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AKERLOF'S LEMONS AND THE HANDLOOM MARKET

Updated: Sep 24

One of the oldest economic activities that trace its origin back to the Indus Valley civilisation, the Handloom industry provides a livelihood to a significant chunk of the Indian population. With a rich heritage of handloom products, India has the largest number of weavers engaged in the craft.

Today, the handloom sector is plagued with several issues, such as comprehensive and non-inclusive policies, consumers’ lack of awareness, unorganised marketing, poor management of resources to name a few. Yet, the most debilitating threat to this cottage industry is that of imitation products that have flooded the market for handloom products. Such factors are dampening the glory of handloom products and are leading to market failure in the handloom sector.


Nobel laureate George Akerlof, an American Economist, provides a model that explains market failures that result from asymmetric information. In his classic article “A Market for Lemons: Quality Uncertainty and the Market Mechanism.” He takes the example market for second-hand cars, where he calls cars that have some kind of hidden defect as ‘lemons’. Only the owners of the cars are aware if their cars are lemons, or if they are well-maintained with no defects. This results in imperfect information between buyers and sellers. A similar situation is playing out in the market for Indian handlooms today. 


As per a website that curates India’s craft-based products by Indian artisans, a simple hand-woven Pashmina stole costs Rs. 18,500 and Pashmina shawls with intricate embroidery cost over Rs. 50,000. Contrary to this, products which claim to be embroidered Pashmina stoles are available on a reputed online marketplace at Rs. 2400. Needless to say, they are not genuine. It is challenging to gauge the quality of a product and know if it is a ‘lemon’ or not while purchasing on e-commerce platforms or even at a brick and mortar store; a rational risk-averse buyer will tend to buy the product that costs less. Sellers of genuine handloom shawls are thus compelled to leave the market, while those selling the similar shawls at low prices are content with the status quo, thus leading to market failure.

It is practically quite impossible for a genuine handloom shawl to be sold at such low prices. Handloom products do not come cheap because they are painstakingly made by artisans who put in time and effort. Handloom weaving is an art that requires distinct skills and precise coordination between hands, eyes and feet. Handlooms allow weavers to create new motifs and patterns, and this versatility makes each product different from another. The legitimacy of the handloom sector is being diluted by the presence of imitation products, which are industrially manufactured and sold at comparatively cheaper rates, as opposed to handloom products, which are operated by trained craftsmen. According to a manufacturer of Pashmina shawls, “Power looms can produce 15 shawls per day while a handloom can barely produce two shawls per day. It also reduces manpower, hence the number of handlooms in the (Kashmir) valley is on the decline.” (Wasif, 2017)[1]  This is true for most handloom products. The proliferation of power loom-made imitation products is threatening the livelihood of weavers who have been keeping the craft alive for ages, and leading to a decline in employment opportunities in the handloom sector. Every job created in the power loom sector displaces 14 handloom weavers (Deshpande, 2018)[2]. As per the Fourth All India Handloom census 2019-20, there are approximately 31 lakh handloom worker households, of which 21 lakh earn less than five thousand rupees monthly. The artisans have no choice but to either look for ways to earn additional income, or altogether leave the profession and give up the craft that has been in their family for generations, to eke out a decent livelihood. Younger generations are being discouraged from taking up the work that has been in their family for generations.


The production capacity of handloom product imitations has increased at the cost of the quality of genuine handloom products. Authentic handlooms products like sarees and shawls are passed down in families over generations, reflecting their durability and unique charm. Still, the same does not hold good for a mass-produced product. The Hank Yarn Obligation Scheme is a Government initiative that attempts to “ensure that the yarn in hank form is available in adequate quantity at reasonable prices to the handloom industry.” This yarn was made available to handloom weavers at subsidised rates. However, large quantities of this yarn meant exclusively for handloom weavers is cornered illegally by the power loom sector, leading to a further decrease in the wages of handloom spinners and weavers. (Deshpande, 2018)[3]

Each handloom product derives its quality, aesthetics and prestige from its geographical origins. Unique environmental conditions and local traditions from their particular regions of origin that maintain the uniqueness of a product are called Geographical Indications(GI), which helps in protecting and preserving the legacy of that product. The Geographical Indications of Goods Act, 1999 was brought into force in 2003 and as of 2019, fifty-three different varieties of handloom sarees, fabrics and embroidery crafts have been registered under it. Another such provision has been the Handloom Mark, an initiative by the Government of India to provide a collective identity to the handloom products that guarantee the authenticity of the product. The GI tag and the Handloom mark serve as signals: actions that sellers take in order to prove the quality or authenticity of the product to the consumers. However, GI has not mitigated the infiltration of imitation products in the handloom market. “Despite managing to secure a GI tag, imitation of our work has not come to an end. This situation, paired with a lack of public knowledge, is aiding impostors in stealing our know-how, thereby putting our looms out of business. Most people cannot distinguish between original and fake products. Thus power looms are doing brisk business,” observes a weaver from Pedana, Andhra Pradesh. (Vaishali, 2020)[4]. The very fact that imitation products exist in the handloom market is a testament to the prized value of a handloom product. Producers of imitation handlooms are essentially free-riders in the handloom market; they can benefit from the provisions given to handloom products and the superior merit of handlooms without actually undertaking the painstaking process of producing a genuine handloom product, and without facing legal consequences. While the Handloom Reservations Act of 1985 gives provisions for those with the GI tag to take legal actions against those engaging in piracy of their product, handloom weavers neither have the knowledge to navigate through the legal domain nor have the resources to hire lawyers. Under the Act, certain products were reserved for exclusive manufacture by handlooms. Violation of these reservations by influential actors in the power loom sector has added to the woes of the handloom sector. Government authorities need to take piracy more seriously and take stringent action against those engaging in the production and sale of imitation products.  


Darjeeling Tea, which was the first Indian product to receive GI tag, is a model for the success of Geographical indications. The tea fetches a premium price, and the benefits even trickle down to the tea growers. The tea board of India has also hired a world-wide watch agency that monitors and reports cases of unauthorised use and any other attempt to register other products under the brand name ‘Darjeeling’.[5] The handloom sector too could take up a similar model and either hire such a company or set up an external and independent non-governmental agency to keep a check on piracy and weed out the “lemons”. Adopting policies and marketing methods from products that benefited from Geographical Indications can help fix the loopholes while dealing with Geographical Indications for handlooms. 

While understanding and appreciating traditional crafts is the first step to keeping age-old crafts alive, one must also question where a specific product has come from, who has made it, and how it was made. It is important for policy-makers to understand handloom production beyond trade and marketing. Welfare policies for handloom weavers will be effective only when every member involved in the handloom production value chain from the cotton growers and sericulturists to those who dye the yarn and other such allied workers is empowered, and the value chain is strengthened. Government or the industry bodies have to devise a reliable and verifiable system to separate fakes from genuine handloom products produced in specified geographies. Such a system would result in the creation of a market for authentic products. Existing policies need to be evaluated and altered to suit the needs of every individual engaged in the handloom weaving process. A collective shift from appreciation and sympathy to action is the need of the hour. 



By Ananya Vhavle and Vijaya Krishnappa


Resources:

  [1] Wasif, Qazi. “Organically Collected and Hand-Woven: All You Need to Know About

Kashmir's Famous Pashmina.” The Better India, 28 Oct. 2017,

www.thebetterindia.com/119531/all-you-need-to-know-about-kashmirs-famous-pashmina/.


[2] Deshpande, Neeta. “Weavers Bear the Brunt as Powerlooms Displace the Handloom

Sector.” The Wire, 7 Aug. 2018, thewire.in/labour/weavers-bear-the-brunt-as-powerlooms-

displace-the-handloom-sector.


[3] Deshpande, Neeta. “Weavers Bear the Brunt as Powerlooms Displace the Handloom

Sector.” The Wire, 7 Aug. 2018, thewire.in/labour/weavers-bear-the-brunt-as-powerlooms-

displace-the-handloom-sector.


[4]  Vaishali, Ritika Arun. “Despite GI Tag, Work Duplication a Major Concern, Rue Pedana's

Handloom Artisans.” The New Indian Express, The New Indian Express, 9 Feb. 2020,

www.newindianexpress.com/cities/vijayawada/2020/feb/09/despite-gi-tag-work-duplication-a-major-concern-rue-handloom-artisans-2101062.html.


[5] “Geographical Indication (GI) Protection Darjeeling Tea.” SourceTrace Systems, 26 July

2019, www.sourcetrace.com/blog/protecting-gi-darjeeling-tea/.

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