Performance and prospects for the Indian man - made fibers industry

Abstract

This thesis has comprehensively studied various aspects of the man-made fibres industry like demand, cost conditions, profitability, investment and financial decisions. It has also probed in-depth into the factors responsible for the growth of this industry in India. The impact of various structural characteristics such as concentration and vertical integration on performance of this industry were studied. The period of study was 1950 to 1977. Data on nineteen Firms was collected from the Bombay Stock Exchange Directory. The other main source of data was Handbook of Statistics on Cotton Textile Industry. The firms were classified into two groups namely, cellulosic and non-cellulosic (petro-chemical based). There were seven firms in the first group and twelve in the second group. The Firms in the second group were further classified into polyester and nylon manufacturing Firms. The analysis was carried out by using various econometric and statistical techniques. Both time series and cross-section estimates were made. The main findings of the research are listed below: 1. It was observed that both absolute as well as relative concentration has declined with the passage of time for cellulosic, and petro-chemical based groups. 2. The three sets of measures used to quantify concentration gave consistent rankings for all groups as tested by Kendall’s coefficient of concordance statistic. 3. There was also a decline in the degree of vertical integration over time in all the groups. 4. It was estimated that the share of synthetic fibres in the total man-made fibres demand is likely to increase with the passage of time indicating more popularity fibres relative to cellulosic fibres. 5. The analysis of demand and its forecast revealed that the production targets of 191.00, 34.00 and 66.00 million kgs. for viscose, nylon and polyester envisaged by the plan document will fall short of demand by 27.00, 0.25 and 20.81 million kgs. respectively for the period 1982-83. 6. It was also observed that there is likely to be a gap between the demand and supply of raw materials to satisfy the demand for fibres as projected by the study. 7. The long-run average cost curves of the cellulosic and nylon group of fibres were tending towards ‘L’ shaped curves. 8. The least cost size of Firms in the cellulosic end nylon groups was estimated to be 14 and 6.6 thousand tonnes respectively. Further, there was only one firm close to the least cost size for nylon and two firms were above the least cost size for cellulosic group. In both the groups the rest of the firms were below the least cost size. 9. Direct manufacturing expenses, depreciation cost and administration and general expenses were the common sources of economies of scale for both cellulosic and nylon group of fibres. However, in addition to these items, wages and salaries in the case of cellulosic group and stock consumed in the case of nylon group contributed to the economies of scale. 10. The reason for the decline in profitability of the industry since 1975-76 seemed to be heavy incidence of excise duty. 11. It was interesting to observe that the decline in profitability of those nylon manufacturing firms which are close to least cost size of 6.6 thousand tonnes was less in comparison to those firms which were very much below it. The same phenomenon was again observed in cellulosic group except for one case. 12. The degree of vertical integration and concentration ratio had a positive -nu significant impact on profitability of the cellulosic group. 13. In case of petro-chemical based group of fibres, the impact of only concentration ratio on profitability was found to be significant. The relationship of profitability and vertical integration was found to be positive, but insignificant. 14. The impact of accelerator variable on fixed investment was positive and insignificant. However, financial variables had a significant influence on investment and the direction of causation was also positive. 15. The accelerator variable with a lag had significant and positive impact on inventory investment which implied that the process of inventory adjustment to e change in Salas was not instantaneous. 16. The internal source of fund and inventory investment had a significant and positive relationship. 17. The basic Lintner model explained the dividend behaviour of the industry. 18. The stock of previous year's debt and the fixed investment governed the borrowing behaviour of the industry. 19. The interdependence between financial and investment decisions as analysed by Two Stage Least Square estimates indicated that although the financial variables had little impact on investment decisions (except in case of inventory investment), the external finance decisions were governed to a large extent by investment.

The thesis also discussed the implications or the above findings on various policy issues.