Reviving Khadi in India

Government Support to Khadi

The GoI had been providing huge subsidies and grants to the Khadi sector. Khadi was given a rebate¹¹ of Rs. 1.49 billion and Rs. 1.4 billion in 1998-99 and 1999-2000 respectively. In 2000-2001, funds to the tune of Rs. 1.29 billion were released for the same. During the same time, concerted efforts were made to root out corruption in the payment of rebate. Regular vigilance raids were conducted in various parts of the country to detect malpractices in claiming of Khadi rebates and to distinguish between genuine and bogus Khadi and village industries. In May 2000, the Ministry of Small Scale Industries announced a special package of Rs.12.15 billion for KVIC. Of this, Rs.0.3 billion had been allocated for renovation of the existing outlets, while Rs 0.4 billion was sanctioned for promotional activities.

Though the GoI provided huge financial assistance to KVIC, the funds did not produce the desired result. It was also being felt that the structure of KVIC needed to be changed to enable it to face the challenges of globalization.

Therefore, in 2000, the global consulting firm, Arthur Anderson was hired to suggest restructuring strategies for KVIC.

According to the report, submitted to the Ministry of Small Scale Industries, KVIC should be a policy-making body and play a strategic role rather than being involved in the operations. It also suggested that KVIC should be made a market-oriented organization, and given the freedom to decide on the issues of rebate.

In order to improve the marketing and retailing aspects of the sector, it was proposed that an independent marketing company be formed, which would be disintegrated from the existing Khadi and village industries structure. This company would also deal with improvements in the quality of products, packaging and marketing. It also recommended that the special rebate on Khadi products be made available in the first week of every month, instead of the usual 90-day period after the month of October.

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11] These rebates are the discounts given by the Khadi outlets to the consumers, which can be later claimed back from
the KVIC.

Case Details

Case Code : BSTR055
Themes: Corporate Restructuring
Case Length : 9 Pages
Period : 1985-2003
Organization : Minister for Small Scale Industries
Pub Date : 2003
Teaching Note : Not Available
Countries : India
Industry : SSI

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