443482 475837

1 2008-09 52355 58214 873203 19 813601 1543482 505610

2 2004-05 183500 262143 7128677 48 1386570 355495 1841020

2 2005-06 183000 261429 7947537 48 1505012 400000 2350150

2 2006-07 224500 320714 10100537 48 1872881 530482 2120427

2 2007-08 168500 240714 6497126 48 1788000 51025 1820486

2 2008-09 140000 200000 5125685 40 2361823 17950 1452083

Table 6.1. Output-Input values for 2 firms for 5 years

Firm Year lnQt-lnQt-

1

lnR1t -

lnR1t-1

lnL1t -

lnL1t-1

lnCt -

lnCt-1

lnEt -

lnEt-1

Σ (R2, L2,

C, E)

1 2004-05 3175887

1 2005-06 0.2153766 0.0601226 0.1000835 0 -0.13255 3173178

1 2006-07 -0.199114 0.1293018 -0.100083 0 0.126389 3431247

1 2007-08

-

0.0633178 -0.539085 0 0 0.002076 3293269

1 2008-09 0.3627646 0.5661951 0 0.06698 0.06069 3735896

2 2004-05 10711762

2 2005-06

-

0.0027285 -0.002727 0 0.11795 0.244159 12202699

2 2006-07 0.2043896 0.204387 0 0.28232 -0.10286 14624327

2 2007-08 -0.28694 -0.28694 0 -2.3415 -0.15251 10156637

2 2008-09

-

0.1852933 -0.185292 -0.182322 -1.0447 -0.2261 8957541

Table 6.2. Term 1 for TFPG calculation

Firm Year (ѲRt +

ѲRt-1)/2

(ѲLt +

ѲLt-1)/2

(ѲCt +

ѲCt-1)/2

(ѲEt +

ѲEt-1)/2

Σ[(Ѳit +

Ѳit-1)/2]

[lnit -

lnit-1]

TFPG TFP

1 2004-05 100

1 2005-06 0.2131587 0.1909747 0.454707 0.14116 0.013219 0.20215809 120.215809

1 2006-07 0.2584357 0.1686363 0.4377942 0.13513 0.033618

-

0.23273193 92.2377508

1 2007-08 0.2489587 0.1801024 0.4295001 0.14144 -0.13392 0.07059834 98.7495826

1 2008-09 0.2172152 0.2171408 0.4257309 0.13991 0.159994 0.2027705 118.773084

2 2004-05 100

2 2005-06 0.6583967 0.126389 0.0329835 0.18223 0.046588

-

0.04931667 95.0683328

2 2006-07 0.6709801 0.1257002 0.0345268 0.16879 0.129525 0.0748646 102.185585

2 2007-08 0.6651797 0.1520543 0.0206489 0.16212 -0.26394

-

0.02299927 99.8353914

2 2008-09 0.6059564 0.2198556 0.0035139 0.17067 -0.19462 0.00933124 100.766979

Table 6.3. Term 2 for TFPG calculation

6.7.5. THE ANALYSIS

TFPG-TFP

Firm Year TFPG TFP

1 2004-05 100

1 2005-06 0.20215809 120.215809

1 2006-07 -0.23273193 92.2377508

1 2007-08 0.07059834 98.7495826

1 2008-09 0.2027705 118.773084

Table 6.4. TFP and TFPG for firm 1

Firm Year TFPG TFP

2 2004-05 100

2 2005-06 -0.04931667 95.0683328

2 2006-07 0.0748646 102.185585

2 2007-08 -0.02299927 99.8353914

2 2008-09 0.00933124 100.766979

Table 6.5. TFP and TFPG for firm 2

Graph 6.1. TFP for Firm 1

Graph 6.1. TFP for Firm 1

Both the firms show a very variable pattern of TFP. With overall growth very low in the period

of 5 years is very low, there is potential for the handloom industry to grow a lot. With huge

fluctuations in production inputs and output supplies, there is not a clear pattern of TFP.

TREND GROWTH RATE IN TFP

Graph 6.3. Trend growth rate in TFP for Firm 1

Graph 6.4. Trend growth rate in TFP for Firm 2

The coefficient for trend growth rate per annum for Firm 1 is 0.014 and for Firm 2 is 0.006.

These figures confirm the sluggish growth of Handloom industry. However, the information

rules out the variability in the trend growth rates for the both the firms which again signify high

level of fluctuations.

PPI

Firm Year PPIRt

(Kg/Kg)

PPILt

(Kg/No.) PPICt PPIEt

1 2004-05 100 100 100 100

1 2005-06 116.79563 112.22059 124.036 141.6121

1 2006-07 84.100272 101.63988 101.642 102.2672

1 2007-08 135.33818 95.403773 95.4057 95.79346

1 2008-09 110.42607 137.12361 128.242 129.5762

Table 6.6. PPI values for Firm 1

Firm Year PPIRt

(Kg/Kg)

PPILt

(Kg/No.) PPICt PPIEt

2 2004-05 100 100 100 100

2 2005-06 99.999836 99.727955 88.6319 78.12283

2 2006-07 100.00009 122.34386 81.9869 106.2222

2 2007-08 100.00012 91.826013 639.758 92.86136

2 2008-09 100 91.553533 1510.99 96.72953

Table 6.7. PPI values for Firm 2

Graph 6.5. PPI for raw materials for Firm 1

Graph 6.6. PPI for raw materials for Firm 2

Graph 6.7. PPI for Labor for Firm 1

Graph 6.8. PPI for Labor for Firm 2

Graph 6.9. PPI for capital for Firm 1

Graph 6.10. PPI for capital for Firm 2

Graph 6.11. PPI for investment on energy for Firm 1

Graph 6.12. PPI for investment on energy for Firm 2

Graph 6.13. PPI for firm 1

Graph 6.14. PPI for firm 2

The PPIs of both the firms show an equivalent growth in its productivity through various

input factors. The arbitrary increase in PPIc for firm 2 can be explained as that the company

made huge investments in capital for the initial years but didn’t invest in the recent years,

thus the analysis shows huge increase in partial productivity.

Also when Mr. Subodh Kumar from Swastik Handmade Paper Industry was asked the

reason for decrease in capital investments, he highlights that handmade paper industry is

highly labor intensive industry and capitals investments are for initial business expansion or

setting up. As the firm was facing challenges in the market with slump in demand, further

expansion of the unit didn’t seem to be economically viable and capital investments

reduced considerably resulting in arbitrary escalation in capital partial productivity.

6.7.6. CONCLUSION

The firms show very high fluctuations in the growth patterns of its productivity on total and

partial basis. With high variability in demand and input factors availability, the growth

pattern fails to follow a general trend. The firms need to be rigorous and work on

increasing their productivities continuously over the years. There is huge scope of

development in productivity frontiers.

7. REFERENCES

Ministry of MSME website, URL: http://dcmsme.gov.in/

Micro, Small & Medium enterprises in India, An overview by Ministry of micro, small &

medium enterprises


Sharma Seema, Liberalisation and productivity growth: a case of Indian cement industry,

Int. J. Productivity and Quality Management

Dwivedi Amit Kumar, Development of handmade paper industry in India, Lecture; URL:

http://www.indianmba.com/Faculty_Column/FC999/fc999.html


http://www.indianmba.com/Faculty_Column/FC999/fc999.html

data envelopment analysis and productivity analysis on handmade paper clusters

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